ASSIGNMENT

ON

PRINCIPLES OF TAXATION

FACULTY OF LAW

SGT UNIVERSITY, GURUGRAM

SUBMITTED TO:- SUBMITTED BY:-

Mrs Shradda Oberoi Sumit Tanwar

Assistant professor BA LLB 8TH SEM

161201008
Q1. X leaves from India on 5th July 2020, assess the income of x.?

Ans. (1) 2019-2020 will be assessment year for 2018-2019 which is previous year

(2) 2019-2020 will be previous year for 2020-2021 which is assessment year but he is
leaving India before that only therefore we will assess his inconvenience 2019-2020 in 2019-
2020 only that means previous year will assessment year only.

(3) till 5th July that 3 months and 5 days of financial year 2020-2021. Now accordingly
this income should be assessed in 2021-2022 but since he is leaving therefore this also we
will assess in 2019-2020.

Q2. Explain the concept of agriculture income? What are agriculture purposes?
Explain it with case laws?

Ans. Definition of agriculture income section 2(1A)

Agriculture income includes the following:

1. any rent or revenue derived from land which is situated in India and is used for
agricultural purposes [sec. 2(1A)(a)];
2. any income derived from such land by agricultural operations including processing of the
agricultural produce, raised or received as rent-in-kind so as to render it fit for the market,
or sale of such produce [sec. 2(1A)(b)]; and
3. income attributable to a farm house subject to the condition that the building is situated
on or in the immediate vicinity of the land and is used as a dwelling house, storehouse, or
other out-building and the land is assessed to land revenue or a local rate or, alternatively,
the building is situated on or in the immediate vicinity of land which (though not assessed
to land revenue or local rate) is situated in a rural area [sec. 2(1A)(c)].

Section 10(1) exempts agriculture income from income tax. Agriculture income is exempt
from tax by virtue of Section 10(1). By virtue of Section 2(1A) the expression Agriculture
Income means:

1. Any rent or revenue derived from land, which is situated in India and is used for
agriculture purpose.

 Rent or revenue should be derived from land (may be in cash or kind).

 The land should be in India.
 The land should be for agriculture purpose.

2. Any income derived from such land by agricultural operations including processing of the
agriculture produce, raised or received as rent-in- kind so as to render it fit for the market
or sale of such products.
 3. Income is attributable to a farmhouse subject to certain conditions.
 The building should be occupied by a cultivator (as a landlord or tenant).
 He should be in the immediate vicinity of agriculture land.
 The building is used as a dwelling house or as a storehouse or other outbuilding.
 The land is assessed to land revenue or local rates or alternatively, the land is situated
outside “urban areas” i.e. any area which is comprised within the municipality jurisdiction
having a population of not less than 10,000 persons or within 8 km from the limits of any
such municipality

Case: CIT vs. Raja Benoy Kumar Sahas Roy, 1957 Bhagwati J laid down the scope of
terms of “agriculture & agriculture purposes”.

Basic operation- prior to germination some basic operation are essential to constitute
agriculture such as expenditure of human skills & labour upon the land itself is not merely on
the growth from the land. E.g. sourcing of seeds, planting, titling of land.

Subsequent operation: these are operation which is performed after the produce sprout from
the land. E.g. weeding, digging of soil around the growth, removal of undesirable growth

Q3. What are perquisites? Mention the perquisites not chargeable to tax?

Ans. Perquisites are benefits received by a person as a result of his/her official position and
are over and above the salary or wages. These fringe benefits or perquisites can be taxable or
non-taxable depending upon their nature.
A lot of benefits and perks which come in addition to an individual’s salary are grouped
under fringe benefits or perks. These components are taxed separately from the employer’s
account so as to maintain transparency and accountability.
Classification of Perquisites:
Depending upon the tax that is levied on perquisites these can be classified into the following
three heads.
 Taxable Perquisites:
Some of the perquisites that are taxable in nature are rent-free accommodation, supply of
gas, water and electricity, professional tax of employee, reimbursement of medical
expense, and salary of servant employed by employee. Taxable perquisites also include any
other fringe benefit provided by employer to employee like free meals, gifts exceeding
Rs.5000, club and gym facilities etc.
 Exempted Perquisites:
Non-taxable fringe benefits include travel allowance, computer or laptop provided by the
company for official use, refreshment provided by employer during office hours, provision
of medical aid, use of health club, sports club, telephone lines, interest free salary loan
provided by employer to employees, contribution to provident fund by employers, free
medical and recreational facilities and so on.
 Q4. How income is clubbed in case of minor child and remuneration of spouse?

