6th Sem. Taxation Law.

Unit -1 c. SUMMARY for reference

By- Miss. Bushra Raouf

1. LEVY
● Means to impose (a tax, fee, or fine).
● Entry 83 in Union List , Indian Constitution - the Govt. will levy a
duty on goods imported into or exported from INDIA.

2. TAX
● Compulsory extraction of money from all individuals, to be paid as in
when the tax accrues.
● Tax is enfocrable by law and must be paid. It is not for any services
rendered.
● The essence of taxation is compulsion, levied under various statutory
provisions.
● Taxation is a part of common burden has to be paid as per the capacity
of a person, depending on the nature of tax and nature of liability ,
which accrues for every individual differently and so on.
● The collection of taxes is a sovereign function of the GOVT. it has got
legislative force.
● Article 265- makes it clear that no tax, can be taken unless there is any
statutory force evolved or involved.
● It is collected by the govt. Under various parameters.
● In India taxes broadly divided into 2 types-
Direct taxes ( eg. Income Tax ) & Indirect Taxes ( GST, customs
duty).

TAX FEE
1. specifically divided 1. No such specific mention.
between List I Entries 82 power to levy fee is thus
to 92A and in List II distributed in Entry 96 of
 Entries 46 to 63.
2. Levied as a part of
common burden.
3. paid for the common
benefit conferred by
the Government on all tax
payers
4. no quid pro quo between
the tax payer and the state.
5. Revenue generated either
forms a part of
consolidated funds or are
apportioned between the
center and states for
development and welfare
of the nation.
List I, 66 of List II and 46
of List III.
2. Levied as a part of certain
special services which has
been rendered.
3. payment made for some
special benefit enjoyed by
the payer.
4. the payment is shown
proportionately to
thespecial benefit.
5. money raised by a fee is
set apart and appropriated
specifically for
the purpose of the services
for which it has been
imposed and it is not
merged in
the general revenue of the
State

In the case of Sri Jagnath Ramanuj Das and another vs. State of Orissa,
(AIR 1964 SC p.400, para 9), the earliest leading case of the Supreme Court, in
para 9, Hon'ble Apex Court clearly held :

"A tax is undoubtedly in the nature of a compulsory extraction of money

by a public authority for public purposes, the payment of which is enforced by
law. But the essential thing in a tax is that the imposition is made for public
purposes of the State without reference to any special benefit to be conferred
upon the payers of the tax. The taxes collected are all merged in the general
revenue of the State to be applied in the general revenue public purposes. Thus,
tax is a common burden and the only return which the tax -payer gets is the
participation in the common benefits of the State. Fees, on the other hand, are
payments primarily in the public into but for some special service rendered or
some special work done for the benefits of those from whom payments are
demanded. Thus, in fees there is always an element of 'quid pro quo' which is
absent in a tax. Two elements are thus essential in order that a payment may be
regarded, as fee. In the first place, it must be levied in consideration of certain
services, which the individuals accepted either willingly or unwillingly. But this
by itself is not enough to make the imposition of a fee. If the payments are
demanded for rendering of such services are not se a part are specifically
appropriated for the purposes, but are merged in the general revenue of the State
to be spent for general public purposes."

In M/s.Kishan Lal Lakhmi Chand & Ors. vs. State of Haryana & ors. 1993 (4)
SC page 426 (para 5): where it was held by Hon'ble The
Supreme Court :
"The traditional view that there must be actual quid pro quo for a fee has
undergone a sea change. The distinction between a tax and fee lies
primarily in the fact that a tax is levied as part of a common burden, while
a fee is for payment of a specific benefit or privilege although the special
advantage is secondary to the primary purposes of regulation in public
interest, if the element of revenue for general purposes of the State
predominates, the levy becomes a tax. In regard to fee, there is, and must
always be, co-relation between the fee collected and the service intended
to be rendered. In determining whether a levy is a fee, the true test must
be whether its primary and essential purposes it to render specific
services to a specified area or class; it may be of no consequence that1he
State may ultimately and indirectly be benefited by it. The power of any
legislature to levy a fee is conditioned by the fact that is must be "by and
large" a quid pro quo for the services rendered. However, co- relationship
between the levy and the services rendered/expected is one of general
character and not of mathematical exactitude. All that is necessary is that
there should be a "reasonable relationship" between the levy of the fee
and the services rendered. There is no genetic difference between a tax
and a fee. Both are compulsory extractions of money by public
authorities. Compulsion lies in the fact that payment is enforceable by
law against a person in spite of his unwillingness or want of consent. A
levy in the nature of a fee does not cease to be of that character merely
because there is an element of compulsion or coerciveness present in it,
not is it a postulate of a fee that it must have direct relation to the actual
service rendered by the authority to each individual nor that each should
obtain the benefit of the service. "

