NOTES ON

LAW OF TAXATION
Prepared by
ANIL K. NAIR
Advocate
High Court of Kerala
Phone : 2378489, 2327390 (0471)
9447500443(Mob)

PART-I .
GENERAL PRINCIPLES·
0,. 'l .

opic -J .
Introduction
The twenty-first centrury • modern state is a welfare state. The phi
losophy as !o .the roles an_d functions of the State have un ergone a
radical change in the·twentieth century. Now the state is not merely a •
'police state'. Over and above the traditional functions of protecting the
society from external attack and maintaining law and order, the govern·
ment perform varied functions for the welfare ot the people. The follow
ing are the main duties and functions of a modern state.
,,,,.
1. Protecting the society .ffom·external aggression by maintaining
armed forces.
2. Maintaining law and·order within the society by keeping police force.
and establishing urts ofjustice •
3. Looking after the general welfare of the people by establishing
educational il)stitutions, hospitals, public work_s depart_ment etc.
4. Maintaining ,good relatio·n with foreign states by se ding diplomats
and consuls.I
/.
Inorder to efficiently and effectively discharge these duties and
functions, ,funds woul bs· required by a government. The state may
have at its,iUsposal various sour.ces Qf revenue such as·land, public stock,
penalties, donatie)ns and l _ans·; But1tpJse sources are totally inadequate
to ·meet 'the heavy --cost involved in carrying out the above duties and
- 1
 functions. The only solution is to compel people, who enjoy the benef
of protective and welfare activites of the state,· to contribute for t
satisfaction of collective wants. This compulsory contribution is calJe ,
tax. In other words tax is the price which we have to pay for civilizatffi.
Topic - II
Define Tax? What are the characteristics of Ta
The word tax has been derived from Latin expression 'taxo,'
whig means to estimate or to valu_e or compute. In English language
the wor, fax is used to denote a contribution rathe-rthan valuation or
computatio
In Mathews v. Chicory Marketing Board (60 CLR 263), Latha
C. J of the High Court of Australia has defined the term 'tax' as follows:
·A tax isa comp9lsory exaction of money by public authority for
public purposes enforceat ble by law and is not payment for services
"ren
dered." ':
The definition brings out the essential characteristics of a tax.
following are the characteristics of tax
Compu(sfon
Th,e first essential characteristic of tax is that it is paid by thep
compulsion. It Is not a voluntary payment orn::fonation. It i
1
.c;tJ":SLiant to legislative authority in the exercise of taxing powe
dern_state. compulsion has become more, and the people
mpelled to pay tax on income, net -wealth and even for food
e p_urchas dor consumption. . The compulsion to pay t?
)9 greater as civilization advances.
, The mag Jt.ude of taxation was·expJained by Sydney Smith
jocular way-in the following passage
t •
"The school boy whips his truced top - the beardless youth rides hi,sc!X'
horse,witha taxed bridle,.on a t ed (Oad ; and tt)e dyjng Englishman, ,POI!.[[
hismedicine, which.has paid seven per cent, into a spoon that has paid fitt,ie
percent- flings himself back upon his chintz bed, which· has pa(d twenty two'!
cent- ancfexpires in the arms of an.apothecary whcf' has paid·a licence !,
hundredpounds for the privtl _Qe, of putting him Jo deaJh.." , .•..,.··· ,..-· ·:·'1/f,;l
,who lives in the mordern st te·cannot escape the liability to pay tax.
No quid pro quo
The second characteristic of a tax is that it is collected for public
purpose and the tax-payer will not get any special benefit. There is no
element of quid pro quo between the tax - payer and the public authority
who collect the money. No special service will be given to the tax-
payer. A person who pays income tax will not get any special benefit or
service from the Income Tax Department.
3. Tax is payable in Money
The third characteristic of a tax is that it is payable only in money. It
is collected under authority of law.
4. Public Purpose
The fourth characteristic of a tax is that it is collected for the pur
pose of revenue. The tax collected will be used for public welfare and
public purposes. The tax - payer will also get benefit along with others.
He will not get any special benefit.
Topic - Ill
What are the Canons of Taxation
,,.t Adam Smith, the famous economist, has put forward four principles
or canons of taxation. In the enactment of a taxing statute, the legisla
ture shoula be guided by the following four canons.
1. Equality and Ability
According to Adam Smith the subjects pf every state should be
com pelled to contribute towards the support of Government in proportion
to their income and abilities. In the matter of taxation the principle of
equal ity should be observed. It means that equals should be taxed alike.
Equals and unequals should not be taxed alike. One who could earn
more at the protection of the state should be compelled to contribute
more towards the support of Governement.
2. Certainty
The tax which each individual is bound to pay should be certain.
The time of payment, the manner of payment, the quantity to be paid are
• This passage i t s e,lsf hRWS t/le ,compulsit;>n iriv l'( 'i'Li'? tax'. J: t!,il.i' all to be made unambigous and certain. It should be made known to the
A p. 3
2
 rsons wl1O hnvo to conmoutu.
P,ensatory fe,e·•h re. i an e!ement ot,qyJg'p',r<,:tqgo. I
3. Conventenco n for the service1rehdered by the•Goverrimen.t. An i,...." .._.... .. ·"'··--·,,_ -
Tax should be levlod at the time which is more convenient' to tfi atory feecanbein alidaJ d o th "gr
contributors. A person should not be directed to pay several types o • ln1.ther9s . orfegul toJy fe t!:!ere
taxes al a time. qyo.-tn1the' case of tai ,al o th ere i 1

efit to ,the payer.

4. Economy
In S. T . Swamiar.v. Commi! ioner
The purpose of taxation is to collect revenue for public purpos .
9§6),, ,the Supreme gour,tobs rv d tj1a
The expenditure for c llecting tax should not be greater than the tax
eci ic seryice, levy i , imposed by t yl.and
collected. Tax should be collected at minimum expense. If most of the
rVi(?e,sare metO!Jt of
proceeds are swallowed up by the machinery employed for collection, the'.amount,._5(2_colle ture·•of a fee and
there is no meaning in collecting tax. • not fii the natur
, - ,"'- ffc,,.. ,-,, I

of tax.
vied a n the bility of,thE3 payer will ii_ot
Topic -- IV ing a l2vyin consideration of reng (iQg
Distinction between Tax and Fee er will 1b_p,corre,lation't:,ehwe_en th
m nt,and'the amount of fee.
A 'tax' is a compulsory exaction of money by public uthority for
public purposes enforceable by law and is not payment for services ren In M/s KriShJl.! Lal ,Lak
dered. Pp (4),§,CC 461 h ►ttte § pr.eme
an-e sential element of fe 1.Wh2n .,i
A tax is imposed under statutory power without tax payer's '?·onsent paid for eerformin 1 ,fun • -
and the payment is enforced by law. It is an imposition made for public dered, there,·is· an element,Qf quid'
purposes without reference to any special benefit on the payer of the tax.
As the object of a tax is not to confer any special benefit upon any par .lfl e..
Kanadasa,.y.st£!te
ticular individual there is no element of quid pro quo be!ween the tax S,f:T@'mil pointed out that •tttie 'ele.m nt
payer and public authority. ,o11•C11Jid ,pr each and every case .
nc::it.mg se Qf r,@g
quo is totally/irrelevant.'.
-l-

A 'fee' Is defined to be a charge for a special services rendere to

Individuals by some governmental agency. The amount of fee levied i s
'
In $t te· o,f •U P. .v,.§jtap,ur PJ\'cking WsoJJup13.,IJ_eri: (2.0()_2)l 4
ec - • • ... • .... "Ii' •• - ,'1.1 .. ilill • .-;' .,.. ·... -

supposed to be based on the expenses inc_urred by the Gover ment,tn &66 the Suprep,eourtheld. thatJnipa of rt :vy eme . Ult! el. ment
rendering the service. A fee is something which a person has to pay if l;lij of qt.Jid pro,quo 1s·n ce ...ary wh- n a
fee is ,p2meer - tory. Ut is well .est
wants certain services from the Government. There is no obligation on t;, l! h·e.,d 'tha,t .s.for •a.very f e··quid pro qlfo,js-•119hnecess_ fy. •·;r,:h,tiansi,t
fe
his part to seek such service. If he does not wa11t the services, he can
avoid the obligation to pay the fee. b.ein,gregdlatory,it is not,nec. ss€lry to estf:!.blish,•the faptu_m,,<>f ,:r ndering

Fee may be Compensatory or Regulatory. In the case of compen

satory fee, the fee is collecte_d to compensate an a,uthority for services
rendered. In the case of regulatory fee the autho ity 'llay ot proyjg
special service to the payer of fee. As a general rule, in t·he cci'se. of
.f,,,!"•
4
 fees in respect of any of matters in List I, but not including fees tak
any court. By virtue of entry 66 of List 11, the State Legislature can en· Progressive Method of Taxation
laws imposing fees in r spect of any of matters in List 11, but not inclu U In this method, tax at a higher rate is imposed on the higer income.
fees taken in any court. By virtue of Entry 47 of List 111 (Concurrent Lis
e basis of income different slabs will be fixed, and an increased rate
both th -·
. • e Parliament and State Legislature can enact laws imposing ax will be fixed on higher income slabs.
fe'
in respect 0 f
any of the matters in the List.
le
Topic-V Rate of Tax
irect Tax and Indirect Tax
Upto Rs.1,00,000 10 %
Tax
Indirect may be classified into two. They are (1) Direct Tax and
Tax. Rs. 1,00,000 to Rs. 2,00,000 20 %
Rs, 2,00,000 to Rs. 3,00,000 30 %
Rs. 3,00,000 to Rs. 4,00,000 40 % and so on
A direct tax is one which is to be directly paid by the person bound
to make payment to the authority competent to collect tax. Direct tax is
Regressive Method of Taxation
one Which is demanded from the very person who should pay it. It is th'e opposite of progressive method of taxation. In regressive
tax and Wealth tax are examples of direct taxes. method of taxation, the rate of tax falls with the rise in income.

1
!n thecase of indirect tax the initial burden will be on one person
the, l,lftam te burden will be on another person. In indirect tax there Income Rate of Tax
fliftio!1_.of burden. Sale tax is an example of indirect tax. The
tt.y-n-_ q. ..e.r.4n obligation to pay tax on the sale of goods and he Upto Rs.1,00,000 40 %
7 Rs. 1,00,000 to Rs. 2,00,000 30 %
can Rs, 2,00,000 to Rs. 3,00,000
1 20 %
"'ffie••frQm ,hebuyer. He will be liable to pay tax even though Rs. 3,00,000 to Rs. 4,00,0_00 10 %
he
'W!. .§l!e, }8. ttie
tax from the person on whom the ultimate burden
,,;.!s;• Thus.th_e initial bu_rden is on the dealer and the ultim te burden is
t1T• ; ,r'?•;..the.buyer-. Indirect tax is collected through an intermediary. The

£:,;.·
tcollection. "person, who has initial burden, acts as an agent for 4. Degressive Method of Taxation
'i ttf•:;;
·t:c,;-•Topic -VI In degressive method of taxation, rate of tax increases with the rise
in income but the increase in rate of tax will not be in proportion to the
:1::•M,ethods of Taxation
.....,,. t •."_:. in income.
.....

There are different methods of taxation. They are the following

Income Rate of Tax
••(a) Proportional Method of Taxation
In thismethod, tax ls imposed at same rate for the taxable income. is applicable to all perso s
If tax at the rate of 10% or 20% or 30% is imposed on the income, it is irrespective of the income
proportional method of taxation. There will be no slabs. Same rate of tax they get.
6 Upto Rs.1,00,000 10 %
Rs. 1,00,000 to Rs. 15 %
2,0U,000 Rs, 2,00,000 to Rs. 18 %
3,00,000 20%
Rs. 3,00,000 to Rs. 4,00,000

7
 O'-'rOnstitutionaJ basis for Taxation ·· Taxes on railway fares and frieghts.
Taxes on stamp duties on transactions in stock exchanges and fu
t''hNo !ax shall be levied or collected except tures markets:

by.Ii. Rates of stamp duty in respect of bills of exchange, cheques,

promissory notes, bills of lading, letters of credit, policies of
oraty of law" Comment ·-- insurance, transfer of shares, debentures, proxies and receipts.
Taxes on the sale or purchase of goods other than Newspapers,
According lo Article 265 of the Constitution of India, "no tax sijai where such sale or purchase takes place in the course of
be levied or collected except by authority ol law". Law, here, means 1 '1 inter- state trade or commerce.
law enacted by the Legislature and ii does not include an executive orliii Taxes on the consignment of goods ( whether the consignment is to
orexecutive instruction. Thus a tax cannot be levied or collected onl h i ;; the person making it or to any other person ) , where such
I
' O basis of an executiveorder. Thelaw should bea valid law. The
v i ; .
consignment takes place in the course of inter-state trade or
f. law mJ commerce.
ii be enacted by the Legislature which is competent to enact ii and Taxes on any matter not mentioned in List II or List Ill.
itmllf i l I' not violate any provision of the Constitution.
:l,; " '
1 By virtue of Article 246 (3)of the Constitution of India, the State
By virtue of Article 246(1) of the Constitution of India, the_Parli.;,\ Leg jlatures have exclusive power to make laws with respect to any of
miant has exclusive power to make laws with respect to any of the matters the matters enumerated in List II (State List) in the Seventh Schedule.
'!nll)"nerated in List I (Union List) in the Seventh Schedule. By virtue By yirtue of entries 46 to 63 of List II the State Legislature can enact
e n t rie s 82 to 92B of List I the
- .' i ...
Parliamen t can enact laws imposing taxo·n
•
laws
,n >tollowing matters imposing tax on the following matters •

Taxes on income other than agricultural income Taxes on agricultural income

Q,uties of customs including export duties Duties in respect of succession to agricultural income
Estate Duty in respect of agricultural land
3. Duti s of excise on the following goods manufactured or produced
in India, riam ly:- 4. Taxes on land and buildings
(a) petroleum crude; 5. Taxes on mineral rights
(b) high speed diesel; 6. Duties of excise on the follwing goods manufactured or produced in
the state
(c) motor spirit (commonly known as petrol);
(d) natural gas; (a) Alcoholic liquors for human consumption
(b) opium, indian hemp and other narcotic drugs and narcotics
(e) aviation turbine fuel; and
7. Taxes on the consumption or sale of electricity
(t) tobacco and tobacco products

4. Corporation Tax 8. Taxes on the sale of petroleum crude, high speed diesel, motor spirit
Taxes (commonly known as petrol), natural gas, aviation turbine fuel and alco
5. on the capital value of assets, exclusive of agricultural Ian ··:
holic liquor for human consumption, but not including sale in the course
of individuals and companies; taxes on the capital of companies.
Estate of inter-State trade or commerce or sale in the course of international
6. duty in respect of property other than agricultural land
Duties trade or commerce of such goods.
7. in respect of succession to property other thanagricultural: , 9. Taxes on goods and passengers carried by road or on inland water
land
Terminal ways
8. Taxes on goods or passengers, carried by railways, sea of,\ 11. Taxes on vehicles
air;
 13. Taxes on animals and boats
8 9

L
 1,i_ Tolls
16 Laws and Fundamental Rights
I.', I
• Toxoaon profoaolons, trodos, colllng and omployments
16• Cnpltntton toxos
Article 14 of the Constitution of India guarantees right toequality.
17 T
• o x o s on ontortnlnmonts and amusornents to the extent levied @l'• [licle 14, state shall not deny to any person equality before the law or
ana
,, I colloctod by O Ponchoyat or o Municipality or a Regional Council ora th' C!ual protection of the laws within the territory of India. If a law
District Council. .•
, enacted ·by the Parliament or State legislature is violative of Article 14,
Tho Ptullornent cannot enact o law Imposing tax on the matters a'nu. th!f upreme Court or High Courts can declare such law as unconstitu-
t
mera od In State list andtheState Legislature cannot enact laws impos.
Ing tax on matters enumerated in Union List. If the Parliament or State 'tiqn I.
Legislature enacts 8 law Imposing tax on a matter of which it is not co What Article 14 says is that equals should be treated alike and equals
rn., angpnequals should not be bracketed together•. In other words equals
patent, the Supreme Court or High Court can declare it as ultra vires ancj nd,unequals should not be treated alike. Thus, by Article 14, State can
• Vold.
11 cl ssify persons or objects for the purpose of legislation.
II
i'( It is not open to attac.ka taxing statute on the ground that it taxes·
,\: Immunity of Instrumentalities
orQe persons and objects and not others. The State has wide powers in
Though the Parliament and State Legislatures· are empowered to sel cting persons or objects for the purpose of taxation. A taxation will
enact laws imposing tax 0;, any various matters contained in Union Pst be ljable to be struck down as violative of Article 14 if there is n reason
and,State List respectively, the power is subject to certain restrictt9-os able basis behind the classification made by it. If the same class of
cont ined in Articles 285 to 289 of the Constitution of India. They are prop erty, similarly situated, is subject to unequal taxation, the taxation is
called immunity of instrumentalities. li able to be struck down as violative of Article 14.

The following are the restrictions in taxing power. (i) Western India Theatre v. Contonment Board (AIR 1959 SC

to,};'\,>;_, 1 • The property of the Union shall be exempt from all taxes imposed
582)
!f\'i.; \ -··,···
-- ·-'-·-·-•••; -, t/.',": ,\ , .
by a State.
t
The Cantonment Board imposed a higher tax on cinema house
t,ryfi , ;;7?,,t;'.-: t .ta shall not impose a tax on the sale or purchase of goods if co_ntaining larg_e seating accommodation and situated in a busy locality
1 w.here the number of visitors are more numerous. Lesser tax was
W• t:. p.;• ,2'; "i; J, " -1' f';:J1'such' sale or purchase takes place outside the State or in the
cou' rse
j".\•t1.:··.,, of the import of goods into, or export of the goods out of, the
territory of India.
3. No law of a State shall impose a tax on the consumption or sale_pf 10
electricity which is consumed by the Government of India or sold/to
the Government of India for consumption by that Government.
4. No law of a State shall impose a tax on the consumption or sat of
electricity which is consumed in the construction, mairitenace or.
operation of any railway by the Government of India. .
5. The property and income of a State shall be exempted from Unio ·
taxation.
i g less accommodation and situated in a locality
m where visitors are less numerous.
p
o The Supreme Court held that the taxation is not
s violative of Article 14 of the Constitution. The
e classification was based on income of cinema house.
d
(ii) • Venkateshware Theatre v. State of Andra
Pradesh (AIR 1993 SC 1947)
o
The A.P Entertainment Tax Act, 1939 was amended in
n 1984. The
Amendment Act introduced a new system for levy of
s tax. Prior to the amendment tax was levied on the
m basis of number of persons actually admitted to each
a show. Under the new system for levy tax gross
l collection
l 11
e
r

c
i
n
e
m
a
-
h
o
u
s
e

c
o
n
t
a
i
n
i
n
 capacity per show
Ptescribod was to be considered ond difforont percentage
on Uu b8 1
located. s of type of theatre and Iha area in which It

PART- II ·
h THE INCOME TAX ACT, 19 1
, e Court held the classificalion of theatres into different clas
wasnor violtive of Article 14oflhe Conslitulion.

d
; I (iii) lo 1an Express Newspapers v. Union of India (1985
641)
Income tax is one of the major source of revenue for the Government.
s mall, The Supreme Court held that the classification of newspapers In
mediumand big newspapers on the basis of their U occupies a dominant place in the Direct Taxes: The administration and
circulation·,t1
th C..Q.lle.ction of Income tax is vested in the Central Government. However,
e Purpose of levying customs duty on newsprint was not violative,:,
Ar ticle 14. -· jhe tnet proceeds of the tax (ie., gross amount of tax collected less
pol/action charges) are apportioned between the Central and State
GQ.vernments. The following are excluded from the divisible pool:

ti) The Corporation tax ( Income tax on Companies)

(iJ) The proceeds of tax attributable to Union Territories
.(fll) Tax .payable in respect of the Union Emoluments - Paid out of the
Consolidated Fund of India.
Surcharge on income tax for purposes of the Union, if any.

The amount excluded fro divisible pool goes to the Central

.G..overnment. The principles regarding the distribution of the remaining
amount are determined by the Finance Commission.

In India, tax on income other than agricultural income is levied and

c·ollected under the Income Tax Act 1961. The Parliament enacted the
Income Tax Act; 1961 in exercise of its powers conferred under Article
46 read with entry 82 of L(st I of the Seventh Schedule to the
Constitution
•9f India. (The Income Tax·Act, 1961 is tiereinafter referred to as the" I.T.
Act,1961" in these Notes).

