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LL.B. Semester III


CORE COURSE 203 Principles of Taxation Law

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09-Jun-2017. Exam centric version-2.0 compiled by ketan.bhatt@iitbombay.org in
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Scribd https://www.scribd.com/bhatt.net.in (repository of ALL study notes for LLB)
Refer (not in any particular order) :
Bare acts are a good source, in any subject of law.
http://www.icsi.in/Study%20Material%20Executive/Executive%20Programme-
2013/TAX%20LAWS%20AND%20PRACTICE%20(MODULE%20I%20PAPER%204).pdf
http://www.dullb.com/Downloads/Semester3/STUDY
%20MATERIAL_2_tax_SEMESTER3.pdf --- Notes shared By Radhika Seth
https://www.scribd.com/doc/48730434/B-Com-INCOME-TAX-STUDY-MATERIAL ---
Page-59 Income From Salaries --- Page-132 Income From House Property --- Page-
192 Profits And Gains Of Business Or Profession --- Page-271 Income From Other
Sources
https://www.scribd.com/document/208837970/Income-Tax-Volume-1 - M K Gupta

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CONTENTS
Module - 1) Income Tax Act (25 Marks)
Module - 2) Income Tax Act including Principles of Service Tax (25 Marks)
Module - 3) Gujarat Value Added Tax (VAT) (20 Marks)
Module - 4) Central Sales Tax Act (15 Marks)
Module - 5) Wealth Tax Act (15 Marks)

OBJECTIVES OF THE COURSE :


Power to tax had been described as the power to destroy. This idea is being floated
often whenever the state introduces a new tax. Is this true ? Is it not necessary that in
order to raise revenue and place the economy on solid foundation, the taxing power
should be conferred on the state ? The power to tax shall not go unregulated. In the
context of a federal structure the distribution of the taxing powers assumes added
significance. Obviously, a study of the constitutional framework on taxation becomes
important. Along with this, an analysis of the different laws enacted in exercise of these
powers with their safeguards and remedies sheds light on the mechanics of the taxation
by the Union and the States.

STATUTORY MATERIALS :
Income Tax Act, 1961 (including Service Tax provisions)
Value Added Tax Act, 2003
Central Sales Tax Act, 1965
Wealth Tax Act, 1957 :
Chapters: 1,2,3,4,5,6 and 8 only
Sections 35 and 43.

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Module - 1) Income Tax Act (25 Marks) *** AND ***

Module - 2) Income Tax Act including Principles of Service Tax (25 Marks)

Module-1&2 QUESTIONS :
General Notes : What is tax ? What constitutes Income Tax Laws ?
General Notes : What is 'income' ?
General Notes : Scope of total income.
General Notes : Basis of charge : charge of income tax" and Deduction v/s Rebates v/s
Relief.
General Notes : Who is an Assessee ?
General Notes : What is Assessment year
General Notes : Discuss : Capital and revenue
Explain : Resident, Non-Resident and Ordinary Resident. (Oct-2013, Mar-2014,
Nov-2014)
Explain : Resident and non-resident. (Nov-2011, Nov-2012)
Write explanatory notes : Provisions relating to Resident of India and Non-resident of
India under the Income Tax Act. (Dec-2016)
Explain : Main heads of income With illustrations. (Oct-2013)
Discuss : Heads of income. (Nov-2012)
Explain in detail the various head of income under the Income Tax Act. (Dec-2016)
Which type of income fall under the head salary ? Discuss about the prerequisites and
its taxation. (Nov-2012)
Which type of income will fall under the head Salary? Discuss about the perquisites
and its valuation. (Nov-2011)
Which type of income will fall under the head salary ? Discuss about allowances and
perquisites and its valuation. (Oct-2013, Nov-2014)
Define annual value of house property. How would you derive the annual value of a
self occupied property? (Nov-2011, Nov-2012)
Define annual income of house property. How would you derive the annual income of
house property rented by owner. Explain in short. (Mar-2014)
Discuss in detail about the income and expences to be considered under the head
"Profits and Gains from business or profession. (Oct-2013)
Explain : Expences deductible from income of business profession. (Mar-2014)
Discuss the deductions which are available in computing the total income under
the head profits and gains of business. (Nov-2014)
Discuss the provision relating to depreciation allowance, while computing under the

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head profit and gains of business or profession. (Nov-2012)


Write explanatory notes : Tax deduction at source under the Income Tax Act. (Dec-
2016).
What is capital gain? Explain the method of calculating of long term and short term
capital gain under Income Tax Act. (Nov-2011, Oct-2013)
What do you understand by Capital gain? How many kinds of capital gain are there?
Explain the provision regarding capital gain. At what rate and how capital gain tax is
to be calculated? (Nov-2012)
Define long term capital asset. Explain in detail how capital gains on transfer of long
term capital asset is taxed. (Mar-2014, Nov-2014)
Explain in detail : income from other sources
Define Agricultural Income" and Incidental Income". How agricultural income and
incidental income is taxed under Income Tax Act. (Mar-2014)
Discuss : Agricultural income. (Nov-2012)
Explain : Incidental income. (Nov-2011, Nov-2012, Oct-2013, Nov-2014)
Explain in detail the Agricultural Income and Incidental Income under the Income
Tax Act. (Dec-2016)
Mention the income which is fully exempt under the Income Tax Act and discuss any
five in detail. (Nov-2011)
Mention the income which is fully exempt under the Income Tax Act and discuss any
five in details. (Oct-2013)
Discuss : Fully exempted incomes. (Nov-2012)
Explain in detail the Exempted Income under the Income Tax Act. (Dec-2016)
Explain : Applicable depreciation Exp. from net Income. (Oct-2013)
Explain : Provision of Depreciation claim. (Nov-2011)
Discuss : SET-OFF AND CARRY-FORWARD OF LOSSES.
Explain : Speculation loss. (Nov-2011, Nov-2013)
Explain : Provision of bad debts. (Nov-2011)
Explain : Kinds of assessment. (Mar-2014)
Explain : Types of Assessment. (Oct-2013)
Explain : State the provisions regarding filing of return. (Oct-2013)
Explain : Penalty provisions for concealment of income. (Nov-2014)
Explain : Permanent account number. (Mar-2014)
Explain : PAN. (Nov-2014)
Explain : Rectification of Mistake u/s 154 of Income Tax Act. (Nov-2012, Oct-2013)
Explain : Payment of advanced taxation. (Mar-2014)

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Explain the procedure of appeals and revisions petition under Income Tax Act. (Mar-
2014)
Explain the procedure of Appeals and Revisions under the Income Tax Act. (Dec-
2016)
Write explanatory notes : Recovery of the service tax under the Service Tax Act
1994. (Dec-2016).
Write explanatory notes : Provisions relating to penalty under the Service Tax Act
1994. (Dec-2016).

Go To Contents

Module-1&2 ANSWERS :

General Notes : What is tax ? What constitutes Income Tax Laws ?


ANSWER :
https://www.scribd.com/document/208837970/Income-Tax-Volume-1
What is a Tax?
Tax is a fee (?) charged by a government on a product, income or activity. There
are two types of taxes direct taxes and indirect taxes (See Chart below this
paragraph). If tax is levied directly on the income or wealth of a person, then it is a
direct tax e.g. income-tax. If tax is levied on the price of a good or service, then it
is called an indirect tax e.g. excise duty. In the case of indirect taxes, the person
paying the tax passes on the incidence to another person.
Importance of Taxes :
Taxes constitute the basic source of revenue to the government. The taxes levied
by the government form a pool of resources to be used of the collective benefit of
the public. The government can mobilize resources by imposing taxes on the
privileged ones. The taxation structure of the country can play a very important
role in the working of economy. Some time back the emphasis was on higher rates
of tax and more incentives. But recently the emphasize has shifted to decrease in
rates of taxes and withdrawal of incentives. While designing the taxation structure
it has to be seen that it is in conformity with our economic and social objectives. It
should not impair the incentives to personal savings and investment flow and on
the other hand it should not result into decrease in revenue for the state.
In our present day economic structure income tax plays a vital role as source of
revenue and a measure of removal of economic disparity. Our taxation structure
provides for two types of taxes direct and indirect;

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Laws relating to Income Tax : The various instruments of law containing the law
relating to income-tax are explained below :
Income-tax Act, 1961: The levy of income-tax in India is governed by the
Income-tax Act, 1961. This Act came into force on 1st April, 1962. The Act contains
298 sections and XIV schedules. These undergo change every year with additions
and deletions brought about by the annual Finance Act passed by Parliament. In
pursuance of the power given by the Income-tax Act, 1961 rules have been framed
to facilitate proper administration of the Income-tax Act, 1961.
Finance Act : Every year, the Finance Minister of the Government of India
presents the Budget to the Parliament. Part A of the budget speech contains the
proposed policies of the Government in fiscal areas. Part B of the budget speech
contains the detailed tax proposals. In order to implement the above proposals, the
Finance Bill is introduced in the Parliament. Once the Finance Bill is approved by
the Parliament and gets the assent of the President, it becomes the Finance Act.
Income-tax Rules 1962 : The administration of direct taxes is looked after by the
Central Board of Direct Taxes (CBDT). The CBDT is empowered to make rules for
carrying out the purposes of the Act. For the proper administration of the Income-
tax Act, the CBDT frames rules from time to time. These rules are collectively
called Income-tax Rules, 1962. It is important to keep in mind that along with the
Income-tax Act, 1961, these rules should also be studied.
Circulars and Notifications : Circulars are issued by the CBDT from time to time
to deal with certain specific problems and to clarify doubts regarding the scope and
meaning of the provisions. These circulars are issued for the guidance of the
officers and/or assessees. The department is bound by the circulars. While such
circulars are not binding the assessees they can take advantage of beneficial
circulars.
Case Laws : The study of case laws is an important and unavoidable part of the
study of income-tax law. It is not possible for Parliament to conceive and provide
for all possible issues that may arise in the implementation of any Act. Hence the
judiciary will hear the disputes between the assessees and the department and
give decisions on various issues. The Supreme Court is the Apex Court of the
country and the law laid down by the Supreme Court is the law of the land. The

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decisions given by various High Courts will apply in the respective states in which
such High Courts have jurisdiction.

Go To Module-1&2 QUESTIONS
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General Notes : What is 'income' ?


ANSWER :
Definition : section 2 (24) of the income-tax act, 1961 : "income" includes
(1) profits and gains;
(2) dividend;
. . . it is a long complicated definition. Best read from the bare act.
Discussion : The following general principles emerge regarding the concept of
income :
regularity of income: income is a periodical monetary return coming with some sort
of regularity, or expected regularity, from definite sources. however, recurring
nature is not an absolute necessity in order that an item may be designated as
"income" for the purposes of income-tax. thus income may not necessarily be
recurring in nature; though it is generally of that character.
Lump sum receipt: a lump sum receipt is also income if it is in the nature of
revenue receipt. for example, if a person receives arrears of salary in a lump
sum amount, it would be his income.
form of income: income may not be in the form of cash only. it may be in kind or
service, i.e. in the form of other property or right which has monetary value. when
income is received in kind like perquisites, the value of perquisites will be
calculated as per rules prescribed in the income-tax act, 1961, and that value will
be taken as income.
illegal income: income earned by unlawful means is also taxed just like any legal
income. money embezzled is also "income" under the income-tax act.
The word "income" includes not only those things which are included in section
2(24), but will also include, within its import, such things as the word signifies
according to its natural or literal meaning. the definition simply gives some artificial
categories to the natural connotation of income. on the other hand it enumerates
items some of which cannot ordinarily be considered as income but statutorily to be
treated as such.
For the purposes of income-tax actual profit earned by a trader is taxable and not
the maximum profit which he could have earned. if there is no income, there
cannot be a tax, even though an entry has been made in accounts about a

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"hypothetical income".
application of income: where an income is applied to discharge an obligation after
such income reaches the assessee, it is an application of income and is taxable.
however, where there is a diversion of income before it reaches the assessee, it is
not treated as income of the assessee.
connection with outside agency: a person cannot have income without outside
agency. a person cannot make income out of oneself.
disputed title: income-tax assessment cannot be held up or postponed merely
because of existence of a dispute regarding the title of income. the recipient is,
therefore, chargeable to tax, though there may be rival claims to the sources of
income.
personal gifts: gifts received by a person on one's birthday, marriage etc. is not the
income of the assessee. however, gift received from unrelated person on or after
september 1, 2004 shall be chargeable to income-tax if the sum of money received
as gift exceeds rs. 25,000/- (rs. 50,000/- in aggregate w.e.f. assessment year
2007-08).
contingent income: contingent income i.e. an income which may or may not arise
is not chargeable to income tax until such contingency actually occurs and income
accrues to the assessee.
money received by a woman from husband for private or household expenses:
money received by a woman from her husband for her dress, jewellery etc. and the
savings effected by a housewife out of money received from her husband for
kitchen or household expenses is not her income. any property acquired with such
money or savings would be the capital asset belonging to the woman [r.b.n.j. naidu
verses c.i.t.]
Relief or reimbursement of expenses is not income. therefore, reimbursement of
actual travelling expense to an employee is not income.
compensation for death: any compensation for death on account of fatal accident
or fatal injuries sustained by the deceased would not be income [c.i.t. verses
fletcher (1937)].
compensation from insurance company: compensation received from a insurance
company against injuries sustained in a road accident is not income and therefore
not chargeable to tax.

Go To Module-1&2 QUESTIONS
Go To Contents

General Notes : Scope of total income :

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ANSWER :
Definition : Section - 5 of IT Act 1961
(1) subject to the provisions of this act the total income of any previous year of a
person who is a resident includes all income from whatever source derived which

(a) is received or is deemed to be received in India in such year by or on
behalf such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during
such year; or
(c) accrues or arises to him outside India during such year;
provided that in the case of a person not ordinarily resident in India within the
meaning of sub-section (6) of section 6, the income which accrues or arises to
him outside India shall not be so included unless it is derived from a business
controlled in or a profession set up in India.
(2) subject to the provisions of this act the total income of any previous year of a
person who is non-resident includes all income from whatever source derived
which
(a) is received or is deemed to be received in India in such year by or on
behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during
such year.
explanation 1. income accruing or arising outside India shall not be deemed to
be received in India within the meaning of this section by reason only of the fact
that it is taken into account in a balance-sheet prepared in India.
explanation 2. for the removal of doubts, it is hereby declared that income which
has been included in the total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or arisen shall not again be so
included on the basis that it is received or deemed to be received by him in
India.
Discussion :
under the act, incidence of tax on a taxpayer depends on his residential status and
also on the place and time of accrual or receipt of income.
income is said to be received when it reaches the assessee;
income is said to accrue or arise when the right to receive the income becomes
vested in the assessee, c.lt. verses ashok bhai chimantihai.
income accrued in India is chargeable to tax in all cases irrespective of residential
status of the assessee.
according to section 9(1) (1) where income accrues or arises outside India, through

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or from any 'business connection' in India, it is deemed to accrue or arise in India.


Similarly all income accruing or arising through or from any property (or asset or
source of income) in India, or through transfer of a capital asset situated in India,
are deemed to accrue or arise in India.
a resident but not ordinarily resident is assessable to tax in respect of :
(a) income which is received or deemed to be received in India in the previous
year by him or on his behalf;
(b) income which accrues or arises or is deemed to accrue or arise to him in
India during the previous year;
(c) income which accrues or arises to him outside India during the previous year
from a business controlled in or profession set up in India.
Thus, a non-resident is liable to tax in respect of income received or deemed to be
received in India by or on his behalf and accrues or arise or is deemed to accrue or
arise in India during the previous year.

Go To Module-1&2 QUESTIONS
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General Notes : Basis of charge : charge of income tax and Deduction v/s Rebates
v/s Relief :
ANSWER :
Definition : Section - 4 of IT Act 1961
(1) where any central act enacts that income tax shall be charged for any
assessment year at any rate or rates, income tax at that rate or those rates shall
be charged for that year in accordance with, and subject to the provisions
(including provisions for the levy of additional income tax) of this act in respect of
the total income of the previous year of every person.
provided that where by virtue of any provision of this act, income tax is to be
charged in respect of the income of a period other than the previous year
income tax shall be charged accordingly.
(2) in respect of income chargeable under sub-section (1), income tax shall be
deducted at the source or paid in advance, where it is so deductible or payable
under any provision of this act.
Deduction v/s Rebates v/s Relief :
Deductions from income : Income tax act allows certain specific reductions to be
made from the income of an assessee while computing the total income. These
reductions are termed as deductions. Two type of deductions have been
provided under the act, i.e. deductions from the specific heads of income and

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deductions from gross total income.


Rebate [sec.87] : Rebate is a reduction allowed in the amount of income tax
computed in case of certain types of assessee.
Relief from tax [sec.89] : Where an assessee receives arrears of salary or
advance of salary or profits in lieu of salary during previous year and it becomes
taxable during the same previous year by virtue of a provision of the income tax
act there by causing the assessee to be taxed at a higher rate than he would
otherwise have been assessed, relief may be allowed under Rule 21A from tax so
computed at the higher rate. The act provides for the relief only in case of
arrears of salary or salary received in advance or family pension.
Distinction between the three : While the basic purpose of all the three is to benefit
the assessee by reducing the incidence of tax, they differ greatly in the way they
achieve their common objective and the conditions under which they pass on the
relief. While the deductions reduce the amount of income chargeable to tax,
rebates and relief reduces the amount of tax computed on the chargeable income.
Surcharge v/s Income tax :
Income tax is a charge on total income while surcharge is a levy on income tax.
First, income tax is computed on total income at prescribed rates and then
surcharge is worked out on the amount of income tax so computed to arrive at the
total tax liability.

Go To Module-1&2 QUESTIONS
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General Notes : Who is an Assessee ?


ANSWER :
An assessee is a person who is liable to pay tax or any other sum of money e.g.
penalty, interest, etc. under the income tax act, 1961.
Definition : section 2(7) : "assessee" means a person by whom any tax or any other
sum of money is payable under this act, and includes
(a) every person in respect of whom any proceeding under this act has been taken
for the assessment of his income or assessment of fringe benefit or of the income
of any other person in respect of which he is assessable, or of the loss sustained by
him or by such other person, or the amount of refund due to him or to such other
person;
(b) every person who is deemed to be an assessee under any provision of this act;
(c) every person who is deemed to be an assessee in default under any provision of
this act.

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Definition : 2(31) ''person" includes


(1) an individual,
(2) a hindu undivided family,
(3) a company,
(4) a firm,
(5) an association of persons or body of individuals, whether incorporated or not,
(6) a local authority, and
(7) every artificial juridical person, not falling within any of the preceding sub-
clauses.
The following categories of person are included in the definition of assessee :
first category -a person by whom any tax or any sum of money is payable under
the act.
for example,
income of a is rs. 100,000 for the assessment year 1999-2000. he files his tax
return of income. he is an "assessee".
Income of b is rs. 40,000 for the assessment year 1999-2000. he does not file
his return of income because his income is not more than the amount of
exempted slab. income-tax authorities do not take any action against him. he is
not an "assessee" because no tax or any other sum is due from him.
second category -every person in respect of whom any proceeding under the act
has been taken (whether or not he is liable for any tax, interest or penalty).
proceeding may be taken (a) either for the assessment of his income or the loss
sustained by him, or (b) for the assessment of the income of any other person in
respect of which he is assessable, or (c) for the amount of refund due to him or to
such other person, or (d) for assessment of fringe benefits.
third category-every person is deemed to be an assessee under any provisions of
the act. for example, a representative assessee is deemed to be an assessee under
section 160(2).
Fourth category-every person who is deemed to be an assessee in default under
any provisions of the act.
for example, any person who does not deduct tax at source or after deducting the
tax does not pay the tax, is deemed to be an assessee under section 201. similarly,
if a person does not pay advance tax, he is deemed to be an assessee in default
under section 218.
It should be noted that hindu undivided family and a firm have been included in the
definition of person given above although they are not legal persons in the general
law.

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Go To Module-1&2 QUESTIONS
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General Notes : What is Assessment year :


ANSWER :
"assessment year" means the period off twelve months commencing on the 1st day of
april every year [section 2(9)].
for example, the assessment year 1999-2000 means a period of 12 months
starting from april 1, 1999 to march 31, 2000.
previous year means the financial year immediately preceding the assessment year.
financial year means a period of twelve months, starting from april 1 to 31st march
of a year, immediately proceeding the assessment year.
for example for the assessment year 1989-90, the previous year will be 1st april,
1988 to 31st march, 1989.
The year in which tax is paid is called 'assessment year' and the corresponding period
for which income is assessed is called the 'previous year' or 'business year' or
'accounting year'.
in other words, the year in which income is earned is known as previous year and
the next year in which income is taxable is known as assessment year.
Income tax is levied for each 'assessment year' on the total income of the 'previous
year'.
income of previous year of an assessee is taxed during the next following assessment
year at the rates prescribed by the relevant finance act.
for example, income earned by an individual during the previous year 1998-99 is
taxable in the immediately following assessment year 1999-2000 at the rates
applicable for the assessment year 1999-2000. similarly, income earned during the
previous year 1999-2000 is taxable in the assessment year 2000-2001 at the rates
applicable for the assessment year 2000-2001.