Ans. meaning of clubbing of income

 Normally, a person is taxed in respect of income earned by him only. However, in certain
special cases income of other person is included (i.e. clubbed) in the taxable income of the
taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as
well as income of other person too. The situation in which income of other person is included
in the income of the taxpayer is called as clubbing of income. E.g., Income of minor child is
clubbed with the income of his/her parent. Section 60 to 64 contains various provisions
relating to clubbing of income.
In case of minor child..

Income of minor child is clubbed with the income of his/her parent . Income of minor child
earned on account of manual work or any activity involving application of his/her skill,
knowledge, talent, experience, etc. will not be clubbed with the income of his/her parent.
However, accretion from such income will be clubbed with the income of parent of such
minor. As per section 64(1A)
Income of minor will be clubbed with the income of that parent whose income (excluding
minor’s income) is higher.
If the marriage of parents does not sustain, then minor’s income will be clubbed with the
income of parent who maintains the minor.
In case the income of individual includes income of his/her minor child, such individual can
claim an exemption under section 10(32)) of Rs. 1,500 or income of minor so clubbed,
whichever is less.
Provisions of section 64(1A) will not apply to any income of a minor child suffering from
disability specified under section 80U. In other words income of a minor suffering from
disability specified under section 80U will not be clubbed with the income of his/her parent.
Illustration
Mr. Raja has two minor children, viz., Master A and Master B. Master A is a child artist and
Master B is suffering from diseases specified under section 80U. Income of A and B are as
follows:
 Income of A from stage shows: Rs. 1,00,000
 Income of A from bank interest: Rs. 6,000
 Income of B from bank interest: Rs. 1,20,000.
Will the income of minor children be clubbed with the income of their parent (Mrs. Raja is
not having any income)?
As per section 64 (1A) incomes of minor children is clubbed with the income of that parent
whose income (excluding minor’s income) is higher. In this case, Mrs. Raja is not having any
income and, hence, if any income is to be clubbed then it will be clubbed with the income of
Mr. Raja. 
Income of minor child earned on account of manual work or income from the skill,
knowledge, talent, experience, etc., of minor child will not be clubbed with the income of
his/her parent. Thus, income of A from stage show will not be clubbed with the income of
 Mr. Raja but income of A from bank interest of Rs. 6,000 will be clubbed with the income of
Mr. Raja.
Income of a minor suffering from disability specified under section 80Uwill not be clubbed
with the income of his/her parent. Hence, any income of B will not be clubbed with the
income of Mr. Raja.
The taxpayer can claim an exemption under section 10(32)). Thus, in respect of interest
income of Rs. 6,000 clubbed in the income of Mr. Raja, he will be entitled to claim
exemption of Rs. 1,500 under section 10(32)), hence, net income to be clubbed will be Rs.
4,500 (i.e., Rs. 6,000 – Rs. 1,500).  Deductee files a declaration with the deductor and the
deductor reports the tax deduction in the name of the other person in the information relating
to deduction of tax referred to in sub-rule (1) of rule 37BA.
In case of remuneration of wife. Section 64(1) (ii)

