Taxation LAW

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: SEVENTH Semester
Name of the Subject:
Taxation LAW
Taxation LAW
UNIT-I
DIRECT AND INDIRECT TAXES

A tax may be defined as a "pecuniary burden laid upon individuals or property owners to
support the government, a payment exacted by legislative authority. A tax "is not a
voluntary payment or donation, but an enforced contribution, exacted pursuant to
legislative authority". Taxes consist of direct taxor indirect tax, and may be paid in money
or as its labour equivalent (often but not always unpaid labour). India has a well
developed taxation structure. The tax system in India is mainly a three tier system which
is based between the Central, State Governments and the local government
organizations. In most cases, these local bodies include the local councils and the
municipalities. According to the Constitution of India, the government has the right to
levy taxes on individuals and organizations. However, the constitution states that no one
has the right to levy or charge taxes except the authority of law. Whatever tax is being
charged has to be backed by the law passed by the legislature or the parliament.
Article 246 (SEVENTH SCHEDULE) of the Indian Constitution, distributes legislative
powers including taxation, between the Parliamentand the State Legislature. Schedule
VII enumerates these subject matters with the use of three lists;

•List- I entailing the areas on which only the parliament is competent to makes laws,
•List - II entailing the areas on which only the state legislature can make laws, and
•List - III listing the areas on which both the Parliament and the State Legislature can make laws
upon concurrently. Separate heads of taxation are provided under lists I and II of Seventh
Schedule of Indian Constitution. There is no head of taxation in the Concurrent List (Union and
the States have no concurrent power of taxation). Any tax levied by the government which is
not backed by law or is beyond the powers of the legislating authority may be struck down as
unconstitutional. The thirteen heads List-I of Seventh Schedule of Constitution of India
covered under Union taxation, on which Parliament enacts the taxation law, are as under:
•Taxes on incomeother than agricultural income;
•Dutiesof customsincluding exportduties;
•Duties of exciseon tobacco and other goods manufactured or produced in India except
(i)alcoholic liquorfor human consumption, and (ii) opium, Indian hempand other narcotic drugs
and narcotics, but including medicinal and toilet preparations containing alcohol or any
substance included in (ii);
•Corporation Tax;
•Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies,
taxes on capital of companies;
•Estate duty in respect of property other than agricultural land;
•Duties in respect of succession to propertyother than agricultural land;
•Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares
and freight;

Taxes other than stamp dutieson transactions in stock exchanges and futures markets;
•Taxes on the sale or purchase of newspapers and on advertisements published therein;
•Taxes on sale or purchase of goods other than newspapers, where such sale or purchase
takes place in the course of inter-State trade or commerce;
•Taxes on the consignment of goods in the course of inter-State trade or commerce.
•All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian
Constitution. 71 The nineteen heads List-II of Seventh Schedule of the Indian Constitution
covered under State taxation, on which State Legislative enacts the taxation law, are as
under:
•Land revenue, including the assessment and collection of revenue, the maintenance of land
records, survey for revenue purposes and records of rights, and alienation of revenues;
•Taxes on agricultural income;
•Duties in respect of successionto agricultural income;
•Estate Duty in respect of agricultural income;
•Taxes on lands and buildings;
•Taxes on mineral rights;
•Duties of excise for following goods manufactured or produced within the State
(i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic
drugs and narcotics;

Taxes on entry of goods into a local area for consumption, use or sale therein;
•Taxes on the consumption or sale of electricity;
•Taxes on the sale or purchase of goods other than newspapers;
•Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or
television;
•Taxes on goods and passengers carried by roads or on inland waterways;
•Taxes on vehicles suitable for use on roads;
•Taxes on animals and boats;
•Tolls;
•Taxes on profession, trades, callings and employments;
•Capitation taxes;
•Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling;
•Stamp duty
. Provisions have been made by 73rdConstitutional Amendment, enforced from 24thApril, 1993, to levy taxes by the
Panchayat. A State may by law authorise a Panchayat to levy, collect and appropriate taxes, duties, tolls etc.
Similarly, the provisions have been made by 74thConstitutional Amendment, enforced from 1stJune, 1993, to levy the
taxes by the Municipalities. A State Legislature may by law authorise a Municipality to levy, collect and appropriate
taxes,duties, tolls etc.
Direct Taxes:A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the
government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the
taxpayer to someone else. The some important direct taxes imposed in India are as under: Income Tax:
Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families
or firms or co-operative societies (other tan companies) and trusts (identified as bodies