Go To Module-1&2 QUESTIONS
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General Notes : Discuss : Capital and revenue :


ANSWER :
The distinction between capital and revenue is very important for the purposes of
income-tax. to understand the distinction it will be better to study it under the
following heads:

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(1) capital receipts and revenue receipts,


(2) capital expenditure and revenue expenditure,
(3) capital losses and revenue losses.
(1) capital receipt and revenue receipt :
the income-tax act has not discussed the concept of capital and revenue and
therefore, we have to depend upon the accounting principles and pronouncements
of the courts.
it is the revenue receipt popularly known as income that is put to charge and not
the capital receipt, unless it is specifically provided under the act and that too at
special rates.
the following broad principles may be laid down as guide for determining whether a
particular receipt is of capital nature or of revenue nature:
(1) a receipt on account of fixed assets or fixed capital is a capital receipt
whereas a receipt on account of floating or circulating capital is a revenue
receipt.
fixed capital is that which is retained in the business for the purpose of
earning profits, e.g. plant machinery, building, goodwill patents etc.
circulating capital circulates in the business such as stock-in trade, and due to
this circulation the profit is earned.
(2) a receipt in substitution of source of income is a capital receipt whereas a
receipt in substitution of income alone is a revenue receipt.
for example, compensation for loss of employment or agency is a capital
receipt (though taxable) whereas damage for breach of a business contract is
a revenue receipt.
(3) an amount received for the surrender of certain rights under an agreement is
a capital receipt whereas the amount received by way of compensation for loss
of future profits is a revenue receipt.
for example, pension is revenue receipt whereas a lump sum received in
computation of pension is capital receipt (though taxable).
(4) the nature of a receipt is determined exclusively by its character in the hands
of the receiver and the source of payment is immaterial.
(5) where an asset is held as an investment, the sale proceeds of such asset is
capital receipt. but where an asset is held as stock-in-trade, the sale proceeds of
such asset is a revenue receipt.
for example, profit on the sale of shares to a dealer in shares is a revenue
receipt.
(6) it is immaterial whether the amount is received in lump sum or in
installments. for example, salary is a revenue receipt whether it is received

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periodically every month or once a year.


(7) compensation received for immobilization, sterilization, destruction or loss of
a capital asset is capital receipt and compensation for injurious effect on a
trading asset is a revenue receipt.
(2) capital expenditure and revenue expenditure :
revenue expenditure is allowed to be deducted while computing income from
business or profession and not capital expenditure (unless specifically provided).
the following tests are applied in determining whether a particular item of
expenditure is of capital or revenue nature :
(1) amount spent in acquiring and installing a capital asset for the enduring
benefit of the business is a capital expenditure whereas the amount spent for
the purpose of stock-in-trade is of a revenue nature.
there may be cases where expenditure, even if incurred for obtaining
advantage of enduring benefit, may nonetheless be on revenue account and
the test of enduring nature may break down.
what is material to consider is the nature of the advantage in the commercial
sense,
where the advantage is in the capital field than the expenditure would be
disallowable on an application of this test.
if the advantage consists merely in facilitating the assessee's trading
operations or enabling the management and conduct of the assessee's
business to be carried on more efficiently or more profitably while leaving
the fixed capital untouched, the expenditure would be revenue
the test of enduring benefit is, therefore, not a certain or conclusive test and
it cannot be applied blindly and mechanically without regard to the particular
facts and circumstances of a given case (empire jute co. ltd verses c.i.t],). the
word 'enduring' is not synonymous with 'everlasting'. acquiring monopoly
rights for a period can also be capital expenditure.
(2) expenditure made for increasing the efficiency or earning capacity of capital
asset is a capital expenditure whereas the expenditure made just to maintain the
existing efficiency or the earning capacity is revenue expenditure.
(3) expenditure made for the start or extension of business or for substantial
replacement of equipment is of capital nature because it is incurred in setting up
the profit-earning machinery.
(4) expenditure made to a source of income is a capital expenditure whereas
expenditure made in order to earn income is of revenue type.
(5) expenditure incurred by an assessee to free himself from a capital liability,
eg disadvantageous lease, is a capital expenditure and amount spent in

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discharging himself from the recurring liability is of revenue nature.


compensation paid to a contractor for termination of building-contract is a
capital expenditure, and the compensation paid to the employee on account of
termination of service is revenue expenditure.
(6) expenditure incurred for protecting the business is revenue expenditure. for
example the amount spent on propaganda campaign to oppose the threatened
nationalization of industry is of revenue nature.
(3) capital losses and revenue losses :
it is only revenue or trading loss of business which is deductible in computing the
profits and rules of set off and any forward of losses are different. the nature of
loss depends upon the facts of the case.
any loss which is not a revenue loss will be regarded as a capital loss.
a revenue loss is that which is not merely connected with the business but is
incidental to the business itself.
a loss of some revenue receipt or loss of stock-in-trade or loss incurred in the
course of the business and incidental to it is a revenue loss.
therefore, the loss of stock-in-trade by fire or by ravages by white ants or in transit
or by negligence or fraud by the employees will be a revenue loss. on the other
hand loss on account of the fixed capital asset is a capital loss.
for example, loss due to sale of shares held as investment will be a capital loss
whereas loss due to sale of shares by a dealer in shares will be a revenue loss.
in the case of loss of cash if the loss occurs in the course of the business and
during business hours it will be a revenue loss. but if the loss occurs after the
business hours or after it has reached the person entitled to their custody and
control and thereafter the money is lost by theft or embezzlement, it will be a
capital loss.

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Explain : Resident, Non-Resident and Ordinary Resident. (Oct-2013, Mar-2014,


Nov-2014)
Explain : Resident and non-resident. (Nov-2011, Nov-2012)
Write explanatory notes : Provisions relating to Resident of India and Non-resident of
India under the Income Tax Act. (Dec-2016)
ANSWER :
General rules in determining the residential status of assessee :

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Residential status may differ from year to year. In one year the assessee may be
resident while in another year he may be non-resident.
Residential status of an assessee during the previous year is important and
residential status during the assessment year is immaterial for tax purposes.
If a person is resident in India in a previous year in respect of any source of
income, he is deemed to be resident in India in respect of each of his other sources
of income as well.
Section 6 of the IT act 1961 divides taxable entities, on the basis of their residence, in
the following three categories:
(1) persons who are "resident" in India.
(2) persons who are "not ordinarily resident" in India,
(3) persons who are "non-resident".
Note that this division is applicable only in case of an individual and hindu undivided
family. in all other cases there are only two divisions: resident and non-resident.
for the purpose of determining the residence of a person, in the context of the
income-tax act, 1961, the categories of 'persons' have been grouped into four
separate classes as under:
(1) an individual
(2) a hindu undivided family, firm or other association of persons;
(3) a company; and
(4) every other person.
(1) residential status of an INDIVIDUAL :
"resident" : section 6 : For the purpose of this act,
(1) an individual is said to be resident in India in any previous year, if
(a) he is in India in that year for a period or periods amounting in all to 182
days or more {section 6(1) (a)}; OR
(b) . . . . omitted
(c) he has been in India for a period or periods amounting in all
to 365 days or more during the four years preceding that year, i.e., the
accounting year (previous year), AND
has been in India for 60 days or more in that year (previous year) {section
6 (1) (c)}.
the explanation to section 6(1) provides that in the case of an individual being a
citizen of India, who leaves India in any previous year as a member of the crew
of an Indian ship or for the purposes of employment outside India, in order to
fulfill the aforesaid condition (b) regarding residence, the minimum period of
stay in India has to be 182 days instead of 60 days.

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"resident and NOT ordinarily resident" : {section 6 (6) (a)} in order to become
"resident and NOT ordinarily resident" in India an individual has to,
satisfying any one of the conditions in sec-6(1) (for being resident), AND
also satisfy one of the following conditions :
(1) he has been non-resident in India in 9 out of 10 previous years preceding
the relevant previous year, OR
(2) he has been in India for a period or periods amounting in all to < 729
days during the seven years preceding the relevant previous year.
In short,
(a) non-resident if he does NOT satisfy any of the basic conditions as
mentioned in section 6 (1).
(b) resident and ordinarily resident if he satisfies at least one of the basic
conditions as mentioned in section 6(1) and none of the additional conditions as
mentioned in section 6(6) (a).
(c) resident and not ordinarily resident if he satisfies at least one of the
basic conditions as mentioned in section 6(1) and one of the two additional
conditions as mentioned in section 6(6) (a).
Note : For counting days in India it will be the total duration of his stay in India
that will be taken into consideration while deciding the issue. he may put up either
in his own house or in rented house or in a hotel or with his friend or anywhere he
likes, but he must have been in India for the relevant period. the reason or motive
for his stay in India is immaterial and even involuntary or forced presence in India
will be treated as presence for the purposes of this section [moosa s. madhu verses
c.i.t.
(2) residential status of HINDU UNDIVIDED FAMILY, firm or other
association of persons :
resident HUF {section 6 (2)}A Hindu undivided family, firm or other association
of persons is said to be resident in India, in any previous year, in every case
except where during that year the control and management (Manager/ Karta) of its
affairs is situated wholly outside India.
ie
even if a part of the control and management is situated in India during the
previous year, it will be called "resident" in India.
normally a hindu undivided family will be taken to be resident in India unless
the control and management of its affairs is proved to be situated wholly
outside India;
the word "affairs" must mean affairs which are relevant for the purpose of the
income-tax act and which have some relation to income;

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the word "wholly suggests that hindu undivided family may have more than
one "residence" in the same way as a corporation may have.
"resident and NOT ordinarily resident HUF" : {section 6 (6) (b)} in order to
become "resident and NOT ordinarily resident HUF" in India an HUF has to,
satisfying conditions in sec-6(2) (for being resident), AND
also satisfy one of the following conditions :
(1) manager/ Karta of HUF has been non-resident in India in 9 out of 10
previous years preceding the relevant previous year, OR
(2) manager/ Karta of HUF has been in India for a period or periods
amounting in all to < 729 days during the seven years preceding the
relevant previous year.
In short,
(a) non-resident HUF if HUF does NOT satisfy conditions as mentioned in section
6 (2). ie through out the year control and management (Manager / Karta) of its
affairs is situated wholly outside India.
(b) resident and ordinarily resident if HUF satisfies section 6(2) and Manager/
Karta satisfies none of the additional conditions as mentioned in section 6(6)
(b).
(c) resident and not ordinarily resident if HUF satisfies section 6(2) and
Manager/ Karta satisfies one of the two additional conditions as mentioned in
section 6(6) (b).
(3) residential status of a COMPANY [section 6(3)] :
a company is said to be "resident" in India in any previous year if it satisfies any
of the two alternative conditions, viz:
(1) it is an Indian company; or
(2) if during the relevant previous years the control and management of its
affairs is situated wholly in India.
not ordinarily resident :
there is NO such category.
Non-resident :
if a company does not satisfy any of the aforesaid two alternative conditions of
resident, it is said to be "non- resident" in India.
In short,
if the assessee company is an Indian company, it is automatically resident. and
if it is a non-Indian company, it is resident if and only if, the control and
management of its affairs is situated wholly in India during the relevant previous
year.

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Even a little measure of control and management in India would make them
resident.
the expression "control and management" used in reference to a company has the
same meaning as it has in the case of hindu undivided family, or other association
of persons.
(4) residential status of "every other person" [section 6(4)] :
every other person (for example, local authority, an artificial judicial person etc.)
other than those described in the preceding paragraphs is said to be "resident" in
India in any previous year in every case, except where during that year the control
and management of his or its affairs is situated wholly outside India.
in case above condition is not satisfied, then it is non-resident
There are not other sub-categories,
residential status in case of other source of income (section 6 (5)) : if a person is
resident in India in any previous year relevant to an assessment year in respect of
any source of income, then he shall be deemed to be resident in India in the previous
year relevant to the assessment year in respect of each of his other sources of
income.

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Explain : Main heads of income With illustrations. (Oct-2013)


Discuss : Heads of income. (Nov-2012)
Explain in detail the various head of income under the Income Tax Act. (Dec-2016)
ANSWER :

Section 14 of the act classifies income under the following heads for the purposes of
computing the total income :
(1) income from salaries
(2) income from house property
(3) income from profits and gains of business or profession
(4) income from capital gains
(5) income from other sources.
The first four heads are specific in content while the last i.e. "income from other
sources" is the omnibus head covering all other kinds of income from whatever
source derived.

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The income is to be taxed under the appropriate head of income and it is


imperative on the part of the department to charge the income under the specific
head under which it falls since the law leaves no option.
Income has to be taxed under the appropriate and specific head of income.
In case an income falls under a specific head, the income will have to be taxed
under that head and there is no option either for the assessee or the revenue to
vary the head in regard to such income [united commerce bank verses c.i.t.,
(1957))].
In case an item appears to belong to two or more heads, THEN the assessee will
have the right to claim that it should be assessed under the head most beneficial
to him [c.i. t. verses bosotto bros. ltd, (1940) (mad.)].
income cannot be assessed under a wrong head merely because the assessee
had returned it under a wrong head [bihar state co-op. bank ltd. verses c.i.t.,
(1960) ].
An assessee has to pay tax NOT by reference to income under any particular head,
but on "total income" which is the aggregate of the income and/or loss under all
the heads taken together subject to certain exceptions.
Expenditure incurred in relation to income not include-able in total income :
Section 14A(1) provides that for the purposes of computing the total income, no
deduction shall be allowed in respect of expenditure incurred by the assessee in
relation to income which does not form part of the total income under the income-
tax act.
Section 14A(2) provides that the assessing officer shall determine the amount of
expenditure incurred in relation to such income which does not form part of the
total income under this act in accordance with such method as may be prescribed,
if the assessing officer, having regard to the accounts of the assessee, is not
satisfied with the correctness of the claim of the assessee in respect of such
expenditure in relation to income which does not form part of the total income
under this act,
Section 14A(3) provides that the provisions of sub-section (2) shall also apply in
relation to a case where an assessee claims that no expenditure has been incurred
by him in relation to income which does not form part of the total income under
this act
Differentiate - heads of income and sources of income : The expressions "heads
of income" and "sources of income" do not have the same meaning.
heads of income have been enumerated in sec-14.
source of income means that from which income originates. there may be more
than one source of income for the same head of income [shri sobhag mat lodha
verses, c.j. t. (1967) (all)]

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for example, under the head 'salaries' the different sources of income may be
wages, pension, gratuity, fees, commissions, perquisites or profits in lieu of or in
addition to salary or wages.

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Which type of income fall under the head salary ? Discuss about the prerequisites and
its taxation. (Nov-2012)
Which type of income will fall under the head Salary? Discuss about the perquisites
and its valuation. (Nov-2011)
Which type of income will fall under the head salary ? Discuss about allowances and
perquisites and its valuation. (Oct-2013, Nov-2014)
ANSWER :
Refer :

Definition (section 15) : The following incomes shall be chargeable to income-tax
under the head "salaries" :
(a) any salary due from an employer or a former employer to an assessee in the
previous year, whether paid or not;
(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 it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on
behalf of an employer or a former employer, if not charged to income-tax for
any earlier previous year".
Explanation-1 to section 15 provides where any salary paid in advance is included
in the total income of any person for any previous year, it shall not be included
again in the total income of the person when the salary becomes due.
Explanation 2 provides that "any salary, bonus, commission or remuneration, by
whatever name called, due to, or received by, a partner of a firm from the firm
shall not he regarded as "salary" for the purposes of this section"
Discussion :
The term "salary" is used in section 15 in the broadest possible sense to include not
only the salaries which are due and paid to the employee, but,
every amount which is paid, (whether due or not), and
amount due (whether paid or not).
These include perquisite and profits in lieu of salary

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For charging the income under the head "salaries" there must exist the relationship
of employee and employer between the payee and the payer. an employee is a
person employed by another to work for him on the conditions that he is to be
subject to the control and directions of his employer in respect of the manner in
which his work is to be done.
Salary due to or received by the assessee or by a third party on his behalf from the
present or past employee is also chargeable under the head "salaries".
However, the amount or loan advanced by the employer is not chargeable to
income tax.
every servant is an employee; but an agent may or may not be employee. in c.it.
Verses lady navaljhi tata, (1947) 15 itr 8, it was held that a director of a company,
though holding an office, is not an employee unless there is a contract to that
effect.
an agent is usually not an employee.
perquisites or profits or any remuneration received from persons other than the
employer, would be taxable under the head 'income from other sources' even if
they accrue to the employee by reason of his employment. for example
remuneration received by a lecturer of a college for acting as an examiner in a
university.
Salary :
Definition : section 17(1) "salary" includes
(1) wages;
(2) any annuity or pension;
(3) any gratuity;
(4) any fees, commissions, perquisites or profits in lieu of or in addition to
any salary or wages;
(5) any advance of salary;
(a) any payment received by an employee in respect of any period of leave
not availed of by him;
(6) the annual accretion to the balance at the credit of an employee
participating in a recognized provident fund to the extent to which it is
chargeable to tax (under rule 6 part a of the fourth schedule); and
(7) the aggregate of all sums that are comprised in the transferred balance of
an employee participating in a recognized provident fund, to the extent to
which it is chargeable to tax under sub-rule (4) of rule 11 of part a of the
fourth schedule.
(8) the contribution made by the central government or any other employer in
the previous year to the account of an employee under a pension scheme

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referred to in section 80 ccd.


Discussion :
The above amounts may be paid by the employer either voluntarily or under a
contractual obligation. thus the salary for the notice period payable by the
employer is also taxable. salary and wages signify payments for services
rendered to an employer.
bonus is taxable on receipt basis if bonus is received in arrears, the assessee
can claim relief under section 89(1).
overtime payments are taxable.
annuity is a sum or grant paid every year. annuity paid by the employer is
included in salary and if paid by other outside agencies is taxed under "income
from other sources".
Pension is a periodic payment made by the employer to the employee after
his retirement.
a lump sum received in commutation of pension or in substitution thereof is
taxed under the head "salaries" to the extent it is not exempted under section
10.
it should be noted that family pension received after the death of an employee
is taxable under section 56 under the head "income from other sources" in the
hands of the recipient.
gratuity is paid to an employee for long and meritorious services rendered by
him to an employer. it is not paid to an employee gratuitously or merely as a
gift. gratuity is as much taxable as a contractual salary subject to section 10.
it is exempt upto a certain extent under section 10.
gratuity received by an employee is taxable under the head "salary"
whereas gratuity received by the legal heir of the premium paid by the
employer on an accident policy taken the employee is not a perquisite.
any fees and commissions payable by the employer to the employee is
taxable as salary. fees and commission are chargeable as salary irrespective
of the fact that they are paid in addition to or in lieu of salary. however, if fees
or commission is paid to a person who is not an employee is not taxable under
the head "salary".
in all India reporter verses ramchandra (1961) it was held that compensation
awarded by the court for wrongful termination of service is not 'salary'.
in n. sciandra c.lt. (1979), it was held that rent-free accommodation provided
to a foreign technician is not a perquisite as he continued to be the employee
of a foreign company.
advance salary is taxable or receipt basis irrespective of incidence of tax.

