TAXATION LAW

a) PROVISION OF INCOME TAX, ESSAY ON IT ACT ,

HISTORY AND EVOLUTION OF TAX SYSTEM, OBJECT OF
IMPOSING TAX, IMPORTANCE, IS PRESENT LAW
SUFFICIENT, IMPOSING AND INCIDENCE OF TAX,
DIFERNECE.
ANSWER (DONE)
A. INTRODUCTION
- A tax is a legal fee or financial charge levied by the government on an individual
or an organization. This Tax is used is collected as revenue for public works done
by the government like – health infrastructure, education infrastructure, transport
services like Metro, buses, etc.

- Taxation imposes a financial obligation on its citizens or residents. The Central

and State government plays a significant role in determining the taxes in India. To
streamline the process of taxation and ensure transparency in the country, the state
and central governments have undertaken various policy reforms over the last few
years. One such change was the Goods and Services Tax (GST) related to the

delivery of goods and services in the country.

B. PROVISION OF INCOME TAX

Direct Tax: This tax is imposed directly on taxpayers and is required to be paid to the
government. It cannot be passed or assigned by an individual to another person. For
example, Income tax, is the tax applicable on the income earned by an individual or
taxpayer, or corporate tax, is the tax applicable on the profits earned by companies
from their businesses.
It is levied based on the government’s Income tax slabs, which are revised from time
to time. Not all individuals shall pay the same amount of tax; the general rule is – the
higher your income, the higher amount of tax you will have to pay
 The tax is levied not on the income, profit, or revenue but on goods and services used
by the taxpayer. Unlike direct taxes, indirect taxes can be shifted from one individual
to another.

Earlier, the list of indirect taxes imposed on taxpayers included service tax, sales tax,
value-added tax (VAT), central excise duty, and customs duty. However, with the
implementation of the goods and services tax (GST) regime from 01 July 2017, it has
replaced all forms of indirect imposed on goods and services by the state and central
governments.

C. HISTORY
- The origin of the word "Tax" is from "Taxation" which means an estimate.
- In India, the system of direct taxation as it is known today has been in force in one
form or another even from ancient times. Variety of tax measures are referred in
both Manu Smriti and Arthasastra. The wise sage advised that taxes should be
related to the income and expenditure of the subject. He, however, cautioned the
king against excessive taxation; a king should neither impose high rate of tax nor
exempt all from tax.
- According to Manu Smriti, the king should arrange the collection of taxes in such
a manner that the tax payer did not feel the pinch of paying taxes. He laid down
that traders and artisans should pay 1/5th of their profits in silver and gold, while
the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending
upon their circumstances.
- Kautilya has also described in great detail the system of tax administration in the
Mauryan Empire. It is remarkable that the present day tax system is in many ways
similar to the system of taxation in vogue about 2300 years ago.
- Arthasastra mentioned that each tax was specific and there was no scope for
arbitrariness. Tax collectors determined the schedule of each payment, and its
time, manner and quantity being all pre-determined. The land revenue was fixed
at 1/6 share of the produce and import and export duties were determined on ad-
 valorem basis. The import duties on foreign goods were roughly 20% of their
value. Similarly, tolls, road cess, ferry charges and other levies were all fixed.
- Arthasastra mentioned that each tax was specific and there was no scope for
arbitrariness. Tax collectors determined the schedule of each payment, and its
time, manner and quantity being all pre-determined..
- Taxation during Gupta Era
- Kalpita/ Upkilpta: This was sales tax which was imposed during the Gupta period.
- Halivakar/ Halidanda: This was a tax which was levied during the cultivation.
- Prataya: Toll tax levied during the Gupta Period.
- Bhog: It was the King's share of total agricultural produce.
- Bhatta: It was ‘Police Tax’ levied during Gupta Period.
- Taxation on land under British
- There were three systems of taxation on land which were introduced by the
British. These were:
- Zamindari System: was introduced through the Permanent Settlement Act, 1793.
ownership of lands were transferred to Zamindars who were authorized to collect
taxes (fixed) and pay to the British in cash.
- Ryotwari System: This system was developed by Thomas Munro in 1820 in South
India. Madras, Bombay, parts of Assam and Coorg provinces of British India
were covered under it. The ownership rights were handed over to the peasants
under this system who were entitled to pay taxes directly.
- Mahalwari System: Holt Mackenzie introduced this system in 1822 in regions
Central Province, North-West Frontier, Agra and Punjab. A unit called ‘Mahal’
was constituted of one or more villages. It was collectively liable to pay taxes.
- Taxation System under Marathas
- Chauth: Chauth’ was essentially a military contribution which paid toward any
attack of the Marhatas. It was ¼ of revenues of the district invaded by Maratha
raiders.
- Sardeshmukhi: Sardeshmukhi was an additional 10% tax which was collected
directly by the central administration of the Marathas.
 D. OBJECT OF TAXATION IN INDIA
- Economic development – Resource mobilization for economic development is
done through taxation. To step up both public and private investment, government
taps tax revenues. Through proper tax planning, the ratio of savings to national
income can be raised.
- Income redistribution through taxes is meant to reduce inequalities in the
distribution of income and wealth.
- Employment depends on effective demand. A country desirous of achieving the
goal of full employment must cut down the rate of taxes. Consequently,
disposable income will rise and, hence, demand for goods and services will rise.
Increased demand will stimulate investment leading to a rise in income and
employment through the multiplier mechanism.
- Allocation of Resources: When some industries are subjected to high taxes,
resources from the high-taxed industries will be diverted to the low-taxed ones.
- Price stability, through taxes, is an effective means of controlling inflation . By
raising the rate of direct taxes, private spending can be controlled. Thus, the
pressure on the commodity market is reduced. But, indirect taxes imposed on
commodities fuel inflationary tendencies. High commodity prices, on the one
hand, discourage consumption and, on the other hand, encourage saving. The
opposite effect will occur when taxes are lowered down during deflation.

E. IMPORTANCE
Governments impose charges on their citizens and businesses as a means of raising
revenue, which is then used to meet their budgetary demands. This includes financing
government and public projects as well as making the business environment in the
country conducive for economic growth.
Importance of Taxes in Society
Without taxes, governments would be unable to meet the demands of their societies.
Taxes are crucial because governments collect this money and use it to finance social
projects.

Some of these projects include:

 • Health: Without taxes, government contributions to the health sector would be
impossible. Taxes go to funding health services such as social healthcare, medical
research, social security, etc.
• Education: Education could be one of the most deserving recipients of tax money.
Governments put a lot of importance in development of human capital and education
is central in this development. Money from taxes is channeled to funding, furnishing,
and maintaining the public education system.
• Governance: Governance is a crucial component in the smooth running of country
affairs. Poor governance would have far reaching ramifications on the entire country
with a heavy toll on its economic growth. Good governance ensures that the money
collected is utilized in a manner that benefits citizens of the country. This money also
goes to pay public servants, police officers, members of parliaments, the postal
system, and others. Indeed, with a proper and functioning form of government, there
will be no effective protection of public interest.

Other important sectors are infrastructure development, transport, housing, etc.

 Apart from social projects, governments also use money collected from taxes to fund
sectors that are crucial for the wellbeing of their citizens such as security, scientific
research, environmental protection, etc.
 Some of the money is also channeled to fund projects such as pensions, unemployment
benefits, childcare, etc.
 Furthermore, taxes can affect the state of economic growth of a country. Taxes generally
contribute to the gross domestic product (GDP) of a country. Because of this
contribution, taxes help spur economic growth which in turn has a ripple effect on the
country’s economy; raising the standard of living, increasing job creation, etc.

