SECTION 193 – INTEREST ON SECURITIES
1005. Whether instructions issued in 1966 to bar person responsible for paying interest from taking cognizance of tax exemption or abatement certificate issued by ITO in favour of beneficial owner of securities held by banking companies, etc., on behalf of their constituents
1. In Board’s Circular No. 2-P(XXXIV-4) of 1966, dated 16-5-1966, instructions were issued that where Government securities are registered in the name of a banking company, tax should be deducted at source from the interest at the “rates in force” applicable to the banking company irrespective of the status of the beneficial owner of the securities.
2. A question has been raised as to whether these instructions bar the person responsible for paying “interest on securities” from taking cognizance of tax exemption or abatement certificate issued by the Income-tax Officer under section 197(1), in favour of the beneficial owner of the securities. Section 199 provides that any tax deducted from “interest on securities” and paid to the Central Government shall be treated as a payment of tax on behalf of the owner of the securities. The expression “owner of the securities” occurring in section 199 would include a beneficial owner as well. Thus, a person who holds securities not in his own name but in the name of a collecting bank is entitled to apply for the grant of an abatement or exemption certificate under section 197(1). If the Income-tax Officer is satisfied, inter alia, on the basis of the application and other evidence adduced before him, that the applicant is the beneficial owner and that the collecting bank is only the nominal holder of the securities on behalf of the applicant, he will grant the appropriate certificates. At the time of payment of interest on such securities, it will be in order for the Public Debt Office to deduct tax at the rate specified in the certificates or deduct no tax, as the case may be.
3. Circular No. 2-P(XXXIV-4) of 1966 should be treated as modified to the extent mentioned above.
Circular : No. 2 [F.No. 1/164/68-TPL], dated 6-2-1969.