By Article 270 taxes on income other than agricultural income shall be

levied and collected by the Government of India and distributed between
3 ,

t,ie Union and the States as per the recommendation of the Finance

The law relating to income tax is c·ontained in

(1) The Income Tax Act, 1961
(2) . The Income Tax Rules,1962
 (3,
) The Annual Finance Act
12
 (-1) Citculors, Notifications ond Ordors of the Central
of O/roct Toxos
S) Exocut/ve Instructions of Ille Department regar,dll} Income of persons leaving India either permanently or fora
procoodurol aspects of collection of tax. long period of time.
(6) The Judgements rendered by competent Courtsof: Income of a person trying to alienate his assets with a view to
avoid tax
On everyyear the Parliament passes the Finance Act. It fi>ce Income of a discontinued business.
rates of tax for the relevant assessment year, rates for deduction of 1
source and advance payment of tax. The Finance Act may also
Ubstantiaal mendments to lhe Income Tax Acl'.1961. If in anassesJI
Ill
are liable to pay tax under the Income Tax Act
8 ar lheFinance Act is not passed on lsl Apnl, lhe lax shall be ..
charg'Ba 1
1 therates in force in lhe preceding assessment year or al lhepropci
11 is an "ASSESSEE" ?
rates in lheFinace Bill then belore Parliamenl, whichever Isfavourab1 ;
e· assessee. 1 t is the rate of tax applicable to different
ssees? •
Topic -II
Assessment Year & Previous Year An assessee is a person who is liable to pay income tax or any other
.,gm of money payable under the IT Act, 1961. Every person whose total
'"Assessment Year" means the period of twelve months commeno
incgme exceeds the non-taxable limit is an assessee under the I.T
on thelirst day of April every year and ending on 31st day of next M 1'
It isalsocalled financial year. The currenl assessment year Isg Act,'1961.
2018. Thecurrentassessment year has begun on 1st Aprilof,2017'
·, will end on 31 st March 2018. !The following persons are liable to pay Income Tax under the I.T Act,
.1961.
1) Individuals
'Previous Year" means the financial year immediatelyp
sm_ent year. The previous year of the current assessmenttEl
2) Hindu Undivided Family (H.U.F)
,-2Ji17,
3) Company
'ltif'!'•, "Anassessee•s income of previous year is taxed during the
following ssment·Ye at the rates prescribed for such Firm
assessment year b,Y,i "\y,iln.t Fin"atice Act. Thys.income earned In a
finance year istaxabl;,fn • 5) Association of persons or body of individuals, whether incorporated
'f Jfl/lnance year. The year In which income is earned is known itS
ii'iiS
U:,:•· year
• and the next year in which Income is taxable
· Is known
. li§ "'
:":,•·J:·,
i(l'l!l.(llyear... • •tf.l
..- J,.}
The exceptions are:

'" ,.$'i i • • ?ffJ '" (a) Income of non-resident shipping companies, if they
1 any
,/..:. ;:f' There are representative
certain the general rule that the I n c o m.eo .Jf \.-::_;f
exceptionsintoIndia. :f
.;\.f..-"f_'., do not ha.\l .: ; J
• : <f;
j::,c,, ".
· year is assessable to tax in the next assessment year.
'the prev/01,1s :;,:;sf.
·'. . '·
 or not.

6) Local Authority. -

7) .Every Artificial Juridical Person.

 Bato of Tax for the Assossmet Years 201Z-2018 2010-201

(i) The rates of income tax applicable to every individual 3,00,000 upto Rs. 5,00,000 5% of the amount by
senior Citlzon who is 60 years or more) is as follows: which the total income
Income Tax Rate exceeds Rs. 3,00,000
l) upto Rs. 2,50,000 Nil
. 5,00,000 upto Rs. 10,00,000 - Rs. 10,000 plus 20 per

2) above Rs. 2,50,000 upto Rs. 5,00,000 cent of the amount by

5% of the amount which the total income
whic;h the total exceeds Rs. 5,00,000
income exceeds
Rs. 2,50,000 . Rs. 1, 10,000 plus 30 %
3) above Rs. 5,00,000 upto Rs. 1 0 lakhs of the amount by which
the total income
the amount by exceeds Rs.10,00,000
which the total i
exceeds Rs.5,00 IJl '!!ddition to the income tax, every assessee has to pay 10% of the
4) above Rs. 10,00,000 qc;,fi,ie,tax as surcharge
p;_·,·
where taxable income is more than Rs. 50 lacs
Rs. 1,12,500 pl :;_!:!RJO Rs. 1 crore. Where taxable income is more than Rs. 1 crore,
of the amount b o/o;qf"the Income Tax is to be paid as surcharge. 3% of the total of
the total income a ffi Tax and Surcharge 1s to be paid as Educational Cess.
exceeds
Rs.10,oo:go
·charge: In addition to the income tax, every assessee has to pa '(QD The rates of income tax applicable to every individual
he Income Tax, where taxable income is more than Rs. 50 lac above e of 80 years ( Super Senior Citizens) are as
1• crore as surcharge. However, the amount of Income Ta follows:
shall not increase the amount of income tax payable Tax Rate
_>IT,le ot As. 50 lacs by more than the amount of incre Nil
·ro.9,,..
.above Rs. 5,00,000 upto Rs. 10,00,000 - 20% of the amount by
on,.to,,the·in ome. tax, every assessee has to pay15% which the total income
, - ho t at,le,:lncome is more than Rs. 1 crore. Ho exceeds Rs. 5.00,000
.t o,t lnc4)1 •;,-T ? n,d-Surcharge shall not increase thea
tax payable ona taxable income of As. 1 crore by mor Rs. 1,90,000 plus 30
t of increase in taxable income. per cent of the amount
on Cesa: 3% of the total of Income Tax and Surcharge. by which the total
income exceeds Rs.
he rates of income tax applicable to every Individual abov
10,00,000
f,60 years (Senior Citizens) but below 80 years are as
follow
In addition to the income tax, every assessee has to pay 10% of the
Income , me Tax, where taxable income is more than Rs. 50 lacs and upto Rs.
1) upto Rs, 3,00,000 Tax Rate
.c.r re as surcharge. It is 15% of the Income Tax, where taxable income
Nil jore than Rs. 1 crore. 3% of the income tax and surcharge is to be
16
17
 For the balance - 40% of taxable income.
pnld as Educational Coss,
Surcharge : The amount of Income tax as computed in accordance with
a9ove rates, and after being reduced by the amount of tax rebate shall be
Portnorshlp Firms
The rate of tax applicable to Partnership firm _tor the assessment Increased by a surcharge as under:
years 2018- 2019 is 30 % of the total taxable income. A firm has to Pay
At the rate of 2% of such income tax, provided that the taxable Income
12% of the income tax as Surcharge, where taxable Income is more than
As. 1 crore. 3% of the total of Income Tax and Surcharge is to be paid exceeds As. 1 crore. At the rate of 5% of such income tax, provided that
as Educational Cass. • the taxable Income exceeds As. 1O crores.
Education Cess : 3% of the total of Income Tax and Surcharge.

Local Authority
Income Tax : 30% of taxable Income. The rate of tax applicable to co- operative Societies

Surcharge: 12% of th Income Tax, where taxable income is more than Income Tax: Where the taxable income does not exceed As. 10,000,
Rs. 1 crore. 10% of the income. Where the taxable income exceeds Rs. 10,000/- but
Education C ss : 3% of the total of Income Tax and Surcharge. does not exceed As. 20,000/-, As. 1,000+ 20% of income In excess of
Rs. 10,000. Where the taxable income exceeds As. 20,000, As. 3.000 +
Companies ., 30% of the amount by which the taxable income exceeds Rs. 20,000.
The rate of tax applicable to companies for the assessment year
2018 - 2019 is shown belm 1
: •
Surcharge : 1 2 %_ o f theIncome Tax, where taxable income is more
than As. 1 crore. However, the amount of Income Tax and Surcharge
shall not increase the amount of income tax payable on a taxable
In the case of domestic companies -
Income Tax: 25% of taxable income, where turnover is below 50 crores. income of As. 1 crore by more than the amount of increase in taxable
30% of taxable income, where turnover is above 50 crores. income.
Surcharge : At the rate of 7% of such income tax, provid d that the taxable
income exceeds Rs. 1 crore. At the rate of 12% of such income tax, Education Cess : 3% of the total of Income Tax and Surcharge.
provided that the taxable income exceeds As. 10 crores.
NRI or HUF or AOP or 801 or AJP
Education Cess : 3% of the total of Income Tax and Surcharge.
(NRI - Non Resident Individual; HUF - Hindu Undivided Family; AOP -
Association of Persons; 801 - Body of Individuals; AJP - Artificial Judicial
In the case of foreign companies
Person)
Income Tax : 50% of so much of the taxable income as consist of -
Income Tax:
(a) royalties received from Government or an Indian concern in
i. Where. the taxable income does not exceed Rs. 2,50,000/-. NIL
pursuance of an agreement made by it with the Government or the Indian
ii. Where the taxable income exceeds Rs. 2,50,000/- but does not exceed
concern after the 31st day of March, 1961 but before the.1st day of April,
Rs. 5,00,000/-, 5% of amount by which the taxable income excee-ds Rs.
1976; or
2,50,000/-.
(b) fees for rendering technical servi_ces received from Government or
iii. Where the taxable income 1:. ceeds Rs. 5,00,000/- but does not
an Indian concern in pursuance of an agreement made by it with the
exceed Rs. 10,00,000/-. s. 12,500/- + 20% of the amount by which the
Government or the Indian concern after the 29th day of February, 1964
taxable income exceeds Rs. 5,00,000/-.
but before the 1st day of April, 1976, and where such agreement has, in
iv. Where the taxable income exceeds Rs. 10,00,000/-. Rs. 112,500/- T
either case, been approved by the Central Government.
30% of the amount by which the taxable income exceeds Rs. 10,00,000/-

18
19
Surcharge: 10% of the Income Tax, wnert1, ...,.----
Rs. 50lacs and upto Rs. 1 crore. 15% of the Income Tax, where taxable

income is more than Rs. 1crore. (Keyman Insurance Policy is a policy taken on the life of one person by
Education Cess: 3% of the total of Income Tax and Surcharge. another person in whose organisation the first person plays a key role. The
relationship between these two persons could be that of employer -employee or that

Topic IV of princi:paJ and agent. If a premium is paid on such policy, it can qualify for

Definition of "INCOME" deduction as a business expenditure if it can be established that the policy has
been taken on th.a life of such person in the interest of the business. As regards the
S. 2 (24) of the f. T. Act,1961 defines 'income'. treatment of the maturity proceeds of a Keyman Insurance Policy. it is treated as
income for the purpose of I.T.Act,1961. The exemption available under s.10 {10D) of
1r_1come tax is an annual tax on the income of the assessee. Income the I.T. Act,1961 in respect of the maturity proceeds of a life insurance policy is not
of the previous year is charged to tax in the next following assessment extended to proceeds of a Keyman Insurance Policy)
year at the rates of tax applicable for-that assessment year.
The term 'income' is not exhaustively defined in the I.T. Act,1961. Only
By virtue of secUon 2(24) the expression 'income' includes- a list of re eipts which would be treated as income are given. Any·new
1} Profits and Gains of business or profession typ ofincome can be added to it, since the definition is not exhaustive.
2) Dividend
3) Voluntary contributions received by a Religious or Charitable In CJ.T. v. Shawallace and Co.(AIR 1932 PC 138) the Privy
Trust or institution. If the contributions are made. with a Council defined the term income as follows: •income is a periodical
specific direction that they shall form part of the corpus of the monitory return coming in with some sort of regularity or expected
trust, rt will not become an income. regularity from definite sources". The definition of 'income' as given
by Privy Council
4) 20
Value of perquisit s or profit is lieu of salary
5)
Any special allowance or benefit granted to the assessee to
meet his expenses for the performance of his duties of an office
or an employment of profit.
6)
Export incenUves
7)
Any interest, salary, bonus, commission or remuneration
earned by a partner of a firm from such firm.
8)
9) Capital Gains
Profits and Gains of any business of insurance carried on by
10) mutual insurance company or a co-operative society.
Profits and gains of any business of banking carried on by a
11) co-operative society with its members
Any winning from lotteries or crossword puzzle including
horse• races, card games and other games of any sort or
12) betting of any form.
Any sum received by any taxpayer from his employee as
13) contributfons to any fund for the welfare of such employee.
Any sum received u der a Keyman Insurance Policy including
. bonus. .·. ';:: ;:."'-
•
was a described as income is taxable under the Act, unless
narrow one expressly exempted.
and as a
result many
items of This decision has given a wider meaning to the
reciepts concept of income by which any item of receipt can be
escaped
tax. brought under the ambit of income and subjected to tax.

In The following are some of the general rules regarding the

income.
Gopal
1. An income earned whether legally or illegally
Saran
is taxable under the Act.
Narai
2. Income need not be recieved
n
periodically or regularly. Lump sum
Singh
receipts can also be treated as
v.
income.
C.I.T.

!
?,
i
3. Income need not be received in the form of a
....,
(1935)
money. Receipts in kind or service having
3 ITR • "-/Jo •.

p. money equivalent can also be treated as :J't : ..

income.
L
237)
lord 4. If an assessee has earned an income, it will be
treated as
Russel
21
l
added
a
signific
ant
extens
ion to
the
conce
pt of
Incom
e.
Accor
ding to
him
anythi
ng
which
can
proper
ly be
 Income of lhe assessee th0 h he has not actually
ug
to render the produce fit for the market by the cultivator,
received it. expense met by a person is
Money received to recoup any . not or
. chargabfe to tax not on what his Pocket
income. A personIS 3. by the sale of the produce raised by the cultivator after
saves but on what goes into his pocket. the aforesaid process as been performed.
Cash ward received by a sportsman, who isa professional, c) Any income derived from any building owned and occupied by
is in the nature of a benefit in exercise of his profession and the cultivator. However the building should be required as a
thus it is chargeable to tax. In the case of non-professional dwelling house or as a store house or other out-building in
sportsman, the award received in cash is in the nature of gift connection with the land. The building should be in the
and not liable to tax in his hands. immediate vicinity of the agricultural land. The land should be
Prize on winning a motor rally is held to be income ( CIT "· assessed to land tax in India.
G.R. Karthikeyan ( 1993) 68 Taxman 145 (SC).
Pin money received by wife for her dress I personal expenses Any income can be treated as agricultural income only if the following
and small savings made by a woman out of money received conditions are satisifed.
from her husband for meeting household expense is not 1) Land should be situated in Indra.
treated as her income. 2) Income must be derived from the land.
GiH of a personal nature, e.g., birthday gifts, marriage gifts, 3) Land must be used tor agricultural purposes.
etc. is not income and therefore, the receipt of such gift is not
liable to income-tax. The term 'agricultural purpose' means cultivation of a field which
implies expenditure of human skill and labour upon land. In other words
the operations such as tilling the land, watering it, sowing of the
Topic-v seed,planting and similar operations should be conducted on the land.
Definition of Agricultural Income These are the basic operations.

In C.I.T. v. Raja Benoy Kumar Sahas Roy ( 1975) 32 I.T. A p. 466

Agricultural Income is exempted from liability of income tax under the
(SC) the Supreme Court held that in order to treat an income as
Income Tax Act, 1961. However with effect from· the assessment year
•agricultural income' two conditions are to be satisfied:
1974- 75 agricultural income has become a factor in determining the tax
1) Some basic operations prior to the germination are essential to
n the non-agricultural income of the assessee. If the assessee's non
constitute agriculture. Thus tilling the land, watering it, sowing the
agricultural income exceeds the exemption limit, in order to find out the
s,eeds, planting and similar operations on the land should be conducted
,ate of tax, the agricultural income of the assessee will be added to the
non-aaricultural income. by the assessee.

2) Subsequant operations such as weeding. pruning. cutting.

Section 2 (1)(A) of the I.T.Act,1961 defines 11
agricultural income."
harvesting, rendering the produce fit for market alone would not
..Agri constitute agriculture.
ultural income" Includes the following;
a
Anyrent or revenue derived from land which is situated in India In C.I.T. v J. K. Chaudary (1957 32 ITA p. 705 (SC), the Sup,ceme
andis used for agricultural purposes. Court held that the products which grow wild on the land or products
b
Anyincome derived from land which is situated in India- which are of spontaneous growth not involving any expenditure of human
1. by agriculture, or labour or skill (basic operations) upon the land are not products of
2. by the pf,rformance of any process ordinarily employed _agriculture and the income derived from the sale of such products is not

22 23
 Thefollowing Incomes although related to land are not agricu1tura1
ncome.
Income from markets
) Income from stone quarries
3) Income from mining royalties
4) Income from self grown grass, trees or bamboos
5) Income from fisheries
) Income from supply of water for irrigation purpose
7) lncome from the sale of earth tor brick making
8) Dividend from a company engaged in agricultural operation
fn Bacha F. Guzdar v. C.I.T (1955 27 ITA p. 1 (SC), ii was held that
ived by a member of the company which is engaged
in ulfural operation is nor agricultural income in the hands of
the
ember.
In C.I.T. v. Raja Bahadur Kamakhaya Narain Singh (1948) 16
LT.A p. 325(PC) the court held that income from interest on arrears of
rent payable in respect of land used for agricultural purpose is not
agricultural income.
In Chellaiah Pillai v. C.I.T (1948) 16 ITR p. 350, the court held that
income from lease of land for grazing of cattle required for agricultural
pursuit is agricultural income.
Computation of lnc_ome Tax where the assessee has also
Agricultural Income
If the assessee has agricultural and non-agricultural income and the
non- agricultural income of the assessee exceeds the maximum exemption
limit and the Net agricultural income exceeds Rs.5000 (ii the agricultural
income is less than 5000, it need not be taken into account), the following
stepts should be followed to calculate tax for non- agricultural income.

Step 1 Add agricultural income and non-agricultural income and

In State Farming Corporation v. C.I.T ( 1990 ) 181 ITA p.271, the calculate tax on the aggregate as if such aggregate is the total income.
Step 2 Add agricultural income to the maximum exemption limit
ngaged in the cultivation of sugarcane. The income derived
available in the case of the assessee and compute tax on such amount
alo of fonder forms by the assessee was held to be not • as if it is the total income.
ricvltural Income. Step 3 Deduct the amount of income tax computed under step 2 from
the tax computed under step 1
The amount so arrived shall be total income tax payable by the
Jn R.M. Chltambaram PIiia/ v. C.I.T (1970) 77 ITA p. 494), the assesses.
court held that salary, interest from capital and share of profit of a partner Step 4 Add educational cess and SHEC @ 3%
ofa firmongagod In agricultural operation was agricultural income.
Illustration
Gross total income of X aged 50 as computed under Income tax Act, for the
ti agricultural land is tel out for agricultural purpose by the land lord Assessment year 2015-2016 is 2,80,000. He has agricultural income of Rs. 3,50,000.
nd roceivos ront, the rent received by the land lord will be treated as Find out the Income tax payable by X
agricultural Income. Step 1 Aggregate of agricultual income and non-agricultural income ( 3,50,000
+ 2,80,000 = 6,30,000) is Rs.51,000
Step 2 Add Rs.2,50,000 ( exemption limit) to the aggricultural income of R
If thecrops harvested doeBnot find a market some operations may be 3,50,000. It comes to Rs.6,00,000. Tax on· Rs.6,00,00 is Rs.45,000.
Step 3 Deduct tax under step 2 from tax under step 1 ( 51,000-45,000 =6000). Thus
performed by tho cultivator lo make It a marketable commodity. Such
Rs. 6,000 Is the income tax. Add (3% of Rs.6000) 180 as educational cess & SHEC.
oporatlonanhancaa tho value of the produce. Such enhanced Income Js Total tax payable = 6180/=
also agrioultural Income.
If the Assessee had non agricultural income, he would have to pay Tax for Rs 30,000
(total Income 2,80,000 - 2,50,000 basic exemption)
Tax would be 10% of 30,000 = 3,000 + 90 ( 3% of 3000) educational cess
In MaharaJa ot Kapurthola v. C.I.T 1945 13 /TA p. 74, the Court Total tax payable 3090
holdthatlncomo from salo of forest treos of sponta'le us growth on which Thus In effect if a person has agricultural income and non· agricultural income, he will be
some oporatlons tor their prasorvatlona and growUi wore pe/tormad is charged more.
not agrloultural Income.
 24
25

"' :/

#
- agricultural income.
The following incomes although related to land are not agricultural
income.
1) Income from markets
2) Income from stone quarries
3) Income from mining royalties
4) Income from self grown grass, trees or bamboos
5) Income from fisheries
6) Income from supply of water for irrigation purpose
7) Income from the sale of earth tor brick making
8) Dividend from a company engaged in agricultural operation
In Bacha F. Guzdar v. C.I.T (1955 27 ITR p. 1 (SC), it was held that
the dividend received by a member of the company which is engaged in
agricultural operation is not agricultural income in the hands of the
member.
In State Farming Corporation v. C.tT ( 1990) 181 ITR p.271, the
assessee engaged in the cultivation of sugarcane. The income derived
from the sale of tender forms by the assessee- was held to be not
agricultural income.
In R.M. Chitambaram Pillai v. C.I.T (1970) 77 ITR p. 494), the
court held that salary, interest from capital and share of profit of a partner
ofa firm engaged in agricultural operation was agricultural income.
If agricultural land is let out for agricultural purpose by the land lord
and receives rent, the rent received by the land lord will be treated as
agricultural income.
It the crops harvested does not find a market some operations may be
performed by the cultivator to make it a marketable commodity. Such
operation enhances the value of the produce. Such enhanced income _is
also agricultural income.
In Maharaja of Kapurthala ·v. C.I.T 1945 13 /TR p. 7 4, the Court
heldth'at income from sale of fores( trees of spontane us growth on which
some operations for their preservations- and growth' werepe/tormed·is
not agricultural income.
24
In C.I.T. v. Raja Bahadur Kamakhaya Narain Singh (1948) 16
I.T.R p. 325(PC) the court held that income from interest on arrears of
rent payable in respect of land used for agricultural purpose is not
agricultural income.
In Chellaiah Pillai v. C.I.T (1948) 16 ITR p. 350, the court held that
income from lease of land for grazing of cattle required for agricultural
pursuit is agricultural income.
Computation of lnc_ome Tax where the assessee has also
Agricultural Income
If the assessee has agricultural and non-agricultural income and the
non- agricultural income of the assessee exceeds the maximum exemption
limit and the Net agricultural income exceeds Rs.5000 (ii the agrlcul1ural
income is less than 5000, it need not be taken into account), the following
stepts should be followed to calculate tax for non- agricultural income.
Step 1 Add agricultural income and non-agricultural income and
calculate tax on the aggregate as if such aggregate is the total income.
Step 2 Add agricultural income to the maximum exemption limit
available in the case of the assessee and compute tax on such amount
• as if it is the total income.
Step 3 Deduct the amount of income tax computed under step 2 from
the tax computed under step 1
The amount so arrived shall be total income tax payable by the
assessee.
Step 4 Add educational cess and SHEC @ 3°10
Illustration
Gross total income of X aged 50 as computed under Income tax Act, lor tl'le
Assessment year 2015-2016 is 2,80,000. He has agricultural income ol Rs. 3.50.000.
Find out the Income tax payable by X
Step 1 Aggregate of agricullual income and non-agricultural income ( 3,50,000
+ 2,80,000 = 6,30,000) is Rs.51,000
Step 2 Add Rs.2,50,000 ( exemption limit) to the aggrlcultural income ol R
3,50,000. It comes to Rs.6,00,000. Tax on· Rs.6,00,00 is Rs.45,000.
Step 3 Deduct tax under step 2 from tax under step 1 ( 51,000-45,000 =6000). Thus
Rs. 6,000 is the income tax. Add (3% of Rs.6000) 180 as educational cess & SHEC.
Total tax payable = 6180/=
If the Assessee had non agricultural income, he would have to pay Tax tor Rs 30,000
. (total income 2,80,000 - 2,50,000 basic exemption)
Tax would be 10% of 30,000 = 3,000 + 90 ( 3% of 3000) edLJCa!ional cess
Total tax payable 3090
Thus in effect if a person has agricultural income and non- agricultural income, ha wtU be
charged more.
-
;,plo• VI
1pltnl 1noon10nncl Aovonuolnootna,
apltnl Bxpendlluronnd Rovonuoexpondlturo (ll) A rtu:rnlpl In HIIIJtHHWlw, n, f]r1 lr,qor,11;1lij 11 1iiv;u,tm rJ"11Jt1IPL

A flU0I 11111lnoo111tt 1rnn l>O \JIIHi lll cl llllO IWO IHHHh . Tlrny t\ft,1:( Xhrllpl : OrHl rnonllr WtlCJCJ!$rnQt:i/v,:t(f l>y till ()mplgyfjij WIJO , tgr,nlntWnJ
I) w11110111mm rnonlh nollcrn.
•
• upll I f ltHWIPIH I\IHJ (U) n v IHlti noottlpll} OhnlliJrly, ti P rnon·11
u>1p11mlllll!v OM uhw l)il 01,urnlll,HI lnlo two IHHl(ltl, Tltgy nru: (I) Cftpllf11 O (r1•) Any wnount n,o lv(Jd tHs oomncrnt3otlon ror tmmmcJtu of 01;1t1eilr
f1'fHjl\dlllnu, Md (P) lltw m,o l1xpunclll11ro, rlpllltJ umJ@r fHl tl(J(Clf}IOtJlll lti fl onr,ltol rnoolr,t.

lJrH.h,r llw 1110011111Tnx Aol n pornon lo1101,10 lo pny lt1x only for
rovonu lptl.l, Ou\ Pl thu rovonuo rooolpte ho 0011cloduot tho
rovonu 11t;11ul11.irrt, Tho nat rooc1lpt or lnoQtnQ In only llolJlo to tox.
A pornon lo
not 11111.lh; to pny tux tor Oftf>llol rnoolpto.
• XQlllf)IO : A llnt1lttl<an ti bullcJlno for hwrrn tor a r>Orl(.)U o.t , 0 yutirtJ. Aftm
:\ porloc.1 of orio yoor tho locrnor wnntod thu vaoant pouoeuulon of tho
bulldlno ond oo por tho aornomont bQtwoon loaaor {.Ind laeooo an amount
ot Ro.2 lol<hn wuo pold by tho locrnor to tho 100000 ne oornpontrntlon for
tho ourrondor of hie right.