Under certain circumstances as given in section 64(1) (ii), remuneration (i.e., salary) received
by the spouse of an individual from a concern in which the individual is having substantial
interest is clubbed with the income of the individual. Provisions in this regard are as follows:
 The individual is having substantial interest in a concern .
 Spouse of the individual is employed in the concern in which the individual is having
substantial interest.
 The spouse of the individual is employed without any technical or professional
knowledge or experience
  An individual shall be deemed to have substantial interest in any concern, if such
individual alone or along with his relatives beneficially holds at any time during the previous
year 20% or more of the equity shares (in case of a company) or is entitled to 20% of profit
(in case of concern other than a company).
Relative for this purpose includes husband, wife, brother or sister or lineal ascendant or
descendent of that individual [section 2(41)]. 
Illustration A
Mr. Raja is beneficially holding 21% equity shares of Essem Minerals Pvt. Ltd. Mrs. Raja are
employed as Manager (in accounts department) in Essem Minerals Pvt. Ltd. at a monthly
salary of Rs. 84,000. Mrs. Raja is not having any knowledge, experience or qualification in
the field of accountancy. Will the remuneration (i.e., salary) received by Mrs. Raja be
clubbed with the income of Mr. Raja?
In this situation, Mr. Raja is having substantial interest in Essem Minerals Pvt. Ltd. and
remuneration of Mrs. Raja is not justifiable (i.e., she is employed without any technical or
professional knowledge or experience) and, hence, salary received by Mrs. Raja from Essem
Minerals Pvt. Ltd. will be clubbed with the income of Mr. Raja and will be taxed in the hands
of Mr. Raja.
Illustration B
Mrs. Kumar is beneficially holding 25% equity shares of SM Construction Pvt. Ltd. Mr.
Kumar is an architect and he is employed as site observer of one of the construction sites of
the SM Construction Pvt. Ltd. at a monthly salary of Rs. 28,400. The remuneration received
by Mr. Kumar is justifiable considering his knowledge, experience and qualification. Will the
remuneration received by Mr. Kumar be clubbed with the income of Mrs. Kumar because she
is having substantial interest in SM Construction Pvt. Ltd.?
In this situation, Mrs. Kumar is having substantial interest in SM Construction Pvt. Ltd., but
Mr. Kumar is deputed on the basis of his knowledge, experience and qualification and, hence,
remuneration paid to him is justifiable. The clubbing provisions of section 64(1)(ii) apply
only in a case where spouse is deputed without any technical or professional knowledge or
experience. In this case, the remuneration of spouse is justifiable; hence, salary received by
Mr. Kumar will not be clubbed with the income of Mrs. Kumar but will be taxed in his
hands. 
Q5.what are the penalties for tax evasion..?
Ans. Tax evasion is defined as the illegal non-payment or under payment of tax by an
individual.

The Oxford dictionary defines tax as: ‘A compulsory contribution to state revenue, levied
by the government on workers’ income and business profits, or added to the cost of some
goods, services, and transactions.’

Pay attention to the words ‘contribution to state revenue’, that is the main crux of tax.
When the state revenue receives the requisite capital from tax collection, then only can the
state spend it to build public infrastructure such as dams, bridges, roads, highways, railway
tracks and provide public services such as banking, healthcare, essential goods and services.
Other uses of tax money include the upkeep of the armed forces, emergency public spending
(storms, tsunamis, riots), and the payment of government employees’ salaries.

Following are the different Tax Evasion Punsihments/Penalties:

 Not Filing Income Tax Returns

If a taxpayer is required to file income tax returns before the due date as required under

139, subsection (1) of Income Tax Act and fails to do so, the assessing officer can impose
a penalty of INR 5,000 or more.

 Failure to Pay Tax as Self-Assessment

As per Section 140 A (1) of the Income Tax Act, if a taxpayer fails to pay wholly or

partly—self-assessment tax or interest and fee or both, the taxpayer is declared as a

defaulter. The assessing officer can as per Section 221(1) declare the taxpayer as a

defaulter and impose a fine that does not exceed the tax in arrears. However, if the

taxpayer is able to provide sufficient proof for default, the assessing officer can exempt

the taxpayer from paying the penalty.

 Failure to Comply with Demand Notice If a taxpayer receives a demand notice asking

for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and
 department mentioned in the notice. Failure to do so will result in further penal provisions

and the taxpayer will be treated as a defaulter.

 Failure to Get Accounts Audited If a taxpayer receives a demand notice asking for tax

payment, the taxpayer has to pay the requisite amount in 30 days to the name and

department mentioned in the notice. Failure to do so will result in further penal provisions

and the taxpayer will be treated as a defaulter. Section 92(E) requires the taxpayer to

furnish a report from the taxpayer. Failure to do so will incur a penalty of INR 1lakh or

more. If any document is not furnished or attached, a penalty of 2% of the transaction’s

value (international or domestic) is levied, this is under Section 92(D)3.