 Governments also use taxes as a deterrent for undesirable activities such as the
consumption of liquor, tobacco smoking, etc. To achieve this, governments impose high
excise levies on these products and as a result, raise the cost of these products to

discourage people from buying or selling them.

F. IMPOSING AND INCIDENCE OF TAX, DIFERNECE.

  The final burden of tax is known as tax incidence and the initial burden of tax is
known as tax impact. Tax incidence is upon the person who eventually pays it and
the tax impact is upon the person from whom the tax is collected.
 The term impact is used to express the immediate result of or original imposition
of the tax. The impact of a tax is on the person on whom it is imposed first. Thus,
the person who is Habile to pay the tax to the government bears its impact. The
impact of a tax, as such, denotes the act of impinging.
 Incidence emerges when the tax finally settles or comes to rest on the person who
bears it. It, in fact, is the ultimate result of shifting. Hence, the incidence of a tax
is upon that person who cannot shift the burden any further, so he has to himself
bear the direct money burden of the tax.
DIFFERENECES
1. Impact refers to the initial burden of the tax, while incidence refers to the ultimate
burden of the tax.
2. Impact is at the point of imposition, incidence occurs at the point of settlement.
3. The impact of a tax falls upon the person fr6m whom the tax is collected and the
incidence rests on the person who pays it eventually. For example, suppose a tax —
excise duty — is imposed on soap.
Its impact is on the producers, in the first instance, as they are liable to pay it to the
government. But, the producers may succeed in collecting it from the consumers by
raising the price of soap by the amount of tax. In that case, consumers eventually pay the
tax and so the incidence falls upon them.
4. Impact may be shifted but incidence cannot. For, incidence is the end of the shifting
process. Sometimes, however, when no shifting is possible, as in the case of income tax
or such other direct taxes, the impact coincides with incidence on the same person

b) MEANIGN OF INCOME FORM SALARIES, UNDER WHAT

CIRCUMTANCES, INCOME OF PERSON IS INCLUBLE IN
ASSESSE’S INCOME, SALARY AS SOURCE OF INCOME,
 DEFINE INCOME, DEFINE INCOME FROM OTHER
RESOURCES, WHAT IS TOTAL INCOME, REVENUE AND
CAPITAL INCOME AND ITS DIFF, INCOME FROM SALARY
AND HOUSE PROPERTY ALSO ADMISSIBLE AND
INADMISSIBLE DEDUCTION. (DONE)
A. INTRODUCTION

Salary income refers to the compensation received by an employee from a current or former
employer for the execution of services in connection with employment. Thus, income is taxable
as salary under Section 15 only if an employer-employee relationship exists between the payer
and payee. Salary income could be in any form such as gift, pension, gratuity, usual
remuneration and so on. In this article, we look at various aspects of salary income under the
Income Tax Act.

B. MEANIGN OF INCOME FORM SALARIES

Under the Income Tax Act, the term salary is defined to include the following

 Wages;
 Annuity or pension;
 Gratuity;
 Fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
 Advance of salary;
 Payment received by an employee in respect of any period of leave not availed by
him/her;
 The portion of annual accretion in any previous year to the balance at the credit of an
employee participating in a recognised provident fund to the extent it is taxable;
 Transferred balance in a recognised provident fund to the extent it is taxable;
 Contribution by the Central Government to the account of an employee under a pension
scheme referred to in section 80CCD (i.e NPS);
C. UNDER WHAT CIRCUMTANCES, INCOME OF PERSON IS
INCLUBLE IN ASSESSE’S INCOME,
Transfer of income where there is no transfer of assets [Section 60]
Where there is a transfer of an income by a person to another person, without the transfer
of the asset from which the income arises, such income shall be included in the total
income of the transferor, whether such transfer is revocable or not and whether this
transfer is effected before or after the commencement of the Income-tax Act, 1961.
2. Revocable transfer of assets [Section 61]
Where there is a revocable transfer of an asset by a person to another person, any income
arising/ derived from such assets shall be included in the total income of the transferor.

3. Section 61 not applicable, if the transfer is irrevocable for a specified period

[Section 62]:
As per section 62(1), the provisions of revocable transfer, discussed in section 61, shall
not apply in certain circumstances. Such circumstances are—

in the case of transfer by way of trust, the transfer is not revocable during the life time of
the beneficiary;

in the case of any other transfer, the transfer is not revocable during the life time of the
transferee;

in case the transfer is made before 1.4.1961, the transfer is not revocable for a period
exceeding 6 years.
The above exceptions are applicable provided the transferor derives no direct or indirect
benefit from such income.

In the above cases, the income shall be taxable in the hands of the transferee.
4. When a transfer is revocable [Section 63]:
As per section 63, a transfer for the purpose of sections 60, 61 and 62 shall be deemed to
be revocable if:

it contains any provision for the re-transfer, directly or indirectly of the whole or any part
of the income or assets to the transferor, during the life time of the beneficiary or the
transferee as the case may be, or

it gives the transferor a right to re-assume power directly or indirectly over the whole or
any part of the income or assets during the life time of the beneficiary or the transferee as
the case may be.

5. Income of an individual to include income of spouse, minor child, etc. [Section 64]
A- Remuneration of spouse from a concern in which the other spouse has substantial
interest [Section 64(1)(ii)]:
In computing the total income of an individual, there shall be included all such sums as
arise directly or indirectly to the spouse, of such individual by way of salary,
commission, fees or any other form of remuneration, whether in cash or in kind from a
concern in which such individual has a substantial interest.

Therefore, any remuneration derived by a spouse from a concern in which the other
spouse has a substantial interest, shall be clubbed in the hands of the spouse who has a
substantial interest in that concern.

Any other income, not specified above, is outside the scope of this section and will not
the clubbed even if it accrues to the spouse from a concern in which the individual has a
substantial interest.
Clubbing of income of a minor child [Section 64(1A)]
In computing the total income of an individual, there shall be included all such income as
arises or accrues to his minor child. Therefore, the income of a minor child is to be
clubbed in the hands of either of his parents.
The income shall be clubbed in the hands of that parent whose total income (excluding
the income of the minor) is greater. If the marriage of his parents does not subsist, the
income shall be clubbed in the hands of that parent who maintains the minor child in the
previous year.

Where any income is once included in the total income of either parent, any such income
arising in any succeeding year shall not be included in the total income of the other
parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of
being heard, that it is necessary so to do.

Where the income of a minor child has been included in the total income of a parent, such
parent shall be entitled to an exemption to the extent of such income or Rs.1,500
whichever is less, in respect of each minor child whose income is so included.
7. Income from self-acquired property converted to joint family property [Section
64(2)]
Where an individual, who is a member of the Hindu Undivided Family,—

converts, his separate property as the property of the HUF, or

throws the property into the common stock of the family, or

otherwise transfers his individual property to the family,

otherwise than for adequate consideration, then the income from such property shall
continue to be included in the total income of the individual.

In other words, if self-acquired property of an individual is treated/converted into joint

family property without adequate consideration, the income derived by the joint family
on account of such property shall be included in the total income of the individual who
was the owner of such self-acquired property.
 For example :

X owns a house property from which he derives an income of Rs.6,00,000 per annum. If,
he converts this property as the property of an HUF of which he is a member. Although
the income shall henceforth be received by the HUF but it shall be deemed to be the
individual income of X and shall be included in computation of his total income under
the head 'Income from House Property'.

D. SALARY AS SOURCE OF INCOME

1. Income from salary: Income from salary is the remuneration which is received by an
individual who is rendering services under any contracts which is taken by him. The
contract should be under employment.