TAX AVOIDANCE & TAX EVASION

TAX AVOIDANCE

● The term tax avoidance refers to the use of legal methods to minimize the
amount of income tax owed by an individual or a business.
● It can also be called as strategic planning to reduce the payament of tax.
● Tax avoidance strategies adhere to existing tax laws and regulations.
Taxpayers engage in legitimate financial planning to optimize their tax
burden without resorting to illegal means.
● Can reduce taxes by; creating legal entities like trust, corporation etc.
changing the place of residence ( tax heaven country), double taxation etc.

● Here are some common examples of tax avoidance practices observed in

India:

1. Utilizing Deductions and Exemptions: Indian taxpayers can reduce their

taxable income by claiming deductions and exemptions provided under the
Income Tax Act. This includes deductions for contributions to provident
funds, life insurance premiums, tuition fees, and investments in specified
savings schemes.

2. Investing in Tax-Saving Instruments: Indian tax laws offer various

investment avenues that provide tax benefits, such as Equity-Linked Savings
Schemes (ELSS), Public Provident Fund (PPF), National Savings Certificate
 (NSC), and tax-saving fixed deposits. Taxpayers can invest in these
instruments to avail of tax deductions under Section 80C of the Income Tax
Act.

3. Utilizing Capital Gains Provisions: Taxpayers can minimize capital gains tax
by taking advantage of provisions such as indexation benefits for long-term
capital gains, capital gains exemptions for investments in specified assets
like residential property or certain bonds, and setting off capital losses
against capital gains.

4. Tax Planning for Business Entities: Businesses in India may engage in tax
planning strategies such as restructuring their business operations, utilizing
tax incentives available for specific industries or regions, optimizing
depreciation benefits, and implementing transfer pricing mechanisms to
minimize tax liabilities.

5. Utilizing Double Taxation Avoidance Agreements (DTAA): Indian taxpayers

engaged in international transactions can benefit from DTAA provisions to
avoid double taxation on income earned in foreign countries. By availing of
tax credits or exemptions provided under DTAA, taxpayers can reduce their
overall tax burden.

6. Tax Planning for Salary Income: Salaried individuals in India can structure
their salary components effectively to minimize tax liability. This includes
receiving tax-free allowances such as House Rent Allowance (HRA) or
Leave Travel Allowance (LTA), opting for tax-saving perks like meal
vouchers or health insurance, and utilizing the standard deduction available
for salaried taxpayers.

7. Transfer Pricing Compliance: Indian companies with international

transactions are required to comply with transfer pricing regulations to
ensure that transactions with related parties are conducted at arm's length
prices. Proper transfer pricing documentation helps to mitigate the risk of tax
disputes and penalties related to transfer pricing adjustments.
 TAX EVASION

● Other name- Underground Economy.

● Tax evasion involves intentionally and unlawfully avoiding or
underpaying taxes by concealing income, manipulating financial
records, or misrepresenting facts to tax authorities.
●
● Tax evaders may engage in various tactics to conceal income, such as
keeping transactions off the books, maintaining secret offshore
accounts, or using cash transactions to avoid detection.

● Tax evaders may falsify financial records, invoices, receipts, or other

documents to misrepresent their income, expenses, or assets, thereby
reducing their tax liability.
● Tax Evasion Examples
1. Failing to pay on time- purposeful.
2. Smuggling goods.
3. Bribery.
4. Concealing Income
5. Inflating Expenses
6. Offshore Secrecy

TAX AVOIDANCE TAX EVASION

1. LEGALITY Legal Illegal
2. Transparency Typically transperant Opaque - illegal tactics
3. Time Before the occurrence of After the tax liability
tax liability. arises.

4. Consequences Doesnt lead to penalty, Severe penalties- both

 but authorities may imprisonment with fine.
challenge over avoidance
schemes or plannings.

5. Morality Ethical Non-ethical, is a fraud.