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arrear salary is taxable on receipt basis, if the same has not been subjected to
tax on due basis. however relief can be claimed in this case under section 89.
leave salary received by a central/state government employee in respect of
period of earned leave at his credit at the time of retirement/superannuation,
is exempt from tax. but in the case of non-government employee (including
an employee of a local authority or public sector undertaking) leave salary is
exempt from tax fully or partially in some cases.
salary in lieu of notice period is taxable under section 15 on receipt basis as
held in verses d. talwar verses c.lt.
salary paid to a partner is an appropriation of profit and is not chargeable
under the head "salaries" but is chargeable under the head profits and gains
of business profession".
retrenchment compensation received by a workman under the industrial
disputes act, 1947, or any other acts or contract of service, or award etc. is
exempt from tax to a certain extent.
Perquisites : {section {17 (2)} :
perquisites are taxable under the head "salaries" only if the following conditions
are satisfied :
(a) they are allowed by an employer to his employee.
(b) they are allowed during the continuance of employment.
(c) they are directly dependent upon service.
(d) they are resulting in the nature of personal advantage to the
employee.
(e) they are derived by virtue of employer's authority.
ie even a casual and non-recurring receipt can be perquisite if the aforesaid
conditions are satisfied.
Taxable perquisites (summary of long definition Sec-17(2)) : a combined
reading of sections 15 and 17 suggest that salary would include perquisites. thus
following perquisites are taxable in the hands of an employee:
(i) rent-free accommodation. value of rent-free accommodation provided to
the assessee by his employer [section 17(2)]] such accommodation may be
furnished or unfurnished.
however, rent-free official residence provided to a judge of the supreme
court or a high court is not taxable. similarly, rent-free official residence
provided to an official of parliament, or to a union minister or to a leader of
opposition in parliament is not taxable.
(ii) accommodation at concessional rate. value of any concession in rent in
respect of accommodation provided to the assessee by his employer [section

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17(2)].
(iii) notified benefits and amenities. value of any benefit or amenity granted
or provided free of cost or at concessional rates in certain specified cases
[section 17(2)].
(iv) employee's obligation met by employer. amount paid by an employer in
respect of any obligation which otherwise would have been payable by the
assessee [section 17(2)]. for example, if a domestic servant is engaged by an
employee and salary of the servant is paid or reimbursed by the employer.
(v) amount payable by an employer, directly or indirectly, to effect an
assurance on the life of the assessee or to effect a contract for an annuity
other than payments made to a recognized provident fund
(vi) the value of any specified security or sweat equity shares free of cost or
at concessionable rate to the assessee is taxable as a perquisite.
(vii) the employer's contribution to the superannuation fund exceeding
rupees. one lakh.
(viii) value of any other prescribed fringe benefit. the value of any other fringe
benefit or amenity as may be prescribed.
Tax-free perquisites (for all employees) :
(1) food or beverages provided by the employer to his employees in the office
or factory or through paid non-transferable vouchers and usable only at eating
joints if value thereof in either case does not exceed a certain amount per
meal, is tax free perquisite.
(2) loans to employees: value of benefit to the assessee resulting from
interest-free loan or loan at concessional rate shall be nil if the amount of loan
is petty, not exceeding specified amount.
(3) rent free house or conveyance facility: rent free official residence and
conveyance facilities provided to a judge of the supreme court or high court is
not a 'taxable perquisite. similarly rent free furnished residence (including
maintenance thereof) provided to an officer of parliament, a union minister, or
leader of opposition in parliament, is not a taxable perquisite.
(4) perquisites provided outside India: perquisites provided by the
government of India to its employees, who are citizens of India for rendering
services outside India is not a taxable perquisite [section 10(7)].
(5) accommodation in a remote area: the accommodation provided by an
employer shall be tax free perquisite if the accommodation is provided to an
employee at certain sites being of temporary nature and located not less than
eight kilo metres away from the local limit of any municipality or cantonment
board or is located in a remote area.
(6) educational facility to children of the employee: where educational

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institution is owned and maintained by the employer and free educational


facilities are provided to the children of the employee or where such
educational facilities are provided in any institution by reason of his being in
employment of the employer, there shall be no perquisite value if the cost of
such education or value of such benefit per child does not exceed rupees.
1000/- per month.
(7) computer and laptops: the value of perquisite shall be nil where
computers or laptops are given to the employee for use, belonging to the
employer or hired by him.
(8) leave travel concession: the employee is entitled to exemption under
section 10(5) in respect of the value of travel concession or assistance
received by him or due to him from his employer or former employer for
himself and his family subject to certain conditions.
(9) first-aid medical facility: any expenditure incurred or payment made to
provide first aid facilities in the hospital or dispensary run by the employer is
not liable as a perquisite.
(10) medical reimbursement: any sum paid by the employer in respect of any
expenditure incurred by the employee on his medical treatment or treatment
of any member of his family subject to certain conditions, in the previous year
is not liable to tax as a perquisite.
(11) recreational facilities: any recreational facility provided to a group of
employees (not being restricted to a select few) by the employer is not liable
to tax as a perquisite.
(12) training of employees: any expenditure incurred by the employer, for
providing training to the employees or by way of payment of fees of refresher
courses attended by the employees, is not liable to tax as a perquisite.
(13) use of health club, sports and similar facilities: use of health club, sports
and similar facilities provided by the employer to his employees is not liable to
tax as a perquisite.
(14) expenses on telephone: expenses on telephone, including a mobile
phone, actually incurred on behalf of the employer is not liable to tax as a
perquisite.
(15) employer's contribution to superannuation fund: employer's contribution
to superannuation fund of the employee or payment made by the employer
for staff group insurance scheme of the employees not liable to tax as a
perquisite. in this case, the employer's contribution to superannuation fund
exceeding rupees. 1,00,000/- per employee shall be liable to tax as a
prequisite.
(16) other perquisites: ah other perquisites in respect of which no valuation

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rules have been prescribed shall be tax free.


profits in lieu of salary :
Definition : {section 17 (3)} : "profits in lieu of salary" includes
(i) the amount of any compensation due to or received by an assessee from
his employer or former employer at or in connection with the termination of
his employment or the modification of the terms and conditions relating
thereto;
(ii) any payment (other than any payment referred to in clause (10), clause
(10 a), clause (10b), clause (11), clause (12), or clause (13) or clause (13a)
of section 10, due to or received by an assessee from an employer or a former
employer or from provident or other fund, to the extent to which it does not
consist of contributions by the assessee or interest on such contributions or
any sum. received under a keyman insurance policy including the sum
allocated by way of bonus on such policy. "
explanation. for the purposes of this sub-clause, the expression keyman
insurance policy" shall have the same meaning assigned to it in clause
(10d) of section 10.
(iii) any amount due to or received whether in lump sum or otherwise, by any
assessee from any person
(a) before his joining any employment with that person; or
(b) after cessation of his employment with that person.
Discussion :
Inclusions : the "profit in lieu of salary" includes the following:
(1) compensation on termination of employment: the amount of any
compensation due to or received by an assessee from his employer at or in
connection with the termination of his employment or the modification of
the terms and conditions relating there will be profits in lieu of salary
[section 17(3)(1)]. the termination may be due to retirement, premature
termination, and resignation or otherwise.
(2) payment from an unrecognized provident fund or an unrecognized
superannuation fund: any payment due to or received by an assessee from
an unrecognized provident fund or an unrecognized superannuation fund to
the extent to which such payment does not consists of contributions by the
employee or interest on such employer's contribution, will be regarded as
profits in lieu of salary [section 17(3) (2)].
thus, the employer's contribution and interest thereon is taxed as profit
in lieu of salary.
(3) payment under keyman insurance policy: any payment due to or

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received by an employee under a keyman insurance policy including the


sum allocated by way of bonus on such policy will be regarded profits in
lieu of salary [section 17(3) (2)].
(4) any amount due or received before joining or after cessation of
employment: any amount due to or received whether in lump sum or
otherwise by an assessee from any person
(a) before joining any employment with that person;
(b) after cessation of his employment with that person [section 17(2)
(3)].
Exclusions : following payments made under clauses 10, 10a, 10b, 11, 12
and 13 a of section 10 will not be included in "profits in lieu of salary:
1. death cum-retirement gratuity to the extent provided in section 10(10).
2. certain amounts received in commutation of pension {section 10 (10a)
3. compensation received on retrenchment, closure or transfer of an
undertaking to the extent provided in {section 10 (10b)}
4. any payment from a provident fund established under the provident fund
act, 1925 {section 10 (11)}
5. the payment of accumulated balance due and becoming payable to an
employee participating in a recognized provident fund, to the extent
provided in rule 8 of part a of the fourth schedule {section 10(12)}.
6. cash house rent allowance, wholly or in part in certain circumstances as
provided in section 10(13 a).

Go To Module-1&2 QUESTIONS
Go To Contents

Define annual value of house property. How would you derive the annual value of a
self occupied property? (Nov-2011, Nov-2012)
Define annual income of house property. How would you derive the annual income of
house property rented by owner. Explain in short. (Mar-2014)
ANSWER :

Definition (section 22) :
the annual value of property consisting of any buildings or lands appurtenant
thereto
of which the assessee is the owner,
other than such portions of such property as he may occupy for the purposes

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of any business or profession carried on by him the profits of which are


chargeable to income-tax,
shall be chargeable to income tax under the head "income from house property".
Ingredients "income from house property" : Section 22
if the following conditions are satisfied :
1. property should consist of any buildings or lands appurtenant (attached or
connected to any building) thereto.
2. the assessee should be the owner of such property,
3. the property should not be used for the purposes of the business or
profession of the assessee which is chargeable to tax,
THEN the charge under the head is on ''annual value" of the property.
Detailed discussion on 3 ingredients and annual value :
1. Property must consist of any buildings or lands appurtenant thereto :
under the head ''income from house property" the tax is payable on buildings
and lands appurtenant thereto.
thus the land which is not appurtenant (attached or connected to any building) is
excluded and income derived merely from such not appurtenant land will be
taxable as "income from other sources" unless it is agricultural income.
Building : the term "building' means a structure possessing annual value.
therefore, it would include building shops, godowns, docks, wharfs, bridges and
the like. Property situated outside India also comes within the preview of this
section if the owner is a resident in India.
according to webster's new international dictionary 'building' means "that
which is built; specifically, as new generally used, a fabric, or edifice, framed
or constructed, designed to stand more or less permanently, and covering a
space of land, for use as a dwelling house, store house, factory, shelter for
beasts or some other useful purpose. building in this sense does not include a
mere wall, fence, monument, hoarding or similar structure, though designed
for permanent use where it stands; not a steam boat, ship or other vessel of
navigation."
Existence of a roof is not always necessary for a structure to be regarded as a
building. Eg a large stadium or an open air swimming pool constructed at a
considerable expense would be a building as it is a permanent, structure and
designed for a useful purpose. the question as to what is "building" must always
be a question of degreea question depending upon facts and circumstances of
each case [ghanshiam das verses debt prasad, ].
the expression "building" includes the ground upon which the wall stands and
the ground within those walls [d.g. gouse & co. verses state of kerala,].

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2. The assessee should be the owner of the property :


it is only the owner of house property who is liable to pay tax under this head of
income.
the word 'ownership' in its broad sense, signifies any person having any estate
or interest in the land no matter how slight. if the assessee is not the owner of a
house property he is not assessable under this head. for example, income from
subletting will be chargeable under the residuary head, that is, "income from
other sources."
owner of a building standing on leased land will be the owner for the purposes of
this section.
the term owner includes a legal owner such as a trustee, an executor, and an
official assignee or official receiver, in whom such property is vested by the
insolvency act. it includes a person whose power of alienation is restricted, such
as a person who may not alienate except with the consent of a third person, or a
person who is bound to allow right of residence to third parties in the premises
free from rent.
owner may be an individual, firm, company, co-operative society, or association
of persons.
annual value of property is assessed to tax if owner is not in receipt of income or
even if income is received by some other person.
deemed owner : The charge under this head is on the legal owner of house
property. there are, however, certain exceptions to this rule incorporated by
section 27 where the charge of tax is on a deemed owner and not on a legal
owner. these cases are as follows:
(1) an individual who transfers, otherwise than for adequate consideration,
any house property to his or her spouse, not being a transfer in connection
with an agreement to live apart, or to a minor child, not being a married
daughter, shall be deemed to be the owner of house property so transferred.
[section
(2) the holder of an impartible estate shall be deemed to be an individual
owner of all the properties comprised in the estate. [section 27(2)]
(3) a member of a co-operative society to whom a building or part thereof is
allotted or leased under a house building scheme of the society shall be
deemed to be the owner of that building or part thereof, [section 27(3)]
(4) a person who is allowed to take or retain possession of any building or
part thereof in part performance of a contract of the nature referred to in
section 53 a of the transfer of property act, 1882 shall be deemed to be the
owner of that building' or part thereof. [section 27(3-a)]
for example, if a person has acquired a property under a "power of attorney

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transaction" by satisfying the conditions of section 53 a of the transfer of


property act, then he is deemed to be the owner of the property, although
he may not be the "registered owner" of the property.
(5) a person who acquires any rights (excluding any rights by way of a lease
from month to month or for a period not exceeding one year) in or with
respect to any building or part thereof by virtue of any such transaction as is
referred to in clause (f) of section 269 ua, shall be deemed to be the owner of
that building or part thereof. [section 27(3-b)]
for instance, where a property is leased for a period of 12 years more, the
lessee is deemed to be the owner of the property.
the test of ownership or deemed ownership is required to be satisfied in the
previous year and not in the assessment year.
as said earlier, it is the owner of house property, who is liable to pay tax under
this head of income. therefore, before a person is asked to pay tax it is decided
by the assessing officer as to who is the owner of the property subject to the
right of appeal.
Note that, the assessment proceeding cannot be held up on account of dispute
relating to the ownership of property. the person who receives income shall be
asked to pay tax.
where the house property is owned by two or more person and their respective
shares are definite and ascertainable, such persons shall not in respect of such
property be assessed as an association of persons but the shares of each person
in the income from the property as computed in accordance with the provisions
be included in the total income (section 26).
3. Property is not used for assessee's own business or profession :
if the property, or a portion of it is occupied by the assessee for the purposes of
his own business or profession and the profits of such annual business or
profession are assessable to tax, the annual value in respect of such property or
portion of it is NOT taxable under this section.
Exceptions : the rule that income from ownership of house property is taxable
under the head "income from house property" has the following two exceptions :
(1) letting is subservient to the main business: if the letting is only incidental
and subservient to the main business of the assessee, rental income is not
taxable under the head "income from house property" but is chargeable as
business income as held in c.i.t, verses delhi cloth and general mills co. ltd.,
(1969) 59 itr 152 (punjab).
(2) in some cases, income is received not only from letting out of property but
also from incidental services and facilities, for example, a furnished paying
guest accommodation, a well equipped theatre, a safe deposit vault. in such

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cases income cannot be said to be derived from mere ownership of property


but because of services rendered and facilities provided. in such cases income
may be assessed as business income or income from other sources depending
on the facts and circumstances.
further, if the owner of a house property gets a composite rent for the
property as well as for services rendered to the tenants, composite rent is to
be split up and the sum which is attributable to the use of property is to be
assessed in the form of annual value under section 22 and amount which is
charged to tax under the head "profits and gain of business or profession" or
under the head "income from other services".
Annual value of property :
the assessee has to pay tax on the annual value of the house property. it is not
the rent received which is put to charge but the annual value of the house
property which is important for the purposes of section 22.
the tax shall be payable by the assessee in respect of the bona fide annual value
irrespective of the question whether he receives that or not. it is significant to
note that the word used is 'might' and not 'can or 'is'.
reading sections 22 and 23 together, it is clear that the income from property is
thus an artificially defined income and the liability arises from the fact that the
assessee is the owner of the property.
Moreover, if the owner occupies the property then also he has to pay tax
calculated in the manner provided therein. therefore, by reason of the fact that
the property is not let out the assessee does not escape taxation. in c.lt, verses
beman behari saha (1968)61 itr 815 (cal.) the calcutta high court observed that
"even where a property is not let and even where it does not produce any
income, the income-tax officer is to proceed on the basis of a notional income,
which the property might reasonably be expected to yield from year to year,"
the annual value of house property is ascertained by taking into consideration all
relevant facts such as demand for houses in the locality, rent paid for similar
houses in the same locality, the type of building, cost of construction, valuation
by the municipality, or any other authority, the pugree or premium, if any, paid
by the tenant, statutory limitation of rent by rent control act, actual rent
received and so on.
"annual value" shall be deemed to be
(a) the sum for which property might reasonably be expected to let from year
to year, or
(b) where the property is let and the annual rent received or receivable by the
owner in respect thereof is in excess of the sum referred to in (a) the amount
so received or receivable.

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Definition : Section-23 annual value how determined


(1) (property given on rent) for the purposes of section 22, the annual value
of any property shall be deemed to be
(a) the sum for which the property might reasonably be expected to let
from year to year; or
(b) where the property or any part of the property is let and the actual
rent received or receivable by the owner in respect thereof is in excess of
the sum referred to in clause (a), the amount so received or receivable;
or
(c) where the property or any part of the property is let and the actual
rent received or receivable is less than the sum referred to in clause (a),
the amount so received or receivable:
Provided that the taxes levied by any local authority in respect of the
property shall be deducted in determining the annual value of the property
Explanation.for the purposes of clause (b) or clause (c) of this subsection,
the amount of actual rent received or receivable by the owner shall not
include, the amount of rent which the owner cannot realize.
(2) (property self occupied) where the property consists of a house or part of
a house which
(a) is in the occupation of the owner for the purposes of his own
residence; or
(b) cannot actually be occupied by the owner by reason of the fact that
owing to his employment, business or profession carried on at any other
place, he has to reside at that other place in a building not belonging to
him.
the annual value of such house or part of the house shall be taken to be nil.
(3) the provisions of sub-section (2) shall not apply if
(a) the house or part of the house is actually let during the whole or any
part of the previous year; or
(b) any other benefit there from is derived by the owner.
(4) (property deemed to be given on rent) where the property referred to in
sub-section (2) consists of more than one house
(a) the provisions of that sub-section shall apply only in respect of one of
such homes, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the other house or houses, shall be determined
under sub-section (1) as if such house or houses had been let.
Note : section 23 deal with the annual value of house property. after
computation of annual value, deductions prescribed under section 24 are

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required to be allowed so as to arrive at the taxable income from house


property.
Exemptions and reliefs :
a. the income from house property given below is NOT chargeable to tax and is
excluded from the total income:
1. income from property "in the immediate vicinity of agricultural land" which
is used as a dwelling house or a store house or other out building by the
cultivator [section 2 (1-a) (c)].
2. income from property held for charitable or religious purpose (section 11).
3. property used for own business or profession (section 22).
4. annual value of any one place of an ex-ruler [section 10 (19a)].
5. income from house property belonging to:
(a) local authority [section 10(20)];
(b) approved scientific research association [section 10(21)];
(c) registered trade unions [section 10(24)];
(d) political party (section 13a).
6. income from own house meant for self occupying purpose but on account of
his employment, business or profession carried on at another place, he could
not use it for his residence and no other benefit is derived by him from this
house [section 23(2)(b)].
7. income from self-occupied house property.
b. income derived by a co-operative society from the following house property
though included in total income is, however, available for deduction from gross
total income.
1. letting of godowns [section 80 p (2) (c)].
2. income from any other property [80 p (2) (b)].
Deductions in computing income from house property : (section 24 and 25)
Definition Section 24 : "income chargeable under the head" "income from
house property" shall be computed AFTER making the following deductions,
namely
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed
or reconstructed with borrowed capital, the amount of any interest payable
on such capital:
provided that in respect of property referred to in sub-section (2) of section
23; the amount of deduction shall not exceed thirty thousand rupees:
provided further that where the property referred to in the first proviso is

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acquired or constructed with capital borrowed on or after the 1st day of april,
1999 and such acquisition or construction is completed within three years
from the end of the financial year in which capital was borrowed, the amount
of deduction under this clause shall not exceed one lakh fifty thousand rupees.
explanationwhere the property has been acquired or constructed with
borrowed capital, the interest, if any, payable on such capital for the period
prior to the previous year in which the property has been acquired or
constructed, as reduced by any part thereof allowed as a deduction under any
other provision of this act, shall be deducted under this clause in equal
instalments for the said previous year and for each of the four immediately
succeeding previous years;
provided also that no deduction shall be made under the second proviso
unless the assessee furnishes a certificate, from the person to whom any
interest is payable on the capital borrowed, specifying the amount of interest
payable by the assessee for the purpose of such acquisition or construction of
the property?, or, conversion of the whole or any part of the capital borrowed
which remains to be repaid as a new loan.
explanation.for the purposes of this proviso, the expression "new loan"
means the whole or any part of a loan taken by the assessee subsequent to
the capital borrowed for the purpose of repayment of such capital. "

Go To Module-1&2 QUESTIONS
Go To Contents

Discuss in detail about the income and expences to be considered under the head
"Profits and Gains" from business or profession. (Oct-2013)
Explain : Expences deductible from income of business profession. (Mar-2014)
ANSWER :
Refer :
http://taxguru.in/income-tax/profits-gains-business-profession.html
https://www.scribd.com/doc/311164141/Income-Under-the-Head-Profits-and-
Gains-From-Business-and-Profession
What is Business?
Definition : meaning of business {section 2 (13)} :
"business" includes any trade, commerce, or manufacture or any adventure or
concern in the nature of trade, commerce or manufacture".
Thus the word business in section 2(13) of IT Act 1961 has a very broad
meaning. the definition is not exhaustive. it covers every facet of an occupation

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carried on by a person with a view to earning profits.


business arises out of commercial transactions between two a more persons.
business cannot be carried on with oneself.
business includes trade, commerce and manufacture.
it also includes an adventure or concern in the nature of trade, commerce and
manufacture.
Terms trade, commerce, or manufacture are easy to understand but considerable
difficulty arises in interpreting adventure or concern in the nature of trade,
commerce or manufacture".
What is Trade & commerce ? Case law :
in state of punjab verses bajaj electricals ltd., (1968) 70 itr 730 (sc), it was held
that trade,
in its primary meaning is the exchange of goods for goods or goods for money
and
in its secondary meaning it is repeated activity in the nature of business
carried on with a profit motive.
the activity being manual or mercantile as distinguished from liberal arts or
learned profession or agriculture.
In w.l knopp verses c.i.t. (1948) 16 itr 398 (mad) it was held that if a person
purchases goods with a view to selling them at a profit, it is an ordinary case of
trade. if such transactions are repeated on a large scale, it is called commerce.
What is manufacture ? manufacture is the making of an article material by physical
labour or applied power.
in north bengal stores ltd. verses board of revenue, (1938-50) 1 stc 157 (cal), it
was held that
"the essence of manufacturing is that something is produced or brought into
existence which is different from that out of which it is made, in the sense
that the thing produced is by itself commercial commodity which is capable as
such of being sold or supplied.
Meaning of adventure in the nature of trade, commerce or manufacture :
any activity akin to business may be in the nature of an adventure in the nature
of trade, business or manufacture.
whether a transaction is in the nature of trade, business or manufacture
depends on the facts and circumstances of each case. In deciding the character
of such transactions the following points are taken into consideration :
1. intention to resell: where the purchase of an article is made solely with an
intention to resell at a profit and purchaser has no intention of holding the
property for himself, the transaction will be an adventure in the nature of

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trade.
but where the purchase is made without intention to resell at a profit, a
resale under changed circumstances will be only a realization of capital
investment.
2. the quantity of the commodity : where the quantity purchased is so large
that it cannot be used or consumed by the assessee within a reasonable time.
it would raise a strong presumption that the transaction is an adventure in the
nature of trade.
3. transaction allied to business : where the transaction is allied to or related
to the business usually carried on by the assessee though not a part of it, the
transaction may be an adventure in the nature of trade.
4. alteration in the commodity by the purchaser : where the thing purchased
is such as must be subjected to processing for the purpose of making it
marketable or the purchaser by an act subsequent to the purchase, it may be
inferred that the transaction is an adventure in the nature of manufacture.
onus of proof: where a transaction is not in line of the business of the
assessee but is an isolated transaction, it is for the assessee to prove that the
transaction is an adventure in the nature of trade.
What is Profession ?
Definition Profession : {section 2(36)} :
"profession" includes vocation.
thus, section 2(36) does not state what profession means; it only states that
profession includes vocation.
according oxford dictionary, profession means "a vocation or calling, esp. one that
involves some branch of advanced learning or science". profession means an
occupation requiring either purely intellectual skill or if any manual skill, as in
painting and sculpture or surgery, which is controlled by the intellectual skill of the
person.
examples of profession are medicine, law, auditing, engineering, architecture,
painting, sculpture etc.
vocation means the work in which a person is more or less regularly employed
usually, but not necessarily, for earning livelihood and which requires some special
fitness or sense of duty.
vocation is analogous to the way in which a man passes his life. it is the activity
upon which a person spends major portion of his time. for example, writing of
books and contributing of articles to periodicals and magazines constitute the
vocation of an assessee.
Note :

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Distinction between business, profession and vocation is not important as the rules
for assessment are the same.
Definition (section 28) : Profits and gains of business or profession : The
following income shall be chargeable to income-tax under the head Profits and gains
of business or profession,
(i) the profits and gains of any business or profession which was carried on by the
assessee at any time during the previous year ;
Note :
the income-tax is not concerned with the legality or illegality of the business
and once it is found that there is business, legal or illegal, the profits and
gains of that business shall be chargeable to tax.
the expression "carried on by the assessee" means that the activities which
constitute business should be those of the assessee. this also means that
taxability under this clause does not depend upon the ownership of the
business or profession.
(ii) any compensation or other payment due to or received by,
(a) any person, by whatever name called, managing the whole or substantially
the whole of the affairs of an Indian company, at or in connection with the
termination of his management or the modification of the terms and conditions
relating thereto;
(b) any person, by whatever name called, managing the whole or substantially
the whole of the affairs in India of any other company, at or in connection with
the termination of his office or the modification of the terms and conditions
relating thereto ;
(c) any person, by whatever name called, holding an agency in India for any part
of the activities relating to the business of any other person, at or in connection
with the termination of the agency or the modification of the terms and
conditions relating thereto ;
(d) any person, for or in connection with the vesting in the Government, or in
any corporation owned or controlled by the Government, under any law for the
time being in force, of the management of any property or business ;]
(iii) income derived by a trade, professional or similar association from specific
services performed for its members ;
Note : the association, here, means an association formed by businessman for
protection or advancement of their common interests. this clause taxes the
income derived only from specific services rendered to the members of the
association. the expression "specific services" means conferring on the members
some tangible benefit which would not be available to them unless they paid
specific fees charged for such benefit.