2. Income from House Property: A house property can be anything which is appurtenant to
the land and it can be your house, your office, or can be a shop and also can be a building.
The income tax does not distinguish between any of your commercial place or your house
where you stay. All the properties are taxed under this head. An owner is a legal owner for
objective of the income tax, owner is someone who can make use of every right of the owner
and the right should not be use of on someone’s behalf.

3. Income from Profits and gains of business and professions: This income is an income
which is shown by the taxpayer after taking into consideration the amount showed under the
profit and loss account.This income involves both of the amount even if it is loss which is in
negative or profit which is in positive. So basically, the term ‘profit and gains’ mean income
which is in plus and ‘loss’ means incomes which is in minus income. Under this head all the
incomes are taxable whether it is legal or illegal.The income which is earned by the
businessman in previous year shall be taxable. Income tax return for business and profession
shall be filed on or before 31st July of an assessment year.

INCOME FROM CAPITAL GAINS: Any profit or gain which is earned by transferring the
capital assets which was held for investment will be taxable under the head of ‘Income from
Capital Gain’. The gain can be earned from any of the Short-Term Capital Asset and Long-
Term Capital Asset. Only when the type of asset transferred is Capital Asset then only you
can earn Capital Gain. In other words, if the asset which is being transferred is not capital
asset then it will not fall under Capital Gain. Some examples can be like sell of house/flat, or
selling of the shares etc. 5. INCOME FROM OTHER SOURCES: Incomes which does not
fall under any of the other head will fall under the head of ‘Income from Other Sources’.
Some of the examples are like Gift, Interest on Savings or FD, Dividends, etc.

E. WHAT IS TOTAL INCOME, DIFF BETWEEN TOTAL AND

GROSS INCOME

Section 80B(5) of the IT Act defines Gross Total Income

Includes income received or receivable by you in the previous year adjusted for clubbing and
carry-forward amounts from previous years

Deduct the non-taxable parts of your income from this amount to estimate ‘Gross Total
Income’

Note: Investments and expenses under section 80C to 80U are deducted from this amount.

In simple terms, Gross Total Income is the aggregate of all your taxable receipts in the
previous year. It will also include profit or loss carried forward from past years and any
income after clubbing provisions. But will not include any deductions from section 80C to
80U.

Total Income is defined under Section 2(45) with the scope defined by Section 5 of the
Income Tax Act, 1961

If you are an Indian resident in the previous year, any income received, accrued or deemed to
be received by you will be accounted for

If you are not ordinarily resident in the previous year, incomes arising out of India will be
included only if they are from a business controlled or performed from India

In the case of non-residents (NRI), only incomes arising or accruing in India will be counted

Total Income is arrived by deducting all eligible deductions from “Gross Total Income”
 Your tax liability will be estimated on the Total Income. In simple terms, you pay tax on
your Total Income.

c) TAXATION ON CAPITAL GAINS, HOW IT IS EXEMPT

FROM INCOEM TAX(DONE)

A. TAXATION ON CAPITAL GAINS

The capital gains tax in India, under Union Budget 2018, 10% tax is applicable on the
LTCG on sale of listed securities above Rs.1 lakh and the STCG is taxed at 15%.
Besides this, both long-term and short-term gains are taxable in the case of debt
mutual funds. The STCGs on debt MF are added to the income of the taxpayer and
are taxed according to the individual’s IT slab rate, whereas, the LTCGs on debt MF
are taxed at 20% with indexation and 10% without indexation. Indexation can be
described as the adjustment of the purchase value for inflation. In the case of
inflation, the indexation increases, which in turn leads to increased purchase costs and
lower gains.

Recent reports suggest that the Government plans to make changes in the capital gain
tax structure as it has been receiving several proposals from the industry to simplify
capital gains tax. These changes are expected to be announced in the Budget of 2023-
24.

B. CAPITAL GAIN TAX

Capital gain refers to any gain or profit that is earned by the individual from the sale of a capital
asset. The profit that arises from the sale of the capital asset is taxed under the head of ‘Income
from Capital Gain’. The profit is earned by selling the capital asset at a higher price than what it
was bought for. This tax does not apply to the inherited property, as there is only a transfer of
ownership and no sale. Any asset which is received as a gift by way of will or inheritance is
exempted from the Online Income Tax Act 1961. However, CGT will be applicable if the
individual who inherits the asset decides to sell it.

C. CAPITAL ASSESTS AND THEIR CLASSIFICATION

Long-term Capital Asset

Long-term capital assets are considered an asset which is held by the taxpayers for more than 36
months before the transfer. Capital assets such as land, house property, and building are
classified as a long-term capital asset if it is held for a period of more than 24 months (from FY
2017-18). Whereas, if the below assets are held for a period of more than 12 months, they will be
categorized under long-term capital assets.

 Equity shares in a company registered on a recognized stock exchange in India

 Securities such as bonds, debentures, government securities, etc. registered on a
recognized stock exchange in India
 UTI units, units of an equity-oriented mutual fund, whether quoted or not
 Zero coupon bond

Short-term Capital Asset

Short-term capital assets are considered assets which are held by the taxpayers for a time period
of 36 months or less from the date of their transfer.

For immovable properties such as land, house property, and buildings, the main criteria are 24
months with effect from FY 2017-18. However, the property should be sold after 31st March
2017. This 24-month revised criterion does not apply to movable property like jewellery or debt-
oriented mutual and others.

Some of the short-term capital assets are held for 12 months or less. This is only applicable if the
transfer date of the asset is after 10th July 2014 (irrespective of the date of purchase). These
assets are:

 Equity shares in a company registered on a recognized stock exchange in India

  Securities such as bonds, debentures, government securities, etc. registered on a
recognized stock exchange in India
 UTI units, units of an equity-oriented mutual fund, whether quoted or not
 Zero coupon bond

D. CAPITAL GAINS TAX ON PROPERTY

Capital gains tax is chargeable on the profit earned from the sale of the house property; however,
the tax is not charged on the entire amount itself. In case, a person sells the property after holding
it for less than 2 years, it will be taxed directly according to the income tax slab the person falls
under and will be termed as a short-term capital gain. If sold after 2 years, it will be considered
as long-term capital gains and will attract a flat 20.8% tax.

According to the amendment to section 54, under budget 2019, if an individual earned capital
gains up to Rs. 2 crore on selling a house property then they can invest the amount in 2 house
properties. However, this facility can only be availed once in a lifetime.

E. CAPITAL GAINS TAX ON BONDS

Similar to other investment assets, capital gain on these bonds is of two categories, that is, long-
term capital gains and short-term capital gains.

For regular taxable listed bonds: If the holding period is more than 12 months, the realized
returns are termed long-term capital gain. If the holding period is below 12 months, individuals
earn short-term capital gain upon the sale of these bonds. Short-term capital gain is taxed at
applicable slab rates, while LTCG is taxed at a rate of 10% without indexation.

For regular taxable unlisted bonds: If the holding period is more than 36 months, gains from
these financial instruments come under long-term capital gain. The rate of taxation is 20%
without indexation. However, if the holding period is less than 36 months, any gains coming
from these are categorized as short-term capital gain and taxed as per the applicable tax slab rate.
For tax-free bonds: Investors do not pay any tax on interest earned from these. However, returns
earned from such bonds upon maturity or sale are categorized under long-term capital gain and
short-term capital gain depending on the holding period.

For tax-saving bonds: Individuals with any long-term capital asset can save taxes by investing in
these bonds. The sale proceeds of these assets can be invested in 54EC bonds. These bonds are
exempted from long-term capital gain tax. However, this tax benefit is applicable if the proceeds
are invested within 6 months of the sale of the property.