individuals associations of persons) or every artificial juridical person. The inclusion of a particular income in the total
incomes of a person for income-tax in India is based on his residential status. There are three residential status, viz., (i)
Resident & Ordinarily Residents (Residents) (ii)Resident but not Ordinarily Residents and (iii) Non 72 Residents. There are
several steps involved in determining the residential status of a person. All residents are taxable for all their income,
including income outside India. Non residents are taxable only for the income received in India or Income accrued inIndia.
Not ordinarily residents are taxable in relation to income received in India or income accrued in India and income from
business or profession controlled from India. Corporation Tax:
The companies and business organizations in India are taxed on the income from their
worldwide transactions under the provision of Income Tax Act, 1961. A corporation is deemed to be resident in India if it is
incorporated in India or if it’s control and management is situated entirely in India. In case of non resident corporations, tax
is levied on the income which is earned from their business transactions in India or any other Indian sources depending on
bilateral agreement of that country. Property Tax:Property tax or 'house tax' is a local tax on buildings, along with
appurtenant land, and imposed on owners. The tax power is vested in the states and it is delegated by law to the local
bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value
(ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then
converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempted from the
assessment. The properties lying under control of Centra
l are exempted from the taxation. Instead a 'service
charge' is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence
for reciprocity.
Inheritance (Estate) Tax:An inheritance tax (also known as an estate tax or death duty) is a Tax which arises on the death of
an individual. It is a tax on the estate, or total value of the money and property, of a person who has died. India enforced
estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October, 1953. Estate Duty on
agricultural land wa
s discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of property (other than
agricultural land) passing on death occurring on or after 16th March, 1985, has also been abolished under the Estate Duty
(Amendment) Act, 1985.

Gift Tax: Gift tax in India is regulated by the Gift Tax Act which was constituted on 1stApril,1958.
It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act
1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others
, received from one who doesn'thave blood relations with the recipient, were taxable.
However, with effect from 1stOctober, 1998, gift tax got demolished and all the gifts
made on or after the date were free from tax. But in 2004, the act was again revived partially. A
new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to it,
the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a
year would be taxable.
Indirect Tax:An indirect tax is a taxcollected by an intermediary (such as a retail store) from the
person who bears the ultimate economic burden of the tax (such as the customer). An indirect
tax is one thatcan be shifted by the taxpayer to someone else. An indirect tax may increase the
price of a good so that consumers are actually paying the tax by paying more for the
products.The some important indirect taxes imposed in India are as under:
Customs Duty:The Customs Act was formulated in 1962 to prevent illegal imports and exports of
goods. Besides, all imports are sought to be subject to a duty with a view to affording protection
to indigenous industriesas well as to keep the imports to the minimum in the interests of
securing the exchange rate of Indian currency. Duties of customs are leviedon goods imported
or exported from India at the rate specified under the customs Tariff Act, 1975 as amended
from time to time or any other law for the time being in force. Under the

)
custom laws, the various types of duties are leviable. (1) Basic Duty: This duty is levied on imported goods
under the Customs Act, 1962. (2) Additional Duty (Countervailing Duty) (CVD): This is levied under section 3
(1) of the Custom Tariff Act and is equal to excise duty levied on a like product manufactured or produced in
India If a like product is not manufactured or produced in India, the excise duty that would be leviable on
that product had it been manufactured or produced in India is the duty payable. If the product is leviable at
different rates, the highest rate among those rates is the rate applicable. Such duty is leviable on the value
of goods plus basic custom duty payable. (3) Additional Duty to compensate duty on inputs used by Indian
manufacturers: This is levied under section 3(3) of the Customs Act. (4) Anti-dumping Duty: Sometimes,
foreign sellers abroad may export into India goods at prices below the amounts charged by them in their
domestic markets in order to capture Indian markets to the detriment of Indian industry. This is known as
dumping. In order to prevent dumping, the Central Government may levy additional duty equal to the
margin of dumping on such articles. There are however certain restrictions on imposing dumping duties in
case of countries which are signatories to the GATT or on countries given "Most Favoured Nation Status"
under agreement. (5) Protective Duty: If the Tariff Commission set up by law recommends that in order to
protect the interests of Indian industry, the Central Government may levy protective anti-dumping duties at
the rate recommended on specified goods. (6) Duty on 73 Bounty Fed Articles: In case a foreign country
subsidises its exporters for exporting goods to India, the Central Government may impose additional import
duty equal to the amount of such subsidy or bounty. If the amount of subsidy or bounty cannot be clearly
deter mined immediately, additional duty may be collected on a provisional basis and after final
determination, difference may be
collected or refunded, as the case may be. (7) Export