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(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955,
made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ;]
(iiib) cash assistance (by whatever name called) received or receivable by
any person against exports under any scheme of the Government of India ;
(iiic) any duty of customs or excise re-paid or re-payable as drawback to any
person against exports under the Customs and Central Excise Duties Drawback
Rules, 1971 ;
(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being
the Duty Remission Scheme under the export and import policy formulated and
announced under section 5 of the Foreign Trade (Development and Regulation) Act,
1992 (22 of 1992);
(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being
the Duty Remission Scheme under the export and import policy formulated and
announced under section 5 of the Foreign Trade (Development and Regulation) Act,
1992 (22 of 1992) ;
(iv) the value of any benefit or perquisite, whether convertible into money or
not, arising from business or the exercise of a profession ;
for example gift to a doctor by a patient in addition to the doctor's fees for
curing the patient is taxable as a revenue receipt in the hands of the doctor.
(v) any interest, salary, bonus, commission or remuneration, by whatever
name called, due to, or received by, a partner of a firm from such firm :
Provided that where any interest, salary, bonus, commission or remuneration, by
whatever name called, or any part thereof has not been allowed to be deducted
under clause (b) of section 40, the income under this clause shall be adjusted to
the extent of the amount not so allowed to be deducted.
(va) any sum, whether received or receivable, under an agreement for
(a) not carrying out any activity in relation to any business; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence,
franchise or any other business or commercial right of similar nature or
information or technique likely to assist in the manufacture or processing of
goods or provision for services:
Provided that sub-clause (a) shall not apply to
(i) any sum, whether received or receivable, in cash or kind, on account of
transfer of the right to manufacture, produce or process any article or thing or
right to carry on any business, which is chargeable under the head Capital
gains;
(ii) any sum received as compensation, from the multilateral fund of the
Montreal Protocol on Substances that Deplete the Ozone layer under the

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United Nations Environment Programme, in accordance with the terms of


agreement entered into with the Government of India.
Explanation.For the purposes of this clause,
(i) agreement includes any arrangement or understanding or action in
concert,
(A) whether or not such arrangement, understanding or action is formal or
in writing; or
(B) whether or not such arrangement, understanding or action is intended
to be enforceable by legal proceedings;
(ii) service means service of any description which is made available to
potential users and includes the provision of services in connection with
business of any industrial or commercial nature such as accounting, banking,
communication, conveying of news or information, advertising, entertainment,
amusement, education, financing, insurance, chit funds, real estate,
construction, transport, storage, processing, supply of electrical or other
energy, boarding and lodging;
(vi) any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy.
Explanation.For the purposes of this clause, the expression Keyman insurance
policy shall have the meaning assigned to it in clause (10D) of section 10.]
(vii) any sum, whether received or receivable, on account of any capital
asset (other than land or goodwill or financial instrument) being demolished,
destroyed or transferred, if the whole of the expenditure on such capital asset has
been allowed as a deduction under section 35 ad, is chargeable to income tax.
Explanation Where speculative transactions carried on by an assessee are of
such a nature as to constitute a business, the business (hereinafter referred to
as speculation business) shall be deemed to be distinct and separate from any
other business.
Note :according to section 73 speculative loss can be set off only against
speculative profit and not against profits from any other business.
Acceptable Accounting Methods : There are three methods of accounting for the
purpose of assessment of profits and gains,
1. CASH METHOD :
Under this system only such transactions are recorded in which actual receipts
and actual payments of the business occur.
Entries in the book are made only when money is actually received or is
actually paid. No account is maintained for outstanding, prepaid, accrued or
unearned income.

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This system is best suitable for professional persons like doctors, chartered
accountants etc.
2. MERCANTILE SYSTEM:
In this system proper record of cash as well as credit transactions is made.
Under this system any income which relates to the current year whether it is
received or not and any expenditure whether actually paid or not, is taken
into consideration for computing the profits and losses of the business.
The profit and loss account prepared under this system shows correct profits
and losses and balance sheet gives correct financial position of the business.
3. Hybrid system:
Under this system of accounting, the assessee adopts both the previous
methods in a mixed form.
Some transactions are recorded in cash system and some under mercantile
system depending upon the choice of book keeper.
Acceptable Accounting Methods : The income tax authorities accept all the above
methods. However, the accounting system once adopted cannot be changed
without the prior approval of Income tax authorities. He will have to adopt his
accounting method on regular basis and not merely for one particular year.

Go To Module-1&2 QUESTIONS
Go To Contents

Discuss the deductions which are available in computing the total income under
the head profits and gains of business. (Nov-2014)
Discuss the provision relating to depreciation allowance, while computing under the
head profit and gains of business or profession. (Nov-2012)
ANSWER :
Refer :
http://taxguru.in/income-tax/profits-gains-business-profession.html
https://www.scribd.com/doc/311164141/Income-Under-the-Head-Profits-and-
Gains-From-Business-and-Profession
Deductions : Section 37(1) :
Definition : in order to claim deduction, following conditions should be satisfied :
1. the expenditure should not be of the nature described under sections 30 to
36.
2. it should not be in the nature of capital expenditure.
3. it should not be personal expenditure of the assessee.

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4. it should have been incurred in the previous year.


5. it should be in respect of business carried on by the assessee.
6. it should have been expended wholly and exclusively for the purposes of such
business.
Section 37(1) is a residuary section.
the expression "for the purposes of the business" is wider in scope than the
expression "for the purposes of earnings profits".
where a penalty is imposed for the contravention of any statutory provision, it
cannot be said to be commercial loss falling on the assessee as a trader.
if an assessee is penalized under one act, he cannot claim that the amount is
deductible against his income under another act, because that will frustrate the
entire object of imposition of penalty.
The general principles regarding deductions :
if income of an assessee is derived from various heads of income, he is entitled to
claim deduction permissible under the respective heads whether or not
computation under each head results in taxable income.
if income of an assessee arises under any of the heads of income but from different
items, and income from one or more items alone is taxable but income from the
other is exempt under the income-tax act, the entire permissible expenditure in
earning the income from that heads is deductible.
when an assessee is carrying on business in various ventures and some among
them yield taxable income and others do not, the question of allow ability of the
expenditure under section 37 of the act will depend upon
(a) fulfilment of requirements of that provision; and
(b) on the fact whether all the ventures carried on by him constituted one
indivisble business or not;
if they do, the entire expenditure will be permissible deduction, but if they do
not, the principle of apportionment of expenditure will apply.
Profits should be computed according to the method of accounting regularly
employed by the assessee, provided that actual profit can be ascertained by this
method.
Only those expenses and losses are allowed as deductions which were incurred or
sustained during the relevant previous year.
These losses and expenses should be incidental to the operation of the business
.For example, embezzlement by an employee during the course of business is a
loss incidental to the business. Similarly, loss fro dacoity in a bank is also a loss
incidental to the business of a bank.
Only the expenses incurred in connection with the business of the assessee are

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allowed as deductions.
If a business has been discontinued before the commencement of the previous
year, it expenses cannot be allowed as deductions against the income of any other
running business of the assessee.
There are some essential expenses, though neither expressly allowed nor
disallowed, but are deductible while computing the profits of business or profession
on the basis of general commercial principles provided that these are not expenses
or losses of a capital nature or personal nature.
Any expenditure incurred in consideration of commercial expediency is allowed as
deduction.
Deduction can be made from the income of that business only for which the
expenses were incurred. The expenses of one business cannot be charged against
the income of any other business.
Deductions in case of illegal business : Tax is payable on the income of every
business or profession whether legal or illegal. The expenses incurred to earn
income from illegal business which are incidental to such business are to be
allowed as deduction out of the income earned from illegal business.
However, penalties levied for infraction of law and expenses incurred in defence of
criminal proceedings are not allowed. Also, losses computed under illegal business
cannot be set-off against the profits of legal business.
Intro :
The profits and gains of business or profession are computed in accordance with
the provisions contained sections 30 to 43D.
Deductions may be divided in to following 4 categories/ types :
1. DEDUCTIONS EXPRESSLY ALLOWED : Sections 30 to 37 contain those
deductions which are expressly allowed while computing profits of business or
profession.
2. EXPENSES EXPRESSLY DISALLOWED : Section 40 provides those expenses
which are expressly disallowed.
3. EXPENSES NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES AT A GLANCE
4. DEDUCTIONS ALLOWABLE ONLY ON ACTUAL PAYMENT (Sec. 43B)
Besides these ,there are some other deductions which are allowed on the basis of
general commercial principles while computing profits of business or profession.
1. DEDUCTIONS EXPRESSLY ALLOWED :
page-232, 200-215
Sec-30 Expenses in respect of buildings-rent, repairs, land revenue, local taxes,
insurance premium.
Sec-31 Expenses in respect of plant, machinery, furniture-Repairs and insurance

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premium.
Sec-32
(a)Depreciation on Tangible Assets: Tangible assets are buildings, plant and
machinery and furniture.
(b) Depreciation on Intangible Assets: Intangible assets are know-how, patents,
copyrights, trademarks, licences, franchises and commercial rights.
Sec-33AB Deduction regarding deposit in Tea Development Account, Coffee
Development Account or Rubber Development Account-Deduction shall be allowed
on the amount deposited or 40% of the profits of such business, whichever is less.
Sec-33ABA Deduction regarding deposit in special account for prospecting for, or
extraction or production of petroleum or natural gas-Deduction shall be allowed on
the amount deposited or 20% of the profits of such business, whichever is less.
Sec-35 Expenditure on Scientific Research:
(i) Revenue expenditure and capital expenditure
(ii) Sum paid for scientific research or social or statistical research
(iii) Deduction 125% of sum paid
(iv) Expenditure on in-house research and development- Deduction 150% of the
expenditure.
Sec-35ABB Deduction regarding capital expenditure to obtain licence to operate
telecommunication services.
Sec-35AC Expenditure on eligible project or scheme.
Sec-35CCA Payment to Rural Development Fund, National Poverty Eradication
Fund.
Sec-35D Deduction to an Indian company or resident in India regarding preliminary
expenses-Deductible in five previous years upto a specified limit.
Sec-35DD Deduction to an Indian company regarding expenditure for
amalgamation or demerger of an undertaking-Deductible in five equal instalments
annually.
Sec-35DDA Expenditure on voluntary retirement during any previous year-
Deductible in five instalments annually.
Sec-35E Deduction to an Indian company or resident in India regarding
expenditure on prospecting of minerals etc.- Deductible in ten instalments
annually.
Sec-36 Other deductions:
(i) Insurance premium regarding stocks and stores.
(ii) Insurance premium for the health of employees.
(iii) Bonus or commission to employees.

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(iv) Interest on borrowed capital.


(v) Discount on zero coupon bond.
(vi) Contribution to recognised provident fund, approved superannuation fund,
approved gratuity fund.
(vii) Loss regarding animals used for business or profession.
(viii) Bad debts.
(ix) Deduction to banks and financial institutions regarding provision for bad and
doubtful debts upto a specified limit.
(x) Reserve created by specified entity deductible 20% of profits or amount
credited to special reserve account, whichever is less.
(xi) Expenditure on family planning by a company to promote family planning
amongst its employees:
(a) Capital expenditure---deductible in five equal instalments annually.
(b) Revenue expenditure.
(xii) Expenses in connection with income tax proceedings.
(xii) Entertainment expenses.
(xiii) Banking Transaction Tax paid.
Sec-37 General deduction-provided :
(i) it is not personal expense of the assessee;
(ii) it is not in the nature of capital expenditure;
(iii) it is expended wholly and exclusively for the purpose of business or
profession during previous year.
2. EXPENSES EXPRESSLY DISALLOWED :
page-234, 216-221
(A) For all assessees :
Expenditure on advertisement in any souvenir, etc. published by a political
party.
Payment out of India or in India to a non-resident or a foreign company-On
which tax is deductible at source but tax has not been deducted or after
deduction has not been paid.
Payment to residents of interest, commission or brokerage, rent, royalty, fees
for technical or professional services or to contractor or sub-contractor on
which tax is deductible at source but tax has not been deducted or after
deduction has not been paid.
Sum paid on account of Securities Transaction Tax.
Income Tax and Wealth Tax.

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Sum paid on account of Fringe Benefit Tax.


Salaries payable outside India or to a non-resident on which tax has not been
deducted at source or paid.
Tax paid by the employer voluntarily on the value of perquisites provided to
employees.
(B) For Firms :
Salary, bonus, commission or remuneration to working partners in excess of
prescribed limit.
Interest on capital or loan to partners in excess of@ 12% p.a.
(C) For Association Of Persons or Body Of Individuals : Payment of interest, salary,
bonus, commission or remuneration to members of AOP or BOI is disallowed.
3. EXPENSES NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES :
Payment to relative or associate concern in excess of market rate.
Payment in cash exceeding Rs. 20,000-100% of payment shall be disallowed.
Provision for gratuity provided the gratuity fund is not an approved fund.
Contribution to any unapproved fund by the employer.
4. DEDUCTIONS ALLOWABLE ONLY ON ACTUAL PAYMENT (Sec. 43B) : following
deductions are allowable only on actual payment :
page-221 - 221
(a) Any sum payable by the assessee by way of tax, duty, cess or fee.
(b) Any sum payable by him as an employer by way of contribution to any
provident fund, superannuation fund or gratuity fund or any other fund for the
welfare of employees.
(c) Any sum payable to an employee as bonus or commission for services
rendered, where such sum would not have been payable to him as profit or
dividends if it had not been paid as bonus or commission.
(d) Any sum payable by the assessee as interest on any loan or borrowing from
any Public Financial Institution or a State Financial Corporation or a State
Industrial Investment Corporation.
(e) Any sum payable by the assessee as interest to a scheduled bank on any
loan or advance from a scheduled bank.
(f) Any sum payable by the assessee in lieu of earned leave.
Note :
If actual payment is made either during the relevant previous year or on or
before the due date for furnishing the return of income U/S 139(1), the
deduction will be allowed in the relevant previous year.
If the amount is paid after the due date of furnishing the return, the deduction

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will be allowed in the year of payment.


Any sum payable by the assessee as interest [under (d) or (e)] is converted into
a loan or borrowing, it shall not be deemed as actual payment.

Go To Module-1&2 QUESTIONS
Go To Contents

Write explanatory notes : Tax deduction at source under the Income Tax Act. (Dec-
2016).
ANSWER :

Go To Module-1&2 QUESTIONS
Go To Contents

What is capital gain? Explain the method of calculating of long term and short term
capital gain under Income Tax Act. (Nov-2011, Oct-2013)
What do you understand by Capital gain? How many kinds of capital gain are
there? Explain the provision regarding capital gain. At what rate and how capital gain
tax is to be calculated? (Nov-2012)
ANSWER :
Refer :
https://www.scribd.com/document/186661983/PROFITS-AND-GAINS-OF-
BUSINESS-OR-PROFESSION-docx
definition section-45 is very long. Given after the discussion.
Basis of taxation of capital gains :
The fourth head of income under the income tax act, 1961 is "capital gains".
Sections 45 to 55-A provide for computation of the amount of capital gains that
would be subject to the levy of tax.
Any profits and gains arising from the transfer of a capital assets effected in the
previous year shall be chargeable to income tax under the head capital gain in the
PY in which the transfer took place. Capital gains tax liability arises if the following
conditions are satisfied :
(1) there should be a capital asset.
(2) the capital asset is transferred by the assessee
(3) the transfer of capital asset takes place during the previous year.

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(4) any profit or gain arises from transfer of capital asset.


(5) such profit or gain is not exempt from tax.
Capital gain is chargeable to tax on accrual basis, the date of receipt of capital gain
and the method of accounting is immaterial
illustration : Profit or sale of land after plotting it out to secure better price cannot
be taxed as profit from an adventure in the nature of trade. in other words it is not
business income. it shall be taxed under the head 'capital gains'
What is Capital Asset ?
The term Capital Asset, has been defined by Section 2 (14) as,
A Property of any kind,
held by the assessee,
whether connected with his Business or Profession or not,
whether tangible or intangible, moveable or immoveable, fixed or circulating
For e.g.: Land, Building, Plant, Machinery, Vehicles, etc. are examples of tangible
capital assets, whereas, Goodwill, Patent, Copy Right, Trade Mark, etc. are
examples of intangible capital assets.
Which assets are not included in Capital Assets ? The following assets are not
capital assets,
Any stock in trade, consumable stores or raw materials held for the purpose of his
business or profession.
All personal effects except jewellery
Agricultural land in India which is situated in rural area. etc.
What is period of holding ?
Period of holding means, the period starting from the date on which the asset was
acquired by the assessee and ending on the date of transfer of the asset by the
assessee or the date on which the calculation of such period is made, whichever is
earlier.
Period of holding plays an important role, as it can change the character of the
asset from short term to long term and can thereby change the taxability of the
gain arising on its transfer.
What is Full Value of Sale Consideration ?
Full Value of Sale Consideration means what one receives when an asset is being
transferred, whether received immediately or receivable after some time. For
Income Tax purpose Capital Gains are chargeable to tax on accrual basis,
irrespective of the method of accounting followed by the assessee. It does not
mean the market value of the asset transferred. It may be received in cash or in
kind. If it is received in kind, then market value of what is received in kind shall be

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treated as a full value of sale consideration, Book entries are irrelevant for the
purpose. Adequacy or inadequacy of the consideration is also irrelevant.
What is Cost of Acquisition ?
Cost of Acquisition is the price for which a capital asset is acquired or purchased by
the assessee. It even includes expenses of a capital nature for completing or
acquiring a title or ownership of a property.
As per section 55(2b), the Cost of acquisition of a Capital Asset acquired before
01st April, 1981 shall be either the actual cost of acquisition or its Fair Market
Value as on 01st April, 1981, whichever is higher.
If the capital asset came into possession of the assessee by means of gift,
inheritance, succession, etc then cost of acquisition to the assessee means cost of
the asset to the previous owner.
If cost of acquisition to the previous owner cannot be ascertained then fair market
value on the date on which the capital asset became the property of the previous
owner shall be taken.
What is cost of improvement [C.O.I.] [Section 55(1)] ?
C.O.I in relation to any tangible asset means all expenses of a capital nature,
incurred in connection with an Addition, Alteration, Modification, or Rectification to
the tangible asset.
However, Cost of Improvement for any asset incurred before 01st April, 1981, shall
always be taken as NIL.
For e.g.: A Building consisting of three floors was acquired by an assessee for Rs.
50 Lacs in 1992. In 1995 assessee spent Rs. 8 Lacs and constructed the fourth
floor. In this case Rs. 50 Lacs is the cost of acquisition of the building, whereas Rs.
8 Lacs is the cost of improvement.
What are transfer expenses while computing capital gains ?
Transfer Expenses incurred by an assessee wholly and exclusively in connection
with the transfer of the capital asset, are allowed to be deducted from the full value
of consideration, provided such expenses are not deductible under any other head
of income, i.e. no double deduction of any expense is allowed.
For e.g.: Commission, Brokerage, Stamp Charges, Registration Charges, Travelling
and Conveyance Charges, etc. incurred in connection with the transfer of the asset.
Expenses shall be real ones; Notional Expenses are not allowed to be deducted.
Explain the types of capital assets / gains :
From Income Tax Act point of view, Capital Assets are of two types, namely, Short
Term or Long Term. Short Term and Long Term Assets are not two separate
assets. An asset, which is a short term capital asset, can become long term capital
asset, if held by assessee for some more period of time. In other words, character