F. CAPITAL GAIN TAX EXEMPTION

Some basic exemptions for long-term capital gains for the year 2021-2022 are:

 Resident individuals below the age of 60 years with an annual income of Rs. 2.5 lakhs
 Resident individuals who are 60 years and above with an annual income of Rs. 3 lakhs
 Resident individuals who are 80 years with an annual income of Rs. 5 lakhs
 Non-resident individuals with an annual income of Rs. 2.5 lakhs
 HUF with an annual limit of Rs. 2.5 lakhs
 No capital gain applies to the sale of agricultural land in rural areas of India and
agricultural land in rural areas is not considered a capital asset.
 In case an individual uses the entire sale proceeds of the capital asset to purchase the
house property they will not be taxed.

d) POWER AND FUNCTION OF IT OFFICERS, VARIOUS TAX

OFFICER, LIABILITIES AND DUTIES OF APPELLATE
COMMISSIONER, APPEAL WITH COMMISSIONER, WHERE
DO 1ST AND 2ND APPEAL LIE, AGAISNT ORDER OF WHICH
AUTHORITYM TIME LIMIT FOR SUBMISSION OF APPEAL,
(DONE)
 A. INTRODUCTION

For effective financial management it is imperative to understand the functioning, the powers
and the limitation on the powers of tax authorities. This proves to be of even more relevance in
the light of the current scenario in India where there is an uncertainty in the mind of the assesses
with regard to the power that can be exercised by these authorities and where there have been a
number of instances of abuse of these rule-making powers which have the effect of contradicting
statutory provisions that have been given binding effect, displacing the authoritative
pronouncements of the Higher Judiciary and causing an erosion of the constitutionally-mandated
effect of Supreme Court declarations under Article 141.

B. APPOINTMENT OF INCOME TAX AUTHORITES

The Central Government can appoint those persons which it thinks are fit to become Income Tax
Authorities. The Central Government can authorize the Board or a Director-General, a Chief
Commissioner or a Commissioner or a Director to appoint income tax authorities below the ranks of an
Deputy Commissioner or Assistant Commissioner, According to the rules and regulations of the Central
Government controlling the conditions of such posts.

C. JURISDICTION OF INCOME TAX AUTHORITES

IN A SPECIFIC AREA, WHICH IS ASSIGNEED TO HIM, PERFORM BOTH FUNCTION JUDICIAL

AND EXECUTIVE.

IF SPECIFIC AREA NOT ASSIGNED THEN HE PERFORMS HIS DUTY ACCORDING TO THE
DIRECTION OF CENTRAL BOARD OF REVENUE.

D.POWER OF VARIOUS TAX AUTHORITIES

a) CBDT :
It is a statutory body established as per the Central Board of Revenue Act,1963.It is
India’s official financial action task force unit. It is administered by the Department of
Revenue under the Ministry of Finance. The Central Board of Direct Taxes is the
supreme body in the direct tax set-up. It has to preform several statutory functions under
the various acts and it is responsible for the formulation and implementation of different
 policies relating to direct taxes administration. The Board consists of a Chairman and six
members..
POWER AND FUNCTION

1. The board can declare any association whether incorporated or not and whether Indian, or Non
Indian as company under the provision of Section 2(17)

2. The board has power to determine the jurisdiction of various authorities mentioned in this act.
(Section 118)

3. The board may issue directions for the exercise of powers and performance of the functions by all
or any of these authorities. While issuing such direction the Board will keep in mind any of the
following criteria such as: territorial area, persons or classes of person, incomes or classes of incomes
and cases or classes of cases. (section 120(1) and (3)

4. The board may authorise by general or specific order, director general or director to perform the
powers of any of the income tax authorities. (section 120)

5. The board may authorise any of the authorities to exercise its power concurrently with any pother
authority. In case such notification is issued by the board, the lower authority in rank shall exercise
such powers as are directed to it by higher authority. (Section 120 (5))

6. The board may empower director general or chief commissioner or commissioner to authorise
deputy commissioner or deputy director to exercise the powers of assessing authority in respect of
any specified area, person, incomes or cases or class of persons, class of income or class of cases.
(Section 120 (4))

7. To carry out the different provisions of the Act the board makes for whole of India (section 295)

8. The CBDT has been empowered by taxation laws (amendment) Act 1975 to make rules regarding
the maintenance of accounts and documents required under section 44AA. It is obligatory for
professionals to maintain such books and documents as may enable the Assessing officer to compute
his total income.

9. The board has the power to make rules and issue orders, instructions, directions etc, to all the
persons employed for proper and efficient administration of the act but the board cannot issue orders,
directions etc of the following manner:
 o To require any income tax authority to make a particular assessment or to dispose of
a particular case in a particular manner.
o To interfere with the direction of the Deputy Commissioner of Income tax in the
exercise of his appellate functions.

b). DIRECTOR GENERAL/CHIEF COMMISSIONER OF INCOME TAX

The CBDT may be general or special order and subject to such conditions, restrictions or limitations,
authorise any Director or Chief Commissioner to perform such function of any other income tax
authorities as may be assigned to him in such order. Its powers are given below:

o The director general or chief commissioner may be empowered to authorise a deputy

commissioner to exercise the powers of an assessing officer in respect of a person, case,
income or an area.
o These authorities may be empowered by the board to appoint income tax authorities
below the rank of an assistant commissioner.
o These authorities may, after giving the assessee a reasonable opportunity of being heard
in the matter, and after recording his reasons, transfer the case from one assessing officer
subordinate to him.
o The director general or director or any other officer so authorised, may exercise the
powers of Assessing officer, in case he has reason to suspect that any income has been
concealed or is likely to be concealed by an assessee coming within his jurisdiction.
o (a) Gratuity fund is to be approved by the Chief Commissioner or Commissioner (CC or
C) u/s 2(5).
o (b) Approved Superannuation Fund also needs approval by these officers u/s 2(6).
o provident Fund is recognised by CC or C u/s 2(38).
o Registration of a charitable or religious trust is done by CC or C u/s 12A.
o (e) On authorisation by the Central Government they can appoint income-tax authorities
below the rank of an Assistant Commissioner u/s 117.
o (f) Jurisdiction of the AO is also determined by them u/s 124.
o (g) Transfer of cases from one AO to the other AO under their jurisdiction can be ordered
by them u/s 127.
o (h) They can enforce attendance of the witnesses etc. u/s 131.
o (i) They can issue authorisation to certain officers for conduct of search and seizure u/s
132.
 o (j) Enquiry-can be undertaken by them u/s 135.
o (k) They can reveal information respecting certain assessees u/s 138.
o (l) The AO has to seek approval of CC or C to call for audit report u/s 142.
o (m) Reopening of assessment u/s 151 after expiry of four years requires sanction of CC
or C u/s 151.
o (n) They can reduce or waive interest u/s 220 paid or payable by assessee.
o (o) They can instruct AO withhold refund u/s 241 in certain cases.
o (p) They are required to send report to the Settlement Commission u/s 245D.
o q) AO is to be directed by them to prefer appeals against the first appellate authority to
the Appellate Tribunal u/s 253.
o (r) The Commissioner is empowered to revise order of the AO u/s 263 if that is
prejudicial to the revenue
o (s) Penalty can be waived or reduced by them u/s 273A.

c.) COMMISSIONER /DIRECTOR /ADDITIONAL DIRECTOR OF INCOME

TAX

Powers:

1. Under the direction of the board a commissioner may exercise the powers of an Assessing Officer.

2. A commissioner has the power to transfer any case from one or more Assessing Officer subordinate to
him to any other Assessing Officer or officers also subordinate to him. He can do only after giving the
assessee an opportunity of being heard and after recording the reasons for doing so.

