taxation definations

7/28/2019 Taxation Definations

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PROF CA S P DESAIMPORTANT DEFINITIONS

Section 2 of the Income-tax Act gives definitions of the various terms and

expressions used in the Act.

Assessee [Section 2(7)]

Assessee means a person by whom any tax or any other sum of mones payable under this Act and includes.

(a) (i) Every person in respect of whom any proceedings under thiAct have been taken for the assessment of his income or of theincome of any other person in respect of which he is assessable,

of the loss sustained by him or by such other person, or of theamount ofrefund due to him or such person.

(ii) Every person in respect of whom any proceeding under the Act has beeaken for assessment ofFringe benefits.

(b)Every person who is deemed to be an assessee under anyprovision of this Act.

(c) Every person who is deemed to be an assessee in defaultunder any provision of this Act.

Thus the above definition includes the following assessee:(a) Ordinary assessee it includes

(i) Any person against whom some proceedings under this Act are goon.

(ii) Any person who has sustained loss and has filed return or loss u/s139(3).

(iii) Any person by whom some amount ofinterest, tax or penalty ispayable under this Act, or

(iv) Any person who is entitled to refund of tax under this Act.

(b) Representative assessee or deemed assessee: A persomay not only be liable for his own income or loss but also on theincome or loss of other persons e.g.: guardian of minor or lunatiagent of a non-resident etc.

(c) Assessee-in default: A person is deemed to be an assessein default if he fails to fulfill his obligations under the Act. E.g.

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employer paying salary fails to deduct tax at source or deducts but does not deposit it in the treasury.

Assessment [Section 2(8)]

Under the Income-tax law, assessment means computation of taxablencome and levy of tax there on for a particular assessment year. There

no separate definition of the work assessment in the Act except an inclusivedefinition under section 2(8) which says that assessment includes re-assessment.

Assessment year [Section 2(9)]

Assessment year means the period of twelve months commencing o1st April every year and ending on 31st March of the next year. Income oprevious year of an assessee is taxed during the following assessment year at trates prescribed by the relevant Finance Act. For instance, 2005-06 which willcommence on April, 2005 will end on March 31, 2006.

Previous Year [Section 3]

ncome earned in a year is taxable in the next year. The year in which incom

s earned is known as previous year. From the assessment year 1989-90onwards, all assesses are required to follow financial year (i.e. April 1 to March as previous year. This uniform previous year has to be followed for all sources ncome.

n case of newly set up business or profession or a source of income newly comnto existence, the first previous year will be the period commencing from the dof setting up of business / profession or as the case may be, the date on which source of income newly comes into existence and ending on the immediatelyalling March 31. Thus, where Mr. A sets up a business on 10.10.2004, hisprevious year will be the period commencing on 10.10.2004 and endinon 31.3.2005 and assessment year will be 2005-06. There are however,several exceptions to the rule which are as follows:-

(a) Income of non-resident shipping companies where they do nhave any representative in India [Sec.172]

(b) Income of persons leaving India either permanently or for along period [Sec.174]

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(c) Income of association of persons or body of individuals orartificial juridical person formed for a particular event orpurpose [Sec.174A]

(d) Income of person trying to alienate his assets with a view to

avoid tax [Sec.175] and(e) Income of discontinued business [Sec.176]

n the above cases, income of previous year may be taxed in that previous yeatself, at the rates applicable to that previous year.

Person [Sec. 2(31)]

ncome-tax is charged in respect of the total income of the previous year of eveperson, the term person includes

(i) An Individual: a natural human being, i.e., male, female, minor operson of sound or unsound mind.

(ii) A Hindu undivided family: it consists of all persons lineallydescended from a common ancestor and includes their wives andunmarried daughters.

(iii) A Company:

(a) any Indian company, or(b) any body corporate incorporated by or under the laws of a count

outside India, or(c) any institution, association or body whether Indian or non-Indian,

which is declared by general or social order of the Board to be acompany, or

(d) any institution, association or body which is or was assessable orwas assessed as a company for any assessment year under the IndiaIncome- tax Act, 1992 or which is or was assessable or was assessedunder this Act (Income-tax Act, 1961) as a company on or before the day of April,1970.

(iv) A Firm: it is a partnership firm.(v) An Association of Persons or a Body of Individuals whether

incorporated or not:The difference between Association of perand body of individuals is that where as association implies avoluntary getting together for a definite purpose a body of

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individuals would be just a body without an intention to get-togethMoreover, the members of body of individuals can be individualsonly whereas the members of an association of persons can be twor more firms or Hindu undivided families etc.

(vi) A Local Authority: it means a municipal committee, district boarbody of port commissioners, or other authority legally entitled to oentrusted by the Government with the control and management oMunicipal or local fund.