 Concealment of Income Income concealment to not pay tax is a disease that needs

eradication before its effect throws the economy into a downward spiral. Under section

271(C) of Income Tax Act, there is a 100% to 300% penalty of the tax evaded if someone

is caught concealing tax. The tax evasion penalty varies under certain conditions.

 If the taxpayer admits to the concealed tax, he or she will have to pay 10% of the

previous year’s undisclosed income along with interest.

 If the taxpayer does not disclose the undisclosed amount but does so in the return of

income furnished in the previous year, 20% penalty of the undisclosed amount along

with an interest is levied.

 If the previous year’s amount is undisclosed, the minimum penalty that can be levied

is 30% and the maximum is 90%.

Failure to comply with Income Tax notice When the Income Tax department issues a tax

notice, the recipient taxpayer has to comply. Failure to comply enables the assessing officer

to send a notice under Section 142(1) or 143(2) asking the taxpayer to:

 File the return of income.

 Furnish in writing all details of assets and liabilities.

 
Q6. Write a note on income tax authorites under the income tax act, 1961?

Income tax authority [Explanation (a) to section 133A]:

"Income-tax authority" means a Commissioner, a Joint Commissioner, a Director, a Joint

Director, an Assistant Director or a Deputy Director or an Assessing Officer, or a Tax
Recovery Officer, and for the purposes of clause (i) of subsection (1), clause (i) of sub-
section (3) and sub-section (5), includes an Inspector of Income-tax.

1.1. Various Authorities

Section of the Income Tax Act, 1961 provides for the administrative and judicial authorities
for administration of this Act. The Direct Tax Laws Act, 1987 has brought far-reaching
changes in the organizational structure. The implementation of the Act lies in the hands of
these authorities. The change in designation of certain authorities and creation of certain new
posts in the structure are the main features of amendments made by The Direct Tax Laws
Act, 1987. The new features of authorities have been properly depicted in a chart on the
facing page. These authorities have been grouped into two main wings:

(i)  Administrative [Income Tax Authorities] [Sec. 116]

a. the Central Board of Direct Taxes constituted under the Central Boards of Revenue
Act, 1963 (54 of 1963),
b. Directors-General of Income-tax or Chief Commissioners of Income-tax,
c. Directors of Income-tax or Commissioners of Income-tax or Commissioners of
Income-tax (Appeals),
1. (cc) Additional Directors of Income-tax or Additional Commissioners of
Income-tax or Additional Commissioners of Income-tax (Appeals),
2. (cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax.
d. Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy
Commissioners of Income-tax (Appeals),
e. Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
f. Income-tax Officers,
g. Tax Recovery Officers,
h. Inspectors of Income-tax.

(ii) Assessing Officer [Sec. 2(7A)]

"Assessing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant

Director or Deputy Director or the Income-tax Officer who is vested with the relevant
jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of
section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director
who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or
any of the powers and functions conferred on, or assigned to, an Assessing Officer under this
Act;
Importance of Assessing Officer:
In the organizational setup of the income tax department Assessing Officer plays a very vital
role. He is the primary authority who initiates his proceedings and is directly connected with
the public. Form the time of filing of return till the assessement is completed he plays a
pivotal role. He can start proceedings for non filing of return, imposition of penalties etc.
Orders passed by him can be challenged only on approval. The department can revise his
orders only if it is proved that there are prejudicial to the revenue and that too only by the
Commissioner of Income Tax.

(iii)  Appointment of Income-Tax Authorities [Sec. 117]

1. Power of Central Government: The Central Government may appoint such persons

as it thinks fit to be income-tax authorities. It kept with itself the powers to appoint
authorities upto and above rank of an Assistant Commissioner of Income-Tax [ Sec.
117 (1) ]
2. Power of the Board and Other Higher Authorities:  Subject to the rules and orders
of the Central Government regulating the conditions of service of persons in public
services and posts, the Central Government may authorize the Board, or a Director-
General, a Chief Commissioner or a Director or a Commissioner to appoint income-
tax authorities below the rank of an Assistant Commissioner or Deputy
Commissioner.  [ Sec. 117 (2) ]
3. Power to appoint Executive and Ministerial Staff :  Subject to the rules and orders
of the Central Government regulating the conditions of service of persons in public
services and posts, an income-tax authority authorized in this behalf by the Board may
appoint such executive or ministerial staff as may be necessary to assist it in the
execution of its functions.