Im lnoomo T11x Aol nollhor doflnoo nor dlollnoulolloo tho Cnpltol
nucolpltl uno Ruvonuo naoolpto or Cnpltol Expondlturo ond Rovonuo
:"vponctlturo.
CnAHttUla.ca(p_la._tln.dJl ,ua
holollowlng nro oomo of tho Important ruloo which guldo In makinga
distinction bolwoon Copllol rooolpto and Rovonuorooolpto.
(b) Any amount rooolvod undor on ogroomont oa oornponsotlon
tor lose of futuro profit Is o rovonuo rocolpt.
Exomplo : A partnor who retlroa gota aomo amount aa componsatlon for
loaa of futuro profit.
4 Whether o particular receipt Is capital or rovenuo depends upon tho

I. (o)
rocolpt. Anamountrocolvod ao flxod capitol for fixed oaaot Isa capital
nature of Its rocolpt In the hands of Its recipient. If a parson receives an
arnplo
amount ns Income It wlll be o revenue receipt even If the payer has paid it
1) Amountrocolvod l.>y a company on the lssuo of It's
share.s 2• ) Ooposlta rocolvod by o bank fromcustomers. 26
3)Amountrocolvod bya cloth morchant from the sale of his motor car.

(b) An amount rocelvod as circulating capital or for floating asset

Is o revonuo rocolpt.

Example: Saloproceeds of a Book Dealer from the sale of books.

2
receip(to. ) A receipt in substitution of a source of Income Isa capital

Example: Compensallon received by an employee from his employer for

termlnallon of his service. Though It Is a capital receipt it Is taxable und r
the Income Tax Act, 1961.
out of his capital.

Example :
1) X puchased some shares from a company out of his salary
income. This receipt Is capital receipt in the hands of company.
2) A company paid salary to its employees out of the sale
proceeds of Its shares. The receipt is revenue receipt in the
hands of workers.

5. Even If an amount is received in instalments, it will be

treated as capital If the nature of recr ·,t is capital.

A lumpsum receipt does not mean that it is always a

capital receipt.· A.avenue receipt may also be in lumpsum.

27
 Docided Coses The following are some of the rules on the basis of which a. distinction
can be made.
1. Sharajudeen v. C.I.T.( 1960) 39 ITR p. 383)
It was held that the compensation received by one partner ofa
1) Capital acquisition and installation of a fixed asset is a capital
partnership firm from another partner for relinquishing all his rights In the
partnership firm is a capital receipt. . expenditure

Example:- Purchase price of a machinery together with expenses

2. C.t.T. v. Shamsher Printing Press (1953) 23 ITR p. 363) incurred in bringing it into the factory and getting it installed is a capital
ll was held that the compensation received for suspension of export
expenditure.
licence is a capital receipt.
Purchase price of goods bought for re-sale or for manufacturing
purpose together with the expenses incurred regarding the purchase or
3. C.I.T. v. M.B. Tyres (1982 137 ITA p. 295)
manufacturing are revenue expenditure. ··'
The Government acquired business premises and it resulted in closure
of business. The Government paid compensation. The compensation
2) An expenditure incurred by a person to free himself from a capital
was held to be a capital receipt.
liability is a capital expenditure.
An expenditure incurred by a person to free himself from revenue
4. C.I.T. v. Raja Girl Rubber and Produce Co. Ltd. (1990)182 ITR p.
liability is a revenue expenditure.
393
The subsidiary received for replanted rubber trees under the
3) An expenditure incurred for source of income is a capital expenditure.
Aeplant.ation Subsidy Scheme of the Rubber Board was held to be not a
An expenditure incurred for earning an income is a revenue
revenue receipt. Earlier in C.I.T.V. Malayalam Plantation Ltd (1987)'168
expenditure.
ITR p. 63, it was held that such a subsidy was a revenue receipt.

4) : An expenditure incurred for increasing the earning capacity of a

5. Travancore Rubber & Tea Company Ltd. v. CIT (2000) 3 SCC 715
business by improvin its fixed asset is a capital expenditure.
The assessee was a Tea and Rubber growing company. It entered
into sale agreements with purchasers in respect of its old rubber trees.. It An expenditure incurred for maintaining a fixed asset in good condition
received from the purchasers unrefundable advance and earnest money. is a revenue expenditure.
Several purchasers failed to perform their part. The assessee forfeited
tho advance amount and earnest money. The Kerala High Court held 5) If an expenditure is of a capital nature from the point of view of
that the amount is revenue receipt. The Supreme court reversed the the payer it will be a capital expenditure even if it is a revenue receipt in the
decision and held that it is a capital receipt.
hands of the recipient.

Capitol Expenditure ond Revenue Expenditure If an expenditure is of revenue nature from the point of view of the
Expenditures are of two types. They are Capital Expenditure and payer.it will be a revenue expenditure even if it is a capital receipt in the
Revenue Expenditure. Capital Expenditures are not deductable from the hand of the recipient.
gross income of business in order to arrive at the taxable income. But
the revenue expenditure is deductable.
Decided Cases
1
1\1 1) Blkanar Gympsum Ltd v. C.I.T. (1991) 187 ITR p. 39 (SC)
.. ,
(

·. _;;
,
28
The company took some land on
lease for mining operation. A railway
29
 11
station. yard and quarters were located on me 1111111 ._., •• - - ·-- ...<t

rostrlctlon on mining operation near the area occupied by Railway. In

order to remove disabllily, the company paid huge amount for shifting of
•Topic - VII
railway station, yard and quarters to another area. The court held that Residential Status and its effect on Liability to Pay
Tax
the amount spent was revenue expenditure.

Sections 6 to 9 deal with Residential Status and its relation with liability
2) Hindustan Commercial Bank v. C.I.T. ( 1952) 21 ITR p. 353
to pay tax.
The court held that the cost of advertisement is a revenue expenditure.

The incidents of tax or liability of an assessee to pay tax depends

3) Amblka Mills v. C.I.T. 54 ITR p. 167
upon his resedential status. The following are the principles which are to
The expenditure incurred by a businessman on a study tour abroad to
be followed while deciding residential status of an assessee.
acquire knowledge of latest techniques for installing new machinery or
replacing old machinery by a new one would be a capital expenditure.
I All taxable entities (or assess es) are divided into the following
categories for the purpose of determining residential status.
4) Sitalpur Sugar Works Ltd. v. C.I.T. {1963) 49 ITR p.57 (SC)
1) Individual
The court held that expenses of dismantling, transporting and re
2) Hindu Undivided Family·
erecting the same plant and machinery when the factory is shifted from
3) A firm or an association of persons
one place to another is a capital expenditure. 4) Joint Stock Companies
5) Every other persons.
5) C.I.T. v. Karandura Development Co. Ltd. (1983) 144 ITR p. 538
The Calcutta High Court held that expenditure incurred in shifting the II An individual and Hindu Undivided Family can either be-
laboratory including the refitting of plant to the new premises was revenue a) resident and ordinarily resident, or
expenditure. b) resident but not ordinarily resident, or
c) Non-resident in India.
6). C.I.T. v. Aluminium Corporation 92 ITR p. 563
Expenditure on bringing foreign technician to suggest improved Ill. All other assessees ( a firm, an association of persons, a Joint Stock
methods ot operation was held to be a revenue expenditure. Company and every other person) can either be -
a) resident in India, or
b) Non-resident in India.

IV. Residential Status of an assessee is to be determined in respect of

each previous year.

Determination of Residential Status of an lndjviduaJ

An individual may either be -
1. resident and ordinarily resident in lr:idia, or
2. resident but not ordinarily resident in India, or •
j• •
3. Non resident in India.
•

30 31
•<
 1) Resldont and Ord/narlly Resident 10 lo d f a.
1 100 days every year since 2002-2003. Determine his residential status
An Individual is said to be a resident In lndla ,n the previous year if
ha satisfies any one of the following basic condition .
a. He Is in India In the previous year for a period of 182 days or
more, or
b. He Is In India for a period of 60 days or more during the
previous year and 365 days or more during the four years
preceding the previous year.
.,es/dent individual is treated as a resident and ordinarily resident
1 730 days during 7years preceding the previous year. He was In India only for a total
In lndta If he satisfies both the following two conditions:
1}
a, He hasbeen resident In Ind/a for at least two out of ten previous
1
years preceding the relevant previous year.
b. He has been in India for a total period of 730 days or more
during 7 yearspreceding the re/event previous year,
In briafit can be saidthat an lndlvldual becomes resident and ordinarily
, residentin India if he satisfies one of the basic conditions and the two 1
additional conditions.
2, Residentbut not ordinarily resident
Anindividualwho satisfiesat least one of the basic conditions is treated
aea residentbut not ordinarily resident in India.
3. tlo,nceotaont
Anindividual Isa non-resident of India if he satisfies none of the the
basic conditions.
me AdditionalPdocln
1.
A stayby an individual on board a ship within the territorial
watersof India would be treated as his presence in Incl/a for
2. epurpose of determining his residential status.
Ath Iota/ of 24 hours of stay spread over a number of d ys w//1
becounted as stay of one day.
3.
Place Dfstayor purpose of stayis not material. The stay
need not be continuous, The stay need not be at th8 ame
J
Problem
Rickey Ponting, an Australian cricketer has been coming to India for
for the assessment yea·r2018-2019.
1
Rickey Pointing Is - It Is because, he was In India for more than
60 days during the relevant previous year(2017-2018) and for 400 days during
four previous years preceding the relevant previous year.
He Is a resident but not ordinarily resident. It is becuase, though he satisfies the
condition that he was resident for at least 2 out of 10 preceding previous years, he
does not satisfy the second condition le., he was not in India for a total perlod of
period of 700 days during 7 years preceding the previous year.
Determination of Residential Status of Hindu Undivided family
l1iJ)_fl
A Hindu Undivided Family is said to be Resident in India If the 'control
and management' of it's affairs is wholly or partly situated in India.
It is the Kartha who ormally controls and manages the affairs of
a Hindu Undivided Family. But any other coparcener can control
and manage the affairs of the Hindu Undivided Family during the
absEince of th_eKartha. Thus even though the Kartha is absent from
India, the H.U.F may be resident in India, if the de-facto control and
management is in India.
A H.U.F. is a non• resident in India if the control and management of
its affairs is wholly situated outsid,endia.
A resident H. U. F will be treated as Resident and Ordinarily
Resident in India if the Karta or Manager of the family satisfies the
following conditions.
1) He has been resident in India for 2 out of 10 previous years
preceding the relevant previous year.
2) He has been present in India for a period of 730 days or more
d·uring 7 years preceding the previous year. .
 33
32
 nd
i;>etermination of residential status of Firmsa Assoc,auon Q!
• the concept of "place of effective man_agment" for determination of
A Partnership Firm and an Association of Persons are said to be
resident in India if control and management of their affairs are wholly or
partly situated within India during the relevant previous year. They are
treated as non-resident in India if control and management of their affairs
are situated wholly outside India.
In Erin Estate v. C.I.T ( 1958) 34 ITR p.1 (SC) it was held that
Control and Management means de facto control and management and
not merely right to control and manage. Control and managementis
usually situated at the place where the head, seat and directing power are
situated. It issituated at a place where substantial and important poliqy
decisions are taken with regard to the management and affairs of a firm.
Residential status of a Company
An Indian company is always a resident in India.
A foreign company is resident in India only if control and management
of its affairs Is situated wholly during the previous year. A foreign
company is treated as 'l0n - resident in India if the control and
management of its affairs is eith·ir wholly or partly situated outside India
during the previous year.
The control and management of company's affairs is situated at a
place where the meeting of its board of directors is held.
Place of Effective Management ( w.e.f A.Y 2016-2017)
By the Finance Act,2015 the conditions for determining residential status
of a company is amended. With effect from Assessment Year 2016-2017,
a company shall be said to be resident in India in the previous year, if ·
/i) it is an Indian Company; or
(Ii) its "place of effective management", in that year, is in India.
"Place of Effective Management" mean , a place where key
management and commercial decisions that are necessary for the conduct
of thebusiness of an entity as a whole are, in substance, made.
PlaceofEffectiveManagement (POEM) is an internationally recognised
concept for determination of residence of a company incorporated ina
'.!4
foreign jurisdiction. Most of the tax treaties entered into by India recognise
residence of a company-as a tie-breaker rule for avoidance of double
taxation. Many countries prefer the POEM test to be appropriate test
for determination of residence of a company. The principle of POEM is
recongised and accepted by Organisation of Economice Co-operation and
Development ( OECD) also. The OECD commentary on model
convention provides defenltion of place of effective management to mean
the place where key management and commercial decisions that are
necessary tor the conduct of the entity's business as a whole are, in
substance, made.
The modifica.tion in the condition of residence in respect of company
by including the concept of effective management would align the
provisions of the Income Tax Act with the Double Taxation Avoidance
Agreement entered into by India with other countries and would also be
in line with international standards.
Since POEM is an internationally well accepted concept, there are
well recongnised guiding principles for determination of POEM although
it is a-fact dependent exercise. However, in India, in due course, a set of
guiding principles to be followed in determination of POEM would be
issued for the benefit of the taxpayers and tax administration.
Adoption of POEM for determination of residential status of a
company would also be a measure to deal with cases of creation of shell
companies outside India but being controlled and managed from
India. A shell
. company is one which is registered outside Indian and controlled from
India by simply holding one or two board meeting outside India.
Residential status of every other person
In the case of every other person, it is resident in India if control and
management of it is either wholly or partly situated in India during the
relevant previous year.
Every other person is non -,sident inIndia if control and management
of its affairs is wholly outside India.
Relationship between Resindential Status and Tax liability
(1) A resident and ordinary resident assessee is assessable to tax in
respect of -
35
 (a) All lncomo received in India in the previous year.
(b) All income which accrues to him in India during theprevious lncome which are wholly exempted from tax
year.
(c) By virtue of section 10 of the Act, the following income are exempt
All Income which is received or accrued to him outside India
from tax and it does not form part of the total income of the assessee.
during the previous year.
(1} By section 10 (1) of the Act, agricultural Income is exempt from
(2) Inthe case of resident but not ordi, ily resident assessee, the tax
tax.
liability Is same as that of resident and ordinarily resident with just on
excoption. A resident but not ordinarily resident will be liable in respect of
(2) By section 10 (2) of the Act, receipts by a member of a H.U.F
Income accruing to him outside India only if such income is from a
out of the income of the family is totally exempt from tax at the hands of
bu.siness controlled in India or from a profession set up in India.
the member.

(3) Non-resident is liable to tax in respect of income received in _India (3) By section 10 (2A) of the Act, share of profit received by a partner
during the previous year. He Is also liable to tax in respect of income
from a firm which is separately assessed is not taxable at the hands of the
accrued In India during the previous year. A non • resident has no liability
partner.
to pay tax on income received or accrued outside India during the relevant
previous year. (4) Before the Assessment Year 2003-2004, by virtue of section 10
(3) of the Act, any income which is casual and non - recurring in
Topic -VIII nature was exempted from tax to the extent' of Rs. 5000. If the receipt
Income Exempted from Tax was related to wining from races including horse race, the exemption from
tax was Rs. 2500.
Sections 10, 1OA, 1OB, 11 to 13 and 13 A of the Income Tax Act deal
with income which are exempted from tax. In order to claim exemption under this head the following conditions
were to be satisfied.
Section10 deals with income which are absolutely exempted from tax a) The receipt should be casual in nature
and such income need not be included In the total income. b) The receipt should be non - recurring.
c) It should not be taxable as capital gains under section 45.
Section 10 A deals with exemptions of income of new industries d) It should not arise from business or exercises of a profession
established In free trade zones. or occupation.
e) The receipt should not be by way of addition to the
Secllon 10 B deals with exemption of income of new Industries which remuneration of any employee.
are 100% export oriented under takings. f) Any winnings from lotteries, cross word puzzles, races including
r.
horse race, card games of any sort or gambling or b tting are
1:

Sections 11 to 13 deals with income which are exempt in the case ol casual receipts.
charitable and religious trust.
From the Assessment Vear 2003-2004, the above exemption is
Socllon 13 A deals with Income of politicalparties. not available

f.;t,
 (5)
By sections 10 (4) and
Act, the following interest l come of
non - residents are exempted from
tax.

3
6

3
7
 a) Interest on notified governmem :s1:H;ur iuc->
b) Interest on money standing to credi-t of a Non- reside,
(external) account in India
c) If an Indian citizen who is a non - resident takes the
Nation,
Savings certificate in convertable foreign exchange remitted from outsio·,
India through official channels the interest from such certificate I•t
exempted from tax.
(6) By section 1o (5) of the Act, value of.travel concession
assistance received by an individual from his employer or former
employ•. forhimself and his family in connection with his proceeding -
(a) on leave to any place in India;
(b) to any place in India after retirement from service or after th.'
termination of his service shall be exempt
(7) By section 1o (58) of theAct, remuneration of a foreign techniciar
In India is exempt from tax if he is rendering service in the employmeff
of the Government or of a Local Authority or of a Statutory Corporation o·
of any institution or body established in India for the carrying on ar
approved scientific research or in any business carried on in India. Ir
order to avail this exemption he should be a non- resident in precedin£
four years.
(8) By section 10 (6) of the Act, value of concessional passage toa
foreign national employee and his family proceeding on leave out of
India or proceeding to home country out of India after retirement or
termination of service shall be exempt from tax.
(9) By section 10 (6)(ii) to (vi) of the Act, remuneration received by
foreign citizen as an official of an embassy In India is exempted from
tax, if corresponding Indian Otticials In that foreign country enjoya
similar exemption.
(O1) By section 10 (6}(viii) of the Act, 1961, salary received bya
ships crew who Isa non- resident foreign national is exempted fro_m tax,
if his total stay in India does not exceed 90 days.
Lil (11) By section 10 (6 C) of the Act, Income by way of fees for•·
l
i\"...
technical services received by notified companies is not chargeable
to tax, if such income is received in pursuance of an agreement enteredt
38
into with the Central Government to provide services in or outside India in
projects connected with security of India.
(12) By section 1O (7) of the Act, any allowance paid or allowed
outside India by the Government to an Indian citizen for rendering service
outside India is wholly exempt from tax.
'
(13) By section 10 (8) of the Act, income of an individual, serving
in India in connection with any co-operative technical assistance
0
programmes, in accordance with an agreement entered into by the
Central Government and a foreign Government, is exempt from tax. The
exemption is available only if the remuneration is received by the individual
from the foreign Government.
By virtue of section 1O (9) of the Act, any family member of an
employee mentioned above accompanying him to India also enjoys tax
exemption in respect of foreign income.
(14) By section 1O ( 10) of the Act, the gratuity received by
Government employees is wholly exempted from tax.
Gratuity received by an employee covered by the Payment of Gratuity
Act 1972 is exempted from tax to the extent of the least of the following.
.a) Rs. 10,00,000 /-
b) Gratuity actually received
c) 15 days salary based on salary last drawn for every completed
years of service.
In the case of non-Government employees ( not covered by the
Payment of Gratuity Act) it is exempt from tax to the extent of the least of
the following:
a) Rs. 10,00,000 /-
b) Half month's salary for each completed year of service ; or
c) Gratuity actually received.
(15) By section 10 (1OB) of the Act, compensation received by a
workman at the time of retrenchment is exempted from tax to the
extent of least of the following.
a) Rs. 5,00,000 /-
b) the amount actually received
39
f
'. t;,,
 c) thoomount calculntod undor the 1nausmu1 ..,,.,i,,...•-- • ·-··• - • • •

(25) By section 10 (17) of the Act, daily allowance of Members

(16) By soctlon 10 (10 BB) of tho Act, any payment made to an
of Parllamont end State Legislature.
assosseo undor the Bhopal Gas look Disaster (processing of claims)
Act, 1985 on account of any loss or damage caused to him by such
(26) By section 10 (18) of the Act, pension to Gallantry Award
dlsastor. winners is exempt from tax

i (17) By section 10 (10 C) of the Act, compensation received

at
the time of voluntary retirement from a public sector company under
the Voluntary Retirement Scheme Is exempt from tax to the extent of
Rs.5,00,000 /•.
(18) By section 10 (10 D) of the Act, any sum received undera life
Insurance policy including the sum allocated by way of bonus on
such policy shall not be included In the total income of a person.
(27) By section 10 (20) of the Act, income of Local Authorities is
exempted from Tax.
(28)- By section 10 ( 20 A) of the Act, income of an authority
constituted in India for the purpose of dealing with and satisfying
the need for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages is exempt
from tax.