3. The commissioner has been empowered to grant approval for an order issued by the Assessing Officer
asking a non-company assessee to get its accounts audited from a Chartered Accountant .(Section 142
(2A)).

4. The prior approval of the commissioner is required fir reopening of an assessment beyond the time
limit of 4 years.

5. revise any other issued by ITO and not covered under section 263 either of his own motion or on
application by the assessee for such revision (Section 264).

d.) JOINT COMMISSIONER/JOINT DIRECTOR OF INCOME-TAX

1. He is empowered to accord sanction to levy additional income tax on companies in which public are
not substantially interested.(Section 107)

2. He may be authorised by the board or chief commissioner to exercise the powers of assessing officer.

3. He has the power to cancel the registration of a firm which is not a genuine firm Section 186(1).

4. He has the power to issue instruction to assessing officer to revise an order issued by ITO if he has
received an application from assessee regarding a pending case.(Section 144 A)

e.) ASSESSING OFFICER

Assessing officer shall exercise the following powers:

1. Power of civil court: These authorities shall have the same powers as are vested in a court under the
code of civil procedure 1908, when trying a suit in respect of the following matters:

(i) Discovery and Inspection

(ii) Enforcing the attendance

(iii) Compelling a person to produce books of accounts and

other documents and

(iv) Issuing commissions. (Section 131)

2. Powers of Search and seizure: These authorities shall have the power of searching any building, place,
vessel, vehicle and seize books of accounts, other documents, money. jewellery or other valuable articles
or things. Identification marks shall be put on the seized articles and an inventory shall be made. (Section
132)

3. Power of Assessment: An assessing officer or any other authority acting as assessing officer shall have
following powers while performing his functions:

a. Power regarding self assessment as mentioned in section 140A

b. Power of making regular assessment under section 143 and best judgement assessment under section
144.

c. Power to reopen an assessment under section 146

 d. Power to reopen an assessment in case income has escaped assessment under section 147 and 148 .

e. Power to treat a person as an agent under section 163.

4. Power to call for information: The aforesaid authorities have the power to call for necessary
information from a firm and HUF.

5. Power of Survey: Under section 133A, an income tax authority may enter any place where business or
profession is carried on, if such place is within the limits of the area assigned to him or is occupied by any
person in respect of whom the Assessing officer exercises jurisdiction (Section 133A).

6. Power to inspect registers of companies: The above mentioned authority may inspect if necessary, take
copies or cause copies to be taken of any register of members, debenture holders, mortgagees of company
or any entry in such register.

f.) INCOME TAX INSPECTOR

They are appointed by chief commissioner or commissioner of Income Tax and are subordinate to
Assessing officers. They assist Assessing Officers in performance of their duties. They may be directed to
perform any other function by general or specific order.

E. HEIRARCHY OF OFFICERS UNDER SECTION 116

the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of
1963),

i. Directors-General of Income-tax or Chief Commissioners of Income-tax,

ii. Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax
(Appeals),
 (cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or
Additional Commissioners of Income-tax (Appeals),
 (cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax.
i. Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy
Commissioners of Income-tax (Appeals),
ii. Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
iii. Income-tax Officers,
iv. Tax Recovery Officers,
v. Inspectors of Income-tax.
 F. APPEAL WITH COMMISSIONER

Under the Income Tax Act, 1961 following two alternatives are available to the assessee if he is
not satisfied with the order passed by the Assessing Officer;

1) Appeal: First appeal against the order of the Assessing Officer shall, lie with the
commissioner (Appeals) u/s 246A.

2) Revision: Alternatively, if the appeal is not preferred, or if could not be filed within the time
limit allowed, the assesse can apply u/s 264 to the Commissioner of Income Tax for revision of
the order of the Assessing Officer. This is known as revision in favour of the assessee. The
Commissioner of Income Tax can also take up suo moto the case foe revision u/s 264. In some
cases, the Commissioner of Income Tax can also take up the case for revision u/s 263. This is
known as revision of the order of the Assessing Officer which is erroneous and prejudicial to the
interest of revenue.

The assessee is given a right of appeal by the Income tax Act where he feels aggrieved by the
order of the assessing authority. However, the assessee has no inherent right of appeal unless the
statute specifically provides that a particular order is appealable. There are four stages of appeal
under the Income-tax Act, 1961 as shown hereunder –

Assessment Order

(passed u/s 143(3), 144, 153A, 147 etc)

First Appeal Commissioner

( Filed u/s 246A electronically in form 35 within 30 days of order passed)

Second Appeal Appellate Tribunal

( Filed u/s 253 in form 36 within 60 days of order passed by CIT ( appeals)

↓
Third Appeal High Court u/s 260A

Final Appeal Supreme Court u/s 261

Revisions

u/s 263 and 264

Section 263: The Principal Commissioner or Commissioner may call for and examine the record
of any proceeding under this Act, and if he considers that any order passed therein by the
Assessing officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may
after giving an opportunity of being heard pass such order thereon as the circumstances of the
case justify, including an order enhancing or modifying the assessment, or cancelling the
assessment and directing a fresh assessment.

However, Assessee has an option to file an appeal in Income Tax Appellate Tribunal against the
revision order passed by CIT u/s 263.

Section 264: The Principal Commissioner or Commissioner may, either of his own motion or on
an application by the assessee for revision, call for the record of any proceeding under this act in
which any such order has been passed and may make such inquiry or cause such inquiry to be
made and subject to the provisions of this act, may pass such order thereon, not being an order
prejudicial to the assessee, as he thinks fit.

However, In this case income tax act does not provide any remedy for filling appeal to higher
income tax authority . But , assessee has an option , he can take the benefit of Constitution of
India. Article 226 provides every citizen of India remedy to file WRIT petition in High Court
against the order passed by income tax department.

Appeals

As already discussed in above mentioned intro, the first appeal against the order of Assessing
Officer shall lie to the Commissioner (Appeals) and it can only be filed by assesse only.
An assesse or any deductor or any collector who has been aggrieved by the orders (like order
passed under section 147, 144, 143(3) etc) passed by the certain income tax authorities can file
its first appeal to commissioner appeals u/s 246A of the income tax, act 1961.

Form of Appeal and limitation ( section 249 and Rules 45 & 46 )

1. Form: An appeal to the commissioner ( appeals) shall be made in Form 35.

2. Manner of furnishing the appeal:

a. By furnishing the form electronically under digital signature, if the return of income is
furnished under digital signature.

b. By furnishing the form electronically through electronic verification code in a case not
covered under sub clause (a)

c. In case where the assessee has the option to furnish the return of income in paper form, he can
exercise both options of filing form in paper form or electronically.

Time limit for filing the form [section 249(2)]

The appeal should be filed within a period of 30 days of date of service of notice of demand or
order passed by the authority. Further Commissioner may admit an appeal after the expiration of
the prescribed period of 30 days, if he is satisfied that the appellant had sufficient cause for not
presenting it within the prescribed period.