(iv) Control of Income-Tax Authorities [Sec. 118]

The Board may, by notification in the Official Gazette, direct that any income-tax authority
or authorities specified in the notification shall be subordinate to such other income-tax
authority or authorities as may be specified in such notification.

Q7.Explain tax deduction at source? Explain TDS from salary and winnings from
lotteries?

Ans TDS is the amount of tax which is deducted by the employer or deductor of an assessee
and is deposited to the Income Tax Department on behalf of him/her. The TDS rates are set
on the basis of the age bracket and income of different individuals.
What is TDS?
TDS Full Form is Tax is deducted at Source. According to the Income Tax Act 1961, a
specific amount is reduced when a certain payment like salary, commission, rent, interest,
professional fees, etc. is made. The person who makes the payment deducts tax at source, and
the person who receives a payment/income has the liability to pay tax. It lowers tax
evasion because tax will be collected at the time of making a payment
Example of TDS
Let’s assume that a start-up company called ABC Pvt. Ltd. pays Rs.90, 000 as rent every
month to whoever owns the property. The TDS applicable to the amount is 10%, so the
 company must subtract Rs.9,000 and pay Rs.81,000 to the property owner. In this case, the
owner of the property will receive Rs.81,000 following TDS. The owner can add the gross
amount of Rs.90,000 to his income, thereby allowing him to take credit of the Rs.9,000 that
has already been deducted by ABC Pvt. Ltd.
Types of TDS
Here are some of the income sources that qualify for TDS:
 Salary
 Amount under LIC
 Bank Interest
 Brokerage or Commission
 Commission payments
 Compensation on acquiring immovable property
 Contractor payments
 Deemed Dividend
 Insurance Commission
 Interest apart from interest on securities
 Interest on securities
 Payment of rent
 Remuneration paid to director of the company, etc.
 Transfer of immovable property
 Winning from games like a crossword puzzle, card, lottery, etc.
How to File TDS Returns?
In order to file your TDS returns, there are few things you must ensure. They are as follows:
 Have a valid TAN (Tax Deduction and Collection Account Number) and make sure it
is registered for e-filing
 Prepare your TDS statements using Return Preparation Utility before validating the
same using File Validation Utility
 You must have a valid Digital Signature Certificate that is registered for e-Filing in
case you want to upload your returns using DSC
 Provide the demat account or bank account details of your principal contact, or ensure
that his/her PAN is linked with his/her Aadhaar in case you want to upload your returns
using Electronic Verification Code

Q8. Explain inter source adjustment and inter head adjustment? Also explain with case
laws what are the losses that can be carried forward to next financial year?

Ans. Taxpayers earn income from salary, house property, business or profession, capital
gains and income from other sources. There cannot be a loss from salary and income from
other sources. However, we could suffer losses under other heads of income such as loss
from house property, business loss and capital loss.

Adjusting loss from one head against any gain under the same head is called 'inter-source'
adjustment. For example: You have two businesses 'A' & 'B'. Business 'A' is making a loss,
while business 'B' is making profit. Then, the loss from business 'A' can be set-off against
 profit from business 'B'. Set-off means the process of reducing one’s income using losses
under other heads or same head of income.
Similarly, if you have two house properties, one self occupied and the other on rent. Loss
from the first property can be adjusted against the income from the second property.

If the losses cannot be set-off fully through inter-source adjustment, they can next be set-
off against other heads of income. This is called “inter-head” adjustment.

 Inter-source adjustment: Setting-off loss under the same head of income.