(19) By section 10 (11) and 10 (12) of the Act, (29) By section 10 (21) of the Act, any income of a Scientific
employer's contribution to statutory provident fund , recognised Research Association is exempted from tax if it is applied solely for the
provident fund and unrecognised provident fund is exempt from tax. purpose of that association.
The interest credited to the Provident fund and the lumpsum payment at
the time of retirement or termination of service is also exempt from tax. (30) By section 10 (21) of the Act, income of Press Trust of
India and United News of India is exempt from tax.
(20) By section 10 (13) of the Act, payment from an approved
superannuation fund is exempt from tax. (31) By section 10 (23) of the Act, income of a games association
established in India for the purpose of control, supervision, regulation or
(21} By section 1O ( 13 A) of the Act, encouragement in India for the games of Cricket, hockey, football, tennis
house rent allowance·is
exempt from tax. or any other notified games is exempt from tax
t.
(22) By section 10 (14) of the Act, special allowances such as
travelllng allowance/ transfer allowance, conveyance allowance,
(24) By section 10 (16) of the Act, scholarship granted to meet
daily allowance, helper allowance, research allowance, uniform
the cost of education is exempt from tax.
allow nce
• etc are exempt from tax. 40

(23) By section 10 (15) of the Act, interest on notified

securities, bonds or certificates, Interest received by a non- resident
Indian from
notified bonds, interest on 9 per cent Relief Bonds, Interest on Gold L
Deposit Bonds etc are exempt from tax.
 (32) By section 10 (23 A) of the Act, income of a professional constituted as a trust or society and existing solely for the development
institution established in India for the purpose of control, supervision, of Khadi and Village industries and not for purpose of profit is exempt
regulation or encouragement of the profession of law, medicine, from tax.
accountancy, engineering or architecture or any other notified profession,
is exempt from tax. (34) By section 10 (23 BB) of the Act, income of Khadi and Village
41
.(33) By section_ 10 (23 B) of the Act, income of an institution
:,=_i:;· '-
 Industries Boards set up under a ::srare Mt;1 ,u, "'"" -- •- •-
·-'-'I
r (41) By section 10 (25) of the Act, income towards provident funds is
and Village Industries in the Stale is exempt from tax.
(35) By section 10 (23 SBA) of the Act, income of bodies or
authorities established under any enactment for the administration of
public religious or charitable trusts or endowments is exempt from tax.
(36) By section 1o ( 23 888) of the Act, income of the European Economic
Community derived In India by way of interest, dividends or capital gains
from investments made out of its funds is exempt from tax.
(37) By section 1o (23 C ) of lhe Act, income received by any person on
behalf of lhe following funds is exempt from tax.
(a) The Prime Minister's National Relief Funds
(b) The Prime Minister's Fund ( Promotion of Folk Arts)
(c) The Prime Minster's Aid to Students Fund
(d) The National Foundation for Communal Harmony,
(38) By section 1O (23 C) of the Act, the income of following educational
insitulions Is exempt from tax.
a. Any University or other Educational Institution existing solely
for educational purpose and not for the purpose of profit and
which is w olly or substantially financed by the Government.
b. Any University or other Educational institution existing solely
for educational purposes and not for purposes of profit, if the
aggregate annual receipts of the university or institution does
not exceed rupees one crore . •
(39) By section 10 (23 C)_ of the Act, if the following conditions are
satisfied income of hospitals is exempt from tax.
a. Income should be received from the treatment of persons
suffering from illness or mental defectiveness.
b. The Hospital should exist solely for philanthrop[c purposes and
not for the purpose of prof it.
(40) By section 10 (24) of the.Act, income chargeable under the
head• Income from house property" and " income from other sources" of
a trade union, registered under the Trade Union Act, 1926 is exempt from
tax.
- -
1 exempt from tax.
(42) By section 10 (25 A) of the Act, income of Employees State
Insurance Corporation to the Employees Stale Insurance Fund is exempt
from tax.
(43) By section 10 ( 26) of the Act, income of a Corporation established
by a Central or State Act or any body, institution or association wholly
finaced by the Government for promoting interest of Scheduled Castes /
Tribes is exempt from tax.
(44) By section 10 ( 27) of the Act, income of co-operative societies
promoting the interest of members of Scheduled Caste /Tribes is exempt
from tax.
(45) By section 10 (30) of the Act, subsidy received by an assessee,
engaged in the business of growing tea, in India from the Tea Board is
exempt from tax.
(46) By section 10 (31) of the Act, subsidies received by assesses
engaged in the business of growing rubber, coffee, cardamom is exempt
from Tax.
Topic-IX
Exemption of Income of a Trust created for
Charitable and Religious purpose
Income of a Charitable and Religious trust is exempt from tax according
to the provisions of sections 11 to 13 of the Income Tax Act 1961.
In order to claim exemption the trust should be established in
accordance with law and the object of the trust should be either charity
or religious purpose.
Charitable purpose includes relief to the poor, education, medical
relief and the advancement of any other object of general public utility.
Religious purpose includes advancement of religion and propagation of
its tenats.
 The income of a charitable trust will be exempted from tax only if the
following conditions are satisfied.
43
 1. The property from which the Income is derived should be h8/
under trust.

Q (v) Income from business which is not incidental to the attainment of

2. the objectives of ihe trust. If the trust conduct a business incidental
The property should be held for charitable purpose.
3. to the attainment of the objectives of the trust, separate books of
Relief to the poor, promotion of education, medical relief a
advancement of any other object of a public utility are O(J accounts are to be maintained tor claiming exemption. If separate
considered lo be charitable purposes. books of accounts are not maintained, the exemption from tax will
not be availabe.
In order to claim exemption for income of a trust which is created
for religious purpose, the following conditions are to be satisfied:
Topic-X
'1. No part of the income of the property should be utilised for the
Exemption of Income of Political Parties
benefit of the settler of the trust. •
2. The property should be held wholly for the religious purposes.
. By virtue of section 13A of the Income Tax Act, 1961 the income of a
Political Party which is registered with the Election Commission of India
Tho exemption is available only If the following additional·conditions are
•Is exempt from tax subject to the following conditions.
atisf/ed:
1. The charitable or religious trust should be registered with the
1. The
following categories of income are exempted from tax
Commissioner of Income Tax.
a.
Income from house property.
2. The accounts of the charitable or religious trust should be
b.
Income from other sources.
audited, if the total income exceeds As. 50,000/-
c.
Income by way of voluntary contributions.
3. Atleast 85% of the income should be applied for charitable or
d. Capital gains.
religious purposes.
2. Political Party should keep Books of Accounts which would enable
4. Th e unapplied income should be invested in the specified the assessing officer to properly deduce its income.
forms or modes.

f 3. The Political Party should keep records of each voluntary

According to section 13 in the following cases the Income derive_d contribution In xcess of Rs. 20,000 and name and address of the
shall not be exempt from tax.
person who has made the contribution.

(I) The income of private trusts not enuring for the benefit of the public. 4. The accounts of the political party should be audited.
(If) The income of a charitable trust created for the benefit of any
particular religion, community or caste, However, trust formed for
the benefit of Scheduled Caste I Tribe , Backward Class, or Women
and Children constitute an exception and can claim the exemption
from tax liability.

(iii)
Any income ofa trust used dlrect/y or Indirectly for the benefit of the
author, founder, manager or relative of any such person.
(iv)
Any income ofa trust derived from unapproved investment.
 T o pi c - X I I
T a x T re a t men t of Income h d arie
h ea The profits or gains derived from the transfer of a capital asset is to
undert e "S
a
Define ..Salaries". Discuss the nature of income chargeable llr,
d!, be charged to tax as per the provisions of section 45 to 55 of the Act
the head "salaries". under the head 'Capital Gains'
Or
..Salary is taxable either on due basis or on receipt basis". Discua, Those income which do not fall under the above four heads is to be
Or computed for taxation as per the provisions of sections 56 to 59 of the
What is meant by Perquisites. Discuss when perquisites are taxabi Act, under the head " income from other sources".
/ not taxable. t
Or After computing the taxable income under each head, the total tax.able
What a.re the permissible deductions allowed under the·head Sat income is to be ascertained by aggregating the income under different
? a ·heads. Income tax is to be to be levied on the aggregate of income.

Under section 14 of the Income tax Act, all forms of income have Computation of Taxable Income under the head 'Salary'
beenclassified under the·following five heads of income for the charge of
Section 15 to 17 of the Income Tax Act 1961 deal with tax treatment
income tax and computation of total taxable income.
of salary income.
1) Salaries
By virtue of section 15 of the Act, the following incomes are taxable
2) Income from House property.
under the head Salaries.
3} Profits and Gains of Business or Profession
4) Capital Gains
(a) Any salary due from an employer or former employer to an
S} Income from Other Sources.
assessee in the previous year, whether paid or not.

If an asses ee has different sources of income, each income is to be

treated seperately for the purpose of tax. Taxable incom under each
head is tobecomputed first, and then the total taxable·income is to be
ascertained by aggregating the taxable income of different heads.
(b) Any salary paid or allowed to him in the previous year by or on
behalf of an employer or a former employer, though not due or before rt
became due to him.

(c) Any arrears of salary paid or allowed to him in the previous year b
The taxable salary income is to be computed as per the provisions or on behalf of an employer or a former employer, if not charged to income
of sections 15 to 17 of the Act under the head •salaries".
tax for any earlier previous year.

The taxable income from house property is to be computed as per
th.eptO\lislons of sections 22 to 27 of the Act under thE?head "Income
t,om House property".
The taxable income from business or profession is to be computed
asperthepro•,isions of sections 28 to 44 of the Act under the he d 'Profits
and Gains ot Business or Profession'. •
Thus salary due to an employee in the previous year, whether paid or
not is chargeable to tax in the assessment year. The advance salary and
the arrears salary paid in the previous year is also chargeable to ta.x in
the·assessment year. Salary is chargable to tax either on due basis or on
receipt basis whichever occurs earlier.

46
47 -
 Sootlon 17 ot tho Aot dotlnoo tho oxproooion• uu,u•,7, • ' ''"' v,.. .,,00010"
boala whichever occurs earlier.
Snlnry lnoludoo tho tollowlng,
o) Wugoo 2. Doornoaa Allowance
b) Any annuity or ponalon
It Is taxable under section '15 ot the Ac\ either on due basis or receipt
o) Any gratuity basis whichever occurs earlier.
d) Any tooe or commloolon or porquloltos or profits In lieu of, or
addition to, any oalary or wages. 3. Advance Salary
o) Any odvonoo oalary Advance salary is taxable on receipt basis.
t) Any paymont rocolvod by on omployoo In respect of any perloc1
of loovo not avollod by him (loovo salary). 4. Arrears of Salary
It Is taxable on receipt basis or on due basis.
A payrnont would foll undor tho hood salary only If there Is relationship
of omployor and omployoo botwoon tho payer and payee. If there Is no 5. Leave Salary
rolatlonohlp of omployor and omployoo tho romuneratlon rocelved cannot Leave encashment recolvod wh\\e In sorvlce Is ohargnble to \ax on
bo troatod oo oalory and chargoablo to tax undor tho head "Income from receipt basis or due basis.
oalurloo". Tho fooo rooolvod by o dlroctor of a company or fees received
Leave encashment a\ the time at retirement \s fully ox.empt 1rorn tax
by a lowyor from his ollont cannot bo ohargable to tax under the head
'lnoomo from oalarloa'. It lo bocaueo thoro Is no relationship of employer In the case of Government employees.
und omployoo botwoon tho company and dlroctor or client and lawyer.
In the case of non Governmon\ employeos. loavo oncashmont at \ho
Tho fooo rooolvod by tho dlrootor can bo charged to tax under the head
time of retirement is exempt to tax to tho ox\00\ at tno leas\ o\ the \oUowing:
"lnoomo from othor oourooa". Tho feoa rocolved by on advocate can be
_ohurgod to tax unclor tho hood " Profits and Gains of Business or
(a) Cash equivalent ol leavo salary In respoct ot the penod o1
Profooslon,"
earned \eave at the crodlt ot employoo at tho \Imo ol ro\nomo-
nt (which cannot exceed 30 days average salarv lor
Tho solarlos of membors of Parllament or State Legislatures are not
completed year of service): or
chargool>lo to tax under tho hood "Salaries" but It Is to be charged to tax (b) Ten months average salary"; or
M

undor tho hood " Income from other sources", It Is because members of (c) Amount specified by the Central Govemmont
Parllamont or State Legislatures are not employees of Central
( le., Rs. 2,40,000); or
Government or Stato Government. (d) Leave encashment actually received o\ tho Hme oi retiteman\

If on employee does any work of his employer which Is not connected

6. Salary in Lieu of Notice period
with his service; then the remuneration for such work will not be treated It is taxable under the head salary on receipt basis.
as salary. Thus the remuneration received by a government college
lecturer from the University for the paper valuation work is not chargeable 7. Salary to a Partner
to tax under the head 'salaries'. But it would be included under the head Salary paid to the partner by a firm is not chargab\e undorthe h
.. Income from. other sources." 'salaries', but taxable under the head 'proms and gains ot bus\nes.s'
Interest on capital received by a partner irom the Hrm is \a-xab\e under
Tax treatment of different forms of salary Income. the head 'income from other sources'. \t is to be noted tM\ unotH me
1. Basf c Salary . Income Tax Act a partnership tirm \s assessed to \ax asa sa:oera\.e onm-...
It is taxable under section 15 of the Act either on due basis or receipt 49
 Tho sharo ol profit dorlvod from n partner from the firm is totally exam
fromtox whono portnor's Income is ossossod to tax. Pi
12. Provident Fund Contribution by tho omployor
Provident fund scheme Is a retirement benefit schomo. Undor this
8. Bonus
schorno a stipulated sum Is deducted from the salary of tho omployoe as
Bonus is taxable under tho hood salaries
his contribution towards the fund. The employer also contrlbutos tho
samo amount out of his pocket to tho fund. The employers and
9. Gratuity
omployoos contributions ore Invested In gilt -edged securities. Interest
Bysection 10 (10) of tho I .T. Act, 1961, the gratuity received by
oarnod thoroon Is also credited to tho provident fund account of tho
Government omployoos Is wholly oxomptod from tax.
employees. Tho credit balance In a provident fund account ol an
employee consists of contributions of employer and employee and
Gratuity rocolvod by on omployee covorod by tho Poymont of Gratuity
Interest thoroon. Tho accumulated sum Is paid to tho omployoo at tho
Act 1972 Is oxomptod from tnx to tho extant of tho least of tho following.
limo of his rotiromont ol resignation. In tho caso of death of tho
n) Rs. 10,00,000 /. ; or
omployoo, accumulated balance Is paid to his logal holrs.
b) Gratuity actually rocolvod; or
c) 15 days salary bosod on snlnry lost drown for ovory completed Tho contribution of tho omployor towards tho provident fund account
yoors of sorvlco. of tho omployoe Is oxompt from tax. Howovor, If tho omployor's
contribution oxooods 12 % of tho salary, tho contribution ovor 12 % Is
In tho coso of non-Govornmont omployoos ( not covorod by the taxable.
Pnymont ol Gratuity Act) It Is oxompt from tax to tho oxtont of tho least of
tho following; Tho omployoo contributing to tho provident fund Is ontltlod to tax
a) Rs. 10,00,000 /· roboto undor section 88 on his contribution.
b) Holl month's oolnry for ooch complotod yoor of sorvlco : or
c) Orntully octunlly rooolvod. lntorost orodltod to provident fund lo also oxompt from lox. Lumpsum
poymont at tho limo of rotlromont or tormlnatlon of sorvlco aloo oxompt
10. Ponelon from tox.
Ponolon lo a porlodlcol paymont rooolvod by a rollrod omployoo from
hla omployor. Unoommutod ponslon la toxnblo undor tho hood oolory. 13 Rotronohmont Componeotlon
It toxoblo undor tho hood salary but Is oxomptod undor S.1O lo th
Cornmutod viiluo of ponolon lo fully oxompt frorn tax In tho 0000 of oxtont or looot of tho following :
Govornmonl ornployooo. II lo portly oxompt from tax In tho 0000 of non• (o) Amount caloulotod undor soctlon 25 F (b) of tho Industrial
oovor1mIor1I omployotJo oo undor : Dloputos Aot, I 047
(I) Cornn11,tod vuluo ol ono•thlrd or normnl ponolon lo oxornpt It (b) Amount apoolllod by tho Govornmont ( lo., Ro. 6,00,000 /·)
tho omployoo rooolvoo orntully ; or
(If) Comrnulod vuluo or ono•hnll ot normul ponolon lo oxompt from 14. Romunorotlon for oxtrn dutloe
tax It tho omployoo douo not rooolvo orntully. Tho rornunorotlon rooolvod by un omployoo for extra dutloa la toxobl
untlor tho hood oolary.
11. Annuity trom omployc,r
II la toxoulu undtu 1110 hood crnlory. 16, Voluntory Rollromont Bonoflt
Any omount rooolvod by on ornployoo or a publlo 6octor compony or
rm authority ootobllohod by a Control or Stoto Act or o locul authority or
• oooporntlvo oooloty or o unlvornlty at tho tlrno of hlo voluntary rotlromont
50
51
 is exempt to the extent of Rs.5 lakhs.
(c) entertainment allowance

16. House rent allowance

House Rent Allowance ( HRA) is given to meet the cost ofa r 8nt In the case of non - gover ment employees who were in service in
ant the _previous year 1954 -55 is also entitled to claim exemption. The
house taken by the employee for his stay. House rent allowance gr Q
to an assessee by his employer is exempt to the extent of the least amount exempt from tax is the least of the following:
01 1
,

following.
11 (a) Rs. 7500'/- ; or
1) 20 % of salary
actual allowance received or (b)
actual house rent paid by the employee minus 10% of salary (c) entertainment allowance of the previous year; or
2) entertainment allowance received during the previous year
(d)
or · . .C I utta Chennai Delhi
andMumba 1954 - 55.
if the accomodat1on 1s in a c , . , •
2) 50% of salary, and in any other places 40% of salary. l
Problem: t I 18. Special Allowance
Mr. Ramu, an employee, stays in . M um bai and p ·ays a ren \
o1
Spec•ial allowances such as travellingallowance/ transferallowance,
. •
Rs.10,000/- per month. H is ba sic ay ·1s R s. 30,000/-· He gets conveyance allowance, da•ily allowance, helper allowance.research
Dearne.sl :
Atto"wance of Rs. 10000/ per month. He gets HRA of Rs. 13,ooo/-pe·i allowance, uniform allowance etc are exempt fromtax.

month.
19. Foreign Allowance
Calculation: . Any allowance paid outside India by the Government
toanIndiancitizen For the purpose of calculation of exeption bf HRA, salary in ludei, for rendering service outside India is wholly exempt
fromtax.

dearness allowance. 13000 x 12 = 1,56000/-

HRA received- , -:: ,:.. 1
20. Tiffin Allowance

Actual House Rent paid · 10,000 x12 = 1,20,000/= • ' I It is taxable

Basic Salary - 30,000 x12 = 3,60,000/-
Dearness allowance 10,00.0 x 12 = 1,20,000/- • 121. Fixed Medical Allowance
Total Salary (3,60,000+ 1,20,000) = 4,80,000 ,, three and balance amount ( 1,56,000 - 82,000) of As. 74000 /-
_• is to be include in the gross total salary tor the purpose of
income tax.
Ramu is entitled to deduct least of the following three:
Actual HRA received - 1,56,000/-
17. Entertainment Aflowanc
Actual Rent paid less 10% of salary ( 1,20,000- 48,000)= 82000/-
In the case of Government employees, least of the
50% of salary - 2,40,000/- following isexemp
Thus Ramu is entitled to deduct Rs.82,000/- ( the least of the above
from tax:
 It is taxable.

22. Servant Allowance

It is taxable

23. Allowance to High Court and Supreme Court Judges

Any allowance paid to HighCourt Judges under section22A (2)ofthe High Court
Judges (Conditions of Service) Act, 1954is notchargeable to
tax.
Sumptuary allowance given to High Court Judgesundersection22 C
9f the High Court Judges (Conditions of Service) Act,1954andtoSupreme
.pourt Judges under section 238 of the Supreme CourtJudges( Conditions of Service)
Act, 1958 is not chargeable to tax.
 between his office and his residence

tor more voting power In the employor company he lo a person who ho

11) Conveyance facility provided to High Court and Supreme Court
substantial Interest) and an employee who receives salary in excess
judges. of Rs.50,000/-.