Duty: Such duty is levied on export of goods. At present very few articles such as skins and leather are subject to export duty. The main purpose
of this duty is to restrict exports of certain goods. (8) Cess on Export: Under sub-section (1) of section 3 of the Agricultural & Processed Food
Products Export Cess Act, 1985 (3 of 1986), 0.5% ad valorem as the rate of duty of customs be levied and collected as cess on export of all
scheduled products. (9) National Calamity Contingent Duty: This duty was imposed under Section 134 of the Finance Act, 2003 on imported
petroleum crude oil. This tax was also leviable on motor cars, imported multi-utility vehicles, two wheelers and mobile phones. (10) Education
Cess: Education Cess is leviable @ 2% on the aggregate of duties of Customs (except safeguard duty under Section 8B and 8C, CVD under
Section 9 and anti-dumping duty under Section 9A of the Customs Tariff Act, 1985). Items attracting Customs Duty at bound rates under
international commitments are exempted from this Cess. (11) Secondary and Higher Education Cess: Leviable @1% on the aggregate of duties
of Customs. (12) Road Cess: Additional Duty of Customs on Motor Spirit is leviable and Additional Duty of Customs on High Speed Diesel Oil is
leviable by the Finance Act (No.2), 1998.
and the Finance Act, 1999 respectively. (13) Surcharge on Motor Spirit: Special Additional Duty of Customs (Surcharge) on Motor Spirit is
leviable by the Finance Act, 2002.
Central Excise Duty:The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985.
Central excise duty istax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. The
term "excisable goods" means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act 1985.
It is mandatory to pay Central Excise duty payable on the goods manufactured, unless exempted eg; duty is not payable on the goods exported
out of India. Further various other exemptions are also notified by the Government from the payment of duty by the manufacturers. Various
Central Excise are: (1) Basis Excise
Duty: Excise Duty, imposed under section 3 of the ‘Central Excises and Salt Act’ of 1944 on all excisable goods other than salt produced or
manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of Basic Excise Duty In
India. (2) Special Excise Duty: According to Section 37 of the Finance Act, 1978,
Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt
Act of 1944. Therefore, each
year the Finance Act spells out thatwhether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant
financial year. (2) Additional Duty of Excise: Section 3 of the ‘Additional Duties of Excise Act’ of 1957 permits the charge and collection of excise
duty in respect of the goods as listed in the Schedule of this Act. (4) Road Cess: (a) Additional Duty of Excise on Motor Spirit: This is leviable by
the Finance Act (No.2), 1998. (b) Additional Duty of Excise on High Speed Diesel Oil: This is leviable by the Finance Act, 1999. (5) Surcharge: (a)
Special Additional Duty of Excise on Motor Spirit: This is leviable by the Finance Act, 2002. (b) Surcharge on Pan Masala and Tobacco Products

This Additional Duty of Excise has been imposed on cigarettes, pan masala and ce
rtain specified tobacco products, at specified rates in the Budget 2005-06. Biris are not subjected to this
levy. (6) National Calamity Contingent Duty (NCCD): NCCD was levied on pan masala and certain
specified tobacco products vide the Finance Act, 2001. The
Finance Act, 2003 extended this levy to polyester fila
ment yarn, motor car, two wheeler and multi-utility vehicle
and crude petroleum oil. (7) Education Cess: Education Cess is leviable @2% on the aggregate of duties
of Excise and Secondary and Higher Education Cess is Leviable @1% on the aggregate of duties of Excise.
(8) Cess - A cess has been imposed on certain products. Service Tax:The service providers in India except
those in the state of Jammu and Kashmir are required to pay
a Service Tax under the provisions of the Finance Act of 1994. The provisions related to Service
Tax came into effect on 1st July, 1994. Under Section 67 of this Act,the Service Tax is levied on
the gross or aggregate amount charged by the service provider on the receiver. However,
interms of Rule 6 of Service Tax Rules, 1994, the tax is permitted to be paid on the value
received. The interesting thing aboutService Tax in India is that the Government depends
heavily on the voluntary compliance of the service providers for collecting Service Tax in India.
Sales Tax: Sales Tax in India is a form of tax that is imposed by the Government on the sale or
purchase of a particular commodity within the country. Sales Tax is imposed under both ,
Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation.
Generally, each State follows its own Sales Tax Act and
levies tax at various rates. Apart from sales tax, certain States also imposes additional charges
like works contracts tax, turnover tax and purchaser tax. Thus, Sales Tax Acts as a major
revenue-generator for the various State Governments. From 10th April, 2005, most of the States
in