 Inter-head adjustments: If the loss is still existing, loss can be set-off from other
heads of income (subject to certain restrictions).
 Carry forward of losses: If loss still persists, the same can be carried forward to
the subsequent assessment years.
 However this inter-source adjustment is subject to certain exceptions listed below:
Exception Description
1 Loss in a Loss from speculation business cannot be set-off against any income other
speculation than a speculative income.
business
2 Long term capital Long term capital loss can be set-off against long term capital gains only.
loss
3 Loss from the Loss incurred from the activity of owning & maintaining race horses can be set-off
activity of owning only against income from such business & not against any other income.
& maintaining race
horses
4 Business loss Business losses cannot be set-off against salary income
5 Loss cannot be set A loss under any head of income cannot be set off against winnings from lotteries,
off against crossword puzzles, races (including horse races), card games or any other games of
winnings from any sort or from gambling or betting of any form or nature.
lotteries, crossword
puzzles etc.

Except the above five cases, any loss can be set-off against any income from that source.
For instance: Loss from house property can be set off against income from any other house
property.

Loss from a non speculation business can be set off against income from speculation or
non speculation business. Short term capital gain can be set off against any capital gains
whether long term or short term.
Income from other sources (except loss from activity of owning & maintaining race
horses) can be set off against any income other than winnings from lotteries etc.
(Mentioned in exception 5 in the table).
 Carry forward of losses:

If still the losses cannot be set-off fully through inter-head adjustment, they can be carried
forward to the next years. However, the loss so carried forward can be set-off only against
same head of income, i.e. the benefit of “inter-source’ adjustment is lost.
Nature of loss No. To be set-off against
of
year
s
Loss from house property 8 Income from house property
Business loss (non-speculative) 8 Business loss (non-speculative)
Speculative business loss 4 Income from speculative business
Loss from activity of owning and  4 Income from the same activity
maintaining of race horses
Short term capital loss 8 Short term or Long term capital gains
Long term capital loss 8 Long term capital loss

Q9.difference between direct tax and indirect tax & capital receipt and
revenue receipt
Ans .
BASIS FOR
DIRECT TAX INDIRECT TAX
COMPARISON

Meaning Direct tax is Indirect Tax is referred to as the

referred to as the tax, levied on a person who
tax, levied on consumes the goods and services
person's income and is paid indirectly to the
and wealth and is government.
paid directly to the
government.

Nature Progressive Regressive

Incidence and Falls on the same Falls on different person.

Impact person.

Types Wealth Tax, Income Central Sales tax, VAT (Value

 BASIS FOR
DIRECT TAX INDIRECT TAX
COMPARISON

Tax, Property Tax, Added Tax), Service Tax, STT

Corporate Tax, (Security Transaction Tax), Excise
Import and Export Duty, Custom Duty.
Duties.

Evasion Tax evasion is Tax evasion is hardly possible

possible. because it is included in the price of
the goods and services.

Inflation Direct tax helps in Indirect taxes promotes the

reducing the inflation.
inflation.

Imposition and Imposed on and Imposed on and collected from

collection collected from consumers of goods and services
assessees, i.e. but paid and deposited by the
Individual, HUF assessee.
(Hindu Undivided
Family), Company,
Firm etc.

Burden Cannot be shifted. Can be shifted

Event Taxable income or Purchase/sale/manufacture of

wealth of the goods and provision of services
assessee
CAPITAL RECEIPT AND REVENUE RECEIPT.

BASIS FOR
CAPITAL RECEIPT REVENUE RECEIPT
COMPARISON

Meaning Capital Receipts are the Revenue Receipts are the

income generated from income generated from
investment and financing the operating activities of
activities of the business. the business.

Nature Non-Recurring Recurring

Term Long Term Short Term

Shown in Balance Sheet Income Statement

Received in Source of income Income

exchange of

Value of asset or Decreases the value of asset Increases or decreases the

liability or increases the value of value of asset or liability.
liability.

Q10. What is foreign income and Indian income?

Ans. Indian Income 

Any of the following three is an Indian income:

i) If income is received (or deemed to be received) in India during the previous year and at
the same time it accrues (or arises or is deemed to accrue or arise) in India during the
previous year;

ii) If income is received (or deemed to be received) in India during the previous year but it
accrues (or arises) outside India during the previous year;

iii) If income is received outside India during the previous year but it accrues (or arises or is
deemed to accrue or arise) in India during the previous year;
Foreign income 

If the following conditions are satisfied, then such income is foreign income:

i)   Income is not received (or not deemed to be received) in India; and

ii) Income does not accrue or arise (or does not deemed to accrue or arise) in India.