12) Payment of annual premium by employer on personal accident 26. Profits in lieu of Salary
policy effected by him on his employee. Profits in lieu of salary is also included in the definition of salary and
taxable under the head salary. The following are profits in lieu of salary
13) Free educational facility provided in an institutibn owned/
maintianed by employer to children of employee provided cost / value 1. Compensation for loss of employment or modification of tho
does not exceed Rs.1000/- per month per child. employment terms is considered as a capital receipt. But by virtue of
section 17 (3) (i), it is taxable on due or receipt basis, whichever comes
14) Interest free /concessional loan of an amount not exceeding Rs. earlier. The recipient may claim exemption under section 10 (1OB) or
20,000 /- 10 (1OC).

15) Gift in kind of less than Rs. 5000/- in a year. By section 10 (1OB) of the Income Tax Act, 1961, compensation
re.ceived by a workman at the time of retrenchment is exempted from
I

; 16) Transfer without consideration to an employee of a movable asset .tax to the extent of least of the following.
( other than computer, electronic items, car) by the employer after using it a) Rs. 500000 /-
b) the amount actually received
for a period of 10 years or more.
c) the amount calculated under the Industrial Disputes Act. 1947.

' 2. Taxable perquisite

1) The value of rent - free accommodation provided to an assessee By section 10 (1O C) of the Income Tax Act, 1961, compensation
,received at the time of voluntary retirement from a public sector
.,,. by his employer.
ompany under the Voluntary Retirement Scheme is exempt from tax to
I
the extent of Rs.5,00,000 /-.
2) The value of concession in rent in respect of accommodation
provided to an assessee by his employer.
2 Any sum received under Keyman insurance policy including bonus on
such policy is taxable as profits in lieu of salary.
3) Amount paid by an employer in respect of any obligation which
otherwise would have been payable by the employee. For example, if a
3. Any sum received by an assessee before his joining any employment
domestic servant is engaged by an employee and the wages of the servant
or after cessation of his employment will be taxable asprofits in lieu o
is paid by the employer the perquisite is taxable.
J salary" from the assessment year 2002- 03.

4) Insurance premium paid by an employer on behalf of the employee.

Permissible Deductions allowed under the head Salary
l The income chargable under the head salary is computed after making
3. Taxable only in the hands of specified employees
following deductions.
Those perquisite which are not included under the head taxable or
1) Standard Deduction
non taxable perquisite would be taxable in the hands of a director/
employee, an employee· who has substantial interest in the employer From the Assessment Year 2006-2007 no standard deduction is
company ( if he a beneficial owner of equity shares carrying 20 per cent allowed to an employee.
56 57
 2) Professional tax paid by the employee.
The actual professional tax paid by the employee during the previ0u
year is allowed as a deduction from the salary.
Topic - XII
Computation of Income under the Head "lncom
from House Property"
Sections 22 to 27 of the Act deal with computation of income undt
the head 'Income from House Property'.
Under this head. the 'annual value' of any property consisting of an_
buildings and lands appurtenant thereto of which the assessee is the
ownel is chargable to tax. However, if a house property is occupied by a·,
ossossoc for the purpose of his business or profession carried on by hiri
ond profits of ,·,hich are chargeable to tax, the annual value of suci
property is not charged under this head of income.
The chargeabillty of income from house property is subject to th,.
salu,laction of following conditions.
1) The property should consist of any building or la d appurtenan
thereto.
2) The assessee should be the owner of the property.
3) The property should not be used by the owner for any busines,.
or profession carried on by him and profits of which are
chargeable to income tax.
Buildings
The term ·building' is not defined in the Act. The term 'building
includes, residential buildings, buildings let out for business or profession
• 1ldings let out tor storage or warehouse, auditoriums for entertainmen
rogrammes, cinema halls etc. But it does not include temporary hutmen
(group of huts) in the vacant land. Any rental income from such temporari
hutment will not be assessed under the head income from house proper!)
but it will be assessed under the head income from other sources.
Annual value of property consisting of building and land appurtenan
thereto is chargeable to tax under this head. The appurtenant land in
respect of the building may be in the form of approach road to and from
the public street, courtyard, play ground, kitchen garden, motor garage,
cattle shed etc. attached to and forming part of the building.
Under the Income Tax Act, the owner of the property is liable to pay
tax on the annual value of property. The word 'owner' includes a legal as
well asa deemed owner. Income from sub-letting is not taxable under
the head 'Income from house property'. It is taxable under the head
'income from other sources'.
Under this head the deemed owners of building are also liable to pay
tax on such building. The followir:ig persons are treated as deemed owners.
1) An individual who has transferred house property otherwise
than for adequate consideration to his or her spouse or to his
minor child is treated as deemed owner of the house property.
2) The holder of impartiable estate is treated as deemed owner
of the property.
3) A member of a co-operative society or a company or other
association of persons to whom a building is alloted on lease
under a house building scheme of the society, company or
association is treated as deemed owner of that society.
4) Any person who is allowed to retain possession of any building
as a part - performance of a contract in the nature refered to
in s ction 53 A of the Transfer of Property Act is a deemed
owner.
When property income is not charged for tax.? (Exemptions)
1) Income from farm house.
2) Annual value of any one palace of an ex-ruler
3) Property income of Local Authority.
58 4)
5)
6)
7)
8)
9)
10)
Property income of an authority constituted for the purpose of
planning, development or improvement of cities, towns and
villages.
Property income of an .:: iroved scientific research association
Property income of a
games association
Property income of an educational institution and hospital Property
income of Trade Unions
Property income of Politic;:al Parties.
Property held for charitable purpose
59
11) Property income of an authority engaged in the processing
of marketing of commodities. The balance is known as 'Net Adjusted Annual Value'.
12) Property used for own business or profession.
13) Annual value of any one self-occupied building. Step• 3 - From the Net Adjusted Annual Value make the following
Deductions ( Section 24).

What is annual value.? How it is determined. ? • 1) Standard deduction - 30 % of the net adjusted annualvalueis
Though tax·under the head Income_,ram House Property is tax on deductible irrespective of any expenditureincurred bythetaxpayer.
income, yet it is not a tax upon the actual rents but upon the inherent
capacity of a building to yield income. Annual value of the property is 2) Interest on borrowed capital - Interest on borrowedcapitalis
allowable as deduction, if capital is borrowed for thepurposeofpurchase,
charged to income tax. The expression 'annual value' refers to either of
construction, repair, renewal or reconstruction of the houseproperty.
the following.

The net amount is the 'annual value' forwhich taxispayable.

1) The sum for which property might reasonably be expected to let
from year to year, or Gross Annual Value
Less: Municipal Taxes xxx.xxxx
2} If the property is let, andthe annual income received or receivable Net adjusted annual value
xxxxxxx
xxxxxxx
by the owner is in excess of the expected rent, such actual rent
Less : Deduction under section 24
The Annual rent means, in the case of a property let out through out {a) Standard.deduction
xxx.xxx
the previous year, the actual rent received by the owner in the previous {b) Interest on borrowed capital
year. xxxxxxx xxxxxxx
Income from House proper1y xxxxxxx
The Annual value of a building shall be taken to be the sum for which
. the property might reasonably be expected to let from year to year. 11_1
case of property being let out and the actual rent received annually is
more than the reasonable rent, the actual re.nt shall be taken to be' te
annual value.

Computation of Annual Value

In the case of a let out property, procedure for determination of
annual value is as follows.
. .
Step -1 - Find out the gross annual value. It is to be the maximum of
the following three:
a) Municipal value.or
b) Actual annual rent, or
..,o
c) Fair rent ie., rent of similar properties in the same locality. })aid by the
J.;t of repairs the
Step - 2 Deduct Municipal Taxes paid in the previous year from the
Gross Annual Value. 61
r

Topic - XIII
Income under the Head "Profits and Gains
Business or Profession"
The provisions regarding computation of income under theh
'Profits and Gains of Business of Profession' are contained in sectiones,
to 448 of the Income Tax Act 1961.
The following incomes are chargeable to income tax under the .h .e
'profits and gains of business or profession'.
1) Profits and gains of business or profession carrieo.on byth
assessee during the previous year.
2) Income derived by a trade or profession or similar associati
from specific services performed for its members.
3) Any compensation due to or received by a person managin
the whole or substantially the whole of the affairs of anlndi·•
company in connection with the termination of his service
the modification of the terms and conditions of his service.
·
4) cash assistance received by a person engaged in Export un
any scheme of the Government of India.
Value
5) of any benefit or perquisite received by an assessee
exercise of his business or profession.
6) Any interest, salary, bonus, commission or remuneration
received by a partner from firm.
Profits and gains of managing agency
7)
8) Any sum received under a Keyman insurance policy includ
bonus
9) Income from speculative transaction.
A business may be conduted by an Individual, association ofperso,
firm, company, society or Hindu Undivided Family.
The word businoss Includes any trade, commerce, manufacture,
anyadventure or concorn In the nature of trade, commerce ormanufactu;
Production of goods from raw material, buying and selling of goods
makeprofitsand providing service to others are different forms ofbusine,_
Profitsarising fromsuch activities are chargeable to taxunde·r the hea
1 '0flft1 andgains of business or profession.
62
Income derived from the practice of profession is also chargeable to
tax under the head "profits and gains of business or profession". The
word profession includes vocation. The word vocation means natural
ability of a person for some particular work. The income acquired by a
lawyer, chartered accountant, tax expert, architect, engineer, doctor etc
are considered to be income from profession. However if such a person
is employed by some other person and he gets salary from his employer,
the income will be chargeable under the head "salaries".
. General Principles regading computation of income taxable under
the head "Profits and Gains of Business or Profession"
The following are the general principles regading computation of
income taxable under the head "Profits and Gains of Business or
Profession"
1. Business or profession should be carried on by the assesses.
2. Business or profession should be carried on during the previous year
3. Income of the previous year is taxable during the following assessment
year.
4. Profits and gains of different business or profession carried on by
the assesses are not separately chargeable to tax. Tax incidence
arises on aggregate income from all business or professions carried
on by the assessee. If an assessee earns profits in one business
and sustains loss in another business, income chargeable to tax is
the net balance after setting off loss against income.
5. The income tax law is not concerned with the legality or illegality of
a business or profession. It can, therefore, be said that income
of illegal business or profession is not exempt from tax.
6. Capital reciepts are not taxable. Profits arise out of trading receipt
only is taxable. The entire revenue receipt is not taxable. Out of
the revenue receipts, trading or revenue expenditures and losses
can be deducted.
Deductions Expressly Allowed
Sections 30 to 37 expres ,Jrovide for certain deductions to be made
while computing profits and gains of business or profession.
1) Rent, Rates, Taxes, Repairs and Insurance for Building
In respect of premises taken on rent, the actual rent paid by the
assessee and if he has undertaken to bear the cost of repairs the
63
 du \IOP..:5
e
profession in the previous year will be entitled to depreciation allowance.
h rss i? sos °'"-neo by tho assossoo tho nmountspent on The assets need not be used during the whole of the previous year. Even
l '-°'
• c,..;i n: IS -ni;td as ded-.,.ctton S1milarh tho amount paid on account at
1 if it is used for a day in the previous year it will be entitled to depreciation.
a' 18mium ngainst the risk at However if the asset acquired in the previous year is less than 180 days
duct....te. th depreciation will be allowed only to the extent of 50% of actual
0
depreciation allowance.

If the asset is sold in the previous year, no depreciation will be allowed

2)
a"n"nrl,ture incurred on repairs and insurance in respect of the
in respect of such asset.
umiture used for business purpose is deductable.

A plant which is kept as a standby in the event of machinery break

ct a deduction as per the prescribed rate is
ct ot depreciation of certain assets owned by the
in lhe previous year for the purpose of his business
'rthnrort:ohon' refers to tho diminishing of value of capital
0oprocmtion allowance is allowed only in
respect
ned by assessee and use·d
and profession.
reciation is not allowed on the cost of
errocted. but only on the cost of the
Bulidmg tncludos roads, bridges. well and tube - well.
tn Attoa Cycle Industries v. C.l.T. (P&H) 134 ITR 458, the court
cied inside tho factory premiGes for the benefit
s asset and entitled to depreciation.
n rnspe-cr of plant owned by the assesaee
t business or profession. The term plant
ncf
oaks. sciantif/c apparatus and surgical
ra us&d for the purpose of business or profession.
In Scientific Engineering Houae Pvt. Ltd. v. C.I.T. (1986) 157 ITA
P.86 (SCJ. 11 was held that technical knowhow. drawings, designs, plans
andprocening data books are entitled to depreciation.
down will also be eligible for depreciation allowance even if it was not
used for a single day in the previous year.
Depreciation allowance is available only with respect to the assets
owned by the assessee. The assets hired by the assessee is not eligible
for depreciation.
Depreciation is admissible for 'block of assets'. The method of
computation of depreciation is written down value method. Depreciation
allowance is to be calculated In respect of block of assets with respect to
the actual cost. Actual cost of an asset means its actual cost to the
assessee including the expenses on installation.
4. Expenditure on Scjentjfic Research
Any expenditure spent on scientific research related to business can
be deducted.
5. Expenditure incurred on the acquisition of Patent right or Copy
Bl9h1
The expenditure incurred on the acquisition of patent right or copy
right can be deducted in 14 equal annual instalments commencing from
the previous year In which the income is incurred.
(J. xllQ.IldJture on Know-how
Any consideration paid by the assessee for acquiring any know• how
, for use of his business will be allowed as deduction in6 equal instalments
Only asset
nlch aro used for the assessee'e own business or
for the next succeeding previous years.

65
 ,I"' I -M l
Expendltme by way ot p0ymon\ to lns\l\u\lons locnrry out tut!\1
loplo .. XIV
development pr-ogmmmos cnn be doductod.
lnoo1no undor tho Hood "Copit!II Goln.1"'"
s. ln.\.ll,UL.Qn.Jl.QI.tQ.\'.i<t.ti'1lilltll
Tht' 13moun\ ot ,n\et st paid In rospocl ot copltol l>ortoWQU for tho 1:n1t11Qn Any plt,tflt 111,u yt1ln srl!}l"U ''°"' lrortsfar ut .11 u,1,itril hC..t!'JI

L11l1:;r,,,t:;t1 1118 p1i1vlou1:1yom 11111111IJo ol1t1ry!=l1il,t1:1l'J l11u1JtntJ 1111,

Ill
ot bus\noss ot µrntesslon cnn bo doduclod, ur11Jt,r c; 1cW,n -4 •A tho lnoo111t1·111)( /\ut 1111<Ji1r lhti llt;,t11J "c;t-tfillnl
Gtilnc;". c 1,1w1()1:,10 th/
9, PD.ymen\ by way-52.LJlooua SlL.CsunmiJlUWl llul.llllly tHlnou cmly WIH.11111, 1l<1llowl11,1 G<Jndllln,,s 1;r :c.t-ttle:.fi •I:
Any sum paid to nn omployoo os bonus or commission 0011 ho
deducted, I. Tlioro ot,ould bo , corltf.11oN§vt
2. Tl10 onrillnl oeo<H lo trorwlorrocl by tho a ees e(;:
10. losunmce Premium eold 3. Suell tranufor nhould havo tokon placc, during the previous year
The amount ot any premium paid in respoct of lnsuranco ognlnst risk 4. Profll or gain ohould tiavo orison as ;i result of the transfer
ot damage or destruction of stocks used for the purpose ot business o,
profession can be deducted. Copllal asaot moans proporty of any kind held by an assessee whether
or not connoctod with business or profession. Such assets may be
11. Contribution to Recognlsed Provident Fund movable or Immovable, tangible or Intangible. Thus profit derived from
Any sum paid by the assessee as an mployer by way of the transfer of land and building, shares and securities, vehicles, jewellery,
contribution towards cecogmsed provident fund can be deducted. etc., are chargeable to tax under this head.

12. Contribution to an Approved Gratuity fund The following assets have been excluded from the term capital assets.
Any sum paid by the assessee as an employer by way of contribution 1. Any stock- in- trade held for the purpose of business or
towards an approved gratuity fund created by him for the exclusive benefit profession.
of his omployoes under an irrevocable trust can be deducted. 2. Personal effects ie, movable property including wearing apparel
and furniture butexcluding Jewellery held for personal use of
13. E112endituro lo the Nature of Revenue Expenditure the assessee.
All expenditures which arc not In the nature of capital expenditure 3. Agricultural land in India which is situated in rural areas.
bo Oeducted .
Cl\t'I Expenditure in the nature of personal expenses of
lho a ses ao cannot be deducted. Kinds of capital asset
, For the purpose of taxation, capital assets have been divided into
!)
',t two. They are:
1
".,;, 1. Short term Capital Assets
·1
2. Long term Capital Assets
5
:{!
,.-.H
Capital gain arising from the transfer of short term capital asset is
called short term capital gain. Short term capital asset means a capital
asset held by an assessee for not more than 36 mont s immediately
preceding the date of the transfer. However, in the following cases an
a_ set held for not more than 12 months is treated as short term capital
asset
.:>t: 66
'Ji 67
 Equity or p1oloronco sharos Ina company on Its liquidation.
Socurltlos lll(o dobon\uros, Govornment socurl\les listed Ina (b) Distribution of assets In kind by a Hindu Undivided Family to
'l
• ·· rocognlsod stock oxchongo In lndla. Its members at tho time of partition.
(c) Any transfer of a capital asset under a gift or a will or an
3 Unl\a ot Ull
Irrevocable trust.
...
. Unl\s o1 Mu\unl Fund.
(d) Any transfer of a capital asset by a company to its Indian
Longto1mcopllnl nssot moons o'copl\al ossot which Is notn short subsidiary company
rmoopl\olouo\. Copl\ol gain arising (rom the tronsf or of long term (e) Any transfer of a capital asset by a subsidiary company to its
c11pll11I oasot la coiled long \01m cnpi\olgain. Indian holding company
(f) Any transfer of a capital asset by a amalgamating company to
Tho (llstlnc\lonbo\woon short torm copl\ol ossot and long term capita\ tho amalgamated company, if the latter company is an Indian
_notIsvorymuch Important tor tnxatlon purposo. Tho long term capital company
onlnquality tor special tax \reotmont undor tho Income Tax Act. The (g) Any transfer of a capital asset, being any work of art,
Long Torm C11pltBI Goin la toxoblo at o flat ro\o ot 20 percent and the archeological, scientific or art collection, book, manuscript,
Shot\ To,m Capital Gain la tnxnblo at a flat rote of 15 porcont for the for drawing, painting, photograph or print, to the Government or a
\ho llHor.t.mont yoor 2015· 2016. University or the National Museum, National Art Gallery,
National Archives or any other such public museum or
Whal la lranafer ol Cepllal Auel Institution.
Anyprollt or gain derlvod on a trastor of capital asso\ Is chargeable
to lncomo leut undor tho hoad •c11pltol Goin" By virtue of soctlon 2 (47) of Computation of Capital Income
lho Ac. trana.for. In rolBtlon to n capitol asset, lncludos - Tho income chargable under the head capital gains shall be computed
by deducting from the full value of consideration received as a result of
transfer of capital asset the following amounts.
(I) ulo. ex.chongo or rollngulshmont of a capital asset;or
(Ii) xtlnguiahmont of ony rights thoreln; or 1. Expenditure Incurred wholly and exclusively in connection with
(ill) compulc:.ory acquisition of a capital asset undor any law; or the transfer.
(Iv) convorslon or trootmont of a capitol asset Into stock • In - 2. The cost of acqusltion of capital asset al)d the cost of any
trado;or improvement of asset.
(v) any transaction Involving lho allowing of the possession of an
lmmovablo proporly to bo takon or rolalnod In part performance Capital gain = Full value consideration - (Cost of acquisition + cost of
of a contract of tho naturo referred to In soctlon 53A of the lmprovment + selling expenses)
Turnafor of Proporty Act
(vi) any transaction whether by way of acquiring shares In or by
way of becoming a membor of a co-operative society,
(a)
Oielribulion ot aue\a In kind by a company to Its
shareholders
company or othor aG&oclation of poraons or by way of any
arrangement or agree:;ment which has tho off ect of
transferring or enabling the enjoyment of property.

--i:i ·..
Byv1rtuo ol aoctlon 47 of the Act tho following transactions are not
transfer.
Capitol Gains Exempt lrom Tax
The following capital gains are exempt from tax.

(a) Capital Gain arising on sale of a residential house property is exempt

from tax If the following conditions are satisfied:
(I) The property transferred was a long term capital asset
(11) The assossee has purchased within one year before or
two years after sale a resldentlnal house or constructed
69
I
\'Yllflllf ,,., ,--·-

(iii) Theproperty so purchased/ constructed is not sold Within Topic-XV

3 years. Income under the Head "Income from other
I sources"
(b) Capital Gain arising on sale of agricultural land is exempt from tax 11
the following conditions are satisfied: Income from other sources is the last head of income specified in
(i) The agricultural land was being used by the assessee 01 section 14 of the Act.
his parents for agricultural purposes for a period of 2
years or more Sections 56 to 58 of the Act deal with this head of income. A source
(ii) He purchased another agricultural land within 2 years of income which does not specifically fall under any other four heads of
from the date of transfer. income is to be computed and brought to charge under this head.