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of an asset is dependent on the period of holding (P.o.H.) of that asset by the


assessee. Let us now understand these two types of Capital Assets.
Classification of capital gain is very important for the computation of deductions
allowed and for setting off / carry forward of capital loss / gain. There are 2 types
of capital gains,
Long term capital gain, and
Short term capital gain
Long term capital gain :
If the capital assett is transferred after a period of 36 months or more, from the
date of its acquisition then the capital gain received out of such transfer is called
long term capital gain.
Short term capital gain :
If the capital asset is transferred in a period less than 36 months from the date
of its acquisition, then the capital received out of such transfer is called short
term capital gain.
Note : WEF AY 1988-89, the period of 36 months has been reduced to 12 months.
So above provisions need to be read accordingly.
Definition : Capital Gains : section 45 : <definition is very long, skip>
(1) : Any profits or gains arising from the transfer of a capital asset effected in the
previous year shall (save as otherwise provided in sections 54, 54-b, 54~d, 54-e,
54-ea, 54-eb, 54-f, 54-g and 54-h) be chargeable to income tax under the head
capital gains' and shall be deemed to be the income of the previous year in which
the transfer took place.
(1-a) : Notwithstanding anything contained in sub-section (1), where any person
receives money at any time during any previous year any money or other assets
under an insurance from an insurer on account of damage to, or destruction of, any
capital asset, as a result of
(1) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of
nature; or
(2) riot or civil disturbance; or
(3) accidental fire or explosion; or
(4) action by an enemy or action taken in combating an enemy (whether
with or without a declaration of war),
then, any profits or gains arising from receipt of such money or other assets
shall be chargeable to income tax under the head 'capital gains' and shall be
deemed to be the income of such person of the previous year in which such
money or other asset was received and for the purposes of section 48, value of
any money or the fair market value of other assets on the date of such receipt

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shall be deemed to be the full value of the consideration received or accruing as


a result of the transfer of such capital asset.
Explanationfor the purposes of this sub-section, the expression 'insurer' shall
have the meaning assigned to it in clause (9) of section 2 of the insurance act,
1938".
(2) : Profits or gains arising from the transfer by way of conversion by the owner
of a capital asset into, or its treatment by him as, stock-in-trade of a business
carried on by him shall be chargeable to income-tax as his income of the previous
year in which such stock-in-trade is sold or otherwise transferred by him and, for
the purposes of section 48, the fair market value of the asset on the date of such
conversion or treatment shall be deemed to be the full value of the consideration
received or accruing as a result of the transfer of the capital assets.
(2-a) : Where any person has had at any time during previous year any beneficial
interest in any securities, then, any profits or gains arising from transfer made by
the depository or participant of such beneficial interest in respect of securities shall
be chargeable to income tax as the income of the beneficial owner of the previous
year in which such transfer took place and shall not be regarded as income of the
depository who is deemed to be the registered owner of securities by virtue of sub-
section (1) of section 10 of the depositories act, 1996, and for the purposes of
(1) section 48; and
(2) proviso to clause (42-a) of section 2,
the cost of acquisition and the period of holding of any securities shall be
determined on the basis of the first-in-first out method.
Explanationfor the purposes of this sub-section, the expressions "beneficial
owner", "depository" and "security" shall have the meanings assigned to them in
clauses (a), (e) and (1) of sub-section (1) of section (2) of the depositories act,
1996.
(3) : Profits and gains arising from the transfer of a capital assets by a person to a
firm or other association of persons or body of individuals (not being a company or
a co-operative society) in which he is a partner or member, by way of capital
contribution shall be chargeable to tax as his income of the previous year in which
such transfer takes place, and for the purposes of section 48, the amount recorded
in the books of account of the firm, association or body as the value of the capital
asset shall be deemed to be the full value of the consideration received or accruing
as a result of the transfer of the capital asset.
(4) : The profits or gains arising from the transfer of a capital asset by way of
distribution of capital assets on the dissolution of a firm or other association of
persons or body of individuals (not being a company or a co-operative society) or
otherwise, shall be chargeable to tax as the income of the firm, association or
body, of the previous year in which the said transfer takes place, and for the

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purposes of section 48, the fair market value of the asset on the date of such
transfer shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer.
(5) : notwithstanding anything contained in sub-section (1), where the capital gain
arises from the transfer of a capital asset, being a transfer by way of compulsory
acquisition under any law, or a transfer the consideration for which was determined
or approved by the central government or the reserve bank of India, and the
compensation or the consideration for such transfer is enhanced or further
enhanced by any court, tribunal or other authority, the capital gain shall be dealt
with in the following manner, namely
(a) the capital gain computed with reference to the compensation awarded in
the first instance or, as the case may be, the consideration determined or
approved in the first instance by the central government or the reserve bank
of India shall be chargeable as income under the head "capital gains" of the
previous year in which such compensation or part thereof, or such
consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration is enhanced or
further enhanced by the court, tribunal or other authority shall be deemed to
be income chargeable under the head "capital gains" of the previous year in
which such amount is received by the assessee.
(c) where in the assessment for any year, the capital gain arising from the
transfer of a capital asset is computed by taking the compensation or
consideration referred to in clause (a) or, as the case may be, enhanced
compensation or consideration referred to in clause (b), and subsequently
such compensation or consideration is reduced by any court, tribunal or other
authority, such assessed capital gain of that year shall be recomputed by
taking the compensation or consideration as so reduced by such court,
tribunal or other authority to be the full value of the consideration.
Explanationfor the purposes of this sub-section
(i) in relation to the amount referred to in clause (b), the cost of acquisition
and the cost of improvement shall be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the
transfer took place prior to the 1st day of april, 1988;
(iii) where by reason of the death of the person who made the transfer, or for
any other reason, the enhanced compensation or consideration is received by
any other person, the amount referred to in clause (b) shall be deemed to be
the income, chargeable to tax under the head "capital gains", of such other
person.'
(6) : Notwithstanding anything contained in subsection 1, the difference between
the repurchase price of the units of an equity-linked savings scheme (ELSS) of

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a mutual fund under section 80-ccb and the capital value of such units shall be
deemed to be the capital gains arising to the assessee in the previous year in which
such repurchase takes place or the plan is terminated and shall be taxed
accordingly.
Explanation-for the purposes of this sub-section, "capital value of such units"
means any amount invested by the assessee in the units referred to in
subsection (2) of section 80 ccb.
Discussion : The income to be taken as "capital gains", must arise from the transfer
of a capital asset and therefore the meaning of the term 'transfer' and 'capital asset'
have to be understood in the context of the act.
where in relation to original shares held by the assessee in company, bonus shares
are issued by the company, in computing the capital gains arising from the transfer
of original shares, issue of bonus shares should be taken into account for the
purpose of averaging and reducing the cost of acquisition of those original shares.
where the assessee had mortgaged his immovable property to the excise
department as security for "kist" due to the state, the state government sold the
immovable property in an auction and after deducting the amount due, paid the
balance due to the assessee, it was held that capital gains had to be computed on
the full price. [c.lt. verses attili n. rao air 2002 sc 388].
tenancy right is a capital asset surrender of which is a transfer and the
consideration received thereof is a capital receipt. it may be noted that the law
prior to assessment year 1995-96 was that if the cost of acquisition cannot in fact
be determined the transfer of such asset would not attract capital gains tax. [c.lt.
verses p. sandu brothers chembur (p) ltd.].
New methods of calculating capital gains :
Long term capital gain,
LT Capital gain = sale consideration (Index cost of property acquisition + index
cost of improvements + cost of transfer)
Short term capital gain
ST Capital gain = sale consideration (cost of property acquisition + cost of
improvements + cost of transfer)
Deductions : Amounts received as set-off :
Following are allowed as deductions from the chargable amount received as
capiutal gain :
Registration expences, including stamp duty, advocate charges, borckerage, etc
(under the head cost of transfer)
purchase price of the property and all amounts spent for additions/ alterations of
property (under the head cost of acquisition and improvement)

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Deductions : Exemptions from tax : (Section-47) :


Following transactions are NOT considered as transfers and hence totally
exempted,
transfer of capital asset under gift, will or irrevocable trust,
partition of HUF and benefits received out of it
capital assets transferred by a holding company to its Indian subsidiary,
capital asset transferred by a wholly owned subsidiary company to its Indian
holding company
transfer of stock exchange membership,
conversion of convertible debentures, bonds, certificates in to shares/
debentures etc
transfer of capital asset in reverse mortgage under the scheme,
Section-54 : Capital Gain on sale of residential property : When a residential
property is sold, it attracts income tax charge on capital gain. However, in the case
of an assessee being an individual or a Hindu undivided family, who possessed the
transferred property for >= 3 years
if assessee purchases a new house within one year of capital gain or 2 years
sunsequent to the said period or constructs a new house within 3 years from
the date of transfer
THEN assessee can avail of benefit of tax exemption as follows,
if the capital gain is less than the cost of acquisition of new house, than the
capital gain is tax free,
if the capital gain is more than the cost of acquisition of new house then ONLY
the amount of difference between the two shall be liable to income tax.
However, this advantage is subject to the condition that the newly acquired
house shall not be sold within 3 years of its acquisition, ELSE exempted capital
gain shall be taxable in the year of transfer of new house.

Go To Module-1&2 QUESTIONS
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Define long term capital asset. Explain in detail how capital gains on transfer of long
term capital asset is taxed. (Mar-2014, Nov-2014)
ANSWER :

What is Capital asset ?
Definition : {section 2(14)} : Capital asset means property of any kind held by an

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assessee, whether or not connected with his business or profession, BUT DOES
NOT INCLUDE
(1) any stock-in trade, consumable stores or raw materials held for the purposes
of the assessee's business or profession;
(2) personal effects, that is to say, movable property (including wearing apparel
and furniture) held for personal use by the assessee or any member of his family
dependent on him, but excludes
(a) jewelery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art. explanationfor the purposes of this sub-clause
"jewelery" includes
(a) ornaments made of gold, silver, platinum or any other precious metal or
any alloy containing one or more of such precious metals, whether or not
containing any precious or semi-precious stone, and whether or not worked
or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture,
utensil or other article or worked or sewn into any wearing apparel;
(3) agricultural land in India provided it is not situated
(a) in any area which is comprised within the jurisdiction of a
municipality/corporation or cantonment board and which has a population of
not less than 10,000 according to the last preceding census; or
(b) in any area within such distance, not being more than eight kilometers,
from the local limits of any municipality or cantonment board referred to in
item (a), as the central government may specify by notification in the official
gazette;
(4) 6 1/2% gold bonds 1977 or 7% gold bonds 1980 or national defense gold
bonds 1980, issued by the central government;
(5) special bearer bonds, 1991, issued by the central government.
(6) (w.e.f. 1-4-2000) gold deposit bonds issued under gold deposit scheme,
1999 notified by the central government.
Thus, capital asset, for the purpose of the income tax, includes,
all kinds of property movable or immovable, tangible or intangible, fixed or
circulating incorporated rights, and chose in action except those referred above.
the purchased goodwill of business, a partner's share in a firm,

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right to subscribe for products,


shade trees,
patents, trade marks,
actionable claims,
leasehold mines,
dealership rights
Case-law :
in ahmed g.h. arif verses c.w.t. (1970) 76 itr 471 (sc), it was held that the term
property is of widest import and subject to any limitation which the context may
require, it signifies every possible interest which a person can clearly hold and
enjoy.
in c.i.t. verses b.c. srinivasa setty, (1981) 128 itr (sc) it was held that goodwill
which is build up is not a capital asset under the income-tax act.
in c.i.t. verses nanubai j. desai, 1994 supp(3) scc 754, a partner retired from a
partnership firm. he received a certain amount towards self-generated goodwill. it
was held that the amount was not liable to capital gains. from the assessment year
1988-89, gains arising from sale of self-generated goodwill was made taxable and
for this purpose its cost of acquisition or cost of improvement, as provided in
section 55, is be taken to be nil. with effect from assessment year 1995-96, the
same treatment applies in the case of transfer of tenancy rights, stage carriage
permits and loom hours.
Discussion :
Any stock-in-trade, consumable stores or raw materials held for the purpose of
business or profession is not a capital asset because any surplus arising on sale or
transfer of stock-in-trade, consumable stores or raw materials is chargeable to tax
as business income under section 28.
Jewellery is treated as a capital asset even though it is meant for personal use of
the assessee. therefore, transfer of such personal effect will attract capital gains
tax w.e.f. assessment year 2008-09.
capital gains on personal effects being archaeological collections, drawings,
paintings, sculptures, or any other work of art was not taxable upto assessment
year 2007-08. but it will be taxable from the assessment year 2008-09,

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Explain in detail : income from other sources

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ANSWER :

Section 56(1) : "income from other sources" is the residuary head of income.
Definition :
(1) income of every kind, which is not to be excluded from the total income
under the act, shall be chargeable to income-tax under this head if it is not
chargeable to income-tax under any of the preceding heads.
(2) In particular, and without prejudice to the generality of the provisions of sub-
section (1), the following incomes, shall be chargeable to income-tax under the
head Income from other sources, namely :
(i) dividends ;
(ii) income from machinery, plant or furniture belonging to the assessee and
let on hire, if the income is not chargeable to income-tax under the head
Profits and gains of business or profession;
. . . .<read bare act>
(viii) income by way of interest received on compensation or on enhanced
compensation referred to in clause (b) of section 145A.
List in Sec-56(2) is not exhaustive. In s.g. mercantile corporation (p) ltd. verses
c.i.t. held that section 56 (2) specifically provides for inclusion of some incomes
under this head but it will certainly not curtail the scope of the section in any way
on account of the use of the words 'without prejudice to the generality of the
provisions.
Discussion :
The residuary head does not come into operation until the preceding heads are
excluded.
where a particular item of income is to be computed under a particular head of
income as required under the act, that item of income must be assessed as income
falling under that particular head.
income under this head is to be computed in accordance with the method regularly
employed by the assessee, provided the method is such that the income can be
properly deduced there from.(section 145).
if books of accounts are maintained on mercantile system, the income is to be
computed on actual basis and on the other hand, if books of accounts are
maintained on cash system, the income is chargeable on receipt basis and
expenditure will be allowed on payment basis.
Ingredients : for charging income-tax under the head "income from other
sources" the following conditions must be satisfied:
1. there is income within the meaning of section 2(24) of the act.

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2. the income is not exempt from tax under the provisions (section 10 to 13 a)
of the act.
3. the income is not chargeable to tax under any first four heads viz. "salaries",
"income from house property", "profits and gains of business or profession" and
"capital gains".
Thus, income from other sources is, a residuary head of income.
Inclusions : under the head "income from other sources" the following kinds of
income shall be chargeable to income-tax :
[section 56(2) (1)] dividends ;
[section 56(2)(1b)] any winnings from lotteries, crossword puzzles, races including
horse races
[section 56(2)(1c)] any sum received by the assessee from his employees as
contributions to any provident fund or superannuation fund
[section 56(2)(1d)] income by way of interest on securities, if the income is not
chargeable to income tax under the head "profits and gains of business or
profession." ;
[section 56(2)(2)] income from machinery, plant or furniture belonging to the
assessee and let on hire, if the income is not chargeable to income-tax under the
head "profits and gains of business or profession" ;
[section 56(2)(3)] where an assessee lets on hire machinery, plant or furniture
belonging to him and also buildings, and the letting of the buildings is inseparable
from the letting of the said machinery, plant or furniture, the income from such
letting, if it is not chargeable to income-tax under the head "profits and gains of
business or profession". ;
[section 56(2)(4)] any sum received under a keyman insurance policy, including
the sum allocated by way of bonus on such policy, if such income is not taxable
under the heads "salaries" and "profits and gains of business or profession" ;
[section 56(2)(5)] where any sum of money exceeding twenty-five thousand
rupees is received without consideration by an individual or hindu undivided family
from any person on or after the 1st day of september 2004 but before 1st day of
april, 2006, the whole of such sum. ;
[section 56(2)(a)(6)] any sum of money the aggregate value of which exceeds fifty
thousand rupees, is received without consideration, by an individual or a hindu
undivided family, in any previous year from any person or persons on or after 1st
day of april 2006 but before the 1st day of october, 2009, the whole of the
aggregate value of such sum .
[section 56(2)(7 & 8)] According to clause (7) and clause (8) of sub-section (2) of
section 56 [inserted by the finance act (no. 2) 2009], the following incomes shall
also be chargeable to income-tax under the head "income from other sources" :

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[section 56(2)(vii)(c)] where an individual or an a or a hindu undivided family


receives, in any previous year, from any person on or after 1st of october, 2009,
any immovable property without consideration, the stamp duty value of which
exceeds fifty thousand rupees, the stamp duty value of such property [section
56(2)(b)(7)|, where any immovable property is received for a consideration which
is less than the stamp duty value of the property by an amount exceeding fifty
thousand rupees, the stamp duty value of such property as exceeds such
consideration .
[section 56(2)(vii)(c)] where any property, other than immovable property is
received without consideration, the aggregate fair market value of which exceeds
fifty thousand rupees, the whole of the aggregate fair market value of such
property .
where any property, other than immovable property, is received for a consideration
which is less than the aggregate fair market value of the property by an amount
exceeding fifty thousand rupees, the aggregate fair market value of such property
as exceeds such consideration.
------> Besides the aforesaid incomes, the following incomes are also chargeable
under this head because they are not covered under any other head :
(1) director's fees
(2) examination fee received by a lecturer from a university.
(3) income derived by sub-letting a house by a tenant
(4) income from undisclosed sources [cj.t. verses g. hyatt (1971) .
(5) interest on own contribution to unrecognized provident fund,
(6) interest on loans, deposits or current account,
(7) interest on investment of assets during liquidation proceeding,
(8) interest on foreign government securities
(9) income from vacant plot of land.
(10) ground rent,
(11) insurance commission,
(12) mining rent and royalties,
(13) income from forest produce
(14) income received by a non-professional writer from a newspaper for writing
a story.
(15) annuity payable under will, trust, settlement or any other legal obligation.
(16) annuity payable under insurance policy,
(17) casual income in excess of rs. 5000.
(18) salary of a m.p., m.l.a. or m.l.c.

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(19) income received from units of u.t.i.


(20) family pension received by the widow and heirs of deceased employees,
(21) money received by an assessee from a business/profession discontinued
prior to the commencement of the previous year. [roma bose verses i. to.
(1974)
(22) interest on investment, of salary funds, earned before commencement of
business [tutrcorin alkali chemicals and fertilisers ltd. verses c.i.t. (1937)
(23) tax payable on the assessee's salary paid by the Indian concern by virute of
its contractual obligation, the assessee a foreign national not being an employee
of the Indian concern.[emile webber verses c.i.t.
(24) compensation received for use of business assets. [sultan brothers (p) ltd.
verses c.i.t. (1964).
(25) annuity payable to the lender of a trade mark [c.i.t verses. lal chand jain
(1968) 69 itr 65 (delhi)]
Exceptions :
section 56(2)(v), section 56(2)(vi) and section 56(2)(vii) will not apply to any
sum of money or property received
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be;
(e) from any local authority;
(f) from any fund or foundation or university or other educational institution
or hospital or any trust or institution referred to in section 10(23c) from any
trust or institution registered under section 12aa.
income by way of interest received on compensation or an enhanced
compensation referred to in clause (b) of section 145a [section 56(2)(8)].
Note : Relative of an individual here means(1) spouse of the individual; (2)
brother or sister of the individual; (3) brother or sister of the spouse of the
individual; (4) brother or sister of either of the parents of the individual; (5)
individual; (6) any lineal ascendant or descendant of the spouse of the individual;
(7) spouse of the person referred to in clauses (2) to (6).
According to section 56(2)(vii)(a), the following income shall also be chargeable to
income-tax under the head "income from other sources" :
where a firm or a company not being a company in which the public are
substantially interested, receives, in any previous year, from any person or
persons, on or after the 1st day of june, 2010, any property, being shares of a
company not being a company in which the public are substantially interested,

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(1) without consideration, the aggregate fair market value of which exceeds fifty
thousand rupees, the whole of the aggregate fair market value of such property;
(2) for a consideration which is less than the aggregate, fair market value of the
property by an amount exceeding fifty thousand rupees, the aggregate fair
market value of such property as exceeds such consideration.
The proviso to this clause states that this clause shall not apply to any such
property received by way of a transaction not regarded as transfer under clause
(6a) or clause (6e) or clause (6cb) or clause (6d) or clause (7) of section 47.
Deductions in Income from other sources : Section 57 deals with deduction to
be made in the income under this head. the deductions are :
Section-57 : Amounts deductible : The income chargeable under the head
Income from other sources shall be computed AFTER making the following
deductions, namely :
(1) in case of dividends or interest on securities, any reasonable sum paid by
way of commission or remuneration to a banker or any other person for the
purpose of realizing such dividend or interest on behalf of the assessee.
(1a) in case of income of the nature referred to section 2(24) (x) (PF
subscription), if such sum is credited by the assessee to the employee's account
in the relevant fund or funds on or before the due date.
(2) in case of income from machinery, plant, furniture, buildings, etc being let on
hire, the following deductions are allowed on the same pattern as is done in the
case of "income from business or profession",
e.g., (a) current repairs of buildings, (b) insurance premium paid against risk
of damage or destruction of the premises, (c) repairs and insurance of
machinery, plant or furniture and (d) depreciation on buildings, machinery,
plant or furniture.
(2a) in the case of income in the nature of family pension, a deduction of a sum
equal to 33 1/3% of such income or rs. 15,000, whichever is less.
(3) any other expenditure (not being in the nature of capital expenditure) laid
out or expended wholly and exclusively for the purpose of making or earning
such income.
(4) in the case of income by way of interest received on compensation or
enhanced compensation referred to in section 56(2)(viii), a deduction a sum
equal to fifty per cent of such income and no deduction shall be allowed under
any other clause of this section.
Section 58 : Amounts NOT deductible :
(1) The following amounts shall not be deductible in computing the income
chargeable under the head "income from other sources" namely :

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(a) in the case of any assessee.