India have supplemented sales tax with a new Value Added Tax (VAT). 74
Value Added Tax(VAT):The practice of VAT executed by State Governments is applied on each
stage of sale, with a particular apparatus of credit for the input VAT paid. VAT in India classi
fied under the tax slabs are 0% for essential commodities, 1% on gold ingots and expensive
stones, 4% on industrial inputs, capital merchandise and commodities of mass consumption,
and 12.5% on other items. Variable rates (State-dependent) are applicable for petroleum
products, tobacco, liquor, etc. VAT levy will be administered by the Value Added Tax Act and the
rules made there-under and similar to a sales tax. It is a tax on the estimated market value
added
to a product or material at each stage of its manufacture or distribution, ultimately passed on to
the consumer. Under the current single-point system of tax levy, the manufacturer or importer
of goods into a State is liable to sales tax. There is no sales tax on the further distribution
channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain.
The value addition in the hands of each of the entities is subject to tax. VAT can be computed by
using any of the three methods: (a) Subtraction method: The tax rate is applied to the difference
between the value of output and the costof input. (b) The Addition method: The value added is
computed by adding all the payments that is payable to the factors of production (viz.,
wages, salaries, interest payments etc). (c) Tax credit method: This entails set-off of the
tax paid on inputs from tax collected on sales. Securities Transaction Tax (STT):STT is a
tax being levied on all transactions done on the stock exchanges. STT is applicable on
purchase or sale of equity shares, derivatives, equity oriented funds and equity oriented
Mutual Funds. Current STT on

purchase or sell of an equity share is 0.075%. A person becomes investor after payment of STT at the time of selling
securities (shares). Selling the shares after 12 months comes under long
term capital gainsand one need not have to pay any tax on that gain. In the case of selling the shares before 12 months, one
has to pay short term capital gains@10% flat on the gain. However, for a trader, all his gains will be treated as trading
(Business) and he has to pay tax as per tax sables. In this case the transaction tax paid by him can be claimed back/adjusted
in tax to be paid.
The overall control for administration of Direct Taxes lies with the Union Finance Ministry which functions through Income
Tax Department with the Central Board of Direct Taxes (CBDT) at its apex. The CBDT is a statutory authority functioning
under the Central Board of Revenue Act, 1963. It also functions as a division of the Ministry dealing with matters relating to
levy and collection of Direct Taxes. The Central Excise Department spread over the entire country administers and collects
the central excise duty. The apex body that is responsible for the policy and formulation of rules is the Central Board of
Excise and Customs which functions under the control of the Union Finance Ministry. The Central Excise officers are also
entrusted with the administration and collection of Service tax and the Customs duty. The information contained in this
chapter is related to direct and indirect taxes imposed and collected by the
Union Government. The tables giving data from 2000-01 onwards in respect direct taxes(corporation tax, income
tax and other direct taxes) collected by Central Board of Direct Tax (CBDT) and indirect taxes (customs duties,
union excise duties and service tax) collected by Central Board of Excise and Customs. Customs Collection Rate
used in this chapter is defined as the ratio of revenue collection (basic customs duty + countervailing duty) to
value of imports (in per cent) unadjusted for exemptions, expressed in percentage. Highlights of the Direct and
Indirect Taxes:

The total revenue realization from Direct and Indirect Taxes increased from
`1881.19 billion in 2000-01 to `6076.45 billion in 2008-09. The percentage share of revenue realization
from direct taxes to the total revenue realization increased from 36.3% in 2000-01to 55.7% in 2008-09,
whereas, the percentage share of revenue realization from indirect taxes declined from 63.7% in 2000-01 to
44.3% in 2008-09.
•Revenue collection from direct taxes increased from
`683.05 billion in 2000-01 to `3382.12 billion in 2008-09. The percentage share of revenue realization from
corporation tax to the total revenue realization from direct taxes increased from 52.3% in 2000-01to 63.2%
in 2008-09, whereas, the percentage share of revenue realization from income tax decreased from 46.5% in
2000-01 to 36.7% in 2008-09.
•Revenue collection from indirect taxes increased from
`1198.14 billion in 2000-01 to
2446.67 billion in 2009-10. The percentage share of revenue realization from customs duties to the total
revenue realization from indirect taxes decreased from 39.7% in 2000-01 to 34.5% in 2009-10, whereas, the
percentage share of revenue realization from excise duties declined from 57.2% in 2000-01 to 42.1% in
2009-10. , However, the percentage share of revenue realization from service tax to the total revenue
realization from indirect taxes increased substantially from 2.2% in 2000-01 to 23.5% in 2009-10. 75
•The total number of effective assessees of income tax and corporation tax increased from 23.00
million in 2000-01 to 32.65 million in 2008-09. The companies’ assessees declined from 334261 in
2000-01 to 327674 in 2008-09, whereas, the number of individual assessees and assessees of
Hindu un-divided Families of income tax increased 20.66 million and 0.55 million respectively in