(c) Capital Gains on compulsory acquisition of land and building forming The following incomes are chargeable to tax under this head of
part of industrial undertaking is exempt from tax if the following conditions income.
are satisfied: 1) Dividends
(i) The land and building was used by the assessee for the 2) Any winnings from lottery, cross word puzzle, races including
purpose of_industrial undertaking for at least 2 years horse races, card games and other games of any sort or
preceding the date of compulsory acquisition. gambling or betting of any form or nature whatsoever.
(ii) The assessee purchased another land or building or 3) Interest on securities.
constructed a building within a period of three years from 4) Income from machinery, plant or furniture let on hire (if it is
the date of acquisition. not taxable under the head "profits and gains of business or
profession").
5) Income from letting of plant, machinery of furniture along with
the building (if it is not taxable under the head "profits and
gains of business or profession").
6) Income from sub - letting.
7) Interest on bank deposits and loans
8) Income from royalty
9) Ground rent
10) Agricultural income from outside India
11) Examination fee received by a teacher
12) Insurance commission
13) Directors' fees
14) Salaries and allowances payable to Members of Parliament
and Members of State Legislature.
15) Family pension

Over andspecifically
above the items of income stated heads
above of
any other income
,f
which do not fall under the specific income can be
charged to tax under the head "income from other sources".
71
70
 Ooductlona permiulble under the head "Income from
othersources" Inthecase ofdividend and interest on securities a
reasonableamount paid by way of commission for the purpose of
realising the dividend anct lntorost can be deducted. Interest on
borrowed capital, if it used for
invootlng In shares or securities, can be deducted.
Topic - XVI
Clubbing of Income
Generally an assessee is taxed in respect of his own income.
However in some cases the assessee may be taxed in respect of income
which legally belong to another person. When a person will become liable
to pay tax on income of another it is known as clubbing of income.

l
In the case of income from machinery plant or furniture let out on
The provisions regarding c q :.raceme are contained in section
hire, repairing charges to the machinery plant or furniture, depreciation t::.n •- C:.A .-.f •ho ln,-."n•u T-:1..., 4 -•
and Insurance premium can be deducted. Any other e,.penditure incurred
wholly and exclusively for the purpose of making or earning such income
The !o!!owing are incorTI.!'3'- .:re,ersons wh: h are included in -
can be deducted provided it should be reasonable.
total income of the assessee.

By vlrtuo of section 11588, gross winnings from lotteries, crossword
puzzles, races including horse races, card games and other games of
any sort or from gambling or betting of any nature whatsoever are
chargeable to income tax at a flat rate of 30 per cent for the assessment
yoar 2015 -16. II is to be noted that any receipt of casual and non-recurring
nature (Including winnings from lotteries ) is exempt from tax up _to Rs.
5000 ( Rs. 2500 in the case of winnings from races including horse races)in
the aggregate. No other deduction will be allowed from the following • (i)
Income from lotteries, (ii) cross word puzzles, (iii) horse races, (iv) card
games, (v) gambling or betting of any form.
1) Transfer of income and not the asset that produces the
income. If a person transfers income arising from an asset to another
person without transfering the asset such income will be included in the
income
of the transferor for the purpose of taxation.
• 2) Revocable transfer of assets
If a person makes a revocable transfer of asset to another person
under a contract, trust or agreement, the income arising from such asset
will be taxed in the hands of the transferor.

Any other expenses for earning income is deductible if the following
four basic conditions are satisfied:
1. The expenditure must be laid out or expended wholly and exclusively
for the purpose of making or earning the income.
The expenditure must not be in the nature of capital expenditure
It must not be in the nature of personal expenses of the assessee
It must be laid out or expended in the relevant previous year.
3) • Income of spouse from a firm .
Income arising to the spouse directly or indirectly from a firm in which
the assessee is a partner, is taxable in the hands of the assessee. If the
firm is engaged in professional activity the income of one of the spouses
·will not be taxed at the hands of the other.
4) Remuneration of spouse
A person is liat>le to tax in respect of any remuneration received by
the spouse from a concern in which the assessee has substantial interest.
.The remuneration which is solely attributable to the application of technical
or professional knowledge and experi1:::i.ce of the spouse will not be clubbed
with the income of the assessee.

5) Income of minor child from a firm

..
The income of a minor child arising from admission for the benefits of
73
 the partnership is Included in the income of the parent whose tota, income
before such clubbing is greater, even if the parent is nota partner in that converted property will be taxable as the income of the transferor.

firm. Topic- XVII

6) Income from assets transfered to spouse
If an asset is transferred by an individual to his or her spouse
Set-off c1nd Carry forward and Set- off
.
Income is computed under five different heads of income. One can
otherwise than for adequate consideration, any income from such
asset will be easily find out gross total income under each head if income from each
.deemed to be the income of the transferor. source is positive. Problem would arise if there is a loss from one or
... mor.e sources under one or more heads of income.
If the assets are transferred before marriage or transferred in
connection with an agreement to live apart the income will not be clubbed.
The rules of setting off of losses, and their carry forward and set off
are dealt with in sections 70 to 80. The scheme of set-off and carry
7) Income from asset transferred to minor child
forward and set off will operate as follows.
If an individual transfers his assets to his or her-minor child without
adequate consideration, any i come arising from such asset will be 1) Intra. head set-off or Intra source adjustment
included In the income of the transferor. If the net result for any assessment year in respect of any source
under any head of income is a loss, the assessee is entitled to set-off
8) Income from assets transferred to son's wife or son's minor -such loss from income from any other source under the same head. Thus
child if there is a loss from business "A", it can be set off against the income
If an individual transfers assets without adequate consideration_to from business "B".
his son's ':'ire or son's minor child income arising from such assets will be
included in the total income of the transferor. There are some exceptions to the above said rule. They are:
1. Leiss in a speculative business can be set off only against the
9) Income from assets transferred to a person for.the benefit of profits in a spec·ulative business.
spouse or minor child 2. Loss incurred in the business of owning and maintaining race
If an asset is transferred by an individual without adequate horses cannot be set-off against income from any other source
- --- ._,_--•: .... _ _... !:le-oefit of his - lie•
·-- ': "!..'S or mi""" ,-t-,jl............,?
exceot income from such sources.
..r..r..rlt:. At.-.·:H!-!::: ;,:::::!..! :- ....":" ·-·-· -=- f !h :a losses from.nor,-:soeculative t;_ ,n be se; ct
ome rrom soecu;a::. .: '-''-'=,= .. -= = _ •... c-.,o,.:.o

1 O) lncorr.e from assets transferred to a person ::1r the o nefit of 74

son's wife or son's minor child
If an asset is transferred by an individual without adequate
consideration to a person for the benefit of his son's wife or son's minor
child,incornoarising Ire,.. such property will be included in
thetote:.'1i1come
of the transferor.

11) Conversion of self - acquired property

If a member of Hindu Undivided Family has converted his self·
acquiredproperty into joint family property, income arising from such
; ime, .-. ad set - off from other sources or income under a·ny other head of income. There are
If .the net re:;ult of computation macit: for· any assessment year in certain exceptions to the general rule. They are:
respect of any head of income i a loss, the same can be set-off aganist 1. Loss in speculation business c_annot be set off aganist any
income from other heads. other head of income.
75
A business loss can be set-off aganist income ur.oer the head income
 Loss under the head capital gains CiillllUL u,a, .>v•-·· -··--·

2.
UOIY
business of 01ming an ,,.
other head of income. forward for a penod ot I l f&
Loss from activity of owning and maintaining race horses
cannot
3. be set-off under ai:1Y other head of income. Carry forward ond Ht-off of c.ap1tal L

Loss from lian.cfor of capital a u! C& ,0 ,11 lo, a f:lCtJo<.S

Carry Forward and Set-off of losses c.,._., c;. !t.,.i fJ.
- Ifa loss cannot be set - off either under the same head or under
of 8 years and set-oH aQ.1
different heads because of absence or if} adequacy of income of the
pre.vious year it can be carried fo ard and set'otf against the income
of Topic XVIII
th· ·-,"· -=nt y9ar.
Permissible Deductions from Gross To l lncom
-- .--.-,a,•11t i..-.,,-..:-;::--:.inoc

-; --
... -··· _;.c ,...,. nrnioceinn I, An assessee w IS I
to 11 t4.U
--:::n !rans'er ! : ;:::tal assets ar·} _: . =-rrom activity ! taxable income under d,Uerenl
0wnmg and maintaining race horses are permitted to be carried forward deduct certain items of ex
and set· off from the income_of the subsequent years. head of income. Atter a.rrmng a
income. he has to add tne waote &."\C'Otne
Losses under the head salaries, income from house property and and pay tax for the aggregata ,nco
income from other sources other than from the activity of owning and
maintaining race horses cannot be carried forward and set-offaganist the Example
income from subsequent years. Suppose X has (r) a tax.abLe !..ll.Hy of Rs 2 :,.:,,c,;.:
property of Rs 30.000 and trnl 1'\Co.rr-0 hom c;
Carry forward and set-off of business loss other than speculation X has to pay tax for Rs l,00.000
business taxable income unde iercnl n o
The loss from business can be carried forward and set-ottagainst income·. Ha can dadue1lro
11,e profits of business in a subsequent year. The business in which loss Rs.2.50,000). The bat.inca a.
was originally sustained should als exist during the subsequent year. income.
A I 11,:;iness loss can be carried forward and set-ott only for a maximum
of 8 r3rs. A business loss can be carried forward only if the assessee
has 1111,d an income tax return within the time and has assessed tor the income under all circums!ancss.
year the taxable income to a
111 ,-.n1ch a loss has taken place. (C.I.T. v Kulivalu Transport Co.)
80 U of the IT Act.,lS-01 d-.s.al ·-- - Alt ,
•' • seen that the de-due
c; ,ry Forward and set-off 'oYsp ulation loss j -
encourage savings. oon
Loss in a speculative business can be carried forward to a subsequent assist the tax-P3yars in n
-, • . , and sel-off only aganist profit of a speculation·business. Such toss
:. • n he carried fort',ard :Or a period of 4 assessment years.

M?intaining race horses .

_C:ury forward an. d set-off of Loss in respect of owning and
. Tn2 IDs.sof ac-tiviry of owrung an-d maintaining race hors-cs can be
I
,{ '•m=Jbrward to subs:?qu:?nt years and s.e1-oH only againstincoma tr The fofio\\ing arehe p.t.m-JSSt:.ii:.e

(1) De-ducti«I ln re:spect of Penst.on kl\d

tt tax)'ef rs an J."'IG-'\"k. -
,ond-er an annull)'f plan of the Li e t.nsu.anca CQfpO
,,.,,..,.....,,,\JI 11vqt "'""" ,.._.,,_ - •• , .. ·-, ··· • .. ·•-•'"f l'aj
out 01 tho inoon10 ohtupoRble lo lfl)(, an amount of Rs,10,0QQ/- or
,mount r1oluhlly cJopo11llocl, wlllohever Ill lower, ii, <lecl11otible from tile 11
Orq: ( I) Tl1 la,< pijyer ) .a resj<,lent in Jndla.
\r,tal lnoorna, ( S1c>o\lon ll0COC), 1 (2) Tl18 tax payer ha§ Incurred some expenditure 1or the Me<;lical
lr.ef.llmarit Q/ any ol lhe following diseases or ailments -
(C) D12ch.1Qtlon In raeptHll of Mecllcrnl lnsuranpe Preml111n ) l'leurologlc;al <,ll eas.es (b)cancer (c) AJDS (<;l) Chronic
11 the ta)(•prw1:1r Ill 1:111 !nctlvlrl11al onrl 110 haa rfllcl lna11rnnr, Aenol fi;lli.ir (e) H.e,n9hJliG1or (f) Thalassaemia
6
p1'1tnl11rn 101 nwt.UQnl 11HHHtHIQt> 111 .:rnrinrclhnOfl with Iha aol101ne frflmsr1 lri
tl\11) L>t>hnll by ll11J C\ 111111:11 l111>1iru1uw C:<Hp(111:11inn of ln(Jla c1n(.I l'IPnrovti,1 () al tre trnent
IJylht>C n1,"'1Oovf,111rnt>11l. ( 1111ci1101l'"'rn1.>l11known 1:11:1"mticllolc1ln1ln1:Htr£rn,, II the
6
pollov' ), th1.1ntnou111 {IOl111:111y pr1lrl or 111=1, 10,000, Wllloll WH lij IOWtH
1
1
diHJuctll>lo 110m IIH y1onn IOlnl lliOClll)g, ro 01111111 llilt-l l)t.1lltifll two lnl)rq
Oflllltlonu Rf(} lo lrn Ot1ll11ll<cid,

(1) Th R111ou11t ollo11llJ ho p11l<1 by ohuqug t:11HI It t.1lloulcJ IJy J)tllll f

out of 111001110 clln1yat1L>lo lo t11x, Uluhu
(II)
The 01nou111olloul<J lw pnl<.1 out of 111001110 ollt11cJut1IJlt110 t1:1x
(ooct1011UO D)
ny fin
llw tir,1
(3) Doducllon In roupoct of molntonunoo and rnodlool
troatmont of a dopondont poroon with dlooblllty. ( Sootlon 00 DO)
II lllo lax payor Is an lndlvldual or a HUF, ho or iioon
dodu1,i
from thogross lncornoa maximum of Ro.75,000/-, If tho following condition
are satlsflod: (0) D«.
(I) Thoaasosooo lo a rosldont In India ( may bo ordinarily Charltabl@ I
rooldon1 or not ordinarily rosldont)
(ii)
Thotax payor has dono eithor or both of tho following option donation<>"i,
a) Tho tax payer has lncurrod an oxpendlluro for tho othor p
modlcal treatment ( including nursing ), training and the gro
rehabilitation of a dopondant person with disability, or Drought Aeli
(b) Tho tax payer has paid or deposited undorany per cent of
scheme
ct up by th
framed in this behalf by tho Life Insurance Corporation National F
or a.nyother insurer or tho Unit Trust ot India and fundt>. A re
,approved by tho Board In this bohalt, forma.intonanc1: 90t lhe bcn
ot tJ,mendant person vtith dit$abillty.
(4)
D dJ.Jclion In re pec-t .of Medical Treatment ( Section 7
)

<JiYi !J.al Qr HUF, h9

1 lt can OQ!-1.
>1 /¼A(),
n §1Jt'l§tyJn9
 (i) He should be a self employed person or a salaried empl
. f II
who 1. s not in o any ouse a owance. oy1• (9) Deduction of Profits and Gains from Projects out aide
. t h t , India Bys. 80HHBofthe I. T. Act, 1981, an Indian
rece1 p ren
Company a
resident non- corporate ass&ssee is entitled to dsdu
(ii) He or his spouse or minor child should not own any and gains from the execution of the foreign projects und rtaY..en b"-/ tha
residenti·, accommodation at the place where the assessee assessee in pursuance of a contract entere:d ,nto by him with lhe
resides, performs the duties of his office or carries on his Government of a foreign Stat,;,, or a foreign enterpni;e, or a
business ei other public authority or agency of a foreign State. The:
profession. not be with a person resident in India even if it is in resoect ol a fore:,gn
project.
(B) Deduction in respect of certain donations for Scientific
Research or Rural Development "Foreign Project means a project for :
(a) the construction of any building, road, dam, bridge or other
By section BO GGA of the IT Act 1961, an assessee ( other
structure outside India.
than an assessee whose total income includes Income chargeable unde:r
(b) the assembly or installation of any machinery or olant outside
the head "Profit and Gains of Business or Profession") is entitled to deduct
India
the following payments / donations
(c) theexecution of work of exploration, exploitation, development
and production of hydrocarbons outside India.
(i) Sum paid to an approved scientific research association or to
an approved university, college or other insititution to be used for scientific (10) Deduction of Profits and Gains from Housing Projects
re!learch.
aided by World Bank
Bys. 80HHBA of the I. T. Act, 1961, an Indian Company anda
(11) Sum paid to an approved university, college or other institutions r,esident non- corporate assessee is entitled to deduct 20 per cent ofprofits
be u::.ed for research in social science or statistical research. andgains from the housing project awarded to the assessee on the basis
(ill Sumpaid to an approved dation or insitrtution which has ,of global tender and such project is aided by the WorldBank.
a
·ng of any programme of rural development, to
es of carrying out any approved programme of "Housing Projecrmeans a project for the construction of anybuilding.
road, bridge or other structure in any part of India

aid t Deduction of Profits and Gains derived from export of

iation or institution 'llhich has (11)
trai
r,t, ,, implementing programmes or Goods
Bys. 8 0H H Co ft h eI . T . Act, 1961, an Indian Company
anda
ti
,,.
r comp.any or a local authority or an
• y the National Committee for carrying
I Fund f<.1r Aural Dovoloprncnt set up and ,resident non- corporate assessee is entitled Infrastructure Development, T,tecommunlcatlon Services, Industrial
todeduct 50per centof profits Parks and Power Generation
derived from export of goods out of India.
(TAX H O L I BD yAsY.) 80IAoftheI. T.Act, 1961, all Industrial
(12) Deduction in respect of Undertakings
Profits and Gains from Industrial 81
Undertaking engaged in
- en. gaged in the following business can deduct 100 per cent of thePro1·

derived from such business.

(14)
Deduction in the case of totally blind or person with
disability
By s. 80 U of the LT.Act, 1961, a resident individual who Is
{I) Developing any infrastructure facility.
(ii) Maintaining and operating any infrastructure facility otallY blind or suffers from severe disability is entitled toa deduction of
(iii) Developing, maintaining and operating any infrastructur t 5000 from h.1s gross total i•ncome in computing his taxableincome.
7
facility. IA5,the case of person with minor disablity is entitled todeduct Rs.SO.ODO
n
from his gross total income in computing his taxable income.

"Infrastructure Facility" means -

(a)
(b)
a road including toll road, a bridge or a rail systeni Topic- XIX
a highway project including housing or other income Tax Authorities
activities being an integral part of the Highway In order to implement the provisions of IncomeTax Actand Rules

project. made thereunder, the following authodOes have beenestablished. Tho

(c) authorities under the Act can be classified intotwoheads: (1)
water supply project, water treatment system,
irrigation project, sanitation and sewerage·system ExecutiVe
or solid waste management system Authorities (2) Authorities with Judicial Power.
(d)
a port, airport, inland waterways or inland port. Authorities with Judicial Power
Executive Authorities

(iv)
Telecommunication Services 1. Central Board of DirectTaxes. (CBDTI
(v)
Industrial Parks
(vi)
Power Generation, transmission and distribution. 2. TheDirector-General or
Chief commissioner of Income Tax.
An industrial undertaking engaged in the business of (i) providing Bys. 80 JJAof
infrastructure facility, (ii) industrial parks, or (iii) power generation, the LT.Act, 1961, if the
3. Directors of Income
transmission and distribution can deduct 100 per cent of its profit for gross total income of an Tax or
10 years. The deduction commences from the initial assessment assesses includes any
year. In the case of industrial undertakings engaged in the business profits derived from the Commissioners of
of telecommunication services, 100 per cent of profits can be deducted business of collecting.
for the first five years, and 30 per cent profit can be deducted for the processing or treating of Income Tax
next five years. 'fhe deduction allowed under this section is popularly bio•degradable waste for
known as" TaxHoliday". generating power, or 4.Additional Directors
producing bio-fertilizers or
for bio-gas, the whole of of IncomeTax, or
( 13) Deduction in respect of profits and gains f(om business
of processing of bio-degradable waste the profits and gains
Additional commissioners of Income Tax

5. Joint Directors of Income Tax or Joint commissioners of Income Tax

6. Deputy Directors of Income Tax or

;
Deputy commissioner of Income Tax

ti jrectors ofIncome Tax or

,)11_ta:tanii;r.,..•w , , s . s.1 .orter o,fncome Tax
-c ;, • " • •
commissionersof

-
tncomeTax (Appeals)

Addi. commissioners of
Income Tax (Appeals)
B. Income Tax Officers d·1ng the exercise 0f • d.·
regar JU •cial power by the subordinate authorities.

9. Tax Recovery Officers 3_ It may declare any organisation asa company.

10. Inspectors o·t Income Tax 4

_It may direct the income from property held under trust should not form
part of the total income of the receipient.
The following authorities are "Assessing Officers".
1 Joint Directors ot Income Tax or, Joint Commissioners of Income Tax 5_ It may entertain objections in respect of search and seizure under the
Act.
2. Deputy Directors of Income Tax or, Deputy Commissioner of Income
Tax • {2f Director General of Income Tax • and Chief Commissioner of
lncom Tax._ _
3. Assistant Directors of Income Tax or, Assistant Commissioner of Income
The Central Government appoints these authorities. They are
Tax required to perform such functions as may be assigned by C.B.D.T.

4. Income Tax Officers directions

84
The assessees can prefer appeal against the assessment orders of
the above said authorities before the Commissioner of Income Tax
(Appeals) or Additional Commissioner of Income Tax (Appeals). The
orders of Commissioner of Income Tax (Appeals) and Additional
Commissioner of Income Tax (Appeals) are appealable to the Income Tax
Appellate Tribunal.

1. Central Board of Direct Taxes

The Central Board of Direct Taxes is the highest executive authority.
It is constituted by the Central Board of Revenue Act,1963. It works under
the Ministry of Finance. It has the following powers:

1. The Board has the power to make rules for carrying out the purpose of
the Income Tax Act.

to issue orders, instructions, directions to persons

employE:d in the execution of the Act.

It cannot, however, issue instructions to the Commissioner of

Income Ta.x (Appeals) or Deputy Commissioner of Income Tax (Appeals).
Similarly the C.B.D.T cannot issue a direction to the Income Tax Officer to
dispose ofa case In a particular manner. The board has no power to give
 The Director-General enjoys the following powers:

1. Giving instructions to the Income-tax officer

2. Investigation into concealment of income.

3. Search_and Seizure

4. To make request for books of accounts

5. Power to conduct survey

6. Power to make any enquiry

The Directors of Income Tax and Additional Directors of Income Tax

and Joint Directors of Income Tax also enjoy all the powers of Director
General of lncomeTax.

The Chief Commissioner of Income Tax will be appointed by the

Central Government. He will be in the rank of Director General. The Chief
Commissioner of Income Tax enjoys the followingpowers.

Registration of a Charitable trust or institution.