(i) any personal expenses of the assessee.
(i-a) any expenditure of the nature referred to in sub-section (12) of
section 40-a.
(ii) any interest which is chargeable under the income-tax act which is
payable outside India unless the tax from it has been deducted at source.
(iii) any payment which is chargeable under the head "salaries", if it is
payable outside India, unless tax has been paid thereon or deducted there
from.
(2) Any amount specified by section 40A {Expenses or payments not deductible
in certain circumstances} is not deductible while calculating income under the
head "income from other sources".
(3) In case of foreign companies expenditure in respect of royalties and technical
service fees as specified in section 44(d) is not deductible,
(4) In the case of an assessee having income chargeable under the head
"income from other sources", no deduction in respect of any expenditure or
allowance in connection with such income shall be allowed under any provision:
of this act in computing the income by way of any winnings from lotteries,
crossword puzzles, races including horse races, card games and other games of
any sort or firm, gambling or betting of any form or nature, whatsoever.
Provided : it will not apply in computing the income of an assessee, being the
owner of horses maintained by him for running in horse races, from the
activity of owning and maintaining such horses,
Explanation.For the purposes of this sub-section, horse race means a
horse race upon which wagering or betting may be lawfully made.]

Go To Module-1&2 QUESTIONS
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Define Agricultural Income and Incidental Income. How agricultural income and
incidental income is taxed under Income Tax Act. (Mar-2014)
Discuss : Agricultural income. (Nov-2012)
Explain : Incidental income. (Nov-2011, Nov-2012, Oct-2013, Nov-2014)
Explain in detail the Agricultural Income and Incidental Income under the Income
Tax Act. (Dec-2016)
ANSWER :

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Incidental Income :

Agricultural Income :
under the constitution parliament has no power to levy tax on agricultural income.
only the state governments are empowered to levy tax on agricultural income.
therefore, according to section 10 (1) of the income-tax, act, 1961, agricultural
income is exempt from central income-tax.
but with effect from the assessment year 1974-73 agricultural income became a
factor in the determination of tax on the non-agricultural income, it becomes
necessary therefore, to determine what is agricultural income. the definition is
given in section 2(1A) of the act.
Definition : Sec-2(1A) : agricultural income means
(a) any rent or revenue derived from land which is situated in India and is used
for agricultural purposes;
(b) any income derived from such land by
(i) agriculture; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any
process ordinarily employed by a cultivator or receiver of rent-in-kind to
render the produce raised or received by him fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or
received by him, in respect of which no process has been performed other
than a process of the nature described in paragraph (ii) of this sub-clause ;
(c) any income derived from any building owned and occupied occupied by the
cultivator or the receiver of rent-in-kind, of any land with respect to which any
process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :
Provided that
(i) the building is on or in the immediate vicinity of the land, and is a
building which the cultivator, or the receiver of rent-in-kind, requires as a
dwelling house, or as a store-house, or other out-building, and
(ii) the land is assessed to land revenue in India or where the land is not so
assessed to land revenue, it is not situated
(A) in any area which is comprised within the jurisdiction of a
municipality or a cantonment board and which has a population of not
less than ten thousand ; or
(B) in any area within such distance, not being more than eight
kilometres, from the local limits of any municipality or cantonment board
referred to in item (A), as the Central Government may specify in this
behalf by notification in the Official Gazette

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Explanation 1For the removal of doubts, it is hereby declared that revenue


derived from land shall not include and shall be deemed never to have included
any income arising from the transfer of any land referred to in Sec-2(14)(iii)(a or
b)
Explanation 2.For the removal of doubts, it is hereby declared that income
derived from any building or land referred to in sub-clause (c) arising from the
use of such building or land for any purpose (including letting for residential
purpose or for the purpose of any business or profession) other than agriculture
falling under sub-clause (a) or sub-clause (b) shall not be agricultural income;]
Explanation 3.For the purposes of this clause, any income derived from
saplings or seedlings grown in a nursery shall be deemed to be agricultural
income;

Thus the three basic conditions which must be satisfied before a particular item of
income may be treated as agricultural income are :
(1) that the income has relation to land;,
(2) that such land is situated in India; and
(3) that the land is used for agricultural purposes.
Case-law :
The supreme court explained the meaning of "agricultural" and "agricultural
purposes" in c.lt. verses raja benoy kumar sahas roy,. the relevant portion from
judgment is reproduced below :
(a) "agricultural" in its primary sense denotes the cultivation of the field and is
restricted to cultivation of the land in the strict sense of the term, meaning
thereby tilling of the land, sowing of seeds, planting and similar operations on
the land. these are the 'basic operations' requiring expenditure of human skill
and labour on land itself. these are absolutely necessary for the purpose of
effectively raising produce.
(b) operations to be performed subsequently like "weeding" "digging" etc.
(c) "agriculture" comprises within its scope all produce "regardless of the
nature". these produce may be grain, vegetable or fruits including plantations
and grass or pastures or articles of luxury such as betel, coffee, tea, spices,
tobacco or commercial crops like cotton, jute etc."
It was further observed that activities not involving any basic operation on the
land would not constitute agriculture merely because they have relation to or
connected with the land e.g., breeding and rearing of livestock, dairy-farming,
butter and cheese making and poultry fanning, would not by themselves be
agricultural processes

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The subsequent operations are agricultural operations only when taken in


conjunction with and as a continuation of the basic operations. mere
performance of the subsequent operations would not be enough to
characterize them as agricultural operations.
in c.i.t verses kamahshya narain singh,, it was held that interest on arrears of
agricultural rent cannot be treated as agricultural income as land is not the
immediate and effective source/
in bacha k guzdar verses c.lt, the supreme court decided that dividends received
by a shareholder from a company which derived its income partly from
agricultural operations and partly from other operations would not be agricultural
income in the hands of the shareholder. the principle established was that in
order to determine the character of a certain income what one has to consider
was the immediate and effective source and not the remote or ultimate source.
Kinds of agricultural income :
From the definition of agricultural income as given in section 2(1) the categories
of income, which may be included for the purpose of exemption as agricultural
income, are as follows;
1. rent or revenue derived from land (section 2 (1) (a)}
2. income derived from agriculture {section 2(1) (b) (1) 1}
3. income derived from land by performing any process
4. income derived from the sale of produce {section 2 (1) (b) (3)}
5. income from farm building {section 2 (1) (c)}
1. rent or revenue derived from land (section 2 (1) (a)} : Rent or revenue
derived from land, situated in India and used for agricultural purposes is
agricultural income.
Rent is the money, share of crops, or service or any other thing of value to be
rendered periodically or on the specified occasions by the tenant in
consideration for the use of land. revenue is used in the wider sense as
return, yield or profit or income of any land or property and not in the sense
of land revenue.
salami or premium is an example of revenue. the word 'derived' means
arising or accruing. revenue can be derived from land only if land is the
immediate and effective source and not secondary or indirect source.
interest on arrears of rent will not be derived from land as land is not the
immediate and effective source. salami or premium received by land lord for
giving the land on lease constitutes agricultural income.
- - - > if agricultural land is requisitioned by the government and issued for
non-agricultural purposes, the rent compensation received by the owner from

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the government is NOT agricultural income even through the land had always
been used for agricultural purposes.
2. income derived from agriculture {section 2(1) (b) (1) 1} :
Any income from agriculture derived from land, situated in India and used for
agriculture purposes, is agricultural income.
for example, the income from the sale of standing crop or raw produce after
harvest (without performing marketing process) is income derived from
agriculture.
temporary use of land for non- agricultural purposes will not alter the
character of land as agricultural land, but a permanent abandonment will do
so.
in cwt verses officer-in-charge (court of wards) parigah, (1976) it was held
that the land must not only be capable of being used for agricultural purposes
but it must have been actually used for such purposes at some point of time.
mere potential or possible use of the land for agricultural purposes is not
sufficient to treat it as an agricultural land.
in c.i.t. verses gemini pictures circuit pvt. ltd., it was held that the land
situated on the busiest road of the city within limits of municipal corporation
and surrounded on all sides by industrial and commercial buildings was held
to be not agricultural land.
the mere fact that vegetables were being raised at the time of sale does
not change the nature and character of the land.
3. income derived from land by performing any process to render the
produce fit to be taken to market {section 2(l) (b) (2)} :
in sakar lal verses c.i.t., the gujarat high court explained the reason behind
this provision and explanation of the provision in the following words :
"a cultivator raises produce from the land with a view to selling it. if there is
a market for the produce as grown there is no difficulty; the cultivator can
in such a case sell the produce with anything more and he need not
perform any process on the produce. but if there is no market for the
produce as grown and it can be sold only by performing some process in
order to be able to sell the produce; otherwise the produce would not be
marketable and the raising of it would be futile.
where such is the case, the legislature says that, though strictly the
agricultural operations cease when the produce is raised and removed from
the soil, the performance of the process should be regarded as a
continuation of the agricultural operations since the process has to be
performed by the cultivator for the purpose of enabling him to sell the
produce which he otherwise cannot.

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However, if some unusual process is employed by cultivators to render the


produce marketable it cannot be regarded as part of the agricultural
operations and the exemption would not be available to the cultivator.
Ingredients : there are two conditions which are required to be fulfilled
before a process performed by the assessee can be said to be a process
within the meaning of section (2)(1)(b)(2)". The high court further said :
the first conditions are that the process must be necessary to render the
produce fit to be taken to market and that involves the proposition that
there must be no market for the produce in its raw state.
the second condition is that the process must be one which is ordinarily
employed by a cultivator of the produce to render it marketable.
There is an additional requirement which must ALSO be satisfied -viz- even
where the produce is subjected to a process ordinarily employed by
cultivators to render it fit to be taken to a market, the produce must not
change its original character.
4. income derived from the sale of produce {section 2 (1) (b) (3)} : any
income from the sale of produce of any land, situated in India and used for,
agricultural purposes, to the cultivator or receiver of rent-in-kind is agricultural
income provided the produce is not subjected to any process except marketing
process ordinarily employed to render the produce fit for sale.
5. income from farm building {section 2 (1) (c)} : the income from farm
building will be exempt from tax as agricultural income if the following conditions
are satisfied :
(1) that the building is on or in the immediate vicinity of the land;
(2) that the building is, occupied and required, by the receiver of the rent
or revenue or the cultivator or the receiver of rent-in-kind, as a
dwelling house or a store house or other outbuildings on account of his
connections with the land; and
(3) that the land is
either assessed to land revenue in India or
is subject to a local rate assessed and collected by the officers of the
government; or
the land is not situated in any area which is comprised within the
jurisdiction of a municipality or a cantonment board having a population of
10,000 or more ; or
the land is not situated in any area within such distance not being more
than 8 kms, or such shorter distance in respect of any urban area, from the
local limits of any municipality or cantonment board

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Important note :
burden of proof : the assessee who claims the exemption has to prove
that the income is agricultural income.
partially agricultural income (rule 7) :
in the case of income which is partially agricultural income and partially
income chargeable to tax under the head "profits and gains of the business:
in determining that part which is chargeable to income-tax the market
value of the agricultural produce which has been raised by the assessee
and which has been utilized as a raw material in such business shall be
made in respect of any expenditure, by the assessee, as a cultivator.
income derived from the manufacture of tea :
income derived from the sale of tea grown and manufactured by the seller in
India shall be computed as if it were income derived from business and 40%
of such income shall be deemed to be income liable to tax.
Non-agricultural income : the following are not agricultural income :
(1) income from supply of water for irrigation purposes;
(2) income from land used for storing agricultural produce;
(3) remuneration received by the manager of an agriculture farm;
(4) income from forest trees of spontaneous growth;
(5) income from dairying;
(6) income from poultry farming, butter and cheese making;
(7) income from mining royalties;
(8) income from stone quarries;
(9) income from fisheries;
(10) income from land used for brick-making;
(11) income from the sale of silk cocoons produced by silk worms fed by
mulberry leaves, (1981) 5 taxman 272;
(12)income from supply of water from a tank situated in the agricultural land,
(1982) 133 itr 85.

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Mention the income which is fully exempt under the Income Tax Act and discuss
any five in detail. (Nov-2011)
Mention the income which is fully exempt under the Income Tax Act and discuss any

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five in details. (Oct-2013)


Discuss : Fully exempted incomes. (Nov-2012)
Explain in detail the Exempted Income under the Income Tax Act. (Dec-2016)
ANSWER :
Refer :
http://economictimes.indiatimes.com/wealth/tax/here-are-nine-incomes-you-need-
not-pay-tax-on/articleshow/47538791.cms
http://incometaxmanagement.com/Pages/TAX-Planning/Incomes-Completely-
Exempt-From-Income-Tax.html
Intro :
It is generally believed that one can't have the best of both the worlds, especially
when it comes to income and taxation. The more one earns, the more would be the
tax liability. But, not many people are aware that this is not completely true and
there exist certain types of income for which your income tax liability is zero.
ie Such incomes are not added to your total taxable income for that assessment
year and thereby remain tax-free. Section 10 of the Indian Income Tax Act of 1961
lists the various incomes that come under this category
Detailed discussion : In all there are more than 20 heads of income which are fully
exempt under Income Tax Act. Few of them are discussed in detail herein-below,
AGRICULTURAL INCOME :
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income
is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in excess of
5,000, it is aggregated with the total income for the purposes of computing
tax on the total income in a manner which results into no tax on agricultural
income but an increased income tax on the other income.
Agricultural income as per Section 2(1 A) means :
(A) any rent or revenue derived from land which is situated in India and is
used for agricultural purposes;
(B) any income derived from such land by (i) agriculture i.e., by actual
cultivation of land and by means of certain basic operations in agriculture; or
(ii) by the performance of some agricultural process ordinarily employed by
the cultivator, etc. to render the produce fit to be taken to market; or (iii) by
the sale of the produce in respect of which no other process other than the
one mentioned above has been employed; and
(C) any income derived from any building owned and occupied by the receiver
of the rent or revenue of any such land or kept by the cultivator or the
receiver of rent-in-kind, of any land in respect of which, any process as

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mentioned above is carried on, subject to certain conditions about the building
being on or in the vicinity of the land, etc.
Note : The Finance Act, 2000 inserted a new Explanation in Section 2(1A) to
clarify that any income from such building or land arising from the use of the
building or land for any purpose other than agriculture, would not be included in
the definition of agricultural income. For example, if a person has income from
using such building or land for purposes, such as letting it out for residential
purposes or for the purposes of any business or profession, then such income is
not treated as agricultural income from the AY 2001-2002.
Income from saplings and seedlings in a nursery to be exempt Section 2
(IA) :
Any income derived from saplings and seedlings grown in a nursery would be
agricultural income and thus be fully exempt from tax. This is as per the
Finance Act 2008 w.e.f. the AY 2009-20 10.
ALL Agricultural income which fulfills the above conditions is completely exempt
from tax. The manner of calculating tax on total income and agricultural income,
is explained in Illustration
RECEIPTS FROM HUF :
Any sum received by an individual as a member of a Hindu Undivided Family,
where the said sum has been paid out of the income of the family, or, in the
case of an impartible estate, where such sum has been paid out of the income of
the estate belonging to the family, is completely exempt from income tax in the
hands of an individual member of the family under Section 10(2).
SHARE FROM A PARTNERSHIP FIRM :
Under the provisions of Section 10(2A), in the case of a person being a partner
of a firm which is separately assessed as such, his share in the total income of
the firm is completely exempt from income tax since the AY 1993-94.
For this purpose, the share of a partner in the total income of a firm
separately assessed as such would be an amount which bears to the total
income of the firm the same share as the amount of the share in the profits of
the firm in accordance with the partnership deed bears to such profits.
The share of profit from a Limited Liability Partnership (LLP) is also exempt
from tax.
GRATUITIES :
Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement
gratuity of a government servant is completely exempt from income tax.
However, in respect of private sector employees gratuity received on retirement
or on becoming incapacitated or on termination or any gratuity received by his
widow, children or dependants on his death is exempt subject to certain

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conditions.
The maximum amount of exemption is Rs 10,00,000. Of course, this is further
subject to certain other limits like the one half months salary for each year of
completed service, calculated on the basis of average salary for the 10 months
immediately preceding the year in which the gratuity is paid or 20 months
salary as calculated. Thus, the least of these items is exempt from income tax
under Section 10(10).
COMMUTATION OF PENSION :
The entire amount of any payment in commutation of pension by a government
servant or any payment in commutation of pension from LIC pension fund is
exempt from income tax under Section 10(1OA) of IT Act. However, in respect of
private sector employees, only the following amount of commuted pension is
exempt, namely:
(a) Where the employee received any gratuity, the commuted value of one-
third of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is
liable to full income tax like any other item of salary or income and no standard
deduction is now available in respect of pension received by a tax payer.
VOLUNTARY RETIREMENT OR SEPARATION PAYMENT :
Under the provisions of Section 10(1OC), any amount received by an employee
of a public sector company or of any other company or of a local authority or a
statutory authority or a cooperative society or university or IIT or IIM at the time
of his voluntary retirement (VR) or voluntary separation in accordance with any
scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The
maximum amount of money received at such VR which is so exempt is `5 Lakh.
However, an assessee cannot enjoy both the exemption in respect of VRS upto
`5 Lakh and also a deduction under Section 89.
LIFE INSURANCE MONEYS :
Under Section 10(1OD), any sum received under a Life Insurance Policy (LIP),
including the sum allocated by way of bonus on such policy, other than u/s
8ODDA or under a Keyman Insurance Policy, or under an insurance policy issued
on or after 1.4.2003 in respect of which the premium payable for any of the
years during the term of the policy exceeds 2O% of the actual capital sum
assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully exempt from
tax Thus, generally moneys received from life insurance policies whether from
the Life Insurance Corporation or any other private insurance company would
be exempt from income tax.

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SCHOLARSHIP AND AWARDS, ETC :


Any kind of scholarship granted to meet the cost of education is exempt from tax
under Section 10(16). Similarly, certain awards and rewards, etc. are completely
exempt from tax under Section 10(17A).\
Illustration :
Lakhotia Puraskar of Rs 1,00,000 awarded to the best Rajasthani author,
every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.
Any daily allowance received by a Member of Parliament or by an MLA or
any member of any Committee of Parliament or State legislature is also
exempt from tax under Section 10(17).
GALLANTRY AWARDS, ETC. - SECTION 10(18) :
The Finance Act, 1999 has, with effect from AY 2000-2001, provided for
complete exemption for the pension and family pension of Gallantry Award
Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and also other
Gallantry Award winners notified by the Central Government.
EXEMPTION FOR BUSINESS ENTERPRISES :
There are innumerable tax exemptions in Section 10 relating to various business
activities. For example,
the income of infrastructure development funds and companies as also the
income of certain specified venture capital companies is fully exempt from
income tax.
Similarly, the incomes of newly established 100% export oriented
undertakings, the industries set up in Free Trade Zones (only 90% exemption
of income for AY 2005-2006), industries in NorthEastern Region, etc., are fully
exempt from income tax.
Similarly, as per Section 10BA certain incomes of exporters of hand-made
articles using wood as main raw material is exempt from income- tax.
The income of units in SEZ is also fully exempt from tax.
AMOUNT RECEIVED BY WAY OF GIFT, ETC SECTION 10(39) :
As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by
individual or HUF in cash or by way of credit, etc. is being subjected to tax if the
same is not received from relative, etc. However, Section 56(2) provides that
the amount received to the extent of Rs 50,000 will, however, be exempt from
the purview of income tax.
In case the gift received from non-relatives is in excess of Rs 50,000 in a
financial year then the entire amount would be taxable as income.
Similarly, amount received on the occasion of marriage from a non-relative, etc.
would also be exempted.

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It may be noted that the gift from relatives, as mentioned in the Section can be
received without any upper limit.
As per the Finance (No.2) Act, 2009 various items have been included in the list
of items liable to be included as income from other sources if received from non-
relatives on or after 1-10-2009 including immovable properties, shares and
securities, jewellery, archaeological collections, drawings, paintings, sculptures
and any work of art.
As per the Finance Act, 2010 even Bullion received from a non-relative would
be taxed as income of the assessee.
Conclusion :
Paying income tax is a moral and legal obligation of every proud citizen of the
country. The taxation system is designed to make sure there are no unnecessary
taxes that may become a financial burden on the tax payer. The above heads of
incomes are example of the flexibility of the Indian income tax system allowing tax
exemption on various earnings.

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Explain : Applicable depreciation Exp. from net Income. (Oct-2013)


Explain : Provision of Depreciation claim. (Nov-2011)
ANSWER :
Refer :
http://taxadda.com/income-tax/business-or-profession/depreciation-sec-32/
1) Basics of Depreciation :
Depreciation is allowable as expense in Income Tax Act, 1961 on basis of block of
assets on Written Down Value (WDV) method.
Block of assets means group of assets falling within a class of assets for which
same rate of depreciation is prescribed.
GOODWILL & LAND is not eligible for depreciation.
Depreciation is allowable only to the owner of the asset. ie,
A lessee is not the owner of the property therefore depreciation is NOT allowed
to lessor. However, if furniture or any part is constructed by the lessee then
depreciation on that is allowed to lessee.
If property is purchased under hire purchase contract then depreciation is
allowed to the purchaser.
In case of co-ownership, depreciation is allowable in ratio of their ownership.

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Asset must be used for the purpose of business or profession.


