Interpretation
189
In this Chapter, unless the context otherwise requires,—
- (a) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 applies and includes any bank or banking institution referred to in section 51 of that Act;
- (b) “primary agricultural credit society”, and “primary co-operative agricultural and rural development bank” shall have the meanings respectively assigned to them in section 149(6);
- (c) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place;
- (d) “specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.
Explanation
Section Summary:
Section 189 provides definitions for key terms used in the chapter of the Income Tax Act. These definitions are essential for interpreting and applying the provisions related to specific transactions, particularly those involving immovable property and certain types of financial institutions.
Key Changes:
- Introduction of "specified sum" and "specified advance": These terms are newly defined to clarify the treatment of sums received in connection with the transfer of immovable property, whether or not the transfer is ultimately completed.
- Clarification of "banking company": The definition aligns with the Banking Regulation Act, 1949, ensuring consistency with existing banking laws.
- Definitions for agricultural and rural development entities: Terms like "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" are explicitly defined, referencing section 149(6) for clarity.
Practical Implications:
- For taxpayers involved in property transactions: The definitions of "specified sum" and "specified advance" clarify that any money received in connection with the transfer of immovable property (even if the transfer doesn’t happen) is subject to specific tax treatment. This ensures transparency and compliance in reporting such transactions.
- For financial institutions: The definitions of "banking company" and agricultural/rural development entities ensure that these organizations are correctly identified and treated under the tax law, avoiding ambiguity in their classification.
Critical Concepts:
- Specified Sum: Any amount received in connection with the transfer of immovable property, regardless of whether the transfer is completed. This includes advances or other payments.
- Specified Advance: Similar to "specified sum," but specifically refers to amounts in the nature of an advance, regardless of the name given to the payment.
- Banking Company: A company regulated under the Banking Regulation Act, 1949, including banks and banking institutions mentioned in section 51 of that Act.
- Primary Agricultural Credit Society and Primary Co-operative Agricultural and Rural Development Bank: These terms are defined by reference to section 149(6), ensuring consistency with other parts of the Income Tax Act.
Compliance Steps:
- Documentation for property transactions: Taxpayers receiving or paying "specified sums" or "specified advances" must maintain proper records, including agreements and receipts, to substantiate the nature and purpose of the payments.
- Classification of entities: Financial institutions must ensure they are correctly classified under the definitions provided to avoid misapplication of tax provisions.
Examples:
- Scenario 1: A seller receives an advance payment of ₹10 lakhs for the sale of a property. Even if the sale does not go through, this amount is considered a "specified advance" and must be reported accordingly.
- Scenario 2: A primary agricultural credit society provides loans to farmers. Under this section, it is clearly defined and treated as such for tax purposes, ensuring it benefits from any applicable exemptions or provisions.
This section ensures clarity in the interpretation of key terms, reducing ambiguity and aiding compliance for taxpayers and institutions alike.