2000-01 to 30.10 million and 0.77 million in 2008-09. The assesses of firms declined from 1.34
million to 1.31 million during same period, whereas, trusts’ assesses increased from 0.064
million in 2000-01 to 0.071 million in 2008-09. However, the other asssessees increased from
0.051 million to 0.071 million during same period.
•The customs collection rate gradually decreased from 20.2% in 2000-01 to 6.9% in 2008-09.
Customs collection rate of petroleum products decreased from 10% in 2004-05 to 3% in 2008-
09, whereas, customs collection rate of non-petroleum products decreased from 12% in 2004-
05 to 9% in 2008-09.
•About 34% of total import duties were realized from machineries, whereas,10.8%, 9.0%, 8.5%
and 7.7% of the total import duties were realized from Gold & articles other than
Gold,petroleum products, chemicals and iron & steel respectively during 2009-10.
•About 62.2% of total excise duties was realized from petroleum crude and petroleum products,
whereas, 13.5% and 9.4% of the total excise duties were realized from tobacco products and
Iron & steel and articles thereof respectively during 2009-10.
•7% of total service tax was realized from telephone billing, whereas, 6.9%, 6.3% and 5.4% of
the total service tax were realized from banking and other financial service, business auxiliary
service and general insurance premium respectively during 2009-10. This chapter contains the
following tables: Table 6.1:presents year-wise revenue realisation from direct taxes, percentage
annual growth of corporation and income taxes and percentage share of corporation tax and
income tax to the total direct taxes since 2000-01. Table 6.2:presents yeawiserevenuerealisation
from indirect taxes and percentage share of Custom Duties, Excise Duties & Service Tax to the
total indirect taxes since 2000-01.

taxation LAW
taxation LAW
UNIT-II
BASIC CONCEPTS &
RESIDENTIAL STATUS

Objective of advance learning
The advance learning material is designed with an objective to enable the readers
to gain
advanced knowledge on the topic “Basic concepts and residential status”. The
basic level topics relating to “Basic concepts and residential status” are already
discussed in the study material and case study Day 1 and hence to avoid
repetition, these topics are not once again discussed in the advance learning
material and only advanced level topics are
discussed in this material.
Before studying the advance learning material, readers are advised to once again
revise the topic “Basic concepts and residential status” from the study material
and case study
Day 1. This will help them in better understanding of the advanced learning
material.

The material covers following advanced level topics:
•Incomes which are charged to tax in the previous year itself viz:
• Income of a person leaving India [Section 174]
• Income of a person likely to transfer property to avoid tax [Section 175]
•Income of discontinued business or profession [Section 176]
•Income from shipping business of non-residents [Section 172
•Income of bodies formed for short duration [Section 174A]
•Relevance of method of accounting while computing taxable income.
•Few important concepts to be kempt in mind while interpreting the term income viz:
•Tax treatment of tax free income
•Income in kind
•Pin money received by wife
•Diversion of income by overriding title vs. Application of income
•Rule of taxability and focus on income deemed to be received in India and income
•deeded to be accrued in India.
•Rule of taxability and exception to the rule
•Generally, income of previous year is taxed (i.e.,assessable) in the immediately
following assessment year. However, in following cases, income of previous year
is taxed in the previous year itself :
(1) Income of a person leaving India [Section 174]

(1) Income of a person leaving India [Section 174]
If following conditions are satisfied, then income of a person leaving India is charged
to tax in the previous year itself:
•It appears to the Assessing Officer that any individual may leave India during the
current assessment year or shortly after its expiry.
•Such a person has no present intention of returning to India. In above cases, the
total income of such an individual upto the probable date of his
departure from India shall be charged to tax in that assessment year.
Example Mr. Francis is a foreign citizen. He has been residing in India since
January, 2000. At the time of making his assessment for the assessment year 2012-
13 (in January 2013), the Assessing Officer came to know that Mr. Francis is going
to leave India on 8-4-2013. In this case, at the time of completing assessment for
the previous year 2011-12 (i.e.,assessment year 2012-13), the Assessing Officer
will make following three assessments :
•The assessment of the income of the previous year 2011-12.
•The assessment of the income of the previous year 2012-13.
•The assessment of the income of the period 1-4-2013 to 8-4-2013