Appealable Order

 Section 246A of Income Tax Act enumerates the orders against which an appeal can be
filed before the Commissioner of Income Tax (Appeals). All appeals have to be made to
the Commissioner of Income Tax (Appeals), who is considered to be the first appellate
authority. An appeal can be made under the following circumstances:
 When a taxpayer is served with an order where he is not liable to pay tax under the
Income Tax Act.
 When a taxpayer is issued a notice under Section 143(1)/1(B) where Income remitted in
the returns of income have been adjusted.
  When a taxpayer is issued with a notice under Section 200A(1) where the filed statements
have been adjusted.
 When an assessment order has passed under Section 143(3) other than cases when an
order has passed under the Dispute Resolution Panel.
 When an assessment order has been passed under Section 144.
 When an order of assessment, re-assessment or re-computation that has been passed after
reopening the assessment according to Section 147 other than cases when an order has
passed under the Dispute Resolution Panel.
 When an order has been issued according to Section 150.
 When an order of assessment or reassessment has been passed under Section 153A or
Section 158C during search or seizure.
 When an assessment or reassessment order has been passed under Section 92CD(3).
 When a rectification order has been passed under Section 154 or Section 155.
 When the taxpayer is considered to be an agent of a non-resident under Section 163.
 When an order has been passed under Section 170 (2)/(3) taxing the successor in the
business for the income that is earned by the predecessor.
 When an order has been passed under Section 171 that records the findings of the Hindu
Undivided Family.
 When an order has been passed by the Joint Commissioner under Section 115 VP(3) that
declines the approval to opt tonnage-tax scheme for qualifying shipping companies.
 When an order has been passed under Section 201(1)/206C(6A), where a person has
defaulted in terms of non-deduction of tax at source, non-collection of tax at source or
non-payment of credits to the government.
 When an order has been issued for the refund according to Section 237.
 When an order has been issued for commanding penalty according to
Section(s)221/271/271A/271AAA/271F/271FB/272A/272AA/272B/272BB/275(1A)/
158B FA(2)/271B/271BB/271C/271CA/271D/271E/271AAB.

Time Limit for Appealing

An appeal for any assessment or penalty should be made within 30 days from the date of service
of the demand notice. An appeal by a person who fails to withhold TDS (Tax Deducted at
Source) shall be filed within 30 days of the date of payment of tax. In all other cases, an appeal
can be made within 30 days from the date of issuing the intimation of the particular order.

Procedure to Appeal

To appeal an income tax assessment, the taxpayer must submit an application in Form 35. On
submission of Form 35, the Commissioner of Income-tax (Appeals) schedules a date and place
for hearing the appeal. The appointed date and place will be announced to the taxpayer and to the
Assessing Officer by issuing a notice to both the parties. During the appeal, the taxpayer and the
Assessing Officer can appear personally or through a representative. The Commissioner of
Income Tax (Appeals) hears the appeal and postpones the appeal from time to time (if required),
the officer would also make inquiries for the appeal and directs the Assessing Officer to conduct
further inquiries and submit the report. Taxpayers should note that prior to the time of filing a
petition to a court in relation to matters of dispute in Income Tax, the taxpayer should first
exhaust the legal remedies by filing an appeal with the commissioner having the relevant
jurisdiction.

Documents Required

The following documents have to be submitted for appeal:

 Form 35
 A copy of the income tax assessment order
 Original Demand notice
 Copy of the challan used to make the payment of Income Tax, provided that the payment
pertains to the relevant assessment
 The form of the appeal has to be signed and verified by the following personnel:
 If an appeal is made by a taxpayer, the form has to be signed by the taxpayer or a
representative of the individual.
 If an appeal is made by a Hindu Undivided Family, the form has to be signed by the
Karta or other elder members of the family.
  If an appeal is made by a company, the form has to be signed by the Managing Director
or other directors of the company.
 If an appeal is made by a foreign company, the form has to be signed by the
representative of the company.
 If an appeal is made by a firm, the form has to be signed by the Managing Partner or
other partners who are not minors.
 If an appeal is made by an LLP, the form has to be signed by the Designated Partner or
other partners.
 If an appeal is made by a Local Authority, the form has to be signed by the Principal
Officer.
 If an appeal is made by any Political Party, the form has to be signed by the Chief
Executive Officer of the Party.
 If an appeal is made by any association, the form has to be signed by the Principal Officer
or any member of that Association.
 If an appeal is made by a person, the form has to be signed by that person or any other
person on his/her behalf.

Fee for Appeal

The fee structure to file an appeal before the Commissioner of Income Tax (Appeals) is given
below:

If the total income determined by the Assessing officer is less than or equal to Rs. 1,00,000, the
appeal fee is Rs.250.

If the total income determined by the Assessing officer is more than Rs. 1,00,000 but less than
Rs. 2,00,000, the appeal fee is Rs. 500.

If the total income determined by the Assessing officer is more than Rs. 2,00,000, the appeal fee
is Rs. 1,000.

For other appeals, the fee would be Rs. 250.

e) FOR WHAT OFFENCES, PENALTIES ARE IMPOSED IN IT
ACT?(DONE)
f) EVASION OF TAX, REMEDIES FOR CONTROLLING
EVASION, TAX AVOIDENCE, PENALTIES AND
PROSECUTION OF EVASION OF TAX, TAX PLANNING,
RETURN OF INCOME, PENATLY FOR NON FILLING.
(DONE)
g) APPEAL AND REVISION, HOW MANY FORUMS ARE THERE
IN ACT. (DONE)
h) WHAT IS TERM ASSESMENT, DIFF BET SELF AND
REGUALR ASSESMENT, DIFF BET ASSESMENT AND
REASSEMETN, PENALTY FOR CONCEALMENT OF TAX,
WHAT IS BEST JUDGEMETN ASSEMENT, IN WHAT
CIRCUMTANCES IT CAN BE MADE, AND WHAT ARE ITS
CONSEQUENCES FROM SUCH AN ASSESMENT, ARE
THERE ANY REMEDY OPEN TO ASSESEE AGAISNT SUCH
ASSEMENT, WHAT IS ASSESMENT AND PREVIOUS YEAR,
WHAT IS TERM RESIDENCE, TYPE OF RESIDENTAIL
STATUS OF ASSESEE, HOW THEY ARE DETERMINED,
ASSESMENT AND CALCULATION OF TAX. (DONE)
A. DIFF BETWEEN TERM AND REGULAR ASSESMENT
Self Assessment:
Every person who submits a tax return is deemed to have self-reported all of their
income, expenses, tax liability, and other related information. This is referred to as self-
evaluation. Every year, a predetermined random number of cases are chosen for
evaluation.

Because of this, it is assumed that the information contained in the ones that are not
chosen is correctly self-assessed by the assessee and is deemed to be proper and correct.
As a result, the Income Tax Department views every income return as having been self-
assessed by the Assessee.

Regular Assessment:
The Income Tax Authorities evaluate the cases that the department selects at random. The
Assessing Officer thoroughly examines all of the claims that the Assessee has made in
these situations. He requests additional supportive information to support any claims that
he finds to be unclear so that he can confirm them.

A specific expense may be disallowed and added back to the assessee’s total income if
the assessing officer disagrees with the claim made.

Additionally, the Income Tax Officer will send you a notification pursuant to Section
143(3) seeking payment of the tax. The power to request confirmations from parties with
whom the assessee has transactions is also reserved for the income tax officers.

If necessary, he may also ask them to speak on their behalf before their respective
Assessing Officers. The essential documents must be served by the parties within the
time frame specified in the notice. If either party fails, legal action may be taken against
them.

However, each Assessing Officer must issue a Show Cause Notice to the Assessee
outlining the reasons why the assessed should not be subject to a penalty, interest charge,
tax, etc. To this end, the assessee or his representative must appear and present his case to
the officer, arguing that the assessee’s income should not be increased.
 After the assessment is completed, the assessee is given a set (reasonable) amount of time
to satisfy the balance demand. The Assessee has the opportunity to seek an appeal or
request a reassessment if he is dissatisfied with the Income Tax Officer’s arguments.