If the assesse doesnt claim the amount of depreciation as deduction, even then
the amount of WDV carried forward to next year is reduced by the depreciation
amount.
If profit is calculated on presumptive basis u/s 44AD or 44AE then such reported
profit is considering after all the expenses and depreciation is allowable under
section 32.
Depreciation under Income Tax Act is different from that of Companies Act, 1956.
Therefore depreciation rates prescribed under income tax is only allowable
whatever the depreciation is charged in books of accounts.
If a new addition is made in existing asset then it is consider as an asset if it
increase the capacity of the existing asset or reduce per unit cost otherwise it
should be treated as an expense.
If there are some spare parts/machines and they are not actually used, even then
depreciation is allowable on them because they are used for purpose of
business/profession.
Lower Depreciation Depreciation can be claimed at lower rate as per income tax
act. But for the next year your WDV will be considered as reduced by the
percentage of depreciation prescribed.
For eg if an asset is of Rs. 1 lakh and 80% depreciation is prescribed for the
asset and you charge only rs. 30,000 as depreciation, in this case next year wdv
will be considered as rs. 20,000 only not rs. 70,000.
2) Depreciation in the year in which the asset is purchased :
Deprecation is allowed only if the asset is put to use in the year of purchase.
Degree of utilisation of assets will not be considered while determining whether the
asset is put to use or not. For example if the asset is used for trial run then it is
considered the asset is put to use.
If asset is put to use for less than 180 days then amount equal to 50% of the
amount calculated using normal depreciating rates is allowed as depreciation.
Deprecation will be allowed on the basis of block of asset method.
3) Depreciation in subsequent years :
If asset is not put to use in the year of purchase or put to use for less than 180
days even then full depreciation is allowed in the subsequent years if the below
condition satisfies.
Depreciation is allowed on whole block of asset even if only a single asset in that
block is used during the year at any point of time.
4) Calculation of depreciation :
WDV of an asset = Actual cost to the assesse All depreciation actually allowed to

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him (included unabsorbed depreciation, if any)


WDV of Block of Assets at the end of the year ===
Aggregate of WDV of all the assets falling within that block at the beginning of
the year +++ Actual cost of any assets falling within block acquired during the
previous year --- Money received or receivable in respect of any asset in the
block which is sold, discarded, demolished or destroyed during the previous year
Closing value of the block of the asset at the end of the year ===
WDV at the end of the year --- Depreciation at block rate (if WDV at the end of
year is positive)
5) Calculation of purchase cost of an asset :
6) CALCULATION OF CAPITAL GAIN ON SALE OF DEPRECIABLE ASSET :
The capital gain/loss from depreciable assets is always treated as short term
irrespective of the fact that asset is held for more than 3 years or not.
First calculate (as above) WDV of Block of Assets at the end of the year.
If the amount of WDV comes at a negative amount then no depreciation is allowed
and the amount will be considered as short term capital gain and the closing WDV
will be zero.
If such amount is positive and no asset exists in the block then such amount will be
treated as short term capital loss and no depreciation is allowed.
7) Rate of depreciation :
Depreciation under the Income Tax Act is allowed as deduction, as a percentage on
the written down value (WDV) of block of assets as per the rates prescribed in New
Appendix I to the Income Tax Rules, 1962.
In case of assets of an undertaking engaged in generation or generation and
distribution of power, the depreciation is allowed as deduction on the actual cost
i.e. straight line method (SLM) individually on each asset at depreciation rates
prescribed in Appendix IA to the Income Tax Rules, 1962 or on WDV of block of
assets.
8) Additional depreciation u/s 32(1)(iia) : additional depreciation shall be allowed if
following condition are fulfilled by the assessee :
Additional deprecation is allowed only on new machinery or plant excluding ships
and aircraft which has been purchased and installed after 31-03-2005
The assessee shall be engaged in the business of manufacturing and production of
any article or thing (computers used for data processing in industrial premises are
eligible for additional depreciation). From financial year 2016-17 additional
depreciation is also allowed to assessees engaged in business of generation and
distribution of power.
Printing and Publishing is also considered as manufacturing.

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Depreciation @ 20% of actual cost of assets is allowed as additional depreciation.


If assesse is engaged in production or manufacturer of any article or thing on or
after 1st Apr, 2015 in any notified backward area of Andhra Pradesh, Bihar,
Telangana, West Bengal and acquires and installs any new machinery or plant
during 1st April, 2015 to 31st March 2020 then additional depreciation is allowed at
the rate of 35%.
However if the asset is put to use for less than 180 days then additional
deprecation will be allowed at half of actual rate i.e 10% or 17.5% as the case
may be.
From financial year 2015-16, if additional depreciation is allowed in year of put to
use at half of the rate then remaining half depreciation is allowed in the succeeding
year.
Specific cases in which depreciation is not allowed
Second hand plant and machinery Plant and machinery which, before
installation by assessee, was used whether inside and outside India by any
person.
Any office appliance or road transport vehicle.
Any machinery or plant installed in any office premises or any residential
accommodation, including accommodation in the nature of guest house
Any plant and machinery, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing income
chargeable under the head Profits and gains of business or profession of any
on previous year.
9) Unabsorbed depreciation :
If there is a loss under business and profession and the reason for such loss is
depreciation, then it is called unabsorbed deprecation and it shall be allowed to be
carried forward.

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Discuss : SET-OFF AND CARRY-FORWARD OF LOSSES


Explain : Speculation loss. (Nov-2011, Nov-2013)
ANSWER :
Discussion specific to speculation loss ONLY.
Intro :
The term speculation has not been exhaustively defined in the income-tax Act,

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but it normally denotes the meaning commonly assigned to it in commercial


practice.
Section 43(5) defines the expression speculative transaction as a transaction
in which a contract for the purchase or sale of any commodity including stocks
and shares is periodically or ultimately settled otherwise than by the actual
delivery or transfer of the commodity or scrips.
Where a company (other than banking or financial company) deals in shares of
other companies, the income from such business is treated as income from
speculative business.
Transactions not considered as speculative transactions : However, the following
four forms of transactions have been specifically excluded from the scope of
speculative transactions :
(i) A contract in respect of raw-materials or merchandise entered into by a
person in the course of his manufacturing or merchanting business to guard
against loss through future price fluctuations in respect of his contracts for actual
delivery of goods manufactured by him or merchandise sold by him; or
(ii) A contract in respect of stocks and shares entered into by a dealer or
investor therein to guard against loss in his holdings of stocks and shares
through price fluctuations; or
(iii) A contract entered into by a member of a forward market or a stock
exchange in the course of any transaction which is in the nature of jobbing or
arbitrage to guard against any loss which may arise in the ordinary course of his
business as such member.
(iv) An eligible transaction in respect of trading in derivatives referred to in
Clause (aa) of Section 2 of the Securities Contracts (Regulation) Act, 1956
carried out in a recognized stock exchange.
Thus, in all cases where actual delivery or transfer of the commodity takes place,
the transaction would not be a speculative transaction, however highly speculative
its nature may be.
The above-mentioned four items constitute exceptions provided by the Act whereby
transactions such as hedging contracts entered into by manufacturer and
merchants in the course of their business to guard against the losses through price
fluctuations are excluded from the definition of speculative transactions.
SET-OFF AND CARRY-FORWARD OF LOSSES :
Intro :
Income-tax is levied on the total income of the previous year of an assessee.
Hence, it is necessary to ascertain the total income.
Sometimes the assessee incurs a loss from a source of income and unless such
loss is set-off against any income, the net result of the assessees activities

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during the particular accounting year cannot be ascertained and consequently


the tax payable would also be incapable of determination. For this purpose, the
Income-tax Act contains specific provisions (Sections 70 to 80) for the set-off
and carry-forward of losses.
Definition : Set-off of losses from one source against income from another source
under the same head of income [section 70] :
If the net result for any assessment year in respect of any source falling under
any head of income is a loss, the assessee is entitled to set off the amount of
such loss against his income from any other source under the same head.
Exception to above General Rule : However, the following are the exceptions to
general rule :
(i) Loss from Speculation Business: Income from speculation business is
computed under the head income from business or profession. But if there is any
loss from speculation business, it cannot be set-off against the income from
other business or profession.
It can be set-off only against the profit in a speculation business.
However, the loss of non-speculation business can be set-off against the
income from speculation business.
(ii) Loss from the activity of owning and maintaining race horses: Loss incurred
in the business of owning and maintaining race horses cannot be set off against
any income except income from such business.
However, loss from any activity other than the business of owning and
maintaining race horses can be set off against income from the business of
owning and maintaining race horses.
(iii) W.e.f. Assessment Year 2003-04 short term capital loss can be set off from
any capital gain (long-term or short-term).
But long-term capital loss can be set off only against long-term capital gain.
SET-OFF :
(A) SET-OFF OF LOSSES from business or profession :
Any loss from business or profession (other than speculation business or loss
from the activity of owning and maintaining race horses) can be set off
against the income from any other business or profession including the
income from speculation business or income from the activity of owning and
maintaining race horses.
If any business has been discontinued during the year, the loss from such
business can also be set-off from the income of other business or profession.
However, the loss suffered by a wholly owned subsidiary company cannot be
set-off by the parent company, since both are separate assessees. Similarly,

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where loss incurred by a wholly owned subsidiary company is reimbursed by


the holding company, the subsidiary company does not use the right to carry
forward and set-off the loss. [C.I.T. v. Handicraft Handloom Export
Corporation (1982) 133 ITR 590 (Delhi)].
(B) SET-OFF OF LOSSES from speculation business :
Such loss can be set-off only against the income from speculation business.
It is not essential that the nature of the other speculation transaction must be
the same. Speculative transactions in different commodities and in different
markets are to be treated as one business.
However, a loss from an illegal speculation business cannot be set-off against
income from any lawful speculation. [C.I.T. v. K.J. Kotecha 107 ITR 101
(SC)].
Similarly, where the assessee earns commission on speculative transactions,
he is not entitled to set-off speculative loss against such commission because
there is no element of speculation in the commission [C.I.T. v. Pangal Vittal
Nayak & Co. Pvt. Ltd. (1969) 74 I.T.R. 754 (S.C.)].
(C) Set-off of loss from one head against income from another head :
Section-71 : The provision of Section 71 reads as under :
(a) an assessee not having any income under the head Capital gains and
having loss from income under other heads (excluding capital gains) can
set off such loss against his income under any other head (other than
capital gains);
(b) loss under any head of income (other than capital gains) can be set off
against income from any head of income, including capital gains;
(c) loss under the head capital gains cannot be set off against income under
any other head. It must be set off only against income from capital gains.
(D) Set-off of losses under the head income from house property
Where the assessee incurs any loss under the head income from house
property it can be set off against the assessees any other income under other
head during the previous years where such loss is not fully adjusted under
other heads of income in the same assessment year, then the balance loss
shall be allowed to be carried forward and set off in subsequent years subject
to a limit of eight assessment years against income from house property.
(E) Set-off of Losses from a source which is exempt :
Loss incurred by an assessee from a source, income from which is exempt,
cannot be set-off against income from a taxable source.
CARRY-FORWARD AND SET-OFF OF LOSSES :
If it is not possible to set-off the losses during the same assessment year in

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which these occurred, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET-OFF
OUT OF THE FOLLOWING LOSSES, can be carried forward to the following
assessment year and so on to be set-off against the income of those years
provided the losses have been determined in pursuance of a return filed by the
asessee and it is the same assessee who sustained the loss.
Types of loses :
(A) Loss in non-speculation business or profession.
(B) Loss in speculation business.
(C) losses by specified business (Section 73A)
(D) Loss in transfer of capital assets [whether short-term or long-term].
(E) Loss from activity of owning and maintaining of race horses.
(F) Loss under the head Income from House Property.
HOWEVER, losses suffered under the following heads are not allowed to be
carried forward and set off :
Losses under the head salaries.
Losses under the head Income from other sources (excepting loss suffered
from the activity of owning and maintaining race horses).
(A) Loss in non-speculation business :
It shall be set-off against the profits and gains, if any, of any business or
profession carried on by him and assessable for that assessment year.
From this it follows that the loss from non-speculation business or profession can
be set-off against the income of the business in which it was suffered or any
other business or profession either old or new including speculation business
income or from any other head, such as house property, or other sources, if the
income under this head forms part of the trading activities of the assessee.
[Western States Trading Co. (P) Ltd. v. C.I.T. (1971) 80 ITR 21 (SC)].
The loss can be set-off against the business profits of the year provided such
profits are assessable to tax. If the profits are exempt from tax for any reason,
no set-off can be made by the income-tax officer against such profits.
Conditions for carry forward and set-off of business loss :
(i) The right of carry-forward and set-off is available to the same assessee
who has sustained the loss. A holding company however, cannot claim to
carry forward the losses, if any, incurred by its wholly owned subsidiary
company.
Exceptions to this rule are
(a) cases of succession by inheritance [a loss incurred by the father in
the course of carrying on his business can be carried forward and set-off
by his son, if the son succeeds to the business of his father on account of

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the fathers death but not otherwise]


(b) accumulated business loss of an amalgamating company under
Section 72A
(c) the share of loss of partnership taken over by one of its partners can
also be set-off by the partner [Dwarkadass Leeladhar v. CIT (1963) 47
ITR 619 (Ker.)]
However, loss incurred by HUF cannot be carried forward and set-off after
its partition against income of firm formed thereafter by certain
coparceners [Keshrichand Bhanabhai v. CIT (1951) 20 ITR 201 (Bom.)].
(ii) The loss can be carried forward to a maximum of eight consecutive
assessment years immediately succeeding the assessment year for which the
loss was first computed.
In case of a business on which rehabilitation allowance has been allowed,
the previous losses are allowed to be carried forward to the assessment
year relevant to the previous year in which the business was so revived or
re-established and are allowed to be set-off against the profits of that
assessment year. Any balance of loss can be carried forward to the
succeeding seven assessment years.
(iii) Where any unabsorbed depreciation or capital expenditure on scientific
research has been brought forward along with business loss, the business loss
shall first be set-off.
In case where profits are insufficient to absorb brought forward losses,
current depreciation and current business losses, the same should be
deducted in the following order :
(a) Current scientific research expenditure [under Section 35(1)].
(b) Current Depreciation [under Section 32(1)].
(c) Brought forward business losses [under Section 72(1)].
(d) Unabsorbed family planning promotion capital expenditure [under
Section 36(1)(ix)].
(e) Unabsorbed Depreciation [under Section 32(2)].
(f) Unabsorbed scientific research expenditure [under Section 35(4)].
(B) Loss in speculation business [Section 73] :
Where, for any assessment year, any loss computed in respect of a speculation
business has not been wholly set-off against the profits of another speculation
business, it shall be carried forward to the following assessment year and shall
be set-off against the profits of any speculation business carried on by him and
assessable for the assessment year.
In case of speculation loss even if the particular speculation business in which

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there is loss is discontinued, this loss can be carried forward to be set-off in the
succeeding year against the profits of ANY OTHER speculation business.
This loss can be carried forward to a maximum of four consecutive assessment
years immediately succeeding the assessment year for which the loss was first
computed.
However, the loss from an illegal speculation business or loss incurred in
speculation business in banned items can be neither set-off against income from
any lawful speculation business nor can it be carried forward for being set-off in
the subsequent year against income EVEN FROM an illegal speculation business
because the law assumes that any illegal business dies with all its losses in the
same year [CIT v. Kurji Jinabhai Kotecha (1977) 107 ITR 101 (SC)].
Where any unabsorbed depreciation or capital expenditure on scientific research
has been brought forward along with speculation loss, the speculation loss shall
first be set-off.
Sometimes there may be brought-forward speculation loss and current years
non-speculation business loss. Now the problem arises whether the brought
forward speculation loss should be adjusted first against the current years
speculation income or current years non-speculative business loss should be
set-off first against the current years speculative income. Accordingly to the
administrative instructions the Assessing Officer may allow the assessee :
(i) either to first set-off the speculation loss carried forward from an earlier
year against the speculation profits of the current year and then to set-off the
current years losses against other sources and against the remaining part, if
any, of the current years speculation profits; or
(ii) to first set-off the current years losses from non-speculation business and
other sources against the current years speculation profits and then to set-
off the carried forward speculation losses of the earlier year against the
remaining part, if any, of the current years speculation profits, whichever is
advantageous to the assessee.
Where an assessee has brought forward speculative loss from his individual
business and during the current year he receives some speculative gains from a
firm in which he is a partner, the brought forward loss can be set-off against the
speculative profits received from the firm.
Similarly, where a speculation business is carried on by sole proprietor and after
his death the business is continued by legal heirs forming partnership, the firm is
entitled to carry forward and set-off such loss. [C.I.T. v. Madhukant M. Mehta
(1981) 132 ITR 159 (Guj.)].
(C) Carry forward and set off of losses by specified business (Section 73A) :
(1) Any loss of any specified business in section 35AD shall not be set off except

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against profits and gains of any other specified business.


(2) Where for any assessment year any loss computed of the specified business
has not been wholly set off, the loss not set off shall be carried forward to the
following assessment year, and
(i) it shall be set off against the profits and gains of any specified business
carried on by him and
(ii) if the loss can not be wholly set off, the amount of loss not set off shall be
carried forward to the following assessment year and so on..
(D) Set-off and carry forward of capital losses [Section 74] :
(i) Where, in respect of any assessment year, the net result of the computation
under the head Capital gains is a loss to the assessee, it can be carried forward
to the following assessment year. The short-term and long-term losses shall be
separately carried forward. In case of short-term capital loss it can be set off
against income, if any, under the head Capital gains (whether short-term or
long-term) assessable for that assessment year in respect of any other capital
asset. But in case of long-term capital loss, it can be set off only against long-
term capital gain.
(ii) While losses on transfer of capital assets, whether short-term or long-term
cannot be set off against any other income of the assessee under other heads of
income i.e. heads other than capital gains in the previous year in which such
loss was incurred, it can be carried forward to be set off against capital gains if
any during the next eight assessment years.
(E) Loss on maintenance of race horses :
Where an assessee who is the owner of race horses sustains a loss in the activity
of owning and maintaining race horses, he can carry-forward and set-off such
loss against his income (Prize money received on a race horse or race horses)
from the activity of owning and maintaining race horses in subsequent years.
This loss can be carried forward to a maximum of four assessment years
immediately succeeding the assessment year for which the loss was first
computed.
Except the loss from the activity of owning and maintaining of race horses, the
unabsorbed loss from no other activity under the above head is permitted to be
carried forward and set off against income of subsequent years.
(F) Loss under the head Income from House Property so far as it relates to
interest on borrowed capital referred to in Section 24(1)(vi). It is applicable up to
assessment year 1996-97 only.

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Explain : Provision of bad debts. (Nov-2011)


ANSWER :
[Section 36 (1)(vii) and (2)]
The amount of any debt or part thereof which is written off as irrecoverable in the
accounts of the assessee for the previous year is allowed to be deducted. The
deduction for bad debt or part thereof has been taken into account in computing
the income of the assessee of the previous year in which the amount of such debt
or part thereof is written off or, of any earlier previous year, or, represents money
lent in the ordinary course of the business of banking or money-lending which is
carried on by the assessee.
Following conditions are pre-supposed :
1. Relationship of debtor and creditor
2. The debt must be incidental to the business or profession
3. Deduction in the year of writing off
4. Adjustment in the year of recovery
5. No allowance for bad debts of a discontinued business
6. Successor not entitled to write off predecessors debts
7. No Deduction for provision for bad & doubtful debt:
1. Relationship of debtor and creditor :
A bad debt pre-supposes the existence of a debt, and therefore, a relationship of
debtor and creditor is essential. Unless there is an admitted debt and it becomes
irrecoverable, it cannot be written off as a bad debt. C.I.T. v. Vanguard Insurance
Co. Ltd. (1974) 97 ITR 546, 552 (Madras).
2. The debt must be incidental to the business or profession :
The debt which is claimed as bad must be incidental to the business or profession
carried on by the assessee. If the debt is not incidental to the business or
profession, such a debt cannot be deducted as a bad debt.
Illustrations :
In a solicitors profession, it is not a part of that profession to advance money to
clients who may require financial help to purchase properties, farms or stocks. It
is immaterial that the advance is made by a solicitor for the purposes of
attracting clients and to induce them to remain with him. Any loss arising from
such a lending is not deductible. On the other hand, payment of legal expenses
of a law-suit under the clients instruction is incidential to the legal profession. If
any amount remains unrecovered in respect of such expenses, it can be allowed
as a bad debt against the profits of the profession.

