Section 14A: Method for determining amount of expenditure in relation to income not includible in total income.

NOTIFICATION NO 45/2008, Dated: March 24, 2008

In exercise of the powers conferred by Section 295 of the Income-tax read with sub-section (2) of Section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income Tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2008.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income Tax Rules, 1962, after rule 8C, the following rule shall be inserted, namely:-

“Method for determining amount of expenditure in relation to income not includible in total income.
8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-

(a) the correctness of the claim of expenditure made by the assessee; or

(b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:-

(i) the amount of expenditure directly relating to income which does not form part of total income;

(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-

A x B
C

Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year;

B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;

C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;

(iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.”

3. For the purposes of this rule, the ‘total assets’ shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.

F.No. 134/09/2007-TPL

(Sambit Tripathy)
Under Secy.

Note: The principal rules were published vide notification number S.O. 969(E), published in the Gazette of India, Part-II, Section 3, Sub-section (ii) dated the 26th March, 1962 and last amended by Income-tax (Fourth Amendment) Rules, 2008 vide Notification No. S.O. 493(E) dated 13th March, 2008.