The demand must be submitted using the Department’s standard format and include a
clear statement of the amount the assessee is required to pay. The recovery actions shall
be ruled invalid if the Assessing Officer neglects to file such a demand. This occurred in
the well-known Shri Mohan Wahi v. Commissioner of Income Tax case.

B. RESIDENTIAL STATUS OF ASSESEE

The residential status will help determine the taxable income in India. The residential status of an
assessee as defined in SECTION 6 OF INCOME TAX ACT, 1961.Residential status is very
important in Income Tax Act as the determination of tax liability depends much on it.

An assessee is either;

o resident in India; or
o non-resident in India.

However resident individual and HUF maybe

o resident and ordinarily resident; or

o resident but not ordinarily resident.
o All other assessees are either resident or non-resident.

The aggregate income is different in the case of a person resident in India and a person non-
resident in India. Further, in the case of an individual and Hindu Undivided Family (HUF) being
“not ordinarily resident in India”, the meaning of total income shall be slightly different. Since
the total income of an assessee varies according to his residential status in India, the incidence of
tax shall also vary according to such residential status in India.

Residential status is a term coined under Income Tax Act and has nothing to do with the
nationality or domicile of a person. An Indian, who is a citizen of India can be a non-resident for
Income-tax purposes, whereas an American who is a citizen of America can be a resident of
India for Income-tax purposes. The residential status of a person depends upon the territorial
connections of the person with this country, i.e., for how many days he has physically stayed in
India.

The residential status of different types of persons is determined differently. Similarly, the
residential status of the assessee is to be determined each year concerning the “previous year”.
The residential status of the assessee may change from year to year. What is essential is the
status during the previous year and not in the assessment year.

Important Points to note:

Residential Status in a previous year. Residential status is to be determined for each previous
year.

It implies that—

Residential status of assessment year is not important.

A person may be resident in one previous year and a non-resident in India in another previous
year, e.g., Mr. A is resident in India in the previous year 2018-19 and in the very next year he
becomes a non-resident in India.

Duty of Assessee. It is assessee’ s duty to place relevent facts, evidence and material before the
Income Tax Authorities supporting the determination of Residential status.

Dual Residential Status is possible. A person may be resident of one or more countries in a
relevant previous year e.g., Mr. X may be resident of India during previous year 2018-19 and he
may also be resident/non-resident in England in the same previous year. The emergence of such
a situation depends upon the following

o the existence of the Residential status in countries under considerations

o the different set of rules having laid down for determination of residential status.
o Determination of Residential status of different ‘Persons’:

As we know that Income tax is charged to every person. The term ‘Person’ has been defined
under section 2(31) includes:
 o An individual
o Hindu Undivided Family
o Firm
o Company
o association of persons (AOP) or a body of individuals (BOI)
o Local authority
o Every other artificial juridical person not falling in preceding six sub-classes.

Therefore, it is essential to determine the residential status of the above various types of persons
and now we shall learn the calculation of the residential status of each type of person.

Basic rules for determining Residential Status of an Assessee

The following basic rules must be taken into consideration while determining the residential
status of an assessee:

o Residential status is regulated for each category of persons separately, for example, there
are separate set of rules for regulating the residential status of an individual, Hindu
undivided family (HUF) and separate rules for companies, etc.
o Residential status is always decided for the previous year because we have to decide the
total income of the previous year only.
o Residential status of a person is to be determined for every previous year because it used
to change from year to year. For example, Rohan, who is resident of India in the previous
year 2020- 21, may become a non-resident in previous year 2019-20.
o According to Section 6(5) of Income Tax Act,1961, If a person is resident in India in a
previous year relevant to an assessment year in respect of any source of income, he shall
be deemed to be resident in India in the previous year relevant to the assessment year in
respect of each of his other source of income.
o A person may be a resident of more than one country for any previous year. If John, is a
resident in India for previous year 2020-21, it does not mean that he cannot be a resident
of any other country for that previous year.
 o Citizenship of a country and residential status of that country are separate concepts. A
person may be an Indian national/citizen, but may not be a resident in India. On the other
hand, a person may be a foreign national/citizen, but may be a resident in India.
o It is the responsibility of the assessee to place all material facts and information before
the assessing officer to enable him to determine his correct residential status.

SIGNIFICANCE OF RESIDENTIAL STATUS

o We are living in such a society where we abhor the concept of sharing. We only think
about the individual while we should think of society for the large.
o That’s why we try all possible ways to not share our own hard-earned money with the
government. However, it is an extremely important responsibility to pay the tax for the
growth of the nation. Because the money which we are paying as a tax is directly or
indirectly connected to our own development.
o At the time of filing of tax return, the residential status of the individual is very
significant. Because the Income Tax Department calculates tax according to the
residential status of the individual.
o Residential Status of the individual, company, a firm is necessary because they are
commencing their business in India and for their business, they are using the resources of
the particular country and while using the resources they are earning money. So
Residential status of the particular person plays a significant role while at the time of
paying taxes.

Conclusion

Origin, Nationality, place of birth, domicile doesn’t play a vital role in the calculation of Income
Tax. If a person who is a citizen of India can be non-resident and the person who is not an Indian
citizen and if they are residing in India, and if they are fulfilling the criteria of Resident then as
an eye of Income Tax, they can be resident of India and they will be taxable in nature.

A resident will be charged to tax in India on his global income i.e., income earned in India as
well as income earned outside India.
While calculating the residential status of an Assessee we check the physical stay in India and
the physical stay of an individual is checked by their physical stay of the previous years.
However, the residential status of an individual changes from year to year.

Like a person who can be a resident for this year they can’t be resident for the next year if they
are not fulfilling the resident criteria. That’s why once a taxpayer can’t be a taxpayer for next
year.

i) AGRICULTUREAL INCOME, DEMIRTS AND MERITS,

WHAT INCOME ARE EXEMPTED ON THIS LAND, (DONE)
A. INTRODUCTION

Agricultural income earned by a taxpayer in India is exempt under Section 10(1) of the
Income Tax Act,1961. What is more shocking and surprising is that this so-called
agricultural income is tax-free without any limit. You can have an unlimited amount of
agricultural income without paying even a single rupee towards income tax.

While income tax is levied on all types of incomes from all the persons, why the government
is not imposing any income tax on agricultural income, is a million-dollar question. Some
people are under the wrong impression that our government is very considerate and
sympathetic towards the farmer’s community and do not want to impose income tax on the
agricultural income of farmers. However, this is completely untrue. Had it been the intention
of the government to provide relief to farmers by not subjecting them to income tax, it could
have been done by fixing a threshold for tax-free agricultural income. If some type of income
is made completely tax free without any limit, it clearly means that the farmers are not the
real beneficiaries of this tax exemption and there is a larger conspiracy for providing this
exemption of unlimited amount, by making a provision for the same in the Income Tax Act.

You will be surprised to note that no political party, irrespective of its ideology, never wants
to bring the agricultural income into the tax net. You must have witnessed that when bills
relating to increasing of salaries and allowances are introduced in the parliament or
assemblies, these bills are instantly passed unanimously, with all political parties happily
supporting the same. This very same principle applies to the total tax exemption of
 agricultural income. Since all the politicians (irrespective of their political ideology) are the
real beneficiaries of this unlimited tax exemption, they are happily enjoying it. Agricultural
income is being used as a tool to convert black money into white money for the last 70 years.
Most of the politicians and the persons patronised by these politicians are misusing the
“agricultural income” route for conversion of their black money into white money.