(vii) Every Artificial Juridical Person, not falling within any of thabove categories:

This is a residuary clause. If the assessee does not fall in any of the first sicategories, he is assessed under this clause .Generally, a statutorycorporation, deity or charitable institution or an endowment for charitable

religious purposes falls under artificial juridical person.

There are seven categories of persons chargeable to tax under the Act. Theaforesaid definition is inclusive, and not exclusive. Therefore, any person, notalling in the above mentioned categories, may still fall in the four corners of therm person and accordingly may be liable to tax under Sec. 4

NCOME-[SEC.2 (24)]The definition of the term income in Sec. 2(24) is inclusive and not exclusive.

The term income not only indicates those things which are included in Sec.2(24), but also includes such thing which the term signifies according to itsgeneral and natural meaning.

The definition of income in Sec. 2(24) of the Income-tax Act includes

(1) Profits and gains:(2) Dividend;(3) Voluntary contributions received by religious or charitable trust o

institution;(4) Perquisite or profit in lieu of salary taxable under Sec. 17(2) and (5) Special allowance or benefit, other than perquisite specially gran

to as in assessee to meet expenses wholly, necessarily and exclusivefor the performance of the duties of an office or employment of profit

(6) Allowance granted to assessee to meet his personal expenses atplace where the duties of his office or employment of profit are orordinarily performed by him or at a place where he ordinarily resides to compensate him for the increased cost of living;

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(7) The value of any benefit or perquisite obtained from the compana director or by a person having substantial interest in the company oby a relative of the Director of such person;

(8) Any sum paid by a company in respect of any obligation which, b

such payment would have been payable by the director or the personhaving substantial interest;(9) Value of any benefit or perquisite obtained by a representative

assessee mentioned in Sec. 160(1) (iii) or (iv) or by any person on whbehalf or for whose benefit any income is receivable by therepresentative assessee and any sum for such payment, would havebeen payable by the beneficiary;

(10) Any compensation or other sum due to or received by any persoreferred to in Sec. 28 (ii) or income derived by a trade, professional osimilar association from specific services performed for its members

referred to in sec. 28(iii) or any amount obtained by way of remissioncessation of liability previously allowed as deduction or balancing chaor the excess of the amount of deduction in respect of expenditure oscientific research or amount of bad debt subsequently recovered.

(11) Business income includes

(i) Compensation money [Sec.289ii)](ii) Income derived by a trade, professional or similar association for

specific services performed for its members [Sec. 28(iii)]

(iii) Export incentives [Sec. 28(iiia), (iiib), (iiic)](iv) Value of any benefit or perquisite arising from business or the

exercising profession [Sec. 28(iv)](v) Any interest, salary, bonus, commission or remuneration received

a partner of a firm from such firm [Sec. 28(v)](vi) Deemed business income [Sec 41] and deemed income chargeabl

under the head other sources [Sec. 59]

(12) Any capital gains chargeable u/s. 45;(13) Profits and gains of any insurance carried on by a mutual insurancecompany or by a co-operative society;(14) Winnings from lotteries, crossword puzzles, races including horse racecard games and other games of any sort;

(15) Sum received by the assessee from his employees as contributionsany provident fund or superannuation fund set up under the provisions of Employees state Insurance Act, 1948 or any other fund for the welfare ofsuch employees; and

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(16) Any sum received under a key-men Insurance policy including thesum allocation by way of bonus on such policy.

The above list given in Sec. 2 (24) of the income-tax act is inclusive and no

exhaustive.

NCIDENCE OF TAX (U/S 5)

Incidence of tax for a person depends upon his residential status andplace of accrual and receipt of income.

Types of Income

(a) Indian Income(i) Income accrued (earned) or deemed to have accrued in India and

received or deemed to have received in India.(ii) Income accrued (earned) or deemed to have accrued in India but

received or deemed to have received outside India(iii) Income accrued (earned) or deemed to have accrued outside India

but received or deemed to have received in India.In short an Income is said to be an Indian Income if either accrued oreceived or both is in India.

(b) Foreign Income

An Income which is not an Indian income is a foreign income i.e. anincome accrued or deemed to have accrued outside India and received ordeemed to have received outside India is a foreign income.Incidence of tax for different residential status:

Types of Income

Ordinary Resident(OR)

Not OrdinaryResident(NOR)

Non Resident(NR)

1. Indian Income

2. Foreign Income(a) From business or profession wholly or partly

controlled from outside India.(c) (b) From business or profession wholly

controlled(d) from outside India.(e) (c) From any other source other than

business(f) or profession, (includes salary, house

property,(g) capital gains and other source) where

Tax

Tax

Tax

Tax

No Tax

Tax

Tax

No Tax

No Tax

No Tax

Tax

No Tax

No Tax

No Tax

No Tax

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place of(h) control doesnt matter.(i) 3. Past untaxed profits brought into India

during(j) previous year.(k)

(l) 4. Gift received from a relativemaximum(m) limit)(n)(o) 5. Gift received from a non relative(p) exceeding Rs. 50,000 (The whole

sum(q) shall be taxed and not the difference)(r)

No Tax

Tax

No Tax

Tax

No Tax

Tax

(7)

Notes:

1. The words received and remitted are not same. To classify anincome as Indian or foreign income, accrued and received areconsidered and not the word remitted.