(2) Income of a person likely to transfer property to avoid tax [Section 175]
If following conditions are satisfied, then income of a person transferring his assets is charged to tax in
previous year itself:
•It appears to the Assessing Officer during any current assessment year that any person is likely to charge,
sell, transfer, dispose of or otherwise part with any of his assets.
•The intention of such sale, transfer, etc, is with a view to avoid payment of any liability under the provisions of
the Act. In above cases, the total income of such person for the period from the expiry of the
previous year for that assessment year to the date when the Assessing Officer commences proceedings under
section 175 shall be chargeable to tax in that assessment year. Example In November 2012, while making the
assessment of income of Mr. Kumar for the assessment year 2012-13,i.e.,
previous year 2011-12, the Assessing Officer came to know that Mr. Kumar is transferring his building with an
intention to avoid payment of Income-tax liability. Considering the intention of Mr. Kumar, the Assessing
Officer
issued notice (in November, 2012) to Mr. Kumar to furnish his return of income for the period April, 2012 to
November, 2012. In the above case, it can be observed that income of the period April, 2012 to November,
2012
is covered in the previous year 2012-13, i.e.,assessment year 2013-14 and it can be charged to tax in
assessment year 2013-14 only. However, by invoking the provisions of section 175, the Assessing Officer can
assess the income for the period of April, 2012 to November, 2012 in the assessment year 2012-13 itself.
(3)Income of discontinued business or profession [Section 176]
In addition to above instances, income of a discontinued business orprofession can be charged to tax in the
previous year itself. In other words, if a business or profession is Comment on incorrect answer :
In this case, the assessee is following mercantile
system of accounting. Hence, sales to be recorded while computing taxable income will come to Rs. 8,40,000.
Thus, options (a), (b) and (d) giving incorrect amount of sales are not correct

CRIMINAL MISCELLANEOUS PETITION
In offences state becomes the party and the accused has to put up his defence. It is the duty of the
prosecution on behalf of the state to prove the guilt of an accused. In such a situation the aggrieved party is
not required to institute any petition. It is the responsibility of the state to launch prosecution against the
criminal who has committed the offences of Criminal nature.
The constitution of India empowers the Supreme Court and the High Courts under Art. 32 and 226 to
provide remedy to the petition by way of issuing writs the jurisdiction of the High Court under 226 is in nature
of ordinary original jurisdiction. It empowers every High Court, within its territorial jurisdiction to issue
directions, orders or writs including writs in nature of habeas corpus etc. for the enforcement of any of the
fundamental rights as well as "for any other purpose".
By virtue of Art.227 every High Court has superintendence on all courts and tribunals through out the
territories in relation to which it exercises jurisdiction except those constituted under any law relating to
armed forces.
The High Court May
a) Call for returns from such courts;
b) Make and issue general rules and prescribe forms for regulating the practice and proceedings of
such courts, and
c) Prescribe form in which books, entries and accounts shall be kept by the officers of any such courts.
It must be remembered that in exercise of its jurisdiction under 227 High Court does not act as a court of
appeal. It cannot, therefore, review or reweigh the evidence upon decision. The supervisory jurisdiction
conferred under Art.227 is limited to seeing that the inferior court or tribunal functions within limits of its
authority and not to correct any error of law. (Mohd.Yunus V. Mohd. Mustquim AIR 1984 SC 38, 40)
Under the code of Criminal procedure High Court has also empowered its inherent jurisdiction, under sec.
482 Under this sec. the High Court may be exercised its inherent powers in a proper case either to prevent
the abuse of process of any court or to secure the ends of justice. Inherent power of the High Court should
be exercised only in the exceptional cases. (Amar Chand V. Shanti Bose, AIR 1973 SC 799)

Taxation LAW
Taxation LAW
UNIT-III
5 heads of income in the Indian
Income Tax Act

Income is classified under five heads in the Indian Income Tax Act. Each year, you or
your qualified chartered accountant is expected to put all your earnings or incomes
under these 5 heads of income for calculating tax.
Here is a small primer of what these 5 heads of income mean and what all they
consist of.
Income from salary
Income can be charged under this head only if there is an employer employee
relationship between the payer and payee. Salary includes basic salary or wages, any
annuity or pension, gratuity, advance of salary, leave encashment, commission,
perquisites in lieu of or in addition to salary and retirement benefits.
The aggregate of the above incomes, after exemptions available, is known as Gross
Salary and this is charged under the head income from salary.
Basic salary along with commissions and bonuses is fully taxable.
Allowances : An allowance is a fixed monetary amount paid by the employer to the
employee for expenses related to office work. Allowances are generally included in the
salary and taxed unless there are exemptions available.
The following allowances are fully taxable : dearness allowance, city compensatory
allowance, overtime allowance, servant allowance and lunch allowance.
Specific exemptions are available for some allowances as shown below.
Conveyance Allowance : Upto Rs 800/- a month is exempt from tax.
House Rent Allowance (HRA) : Hop over the House Rent Allowance article to check
on calculation and exemptions available