1. Appointment of the Income Tax Officers Class II and Inspectors of

Income tax.
85
 3. He has power to give instructions to subordinate authorities.
4. He has power to conduct search and seizure.
5. He has power to direct Income tax officers to prefer appeal to the
Appellate Tribunal aganist the orders of the Appellate Commissioner.
6. He has power to conduct revision.
The Commissioner of Income Tax or Additional Commissioners of
Income Tax and Joint Commissioners of Income Tax also enjoy the same
powers of the Chief Commissioner of Income Tax.
Revlslonal Jurisdiction of Commissioner of Income Tax
The Commissioner of Income Tax has got revisional jurisdiction. The
Commissioner may call for and examine the record of any proceeding by
the Assessing Officer and pass appropriate order to rectify the errors
committed by the Assessing Officer.
An order in revision shall not be made by the Commissioner without
giving the assessee the opportunity of beingheard.
(3) Commissioner of Income Tax (Appeals)and Additional
Commissioner of Income Tax (Appeals)
The Commissioner of Income Tax(Appeals) and Additional
Commissioner of Income Tax (Appeals) enjoy the followingpowers.
1. Power to hear appeals preferred by assessee
2. Power to take evidence
3. Power to call for Information
4. Imposition of Penalty
5. Disposal of appeals
4. Income Tax Officers
Income Tax Officers of Class- I are appointed by the Central
,Government. The Income tax officers of class II are appointed by
Commissioner of Income Tax. They are the assessing officers.
5.
Recovery officers and Income Tax Inspectors
They are appointed by the Commissioner of IncomeTax.
ropic- xx ..
• search and Seizure ( Section 132)
The power to order search and seizure is vested with the Director
General or Chief Commissioner or any other authority empowered in this
behalf by C.B.D.T. Search and seizure may be ordered under the following
circumstances.
1. Any person to whom summons or notice was issued to produce any
books of accounts or documents has omitted or failed to do so asrequired.
2. Any person to whom a summons or notice has been issued will not,
in the opinion of the authority, produce any books of accounts or other
documents.
3. Any person is in possession of money, jewel or any other valuable
article which represents income and which has not been disclosed for the
income tax purpose.
The authority who is authorised to make search or seizure has the
following powers.
1. To enter and search in any building, vessel, vehicle or aircraft; if he
has reason to suspect that books of accounts or documents or money or
jewellery are kept therein.
'2. To break open the lock of any door, box, locker, safe, alimarah, in
case the keys thereof are not available.
3. To search any person who is found in the building if the searching
officer has reason to suspect that such person has secreted any books
of
. accounts or documents or money or jewellery.
.4. To seize any books of accounts, documents, money or jewellery which
- '.'.was found in the search.
\_ ..
'"'l'1i:i.'"' • The authorised officer may make a requisition of the services of any
"· : C·
i'ie! '· • police officer to assist him, and in such a case it will be the duty of the
,, -police officer to comply with such requisition•
t\' 87
 Ifanymoney, books of accounts or document is seized, the
authorised A person who sustained loss in a Previous year and wants to claim
officershalwl ithin 120 days of the seizure make an orde- (1) estimatin carry forward and set off shall also file a r turn within the time.
r
undisclosedincome (2) calculating the amount of tax in such
estimate income (3) determining amount of interest or penalty. If Assessment
A person who is liable to pay tax has to file a return within the
Bofore making an order the Assessing Offficer will have to give due date. If any tax is payable on the basis of that return the assessee
the person concerned a reasonable opportunity of being heard. has to pay the tax together with the interest payable before filing the
return. The return is to be accompanied by the proof of such payment:
Topic - XXI This is called self assessment.
Filing of Return of Income and Assessment
Summary Assessment or Assessment on the basis of eturn or
Every person, if his total Income for the previous year exceeds tne Provisional Assessment
maximum amount which is not chargeable to income tax, shall If a return is filed and if any tax or interest is found due on ttie
furnish a return of income with in the due date. basis of such return, an i timation shall be sent to the assess_ee
specifying the sum so payable and such intimation shall be deemed
to be a notice of
In the case of a company the due date for filing of return is 31st' '(demand. If any refund is due on the basis f such return the Assessing
October of relevant assessment year. In the case at non-corporate ,,Officer shall grant it to the assessee..
.aHosseo the due date for filing of return is 31st October of the relevant ,
oasosoment year. The Assessing Officer can make the following adjustments in
the returned income for the purpose of provisional assessment.
In tho case of Individuals the due date for filing of returns is
31st
July of tho rolevant assessment year. Any mathematical error in the return can be rectified.
(1)
(2) Any deduction or allowance or relief which is prima facie admissible
Inthocase of an Individual a return shall be filed even though he 1· - but which has not been claimed in the return shall be allowed.
has no taxable Income under tho following circumstances. (3) Anydeduction, allowance or relief claimed in the return which is
prima fac/e inadmissible shall be disallowed.
1) ir heloIn possession of a motor vehicle other than
two wheelors as owner or loasee .
2) If ho Is a holder of a credit card Regular .Assessment
If Regular Assessment means assessment made on the basis of
3) holoa member of a club where entrance fee charged ls evidence or best judgement ass ssment.
As. 5,000/•or more.
4)
IfhohasIncurred an expenditure of As.50,000 or (a) Assessment on the basis of Evidence
moretowards
5) sumptionof eloctrlcily during theprevious year. , If the Assessing Officer considers _it necessary to verify the
con
H hehaslncurrodexpendituro for himself or any other orrec_tness or completeness of return, he shall servea notice to the
person
ontravel to any foreign counlry.
6)
If he lo inposoosslon of a realdentlal building of 1100 sq. feel
/ sossee to attend his office or to produce evidences in suppor·t of ttie
 or rnore. (clal_ms madein thereturn. The notice demanding attendance or production
7)
-documents shall be served on the assessee within 12 months from the
If hols In
sq.feel orpossession
more. of a commorclal building of 175
d of the month in which return was filed.
89
88
 After hearing the assessee or examining t h e. evidence produced by
:Il the assessee the Assessing Officer shall pass an assessment order i
II writin·g determing the .total income and the tax payable by the assessene
It is called assessment_on the basis of evidence.
•'
b) Best Judgement Assess!'llerit
In a best .judgement assessment the Assessing Officer makes an
assessment not _on the basis of evidence adduced by the assessee bu,
on his best judgment. The Assessing Officer makes an assessment on
the basis of materials collected or gathered by him. Under the following
circumstances the Assessing Offic.er can make an assessment on the
• I • •
basis of his best judgement.
1} If the person who has to file the returns has faih d to file the
returns. .1.. ..
2} If there is a failure to comply with the term_s of a notice
requiring the assessee to p_roduce accounts or other
documents.
An opportunity of being heard may be given to the assessee to sho
cause why the assessment should not be completed to the best of his
judgement. However if a notice requiring production ot accounts or
documents have already been given, such opportunity of being heard need
not be given.
Jf in the opinion of the assessee e_xcessive tax has been imposed
on him under the best judgement assessment, the assessee is entitled to
appeal to the Commissioner (Appeals) against such assessment. He mai
further appeal to the Appellate Tribunal and may also go to the High court
on a reference to it on any question of law involved in the case.
fopic - XXII .
income Escapang Assessment or Re-assessment
If the Assessing Officer has reasonto believe thatany income
chargeable to tax hasescaped assessment forany assessmentyear he
may assess orre-assess such income. If an assessment hasalready
been made for therelevant assessment yearnore-assessment shall bi!
made after theexpiry of 4 years from the end of therelevant assessment
year.
If the income has escaped assessment due to the ta1lu1e on tho part
of the assessee, re-assessment shall be made within the period proscribed
below.
In case where a regular assessment has been mado, a re-assessment
• can be made -
> within 4 years even though the income o.scap.od tax l.s Ro.1
upto Rs. 50,000.
> within 7 years if the income escaped is Rs. 50,000 or more b-ul
not exceeding Rs. 1 lakh.
> within 10 years if the amount exceeds Rs. 1 lakh or mou,.
If the assessee has not filed returns. the Assessing Olfioor con
assess within 1 O years if the income escaped tax is Rs. !>.O000 ormore.
If the income escaped is Rs. 25000 or more but below 50.000 lho
assessment can be made within 7 years. II the lncomo escapod tax Is
below 25000 rupees the assessment shall be madewithin4 yoors.
Topic-XXIV
Appeals and Revision
Appeals against an order of Assessing Officermaybe madoonly
If the right to prefer appeal has been specificallyprovidedunder the
Act.
· Only the assessee has the right to·appeal against theorder ofAssess1ng
Officer. The Department is not given the right topreferappeal. Butthe
subsequent forums of appeal are available to the assessee aswell as to
the department.
The following are the appellate authorities provided under the Act.
91
 ( 1) Comrnlsslonor of lncomo Iox \""PP""'",' • •- -·•-••·-
·
(2)
Commlsolonor of lncomo Tax ( Appools) PART- Ill
(4)
A11polloto Trlbunol THE KEAALA AGRICULTURAL INCOME TAX
ACT, 1991
High Court
(5)
Supromo Court
Topic - I .
Introduction
Tho assossoo aggrlovod by cortaln ordors of the Assessing Offlcora
may profor appeal to tho Commissioner of lncomo Tax (Appeals) /
The KarolaAgricultu al Income Tax Act, 1991 iaonactod bytho Korala
Additional Commlsslonor of lncomo Tax ( Appeals).
State Logislaturo Inoxorciso of Its poworaundorArtlclo 246 (3) read
with Entry 46 of tho. VII th SchocJuio to tho Constitutionof India.
Tho ordors of tho Commlsslonor of Income Tax (Appeals)/ Addltlonal
Commlsslonor of lnoomo Tax ( Appools) ore appealloble to the Appellate
• Tho object of this onactment is to levy tax onagricultural lncomo In
Tribunal. Tho assossoo as wall as dopartmont can profer appeal. Both
the State of Karola. Tho Act oxtoncJs to tho wholeofthe Stato of Korola.
quostion of law and fact can bo rolsod before the 'Appellate Tribunal. A
Tho Act came Into force on first day of April 1991.
person aggrlovod by tho order of Appellate Tribunal can apply to tho
Appollato Tribunal to make a roferonco to High court on question of law. :ropic - II
In coso tho Appellate Tribunal rejects tho application tho aggrieved person
1Definition of Agricultural Income
can profor an appoal to tho High Court with in 120 days from the date of
rocolpt of tho order. An appeal shall also lie to tho Supreme Court on the
S e c t i o_n2 (1)of tho Act defines Agricultural Income. The
Judgomont of tho High Court, If the High court certifies that the case Isa
definition of agrlculturarl income in the Income Tax Act 1961(Central Act)
flt one for appeal to the Supreme Court.
and tho Kerala Agricultural Income Tax Act 1991 Is identical.

wAgricultural income" moans -

a) Any rent or revenue derived from land which is situated in India
and is used for agricultural purposes.
b) Any income derived from land -
1. by agriculture or
2. by the performance of any process ordinarily employed
to render the produce fit for the market by the cultivator
or
3. by the sale of the produce raised by the cultivator after
the aforesaid process has been performed.
. c) Any income derived from any building owned and occupied by
the cultivator. However the building should be required as a
dwelling house or as a store house or other out-building in
connection with the land. The building should be in the
Immediate vicinity of the agricultural land. The land should be
assessed to land tax in India.
&,····
if_ ; :
'·
' '
¥
- 92 93
.a.,, .:,.
' -
 Ch
'rge.of lj"••-·-. •••.,- nu,
.
aI111comeexceeds

Agricultural 1nco111c; IU
. r
'"Rs.60,000but doesnot exceedRs.1,00,000
Rs.2000
. . bletopay tax nt the rate specified in the Sen plus 20%of theamount
The assesseo Is in ,. • edtil
totheAct onthe"totnl agricultural Income of the previous Year. i by whichihe total
agriculturalincome
exceeds Rs. 60,000
The•totalagricultural income' of t he previo us yea r of any sot
Per . I d .
comprises of all agricultural income de. nved from an situated Within (ci) Where the total agriculturalincome exce€<JsRs.1,00,000 -Rs 10,000plus30%
t•h, of theamountbywhich
Staleandreceived by him within or outside the Stat . '
thetotalagricultural
income
Thetotal agricultural income does not include the foll6wing- exceeds Rs.1,00,000
{a) Any agricultural income derived from land situated outside
th,
Unthe case ofa firm35 percentof the total agriculturalincome.
State. • '
(b! An agricult ral income deriv d by cultivation of paddy, tapioca
3. · I·nthe.case ofa domesticcompany oraco-operaL esociety
plantain, g, ger, rag,, pul es, sesame, vegetable, weet potato, tubers.
sugarcane,1ack. mango, pineapple, orchid or other flowers• vanila,
turme•n•c
and gauva. '(!!} If the total agriculturalincomedoes notexceedRs. 25,000 - 35% of the total
agriculturalincome
(c) Share of income received by a partner from any firm on·which tax tCb) If the totalagriculturalincomeexceeds
has been paid by the firm. Rs.25,000but doesnot exceed Rs.1,00,000 -40%
ofthe total
A person other than a company or a firm is not Ii t2 eai taxon agricultural
the agricultural income if the total extent of landed properti s dg._nqt income
exceed five hectares. r(c) If the total agriculturalincomeexceeds
'3s. 1,00,000 but doesnot exceed Rs.3lakhs -45%

.
In thecase of persons holding property as tenants - in - common and
.. _..,,,;:
of the total
agricultural
income
derivingagricultural
t hrea t e income, the tax shall be asse segi!I
applicable to the agricultural income of each tenant - in- common. 50%
( If the total agriculturalincome exceeds Rs.3lakhs
of the total
Rateot AgricutturaJ IncomeTax
t. Inme case ot person aherthana orCo-operative Society ·agriculturalincome
·-:-·

(a) Where thet agriculisaJ

n:ooie doesnot exceedRs.40,000/-
Ni. amoont
'Mlallhe
(b) V..tiere lhe lotalagricu/turaJ ncctne
exceeds Rs. 40,(00butdoes not totalagricultural incomeexceeds Rs.40.QOO
exceedRs.60,000 10%ofthe
 fln!he case oaf foreigncompany-80%.of ·i!l9 deductions.
the total agriculturalincome. agricultural
income of a rAny sumpaid in theprevious year on account·ot landrevenue due
person shall
sible OeducJions in the Computation of becomputed 95
Total A9.I.icuttural
altermaking
to the Government.
(b) Local taxes and cess and municipal taxes In respect of the
fromwhich agricultural income Is derived.
(c) Anyrent paid In the previous year in respect of the land from Which the
agricultural income is derived.
(d) Any expense incurred in the previous year on the maintenance of any
irrigation or protective work constructed for the benefit of the land frorn
which the agricultural income is derived.
• (b) If the assets are transferred with a right of revocation, the agricultural
{e) Any expense incurred in the previous year on repairs in respe.ct of
any capital asset which was purchased or constructed for the benefit of
the land from which the agricultural income is derived.
(f) Any interest paid in the previous year on any amount borrowed and
actually spent on any capital expenditure incurred for the benefit of the
land from which the agricultural income is derived.
(g) Any interest paid in the previous year on any debt for the purposes of
acquiring the land from which the agricultural income is derived.
(h) Any interest paid in the previous year in respect of agricultural loans
taken and expended on the land from which agricultural income is
derived.
(I) Any expenditure not being in the nature of capital expenditure or
personal expenses of the assessee laid out or expended wholly and
exclusively for the purpose of deriving the agricultural income.
96
Cl bbing
th
of Income
Under e following cirucumstances agricultural income of o ther
S
per ons will be included in the assessee's total agricu.ltural income.
) If the agricultural income alone is transferred without transferring the
(a ets from which the agricultural income is derived, the agricultural
ass • of
1•ncome so transferred shall be include.d in the total agricultural income
the transferor.
income derived from such assets shall be included in the total agricultural
income of the transferor.
(c) _ T.he -in.com.e of the spouse from a f1' rm wh•ich 1• s carryi•ng on
agr•icultural operation m which the assessee is a partner is to be included
in the total
agricultural income of the assessee.
(d) The income of a minor child from a firm which is carrying on
agricultural operation in which the assessee is a partner is to be·included
in the total agricultural income of the assessee.
(e) Agricultural income of the spouse from assets transferred by the
assessee to the spouse otherwise than for adequate consideration or in
connection with an agreement to live apart is to be included in the total
income of the assessee.
(f) Agricultural income of minor children from assets transferred by the
assessee to the minor children otherwise than for adequate
consideration or in connection with an agreement to live apart is to be
included in the
total income of the assessee.
(g) Agricultural income derived from any asset transferred to any person
otherwise than for adequate consideration and for the.immediate or
deferred benefit of the transferor's spouse or minor child or both shall be
included in the· total income of the transferor.
97

Topic ..v
Agricultural Income Tax Authorities
In01dorto lmplomont tho pr6vlslons of tho Actsocllon 24 of tho Act
provldos for tho appolntmont of following outhorlllos
t. Commlsslonor of Commorclal Toxos
2. Joint Commlssfonor of Agricultural lncomo Tax
3. 0oputy Commlssfonor of Agrlculturol lncomo Tax I Deputy
Commisslonor of Agrfcullural Income Tax (Appools)
4. lnspocting Assistant Commlssionor of Agricultural Income Tax I
Appo111110 Assistant Commissioner of Agricultural Income Tax
S. Agricultural lncomo Tax Olllcers
G. Agrlculturnt lncomo Tax Inspectors.
All tho outhorlllos statod obovo ore appointed by tho Government.
n,oCommluionor of Commercial Taxes can Issue orders, Instructions
and dlrocllon, lo tho othor Agricultural Income Tox Authorities for the
odmlnlstrotlon of tho Act. Tho Authorillos oro bound to observe and
follow lho ordor6, Instructions and dlrocllons of the Commissioner.
ThLADJaU.oto TelbuoaI
Soctlon 73 of tho Act ompowors tho Govornmont to establish an
Appolloto Tribunal. Tho Appollato Tribunal ohall consist ofo Chairman
and asmanyothormombora ats tho Govornmont think tit. Tho
Chairman ahnll boo pouionwho Is orhoo boon or Is quallfled to be
appolntod asa Judlclol Officer not bolow tho rank of a DistrictJudge.
Thofuncllona of thoAppolloto Tribunal may bo performed.
O
(a) bybonchconsistingof tho Choriman and any other member or
mombpra o, tho Tribunal
by a oe11u11uu11ms1ing of twoor
(b ) tltutod by tho Chairman.
c o ns
moremombors other than the Chairman, -
If an orcJor of assosamontor
p o n a l l y Is lsauod by an officer not above
!hO ronk of Agricultural lncomo t axo rcer
r , ·and the amount of tax disputed
Inoppoal dooo notoxceed lilly thousand rupeoa, the Chairmanorany
other member may decide the appealsingly.
A benchconsisting of two or more members other than Chairman
may dispose of any case where tho amount of tax or penalty disputed
In appeal does not exceed one lakh rupees.
An order passed by the Appellate Tribunal can be challanged in a
revision petition before the High Court on the ground that the Appellate
'rrlbunal has either decided erroneously or failed to decide any question
of law. The revls.ion petition is to be filed within 90 days from the date on
which a copy of the order of the Appellate Tribunal Is served on him.
Topic- VI
Regular and Best Judgment Assessment
Any person who is liable to pay tax under the Act shall on or. before
t. e due date In every year submit to the assessing authority a return _
showing the total agicultural Income and the amounts of tax on the taxable
Income for the preceding year.
Any person submitting a return shall submit along with the returna
receipt froma Government treasury, Crossed cheque or
crossed demand
draft in favour of the assessing authority for the full amount of tax for the
year on the basis of the returns.
If the assessing authority Is satisfied that any return submitted Is
correct and complete, It shall assess the dealer on the basis of the return.
It Is known·as regular assessment.
If no return Is submitted by the dealer or if the return submitted by
·him appears to the assessing authority to be incorrect or incomplete,
assessing authority shall after making such enquiry as it mayconsider
necessary and after taking Into account all relevant materials gathered by
'It, assess the dealer to the best of Its judgement after giving the dealer a
reasonable opporiun11y 01 uu11• ,n,-• -· •· -- - nerit
,- ...i:11

assessmonl. PART- Ill

WE_ALTH TAX ACT,
1957
Anyassessment shalJ be completed within a peri od of 2 years
fro .
Ill
iheexpiry of the year to which the assessment reIates.
Topic -1•
introduction
11 the assessee is aggrieved by the order of the Agriclutural lncorne
Tax Officer (assessing authority) he can prefer an appeal to the Appellate
Article-39 (c) of the Constitution of India says that the operation of
Assistant Commissioner of Agricultural Income Tax within a period of 30
economic sySlem does not result in the concentration of wealth and
days from the date on which the order is served on him. If the assessment
means of pr duction to the common detriment. I·t is a directive principle.
order Is made by the Assistant Commissioner of Agricultural Income Tax
I With the object·of achieving this directive principle the Parliament of India
the appeal is to be filed before the Deputy Commissioner of _Agricultural
has enacted the Wealth Tax Act, 1957.
Income Tax ( Appeals).
The Wealth Tax Act is within the legislative competence of
There can be a further appeal to the Appellate Tribunal if a person Parliament under entry 56 of List-I of the Seventh Schedule of the
objects to an order passed by the Appellate Assistant Commissioner of Constitution of India. The Wealth TAx Act has come into force on 1st day
Agrlculturol Income Tax or Deputy Commissioner of Agricultural Income April 1957..
Tax ( Appeals)_ An appeal to the Appellate Tribunal is to be preferred
Within a period of sixty days from the date on which the order is served on Wealth Tax is charged for every assessment year in respect of
him.
net wealth of the corresponding valuation date of every individual, Hindu
Undivided Family and Company at the rate of 1% of the amount bywhich
A porson objoctlng to an order passed by the Appellate Tribunal·can net wealth exceeds Rs. 30,00,000/-. The valuation date is 31st Marchof.
prcfor arevision po11tion against such order to the High Court withina
• every year. It is ·to be noted that the application Wealth Tax Act has
porlodof 90days on the ground that the Appellate Tribunal has decided
been dlcontlnued with effect from 01-04-2016.
tho appeal erroneously or failed to decide any question of law.
Thus individuals, H.U.F and Companies are liable to paywealth
tax. The following entities ar not Iiab.le to pay wealth-tax.