Income Tax Department and the officers sitting in the income tax department are fully aware
of this misuse of tax exemption on agricultural income but they prefer to remain silent on this
“tax anarchy”, due to political reasons. If some honest officer tries to scrutinize the tax
exemption on agricultural income, then the entire political system begins to harass him and
the officer concerned is persecuted, suspended and even dismissed from the service.

Recently Central Government has compulsorily retired 27 senior officers from various
Government Departments including Income Tax, Customs & Excise Departments. Out of
these 27 officers, one senior officer was investigating the agricultural income tax exemption
misuse by a former finance minister in the previous government. There are several detailed
videos of this officer available on the social media, wherein the officer is explaining how the
former finance minister of the previous governments was misusing the agricultural income
tax exemption to convert his black money into white money. Since the officer concerned has
now been sacked, it can be safely presumed that the investigation being carried out by that
officer has also died its natural death.

Before the presentation of the Union budget every year, the government invites suggestions
from all stakeholders to give their suggestions for the budget. For the last 20 years, I am
giving this suggestion to the government every year that agricultural income should be
brought into the tax net. If the intention of the government is to provide tax relief to farmers,
then that can be provided by prescribing a threshold exemption limit for the agricultural
income. But why any government will accept any such suggestions, when their own interests
are at stake.

B. Benefits :The agriculture sector would be exempted from undertaking GST compliances
as well. All basic agriculture goods (not processed) which are not chargeable under current
VAT Laws would not be charged to tax in GST. Service tax also exempts several services in
 relation to agricultural produce. But the definition of agricultural produce has always
attracted disputes. Thus, the new definitions as per GST section 2(7) which defines
agriculture and 2(8) which defines agriculturist holds importance with avoidance of further
notification to not complicate the definition. As agriculturist would come under non-taxable
person it holds importance to them as they would not be required to comply with GST
compliances after falling into the above definition.

C. Demerit Shortages in agricultural goods which are imported as domestic produce could
not fulfill the requirement are charged with custom duty. As custom duty would not be
subsumed in GST custom duty would continue. Hence, the exemption from basic duty on
basic agricultural produce like pulses would continue. The main impact that GST in
agriculture would bring is the inflation with currently 4% VAT being increased to 8% on
many food items including cereals and grains as the exemption under VAT is limited to
unprocessed food. The most affected from the inflation would be the consumers living
below the poverty line.

j) EXPLAIN ANNUAL VALUE, DEDUCTION AVIALBELE TO

PERSON, FOR COMPUTATION OF INCOME FROM HOUSE
PROPERTY, BASIS OF DETERMINATION OF INCOME
FROM HOUSE PROPERTY, WHICH DEDUCTION IS NOT
ALLOWED FROM INCOME FROM HOUSE PROPERTY,
INCOME FROM HOUSE PRIOPERTY.
A. ANNUAL VALUE
As per the Income Tax Act. the Annual Value is the value after deduction of
municipal taxes, if any, paid by the owner. But for sake of convenience, the annual
value may be determined in the following two steps:

Step I : Determine the Gross Annual Value:

 Gross Annual Value is determined as follows -

Step-1
Find out reasonable expected rent of the property

Step-2
Find out rent actually received or receivable after excluding unrealized rent but before
deducting loss due to vacancy

Step-3
Find out which one is higher—amount computed in Step-1 or Step-2.

Step-4
Find out loss because of vacancy

Step-5
Step-3 minus Step-4 is Gross Annual Value
B. DEDUCTION AVIALABLE TO PERSON, FROM COMPUTATION OF INCOME
FROM PROPERTY
Deductions Under House Property
Municipal tax – Municipal taxes is the annual amount paid to the municipal
corporation of that area. Municipal taxes are to be deducted from the Gross Annual
value to derive the Net annual value of the house property. Deduction of municipal
tax is allowed only if it has been borne by the owner and paid during that financial
year.
Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated
above. This 30% deduction is allowed even when your actual expenditure on the
property is higher or lower. Therefore, this deduction is irrespective of the actual
expenditure you may have incurred on insurance, repairs, electricity, water supply
etc. For a self-occupied house property, since the Annual Value is Nil, the standard
deduction is also zero on such a property.
 Deduction of Interest on Home Loan for the property –Homeowners can claim a
deduction of up to Rs.2 lakh on their home loan interest if the owner or his family
reside in the house property. The same treatment applies when the house is vacant. If
you have rented out the property, the entire interest on the home loan is allowed as a
deduction. Your deduction on interest is limited to Rs.30,000 if you fail to meet any
of the conditions given below for the Rs.2 lakh rebate.-
o The home loan must be for the purchase and construction of a property;
o The loan must be taken on or after 1 April 1999;
o The purchase or construction must be completed within 5 years from the end
of the financial year in which the loan was taken

Gujarat State Co-operative Union v. CIT3 it was held that: “The language of the provision
emphasizes that the sole purpose of the existence of the institution should be educational. So the
income of such institutions is contemplated. Therefore, mere existence of profit will not
disqualify the institution if the sole purpose of its existence is not profit-making but is
educational activity.” VI. Property income of a hospital or other medical institution.
[sec.10(23C)] VII. Property income of a trade union. [sec.10(24)] VIII.

Property income in case of a person resident of Ladakh. [sec.10(26B)] IX. House property held
for charitable purposes. [sec.11] In CIT v. Ashoka Charity Trust4 , it was held that “even though
the assessee received voluntary contributions from non-charitable institutions, the expenditure
incurred should be considered to have been met out from the income derived from property held
under trust.” X. Property income of a political party [sec.13A] XI. Property used for own
business or profession [sec.22]

C. COMPUTATION
All the building properties are divided into the following four categories for the purpose
of knowing the principles involved in computation:
o Let-out property
o Self-occupied property (including deemed let-out)
o Part let-out/ self-occupied property
 o Only one house and kept vacant The provisions of section 23 deal with the
computation of annual value of a building property.
After computation of the annual value, deductions prescribed under section 24 are
required to be allowed so as to arrive at the taxable income from house property. The
provisions section 25 merely prescribe for disallowance of certain expenses deductible
under section 24 in the event of non-fulfilment of certain requirements.

D. AMOUNT NOT DEDUCTIBLE

The following amounts are not deductible:-

o Any annual charge or interest chargeable under the act, payable out of India,
or which tax has not been paid or deducted at source and in respect of which
there is no person who may be treated as an agent, is not deductible.(sec.25)
o No deduction can be claimed in respect of that expenditure which is not
specified in section 24(1). For instance, no deduction can be claimed in
respect of expenses on electricity, water supply, salary of liftman, etc.

E. DEDUCTION OF UNREALIZED RENT

Unrealized rent is the portion of your hour rent amount which is not realized from the
tenant for some reason. While deriving actual rent received or receivable for the purpose
of calculating gross annual value, the unrealized rent has to be deducted from it.16 For
that following conditions has to be satisfied:
o Tenancy is bona fide;
o The defaulting tenant has vacated or steps taken to compel him to vacate;
o The defaulting tenant is not in occupation of any other property of
assessee;
o The assessee has taken all reasonable steps to institute legal proceedings
for recovery of unpaid rent.
Any unrealised rent realized subsequently will be taxable u/s 25AA in the year of
realization, under the head, “Income from house property.”
F. What are the conditions for taxability of “Income from House
Property”?

The income from house property is added to your gross total income only when it fulfills
three basic conditions -

o You are the owner of that property.

o Property consist of any buildings and/or land.Building can be residential house,
factory building, shops, offices etc.
o The property is used for any purpose except used by you(owner)for the purpose of
running your business or profession.