Income from house property
Any residential or commercial property that you own will be taxed as well. Even
if your piece of real estate is not let out, it will be considered earning rental
income and you will need to pay tax on it.
The income tax blokes are a bit easy going on this – they tax you on the
capacity of the real estate to earn income and not the actual rent. This is called
the property’s Annual Value and is the higher of the fair rental value, rent
received or municipal rent.
The Annual Value can go through a standard deduction of 30% and if you
reduce the interest on borrowed capital, then you get the value which is
charged under the head income from house property.

Profits and gains of business or
profession
Income earned through your profession or business is
charged under the head “profits and gains of business or
profession”. The income chargeable to tax is the difference
between the credits received on running the business and
expenses incurred.
The deductions allowed are depreciation of assets used for
business; rent for premises; insurance and repairs for
machinery and furniture; advertisements; traveling and
many more.

Capital gains
Any profit or gain arising from transfer of capital asset held as investments
are chargeable to tax under the head “capital gains”.
Hop over to the Long Term and Short Term capital gains article to read
more about this. Might be worth reading to see how indexation is used in
long term capital gains scenario to reduce tax outgo.

Income from other sources
Any income that does not fall under the four heads above is taxed under the
head “income from other sources”. An example is interest income from bank
deposits, winning from lottery, any sum of money exceeding Rs. 50,000
received from a person (other than from relative, on marriage, under a will or
inheritance).

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UNIT-IV
Income Tax Authorities

Income Tax Act, 1961 provides for the administrative and judicial authorities for administration of
this Act. The Direct Tax Laws Act, 1987 has brought far reaching changes in the organizational
structure. The implementation of the Act lies in the hands of these authorities.
Administrative [ Income Tax Authorities ][ Sec. 116 ]
(a)the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963
(54 of 1963),
(b) Directors General of Income tax or Chief Commissioners of Income tax,
(c) Directors of Income tax or Commissioners of Income tax or Commissioners of Income tax
(Appeals), (cc) Additional Directors of Income tax or Additional Commissioners of Income tax
Or Additional Commissioners of sections (1) and (2), the Board or other income tax authority
authorised by it may have regard to any one or more of the following criteria, namely :-
(a) territorial area;
(b) persons or classes of persons;
(c) incomes or classes of income; and
(d) cases or classes of cases.
(4) Without prejudice to the provisions of sub sections (1) and (2), the Board may, by general or
special order, and subject to such conditions, restrictions or limitations as may be specified therein,
(a) authorise Director to perform such functions of any other income tax authority as may be
assigned to him by the Board;
(b) empower the [Principal Director General or] Director General or 14[Principal Chief
Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner to issue
orders in writing that the powers and functions conferred on, or as the case may

Income tax (Appeals), (cca) Joint Directors of Income tax or Joint Commissioners of Income tax.
(d) Deputy Directors of Income tax or Deputy Commissioners of Income tax or
Deputy Commissioners of Income tax (Appeals),
(e) Assistant Directors of Income tax or Assistant Commissioners of Income tax,
(f) Income tax Officers,
(g) Tax Recovery Officers,
(h) Inspectors of Income tax.
What is Jurisdiction of income tax authorities?
Section 120 and 124 of Income Tax Act 1961 deals with Jurisdiction of income tax
Authorities Section 120. (1) Income tax authorities shall exercise all or any of the powers and
perform all or any of the functions conferred on, or, as the case may be, assigned to such
authorities by or under this Act in accordance with such directions as the Board may issue for the
exercise of the powers and performance of the functions by all or any of those authorities(2) The
directions of the Board under sub section (1) may authorise any other income tax authority to issue
orders in writing for the exercise of the powers and performance of the functions by all or any of the
other income tax authorities who are subordinate to it.
(3) In issuing the directions or orders referred to in sub sections (1) and (2), the Board or other
income tax authority authorised by it may have regard to any one or more of the following criteria,
namely :
(a) territorial area;
(b) persons or classes of persons;
(c) incomes or classes of income; and
(d) cases or classes of cases.
(4) Without prejudice to the provisions of sub sections