2. Agricultural income is exempt from tax U/S 10(1) if it is from a lasituated in India.

3. Dividend received from a domestic co including Indian co isexempt from tax U/S 10(34).

However dividends received from Non-domestic co are taxable(foreign co).

4. If the place of accrual is given as India and if the place of receipt not given, it is assumed to be the same as place of accrual i.e. In

EXEMPTED INCOMES (U/S 10)

(Applicable to Individual assessee only)

Exempted incomes are those incomes on which income tax shall not bechargeable.

(1) Agricultural income is exempt from tax U/S 10(1). The aboveincome shall be from agricultural purpose and the land shall besituated in India

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(2) Any sum of money received by an individual as a member ofHindu Undivided Family (HUF) shall be exempt from tax U/S 10(since HUF is a separate taxable entity.

(3) Share of profits received by a partner from a partnershipfirm is exempt U/S 10(2A) since partnership firm is a separatetaxable entity.

(4) Any income of a non resident by way of interest on notifiegovernment securities or interest on NRI external account inIndia notified by FERA, or interest on notified savings certificatis exempt U/S 10(4).

(5) Remuneration received from foreign state under co-operative

technical assistance program is fully exempt U/S 10(8).

(6) Remuneration as consultant out of funds made available tointernational agencies under technical assistance program approveby government is fully exempt U/S 10(8A).

(7) Income from notified bonds/deposits and securities is fullyexempt U/S 10(15)

(8) Scholarship received to meet cost of education is fully exempt U10(16)

(9) Daily allowance, constituency allowance and other allowato MLAs and MPs is fully exempt U/S 10(17). However the aboveallowances shall not exceed Rs. 2000 pm.

(10) Reward or award either in cash or in kind instituted andapproved by government in public interest is fully exempt U/S10(17A).

(11) Family pension received by the widow or children of memof armed force is completely exempt from tax U/S 10(19). Howevedeath of such person shall had occurred while on duty.

(12) Annual value of any one palace of an Ex-Ruler of IndianStates shall be fully exempt U/S 10(19A). However no part of thepalace shall be let out.

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(13) Income of a SC/ST by way of interest or dividend on specifsecurities is fully exempt U/S 10(26).

(14) Subsidy received by an assessee engaged in growing and

manufacturing of tea by the tea board for the purpose ofreplacement is fully exempt U/S 10(30).

(15) Subsidy received by an assessee engaged in growing andmanufacturing of Rubber, Coffee, Cardamom or other notifiecommodities by the relevant board is fully exempt U/S 10(31).

RESIDENTIAL STATUS [SEC. 6]

The test of Basic conditions and additional determinethe residential status of an Individual.

BASIC CONDITIONS [U/S 6(1)](a) One should be in India during the relevant previous

year for a period of 182 days or more.OR

(b) One should be in India for a period of 60 days ormore during the relevant previous year AND 365 days or

more during 4 years immediately preceding the relevantprevious year.

Note:The word AND in basic condition (b) Signifies thatassessee has to satisfy both parts i.e. 60 days or moreduring the relevant previous year and 365 days or moreduring 4 years immediately preceding the relevant previousyear.

ADDITIONAL CONITIONS [U/S 6(6)](i) A person should be a resident in India for at least 2

years out of 10 years immediately preceding therelevant previous year.

Note: A person is said to be a resident in India if he satisfiesatleast any one of the above mentioned basic conditions U/S6(1)

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(ii) He should have stayed in India for a period of 730days or more during 7 years immediately precedingthe relevant previous year.

Different Residential Status(i) Resident: An individual is said to be a resident inIndia if he satisfies at least any one of the abovementioned two basic conditions U/S 6(1)

(a) Ordinary Resident: A Resident is said to be anordinary Resident if he satisfies both the additionalconditions given above U/S 6(6)

(b) Not Ordinary Resident: A Resident is said to be aNot Ordinary Resident if he satisfies one or none of

the additional conditions given above U/S 6(6)

(ii) Non- Resident: An Individual is said to be a non-resident if he satisfies none of the basic conditionsand additional conditions being irrelevant.

EXCEPTIONS TO THE RULE OF RESIDENTIAL STATUS: The period of 60 days mentioned in basic condition (b)

U/S 6(1) shall be extended to 182 days in the followingsituations:

(i) An Indian citizen who leaves India during theprevious year for the purpose of employmentoutside India.

(ii) An Indian citizen who leaves India during theprevious year as a member of crew of Indianship.

(iii) An Indian citizen or a person of Indian origin whocomes to India on a visit during the previousyear.

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