(1) A companyregistered with the sole object of promoting

co·mmerce,art, science, religion, charity or any of suchobjects.
(2)
A co-operative society,.
(3)
(4) • Any
social club.
Polltlcal party.

100
Topic ment year in respect ofnet Wealth. Section 2(m) defines net-wealth. Net
wealth means the aggregate Value of all assets belonging to the
- II
assessee on the valuation date
Defin
101
ition
of
Net-
Wealt
h
W
e
a
lt
h
T
a
x
i
s
c
h
a
r
g
e
d
f
o
r
e
v
e
r
y
a
s
s
e
s
s
tncludtng lhe assets 1equlles to oe mc1uuuu ,., .,.- ··-·••--···•• •••• •uis
lh
8 6- Urban Land
all.Iot !?llomptodassels and \he dobls Incurred Inrelation to tho
Said
7- in hand
cash
ln the case of individuals and H.U.F. cashin hand on the date of
ar..,o\
valuationn excess of Rs.50,000/- is asset.
,Ith= (Ar.iels+ deeme-d assets)· (exomptodossots + debts In the case of any other person any amount not recorded in books
NErt w
1ncunt,d in tol.a..t,on to a&.&e\B) of accounts ls asset.
In order to include the above stated wealths in the net wealth of the
Top\c - Ill assessee he should be owner of the asset. Right of ownership and not
Meaning of Asset rnere possession is crucial.
In V.S. Nayak V. C.W._T (1968) it was held that e\(en if title of
1ci1on 2(o} (a) dollnai anota. Thofollowing are treated as property purchased is under dispute, purchaser is liable to pay tax.
osso1s.

Topic - IV
Any t,u,ldmg or l:tnd appartonant lhotolo whether used for rosidenllal
Meaning of eemed Asset (Section 4)
Of commc.rcfa1purpo,or. Tho following throo aro not included in
assets. In computing the net-wealth of an assessee, the following assets
hou;..o mr.». nt o,r.cluitvo1y for ro,ldontlal purpose. are to be included as belonging to that assessee even though he is not
'l'\ich form; port of tho r.ock-in-trado of tho assessoe. the real owner. These assets are known as deemed assets.
'hich tho ouor-100 oocupioc for lho purpose of ony
,r proloHion corrlod on by him. (1) Assets transferred by one spouse to another
• The assets which have been transferred by an individual·directly or
ou o-ll>1tuotod within 25 kmo from tho local limits of ony
Mvn,c1i:>o.hty (H Contonmont Boord.
T g hv indirectly 10 his or her spouse otherwise than for adequate consideration
A)
-Ctof C
e In tho business of running or in connection with an agreement to live apart are included in thenet·
m on h11
wealth of the transferor.
o) mQitor ccar6 which a.to tJoatod aa llock-ln-trodo.
The word spouse means lawfully wedded persons only. Relationship
-4 J ,Jtion. UL6nella of Gold, Silvor etc. of husband and wife should exist between the transferor and transferee
r-;, 6ulh()fl, furniture. UlonGJI• and any othorartlclomade on Iha date of transfer and on valuationdate.
tt11lo-n.,. or p nly of Qpld,
Silver, Pl"tinum er an-; -O!l1cr prtH,jous mot.al are lfoatod as _
886018 (2) Aasots hold by minor chlld
11
ny of she abe>vta auata Ir.. ut1od by an auouoo aostock-In· The net-wealth ofminor child will be Included In the net-wealth of
l.l 0coo, UHH'I t.ut;h 1 h not t,catcd a&atH,til for tho purpoto of woalth
Ui;,,._
that parent whoso not-wealth is greater.

The clubblng of net-wealth of the minor In the wealth of his parent

6, Y,tchlA. 8-oat5 ar,d Alrc,allf,
Yachts. Boat,; and Alrcrafte(olhor than lhoflo utod by th ,en
0
for commetc-laJ purpo,o) ara auo1is. neoessoo
1 not applicable in respect of assets which have been acquired by the
8
minor chlld out of the followingIncome. •
(a) Income which arises or accrues to the minor child onaccount,
of any manual work done by him.
103
 (b) Income which arises to the minor child on account of any ac .
involving the application (?f his skill, talent or specialised hv1ty
knowledge or experience.
(3) Assets transferred to a person or an association of persons.
Assets which have been transferred by an individual, .direct!
' m di rec\ly, to a person or assocr•at'I0n of person for 1' mmedr' at•e or defey rr
Or
benefit of the transferor or his or her spouse or minor child With ed
adequate consideration are to be included in the net-wealth of o u t
t h e
transferor.
(4) Assets transferred under revocable transfers
Assets which have been transferred by an individual to a person•
or
association of persons under a revocable transfer are to be included .
. In
the net-wealth of the transferor.
(5) Assets transferred to a son's wife
Assets which have been transferred by an individual, directly or
indirectly, to his son's wife without adequate consideration are to be
included in the net-wealth of the transferor.
(6) Assets transferred for the benefit of son's wife •
Assets which have been transferred by an individual, directly or
indirectly, without adequate consideration to a person or association of
persons for the immediate or deferred benefit of son's wife are to be
included in the net wealth of the transferor.
(g) Gift by Book Entries
If a gift of
money is made by means of entries in the books of
ounts maintained by the assessee, the value of such gift will be included
ace h · the
•s a the
1 net wealt of the Person making the gift unless he proves to
, n t'sfaction o·f the Wealth Tax Officer that the money has actually been
delivered.
(1O) lmpartiable Estate
A holder of an irnpartiable estate shall be deemed to be owner of
that property and value of such property shall be included in the net
wealth of the holder.
(11) Property held by a member of Housing Society
If the assessee isa member of·a Housing co-operative society
and ifa building or property is allotted or leased to him, the assessee
is deemed to be owner of such building and the value of such building
is to be included in the net wealth of that assessee. Indetermining the
value of such building any outstanding instalments payable by the
assessee to
ttie society towards the cost of such house are deductable as debt owed
by the assessee.
(12) Property held by the person in part-performance of a contract.
A person who possess any building in part-performance of a
contract shall be deemed.to be the owner. of that building and the value of
such building.shall be included in the net-wealth of that person.

(7) Interest of Portner "Topic-V

If the assessee Is a partner in a firm or a memb
of persons, the value of his interest in·the ass t er •of an association
· ssets exempted from Tax - (Sec-5)
. e s of the firm or an
association are to be included in the net-wealth of th
• e assessee. The following assets are exempted from wealth-tax.

(8) Conversion
(1) Property held under a Trust
If an individual converts his self acquired Proper .
Any property held by an assessee under a trust for any public
belonging to the Joint family by throwing it into comm Y into the property
on stock Of • purpose of charitable or religious nature in India is totally exempt from
tax.
or makes a gift of separate property or transfers th8 the family

-
• Prop
than for adequate consideraton,the converted property erty otherwise
(2) Coparcenery lntere_st in a H.U.F
to be the propety of the individual and the value 01s shall be deemed If the assessee is·a coparcener of H.U.F, his interest in the family
l_nc!uded in his net-wealth. • Uch Proper_ty is to
be property is totally exempt from wealth-tax.
illl . al
104
105
 deemed
(3) Residential building of a former Ruler • assets- exempted assets) the value of debts .owed on ee
th
The value of any one building used for the residence bya former date. The debt should have been incurred in relation to thos
-t
1ua•t1n0

ruler ofa princely state ls totally exempt from wealth. 1a/'sil sets which have been included in the net-wealth of theassessee.

·c - VI
(4) Former ruler's jewellery
Jewellery in possession of a former ruler ofa princely state Which
has been recognised asa heirloom by the Central Government or
If ilitY to payTax or Tax Incidence
C.B.D:r is totally exempt from tax. However, the following conditions
are to be
f Section 6 deals with liability to pay wealth tax. The liability to pay
wealth tax is depending upon resedential status and nationality of the
satisfied. assessee. For the purpose of wealth tax, the resedential status will be
(1) The jewellery should be permanently kept in India and shall not that under the Income Tax Act. In the case of an individual the wealth tax
be removed outside India except for a purpose and period liability depends upon his resedential status and nationality.
approved by the board.
(2) Reasonable steps shall be taken for keeping that jewellery in its In the case of H.U.F and .companies, tax liability-depends upon
original shape. resedential status.
(3) Reasonable facilities shall be given to the officer to examine the
jewellery as and when necesary. The following table summarises the liability of individuals, H.U.F
and companies.
(5) Assets belonging to the Indian Repatriates
The following assets of an Indian repatriate is not liable to wealth ta (4)
(2) (3)
for seven successive assessment years from the date on which sue (1) Non resident
person returned to India. • Resident and ordinarily Resident but not

( 1) Moneys brought by him to India resident in India ordinarily

(2) Value of assets brought by him to India resident in India
(3) Value of assets acquired by him out of th b. •
him to India. e money. rought by Taxable wealth
Taxable wealth
In the case of an Taxable wealth
= y =X·Y
(4) . Money standing to the credit of such person In a N R I individual who , = (x-y) + (p • q)
X.

Tax free wealth Tax free wealth

Is an Indian National = p. q
t = p. q
in any bank in India. • • accoun H.U.F. and company
A person clalming exemption under this h
followingconditions. ead should be satisfy the
· Taxable wealth Taxable wealth
Taxable wealth
(1) He should be a person of lnd·1an ori g•m or a ·1· In the case of an = X. y = x-y
(2) He was ordinarily residing ina f . Cl itzen of India. = (x-y) + (p-q)
3 ore1gn count Individual Tax free wealth· Tax free wealth
( ) He should have returned to Ind1' a w•ith th • ry. • who is a foreign = p. q =p -q
permanently residing In India. e intention of
National

(6) One house of an aaaeaaee

One houso belonging to an individual or H.U.F Is not subject to
wealth tax. 1) 'X' denotes all assets located in India including deemed assets but

excluding exempted assets.

2) •y• denotes aggregate value of all the debts owed by the assessee on
the valuation date which was incurred in relation to the ass tsincluded in
.Tohwo. Aa s s e s s e o can d oduct from ti h. e agg,ogat, of au asoet, fe
(assets · ,' 107
,... .,_.
3) 'P' denotes all assets located out of India inc1uaing aeemea ass ets
1nsP
ectors of Wealth Tax
b 10•
excluding exempted assets. • •1
4) '0' denotes aggregate value of all the debts owed by the asses
to be noted that theauthorities established under the Income Ta"<
1•s
the valuation date inrelOtion to the assets included in 'P' see'" [AIIct ,•tself act as wealth tax authorities with changeddesignation.]

Topic VII The followingauthorities are •Assessing Officers".

Wealth-Tax-Authorities Joint Directors of Wealth Tax or, Joint Commissioners of Wealth Tax

In order to implement the provisions of theW_ealth Tax Act and Rule

_ Deputy Directors of Wealth Tax or, Deputy Commissioner of Wealth
made thereunder the following authorities have been established. Tsh 2 Tax
authorities under the Act can be classified into two heads: (1) Executive
Authorities (2) Authorities with Judicial Power • e _ Assistant Directors of Wealth Tax or, Assistant Commissionerof
3
Authorities with Judicial Power Wealth. Tax
Executive Authorities

1. Cen ral Board of Direct Taxes. (CBDT)

4. Wealth Tax Officers

The assessees can prefer appeal against the assessmentorders of

2. The Director-General or
Chief Commissioner of Wealth Tax.
3.Directors of Wealth Tax or
Commissioners of Wealth Tax
Commissioners of Wealth Tax
(Appeals)
the above said authorites before the Commissionerof Wealth Tax
(Appeals) or Additional Commissioner of Wealth Tax (Appeals). The orders
of Commissio er of Wealth Tax (Appeals) and Additional Commissioner
of Wealth Tax (Appeals) are appealable to the AppellateTribunal.

,1, Central Board of Direct Taxes

4,Addltional Directors of Wealth Tax, or
Additional Commissioners of Wealth Addi. Commissioners of Wealth The Central Board ofDirect Taxes is the highest executiveauthority.
Tax Tax (Appeals) It is constituted by the Central Board of RevenueAct1, 963. IIworks
under

5. Joint Directors of Wealth Tax or the Ministry of Finance.

Joint Commissioners of Wealth Tax
It has the following powers:
6. Deputy Dire tors of Wealth Tax or
1. The Board has thepower to make rules forcarryingoutthe purposo of
Deputy Commissioner of Wealth Tax
the Wealth Tax Act.
7. Assistant Directors of Wealth Tax or ·ssue orders instructions, directions to persons
Assistant Commissioner of Wealth Tax 2. tI has the power to 1 ,
employed in the execution of the Act.
8. Wealth Tax Officers • ueinstructions to the Commissioner of Wealth
It cannot' howeverc, 155mmissioner of wealth Tax (Appeals). Similarly
9. Tax Recovery t ax (Appeals) or D.eputy O
d'rection to the Wealth Tax Ot,t,cer todispose
Officers 1

the C.B.D.T cannot issuea

109
ot 11 case ina particular manner. The Board has no pow. er to give direC tI·Q S T
power of·the Chief Commissioner of Wealthax.
regarding the exercise of judicial' power by the subordinateauthor'it·1es1.'1s
urisd'c ion of er of W alh Ta

(2) Diroctor Goneral of Wealth Tax and.Chief C.ommissioner ea%

o wf
T ax The Commissioner of Wealth Tax has gotrevisionaljurisdiction. The

•
.
The Central Government appoints these authorities. They are mm••ssioner may. call for and examine the record of an.y proceeding by
required to perform such functions as may be assigned by C.B.p.T. Appellate Tribunal aganist the orders of the Appellate
Commissioner.
The Director-General enjoys tlie following powers: 6. He has power to conduct revision.

1. Giving instructions to the Wealth Tax Officer The Commissioner of Wealth Tax or Additional
Wealth Tax and Joint Commissioners of Wealth Tax also enjoy the ame Commission rs of

2. Investigation into concealment of wealth.

3. Search and Seizure

4. To make request for books of accounts

5. Powec to conduct survey

6. Power to make any enquiry

The Directors of Wealth Tax and Additional Directors of W,ealth Tax

and Joint Directors of Wealth Tax also enjoy all the powers of Director
General of Wealth Tax.

Tho Chief Commissioner of Wealth Tax will be appointed by -the

Central Government. He will be in the rank of Director General. The
Chief Commissioner of Wealth Tax e_njoys the following powers.

1. Appointment of the Wealth Tax Officers Class II and Inspectors of

Wealth Tax.
3. He haspower to give instructions to subordinate authorities.
4. Hehaspower to conduct search and seizure.
5. He has power to direct Income tax officers to prefer appeal (o the
co8 ssessing Officer and pass appropriate order to rectify the errors
t h
c omAm•·tted·by theAssessing0tticer. 4. · Wealth Tax Officers
Wealth Tax Officers of Class- I are appointed by the Central
Government: The Wealth tax officers of class II areappointed by
An order in revision shall notb
e made by the Commissioner without ghting the assessee Commission r of Wealth Tax. They are theassessingofficers.
the opportunity of beingheard.
Recovery o· fficer_s and Wealth Tax Inspectors
5. They are appointed by the Commissioner of WealthTax.
(3) Commissioner of Wealth Tax (Appeals)and Additional
commissioner of Wealth Tax (Appeals)

. .T o p i c - V III
The Commissioner of Wealth Tax(Appeals) and Additional commissioner of , F .i li n g o f R eturn and Assessement
Wealth Tax (Appeals) enjoy the following powers.
Ev8,y pe,son, ii h;s netwealth oo the ,atua1;on datee,ceeds Rs
1. Power to hear appeals preferred by assesse
2. Power·to take evidence 0,00,000 shallfurnish a return within the duedate.
3. Power to call for inJormation 10 ihe case ofa company th• du• date to, tmng of ,etum ;s 31st
4. Imposition of Penalty
5. Disposal of appeals ig_ec:ember of the relevant ass·essmentyear.
\II
 If tho assossoo Is other thano company•
(I) In
O cnso whoro tho accounts of tho assessee are to be audited
under tho lncomo Tax Act or any othor law to beaudlt_ed, the due date for
filing roturn Is 31st Octobor of the relovont Assessment Year.
85
,1a1 1 1 • 5
(II) Ino caso whore tho total Income Includes any Income frorn
businoss or profession but not falling In clause (I) above, the due date for
tiling rotum Is 31 st August of the relevant assessment Year.
(Ill) In any ?thor case the due date for filing return Is 30 th June of
tho rolevant Assossment Year.
w lled assessment on the basis of evidence.
Solt - Assessment
A porson who is liable to pay tax has to· file a return within the due
date. If any tax is payable on tho basis of that return the assessee h_as to
pay the tax together with the Interest payable before filing the return. The
return ls to bo ccornpanled by the proof of such payment. This is called
self nssessrnont.
Summary Assessment or Assessment on the basis of Return or
Provlslonol Assessment
If n return is filed and if any tax or Interest is found due on the basis
of such return, an intimation shall be ent to the assessee specifying the
sum so payable and such intimation shall be deemed to be a notice of
demand. If any refund Is due on the basis of ·such return the Assessing
Officer shall grant it to the assessee.
The Assessing Officer can make the following adjustments in the
returned income for the purpose of provisional assessment.
(1} Any mathematical error in the return can be rectified.
(2) Any deduction or allowance or relief which is prima facie
admissible but which has not been claimed in the return shall
be allowed.
(3)
Anydeduction, allowance or relief claimed in the return which
Is prima facie inadmissible shall be disallowed.
(o) Assessm nt on the baaia of Evidence.
the Assessing Officer con ·d
I f s, ers 1t necessary to verify the
rrectness or completeness of return. he shallservea notice to the
cosessee to attend hisoffice or to produce ov,dencesinsupportof the
, . .. , made In thereturn. The notice demanding attendance or production
d cuments shall be served on tho asses!loe wllhm 12 months from tho
ol o
end °f the month in which return was filed.
After hearing the assessee or examining tho ov1donco producod b
thO assessee the Assessing Officer shall pass an nssoumont order In
rltlng determlng the net wealth and the tax payable by the nsses.soo. It
Is ca
b) Best Judgement Assessment.
In a best judgement assessment the Assosssog Otticor mnkosn
assessment not on the basis of evidence adduced by tho ossosseo but
on his best judgment. The Assessing Officer makes an ossossmont on
the basis of materials collected or gathered by ham. Undor ltlO following
circumstances the Assessing Officer can make an assossmont on tho
basis of his best judgement.
1) the person who has to file the returns has lallod to !Ho tho
If
returns.
2) there isa failure to comply with the terms ofa oohco1oqulrlng
Ifthe assessee to produce accounts or otherdocuments.
An oppurtunity of being heard may be given to the assesS,&-0 to
show cause why the assessment should not be completed to the best of
his judgement. However if a notice requiringproduction of accounts
or
documents have already been given, such oppurtunityofbeingheard need
not be given.
If in the opinion of the assessee excessive tax has been imposed
on him under the best judgement assessment, the assesseeisentitled
to appeal to the commissioner (Appeals} against suchassessment. He
may further appeal to the Appellate Tribunal and may also go to the High
court
ona reference to it on any question of law involvedinthecase.
Regular Assessment

Regular Assessment means assessment made on the basis of 113

-":.
iS a rnethod of reducing taxincidence by availingcertain loopholes in the
Topic - IX . I \'/,

Liability to Assessment-In Special Cases

nI Mc Dowell & Co Ltd., v. Commercial T.ax Officer (1985) 154
14a, the Supreme Court held that th.& colourabledevices to avo
L111b.lll1Y.....P.LJ,...1:uu1Lfuuml so o tallv o li2 PAY Tax
1iR: ould notbeencourag€:d and it is t. ., duty cftne:court toexpose the
Undor tho lncorno Tox Act,1961, Woath Tax Act, 1957, the
ta)( ns who avoid ta
K,u1ra1a perso
Oonorol Salos Tax Act, 1963 , tho Korola Value Addod Tax Act, 2003 and
tho Agricultural tncomo Tax Act, 1091, a legal roprosontatlvo of th
doconood porson is tiablo to pay tax which tho docoasod would havo to
poy If hod not bonn doad. Tho liability of tho logal ropresentative
ahau
not oxcood tho voluo of tho eotato of tho docoasod.

Llnbl!ity of Roproaontntlvo Asoossoo

Under the lncomo Tax Act, 1961 , Weath Tax Act, 1957
Agricultural lncomo Tax Act, 1991, a "representative assessee"
to pay tax.

Roprosontolive Assossoe moons -

(a) In rospoct of the Income of a non-resident, the agent of the non•
rooldont
(b) In rospoct of tho incomo of a minor, lunatic or idiot, the guardian
or manager who io ontitlod to recolvo income on behalf of the
minor.
(c) In rc,npoct of income of a trust , tho trustee or trustees.

A roprooonta\ivo aoooooeo is liable to be assesood In his own name.

Howovor any ouch aooooomont ohall bo doomed to bo made upon him in
hlu reprooontativo capacity only. Tho tax shall bo levied upon and
roc-cvorod from him In like mannor and to tho same extent as it would be
lo'Vlod upon and rocovorablo from tho peroon ropreoontod by him.

Topic -X
Tax Planning
Ta..<planning lo an art of roducing tax liabllty without actually breaking
th(Jlaw. Tox Planning lo tho dovlcing of oultablo ways within tho framework
f thu f1cical a1atutou to roduco tho lncidonce of tax, which io lawful, Jogal
andothlcal. In tax planning, tho ae6eo6oo avoids or roduceo his tax
llabtllty by making ui:o of all concoaolono, oxemptiono, deductions etc.,
, .I
a anti-soc,a av 1lablo to hlm undor tho otatuto, Tax ovaeion lo unlawful,
11s
andun<Jthlcal. Tax ovoldanco lo also not good and propor, Tax avoidance