(a) authorise Director to perform such functions of any other income tax authority as may be
assigned to him by the Board;
(b) empower the [Principal Director General or] Director General or 14[Principal Chief
Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner
to issue orders in writing that the powers and functions conferred on, or as the case may be,
assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons
or classes of persons or incomes or classes of income or cases or classes of cases, shall be
exercised or performed by an Additional Commissioner or an Additional Director or a Joint
Commissioner or a Joint Director, and, where any order is made under this clause, references in
any other provision of this Act, or in any rule made there under to the Assessing Officer shall be
deemed to be references to such Additional Commissioner or Additional Director or Joint
Commissioner or Joint Director by whom the powers and functions are to be exercised or
performed under such order, and any provision of this Act requiring approval or sanction of the Joint
Commissioner shall not apply.
(5) The directions and orders referred to in sub sections (1) and (2) may, wherever considered
necessary or appropriate for the proper management of the work, require two or more Assessing
Officers (whether or not of the same class) to exercise and perform, concurrently, the powers and
functions in respect of any area or persons or classes of persons or incomes or classes of income
or cases or classes of cases; and,where such powers and functions are exercised and performed
concurrently by the Assessing Officers of different classes, any authority lower in rank amongst
them shall exercise

the powers and perform the functions as any higher authority amongst them may direct, and,
further, references in any other provision of this Act or in any rule made thereunder to the
Assessing Officer shall be deemed to be references to such higher authority and any provision of
this Act requiring approval or sanction of any such authority shall not apply.
(6) Notwithstanding anything contained in any direction or order issued under this section, or in
section 124, the Board may, by notification in the Official Gazette, direct that for the purpose of
furnishing of the return of income or the doing of any other act or thing under this Act or any rule
made thereunder by any person or class of persons,the income tax authority exercising and
performing the powers and functions in relation to the said person or class of persons shall be such
authority as may be specified in the notification.
Section 124 of Income Tax Act "Jurisdiction of Assessing Officers” Section 124. (1) Where by virtue
of any direction or order issued under sub section (1) or sub section (2) of section 120, the
Assessing Officer has been vested with jurisdiction over any area, within the limits of such area, he
shall have jurisdiction
(a) in respect of any person carrying on a business or profession, if the place at which
he carries on his business or profession is situate within the area, or where his business
or profession is carried on in more places than one, if the principal place of his business
or profession is situate within the area, and
(b) in respect of any other person residing within the area.
(2) Where a question arises under this section as to whether an Assessing Officer has jurisdiction to
assess any person, the question shall be determined by the [Principal
Director General or] Director General or the [Principal Chief Commissioner or] Chief
Commissioner or the [Principal Commissioner or] Commissioner; or where the

question is one relating to areas within the jurisdiction of different [Principal Directors
General or] Directors General or [Principal Chief Commissioners or] Chief Commissioners or [Principal
Commissioners or] Commissioners, by the [Principal Directors General or] Directors General or [Principal
Chief Commissioners or] Chief Commissioners or [Principal Commissioners or] Commissioners
concerned or, if they are not in agreement, by the Board or by such [Principal Director General or]
Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner
or] Commissioner as the Board may, by notification in the Official
Gazette, specify.
(3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer
(a) where he has made a return under sub section (1) of section 115WD or under sub section (1) of section
139, after the expiry of one month from the date on which he was served with a notice under sub section
(1) of section 142 or sub section (2) of section 115WE or sub section (2) of section 143 or after the
completion of the assessment, whichever is earlier;
(b) where he has made no such return, after the expiry of the time allowed by the notice
under sub section (2) of section 115WD or sub section (1) of section 142 or under sub section (1) of
section 115WH or under section 148 for the making of the return or by the notice under the first proviso
to section 115WF or under the first proviso to section 144 to show cause why the assessment should not
be completed to the best of the judgment of the Assessing Officer, whichever is earlier.
(4) Subject to the provisions of sub section (3), where an assessee calls in question the jurisdiction of an
Assessing Officer, then the Assessing Officer shall, if not satisfied with the correctness of the claim, refer
the matter for determination under sub section
(2) before the assessment is made.

(5) Notwithstanding anything contained in this section or in any direction or
order issued
under section 120, every Assessing Officer shall have all the powers conferred
by or under
this Act on an Assessing Officer in respect of the income accruing or arising or
received within the area, if any, over which he has been vested with jurisdiction
by virtue of the directions or orders issued under sub section (1) or sub section
(2) of section 120.
Refer to case laws:
Commissioner Of Income Tax ... vs S.S. Ahluwalia on 14 March, 2014
In The High Court Of Judicature At ... vs The Income Tax Officer on 27
November, 2014
Madras High Court
Commissioner Of Income Tax, ... vs A. Raman & Company 1968 AIR 49, 1969
SCR (1) 10

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