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Similarly, where an assessee carries on business in an agricultural produce and


has to advance money to growers under an agreement to have the advances
adjusted towards the price of the produce to be delivered to the assessee, the
losses incurred in the event of such advance becoming irrecoverable, arise out of
the business and can be deducted as bad debt C.I.T. v. Abdullakadar (1961) 41
ITR 545, 551 (SC).
In the business of money-lending, each and every lending may not be in the
ordinary course of business. For example, where a money-lender invests his
capital or accumulated profits in government securities, mortgages and
debentures and suffers a loss on the investment, such a loss is capital loss and
cannot be deducted as bad debt against the profits and gains of money-lending
business. Sir Chinubhai Madhaval v. C.I.T. (1937) 5 ITR 210 (Bom.).
Debts due from retiring partners are capital sums and the loss of such amounts
cannot be written off and claimed as bad debts. Girdhari Lal Gian Chand v. C.I.T.
(1971) 79 ITR 561 (All.).
3. Deduction in the year of writing off :
No such deduction shall be allowed unless such debt or part thereof has been taken
into account in computing the income of the assessee for the previous year in
which the amount of such debt or part thereof is written off or of an earlier
previous year, or represents money lent in the ordinary course of the business of
banking or money-lending which is carried on by the assessee. The age of a debt is
no doubt a relevant factor to be taken into consideration, but a time-barred debt is
not necessarily bad : neither is a debt which is not time-barred necessarily good.
Illustrations :
BCGA (Punjab) Ltd. v. C.I.T. (1937) 5 ITR 279. A debt may have become time-
barred but an assessee may not opt to claim it as bad if he relies on the honesty
and integrity of the debtor. On the other hand, a debt may become bad even if it
may not be time-barred. It is not necessary that a debt can be claimed as bad
only if an assessee has failed to recover it through a court of law. Legal
unenforceability of the claim does not prevent the amount from being a bad and
irrecoverable debt for the purposes of taxation.
Badrinarayan Balkrishan v. C.I.T. (1968) 69 ITR 323 (A.P.). Taking into account
the precarious and shaky financial position of the debtor, a creditor may opt not
to institute legal proceedings and waste his good money after bad money. The
assessee must satisfy the Assessing Officer that in fact the debt or the loan has
become irrecoverable in the accounting year in which a claim for deduction is
made in respect thereof and it has been written off from the book.
4. Adjustment in the year of recovery :
The deduction in respect of a bad debt is based on a mere estimate. Therefore, if
the amount of final recovery and the amount allowed as bad debt in respect of a

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bad debt falls short of the amount of such debt, such deficiency is further
deductible in the year of final recovery.
Illustration :
An assessee claims a debt of Rs 25,000 as bad in 1987-88. The Assessing Officer
accepted a claim of Rs 12,000 only. As a final settlement, the assessee
recovered Rs 8,000 in 1989-90 in respect of such debt. The amount of final
recovery (Rs 12,000 + Rs 8,000) falls short of the amount of the debt. Such
deficiency of Rs 5,000 is deductible in the year in which the assessee writes it off
in his books of account.
Conversely, if the amount of final recovery and the amount allowed as bad debt
in respect of a debt exceed the amount of such debt, such excess is chargeable
profit of the previous year in which such recovery is made [Section 41(4)]. It is
immaterial whether the business or profession is in existence in such year or
not.
Continuing with the above example, if the amount of final recovery is Rs 16,000,
there is a taxable profit of Rs 3,000 (16,000 + 12,000 - 25,000).
Note that recovery of bad debts is chargeable to tax as deemed profit [under
Section 41(4)] if the recovery is made by the same person who got the allowance
of the deduction. If the two entities are different the recovery of bad debt is not
chargeable to tax [under Section 41(4)]. For example, a firm got the allowance of
deduction in respect of bad debts. Subsequently, the firm is dissolved and it is
taken over by one of the partners who recovers a part of the bad debt earlier
allowed in the assessment of the firm. The partner is not assessable in respect of
such recovery. C.I.T. v. P.K. Kaimil (1980) 123 IRE 755 (Madras).
5. No allowance for bad debts of a discontinued business :
No deduction is allowed for a bad debt of a business which has been discontinued
before the commencement of the accounting year. Such a bad debt cannot be
deducted from the profits of a separate existing business. Kameshwar Singh v.
C.I.T. (1947) 15 ITR 248. An assessee can claim the deduction for a bad debt of a
business which is carried on by the assessee for at least sometime during the
previous year. It is not necessary that the business should be carried on
throughout the previous year.
6. Successor not entitled to write off predecessors debts :
The deduction of a bad debt can be claimed if the debt had been taken into account
in computing the income of the assessee of that previous year or an earlier
previous year unless it represents money lent in the ordinary course of the
business of banking or money-lending which is carried on by the assessee.
Therefore, the debts of a predecessor-in-business may not be deductible in the
hands of a successor-in-business.

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Thus, where the entire business of a partnership, after retirement of one of the
partners, was taken over by the other partner who continued with the same
stock-in-trade, he is not entitled to claim a debt of the partnership as bad if the
same is not realised. However, in certain cases even a successor is entitled to
write off predecessors debts.
On dissolution of the firm, if one of the partners takes over the business with all
assets and liabilities and carries it on as successor, he is entitled to allowance
when a debt originally due to firm becomes bad. It is merely an incident flowing
from the transfer of the business together with its assets and liabilities, from the
previous owner to the transferee. It is a right which should, on a proper
appreciation of all that is implied in a transfer of a business be regarded as
belonging to the new owner. (CIT v. T. Veerabhadra Rao, K. Koteswara Rao &
Company (1985) 155 ITR 152 (SC).
If business is carried on without any break, change merely occurring in persons
carrying on business would not disentitle business to claim deduction under this
Section [E.A.V. Krishnamurty & Son v. CIT (1985) 152 ITR 640 (Mad.)].
7. No Deduction for provision for bad & doubtful debt :
Any bad debt or part thereof written off as irrecoverable in the accounts of the
assessee shall not include any provision for bad and doubtful debts made in the
accounts of the assessee. [Explanation 2 to section 36(1)(vii)]

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Explain : Kinds of assessment. (Mar-2014)


Explain : Types of Assessment. (Oct-2013)
ANSWER :
TYPES OF ASSESSMENTs :
(A) Self assessment (Section 140A)
(B) Regular assessment (Section 143)
(C) Best judgment assessment (Section 144)
(D) Income escaping assessment or re-assessment (Section 147)
(E) Precautionary assessment.
(A) SELF ASSESSMENT (SECTION 140A)
Self assessment is the first step in the process of assessments. Self Assessment is
simply a process where a person himself assesses his tax liability on the income
earned during the particular previous year and submits Income Tax Return to the

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department.
Every person, before furnishing return under sections 139(return of income),
142(1), 148 (issue of notice where income has escaped assessment) and 153A
(Assessment in case of search or requisition) shall make self assessment of his
income and pay the tax, if due on the basis of such assessment.
The total tax payable is calculated on the total income of the assessee after
considering the following amount :
(i) the amount of tax already paid under any provision of this Act;
(ii) any tax deducted or collected at source;
(iii) any relief of tax or deduction of tax claimed under section 90 or section 91
on account of tax paid in a country outside India;
(iv) any relief of tax claimed under section 90A on account of tax paid in any
specified territory outside India referred to in that section; and
(v) any tax credit claimed to be set off in accordance with the provisions of
section 115JAA.
Such determined value of tax along with the interest payable under any provision
of this Act for any delay in furnishing the return or any default or delay in payment
of advance tax is paid before furnishing the return and the proof of payment of
such tax is attached with the return.
Effect of self assessment : The work of income tax department became easy due to
the system of Self Assessment.
INQUIRY BEFORE ASSESSMENT UNDER SECTION 142 OR 142A
1. Issue of notice to the assessee to submit return(if not submitted earlier) :
The existing provisions contained in section 142(1)(i), inter alia, provide that
for the purpose of making assessment in a case where a person has not made
a return of his income within the time specified under sub-section (1) of
section 139, the Assessing Officer may serve a notice under sub-section on
such a person requiring him to furnish the return of his income in the
prescribed form and manner.
Clause (i) of sub-section (1) has been amended so as to provide that in a case
where a person has not made a return of his income before the end of the
relevant assessment year, the Assessing Officer may serve a notice after the
end of the relevant assessment year under said sub-section requiring such
person to furnish his return of income.
2. Make Inquiry and give opportunity of being heard u/s 142(2) : For the
purpose of obtaining full information in respect of the income or loss of any
person, the Assessing Officer may make such inquiry as he considers necessary
3. Give direction to get books of accounts audited u/s 142(2A) to (2D) : Having

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regard to the nature and complexity of the accounts volume of the accounts, etc,
IF assessing officer is of the opinion that it is necessary to order audit then with
the previous approval of the Chief Commissioner or Commissioner the Assessing
Officer may direct an assessee to get his accounts audited by an accountant
even if the accounts have earlier been audited.
Summary assessment/Intimation to the assessee u/s 143(1) :
Under summary assessment, Assessing Officer completes the assessment
without passing a regular assessment order. The Assessing Officer issue an
acknowledgement/intimation under section 143(1) of tax payable or refundable
as the case may be on the basis of Return of Income filed by the assessee under
section 139 or in response to a notice issued under section 142(1).
The Assessing Officer (AO) processes the return in the following manner :
(1) The total income or loss after making adjustments for any arithmetical
error in the return or for any incorrect claim which is apparent from any
information in the return is calculated.
(2) Then the tax and interest, if any, on the basis of the total income
computed in step (1) is computed.
(3) Now following adjustments are made to the tax and interest calculated
above to determine the sum payable by the assessee or any amount of refund
due to him :
tax deducted at source,
any tax collected at source,
any advance tax paid,
any relief allowable under an agreement under section 90, 90A and 91,
any rebate allowable under Part A of Chapter VIII,
any tax paid on self-assessment and
any amount paid otherwise by way of tax or interest;
(4) The AO shall prepare or generate intimation and send it to the assessee
specifying the sum determined to be payable by, or the amount of refund due
to the assessee.
(5) The amount of refund due to the assessee shall be granted to the
assessee.
Since, herein this case, no assessment order is issued by the department for
legal purposes the intimation/ acknowledgement shall not be considered as
assessment.
Time limit for intimation under section 143(1) : No intimation for tax or interest
due under section 143(1) shall be sent after the expiry of 1 year from the end of
financial year in which return of income is made.

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Example : For the assessment year 2014-15, Mr. Rajan files the ITR on 25th July
2014. Intimation under section 143(1) may be sent up to 31st March 2016.
(B) SCRUTINY (REGULAR) ASSESSMENT [SECTION 143(2) & (3)]
Where a return has been made under Section 139, or in response to a notice under
Section 142(1), the Assessing Officer shall, if he considers necessary or expedient
to ensure that the assessee has not understated the income or has not computed
excessive loss or has not underpaid the tax in any manner, serve on the assessee a
notice requiring him, on a date to be specified therein, either to attend his office or
to produce, or cause to be produced there, any evidence on which the assessee
may rely in support of the return
Provided that no notice under this sub-section shall be served on the assessee
after the expiry of six months from the end of the Financial year in which the
return is furnished.
On the day specified in the notice issued, or as soon afterwards as may be, after
hearing such evidence as the assessee may produce and such other evidence as
the Assessing Officer may require on specified points, and after taking into account
all relevant material which he has gathered, the Assessing Officer shall, by an order
in writing, make an assessment of the total income or loss of the assessee, and
determine the sum payable by him or refund of any amount due to him on the
basis of such assessment.
(C) BEST JUDGMENT ASSESSMENT U/S 144 :
The Assessing Officer, after taking into account all relevant material which he has
gathered, and after giving the assessee an opportunity of being heard, makes the
assessment of the total income or loss to the best of his judgment and determine
the sum payable by the assessee on the basis of such assessment in the following
cases :
If any person fails to make the return required under section 139(1) and has
not made a return or a revised return under section 139(4) or 139(5), or
When a person fails to comply with all the terms of a notice issued under
section 142(1) or fails to comply with a direction issued under section 142(2A)
for getting the accounts audited, or
If any person having made a return, fails to comply with all the terms of a
notice issued under section 143(2).
Prior to the proceedings the AO should issue a show cause notice to the assessee.
However if the assessee has already issued notice under section 142(1)(i) and the
assessee has not complied with the terms then AO can proceed further without
issuing a show cause notice.
Further AO cannot assess the income below returned income and cannot assess
losses higher than the returned losses. Moreover, NO refund can be granted under

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section 144.
The assessing officer can also reject the accounts book under section 145 and can
make best judgment assessment under section 144 if :
The accounts books are incorrect, false or incomplete.
If the accounting method employed is such that the profit cannot be derived
from it correctly.
Where the method of accounting adopted by the assessee is not followed by
him regularly.
If the assessee has not followed the accounting standards notified by the
government.
Note : From 1st day of April, 2014 section 144BA shall be omitted.
(D) INCOME ESCAPING ASSESSMENT OR RE-ASSESSMENT (SECTION 147)
If the Assessing Officer has reason to believe that any income chargeable to tax
has escaped assessment for any assessment year, he may, subject to the
provisions of sections 148 to 153,
assess or reassess income which has escaped assessment or
recompute the loss or the depreciation allowance or any other allowance, as
the case may be for the relevant assessment year.
- Section 147 : The Assessing Officer shall serve on the assessee a notice
requiring him to furnish, within such period, as may be specified in the notice,
a return of his income or the income of any other person in respect of which
he is assessable.
The following shall also be deemed to be cases where income chargeable to tax
has escaped assessment, namely :
(i) where no return of income has been furnished by the assessee although
his total income or the total income of any other person in respect of which he
is assessable under this Act during the previous year exceeded the maximum
amount which is not chargeable to income-tax
(ii) where a return of income has been furnished by the assessee but no
assessment has been made and it is noticed by the Assessing Officer that the
assessee has understated the income or has claimed excessive loss,
deduction, allowance or relief in the return
(iii) where the assessee has failed to furnish a report in respect of any
international transaction which he was so required under section 92E
(iv) where an assessment has been made, but
income chargeable to tax has been under assessed ; or
such income has been assessed at too low a rate ; or

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such income has been made the subject of excessive relief under this Act ;
or
excessive loss or depreciation allowance or any other allowance under this
Act has been computed;]
where a person is found to have any asset (including financial interest in any
entity) located outside India.
The assessing officer before making the assessment under this section will have
to issue notice u/s 148 to the assessee requiring him to file the return even if he
has already filed the return under section 139 or 142(1). The AO is duty bound
to provide the assessee the reasons recorded by him, if the assessee request for
it. If on request the reasons are not supplied then AO cannot proceed the
assessment.
(E) Precautionary Assessment :
Where it is not clear as to who has received the income and prima facie, it appears
that the income may have been received either by A or by B or by both together,
the Assessing Officer can commence proceedings against both A and B to
determine the question as to who is responsible to pay the tax [Lalji Haridas v.
I.T.O. (1961) 43 ITR p. 387 (S.C.)].

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Explain : State the provisions regarding filing of return. (Oct-2013)


ANSWER :
RETURN OF INCOME [(SECTION 139(1)] :
The procedure under the Income-tax Act for making an assessment of income
begins with the filing of a return of income. Section 139 of the Act contains the
relevant provisions relating to the furnishing of a return of income.
According to that section, it is statutorily obligatory for every person being a
company or a firm or being a person other than a company or firm to furnish a
return of his total income or the total income of any other person in respect of
which he is assessable under the Income-tax Act, in all cases where his total
income or the total income of any other person for which he is liable to be assessed
exceeds, in any relevant accounting year, the maximum amount which is not
chargeable to income-tax.
The return of income must be furnished by the assessee in the prescribed manner
by the Board from time to time.
It should be obligatory for the firm to file return of income in every case. Further,

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in respect of individual, HUF, AOP, BOI, Artificial juridical Person, filing of return of
income shall be compulsory if their total income before allowing deductions under
Sections 10A, 10B,10BA or chapter VI-A exceeds the maximum amount which is
not chargeable to income tax.
Compulsory filing of Income Tax return in relation to assets located outside India :
From assessment year 2012-13, it is mandatory to file a return of income where a
person, being a resident other than not ordinarily resident in India and who during
the previous year has any asset (including any financial interest in any entity)
located outside India or signing authority in any account located outside India.
In such a case, it is immaterial that the taxable income is less than the maximum
amount not chargeable to tax.
Exemption from filing of Return of Income :
CBDT has clarified vide Press Release [No. 402/92/2006-MC (15 of 2012)], dated
20-7-2012 that under what conditions exemption from filing of return is available.
Exemption is available to salaried employees from the requirement of filing the
returns for A.Y. 2012-13.
The exemption is applicable only if all the following conditions are fulfilled :-
Employee has earned only salary income and income from savings bank account
and the annual interest earned from savings bank account is less than Rs 10
thousand.
The total Income of the employee does not exceed Rs 5 Lakh (Total Income
means Gross Total Income Less deductions under Chapter VIA).
The Employee has reported his PAN to the employer.
Employee has reported his income from interest on savings bank account to
employer.
Employee has received Form 16 from his employer.
Total Tax Liability of employee has been paid off by employer by way of TDS and
employer has deposited TDS with central government.
Employee has no refund claim.
Employee has received salary only from one employer.
Employee has not received any Notice from Income Tax Department for filing of
Income Tax return.
Due date for filing return of income :
The assessee is obliged to voluntarily file the return of income without waiting for
the notice of the Assessing Officer calling for the filing of the return.
The time limit for filing of the return by an assessee if his total income of any other
person in respect of which he is assessable exceeds the maximum amount not
chargeable to tax, shall be as follows :

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(a) where the assessee is


(i) a company,
(ii) a person, other than a company whose accounts are required to be
audited under the Income-tax Act or any other law, for the time being in
force,
(iii) a working partner of a firm whose accounts are required to be audited
under this Act or under any law for the time being in force,
the 30th day of September of the Assessment Year.
(b) In the case of an assessee being a company, which is required to furnish a
report referred to in section 92E, the 30th day of November of the assessment
year.
(c) in the case of any other assessee, the 31st day of July of the Assessment
Year.
E-filing of Return :
Filing of Income Tax Returns is a legal obligation of every person who total for the
previous year exceeds the exemption limit provided under the Income Tax Act,
1961.
The Income Tax Department has introduced on line facility in addition to
conventional method to file return of income. The process of electronically filing of
Income Tax return through the mode of internet access is called e-filing of return.
E-filing offers convenience of the tax payers. The only obligation for the user of this
facility is to have a PAN number.
There are eight forms from ITR-I to ITR-8 for e-filing of returns. There is a
provision e-filing for digital signature by the assessee.
RETURN OF LOSS- SECTION 139(3) :
The requirements of Income-tax Act making it obligatory for the assessee to file a
return of his total income even in cases where the assessee has incurred a loss
under the head profits and gains from business or profession or loss from
maintenance of race horses or under the head Capital gains.
Unless the assessee files a return of loss in the manner and within the same time
limits as required for a return of income, the assessee would not be entitled to
carry forward the loss for being set off against income in the subsequent year.
BELATED RETURN SECTION 139(4) :
Any person who has not filed the return within the time allowed under section
139(1) or within the time allowed under a notice issued by the Assessing Officer
under section 142(1) may file a belated return
at any time before the expiry of one year from the end of the relevant
assessment year or

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before the completion of the assessment whichever is earlier.


Example: For the previous year 2013-14, Mr. X did not file the return of income on
the due date. Can Mr. X file the return of income after the due date?
Correct answer: Yes, As per section 139(4), Mr. X can file a belated return. Mr.
X may file the return of income at any time on or before 31st of March 2016
(one year from the end of the Assessment Year 2014-15).
RETURN OF INCOME OF CHARITABLE TRUST AND INSTITUTIONS SECTION
139(4A) :
Sub-section (4A) of Section 139 also makes it incumbent of every person in
receipt of income derived from property held under trust or other legal obligation
wholly for charitable or religious purposes or in part only for such purposes or of
income being voluntary contributions within the meaning of Section 2(24)(iia) to
furnish a return of income in case the total income exceeds the maximum amount
not chargeable to tax.
RETURN OF INCOME OF POLITICAL PARTY- SECTION 139(4B) :
It is also incumbent on the political parties to file their return of income [if the
income (without giving effect to the provisions of Section 13A) exceeds the
maximum amount not chargeable to tax], duly signed by the Chief Executive
Officer of the party
REVISED RETURN- SECTION 139(5) :
An assessee who is required to file a return of income is entitled to revise the
return of income originally filed by him to make such amendments, additions or
changes as may be found necessary by him. Such a revised return may be filed by
the assessee at any time,
before the expiry of one year from the end of the relevant assessment year
before the the completion of assessment whichever is earlier.
DEFECTIVE RETURN-SECTION 139(9) :
If the Assessing Officer considers that the return of income furnished by the
assessee is defective, he may intimate the defect to the assessee and give him an
opportunity to rectify the defect within 15 days from the date of such intimation or
within such further period as may be allowed by the Assessing Officer on the
request of the assessee.
If the assessee fails to rectify the defect within the aforesaid period, the return
shall be deemed to be invalid and further it shall be deemed that the assessee had
failed to furnish the return.
However, where the assessee rectifies the defect after the expiry of the aforesaid
period but before the assessment is made, the Assessing Officer may condone the
delay and treat the return as a valid return.

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SUBMISSION OF RETURNS THROUGH TAX RETURN PREPARERS [SECTION 139B] :


W.e.f. 1.6.2006, a new section 139B have been inserted in the Act so as to provide
that for the purpose of enabling any specified class or classes of persons to prepare
and furnish returns of income, the Board may, by way of notification, frame a
scheme providing that such persons may furnish their returns of income through a
Tax return preparer authorized to act as such under the scheme.
This scheme is not applicable for a company or a person who is required to
undergo a tax audit or audit under any other law.
It has been further provided that the Scheme framed under the said section shall
specify the manner in which the Tax return preparer shall assist the persons
furnishing the return of income, and shall also affix his signature on such return.
SIGNING OF RETURN (SECTION 140) : The return of income must be signed and
verified :
(a) In the case of an individual,
(i) by the individual himself;
(ii) where he is absent from India, by the individual himself or by some
person duly authorised by him in this behalf;
(iii) where he is mentally incapacitated from attending to his affairs, by his
guardian or any other person competent to act on his behalf; and
(iv) where, for any other reason, it is not possible for the individual to sign
the return, by any person duly authorised by him in this behalf:
Provided that in a case referred to in Sub-clause (ii) or (iv), the person signing
the return holds a valid power of attorney from the individual to do so, which
shall be attached to the return:
(b) in the case of a H.U.F. by the Karta, and, where the karta is absent from India
or mentally incapacitated from attending to his affairs, by any other adult member
of such family;
(c) in the case of a local authority, the Principal Officer thereof;
(d) in the case of a firm, by managing partner thereof or where for any
unavoidable circumstances such managing partner is not able to signand verify the
return, or where there is no managing partner as such, by any partner thereof, not
being a minor;
(e) in the case of a limited liability partnership, by the designated partner thereof,
or where for any unavoidable reason such designated partner is not able to sign
and verify the return, or wherethere is no designated partner as such, by any
partner.
(h) in the case of a company; by the managing director thereof, or where for any
unavoidable reason such managing director is not able to sign the return or where

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there is no managing director, by any director thereof.


(i) in the case of a political party referred-to in Sub-section (4B) of Section 139, by
the Chief Executive Officer of such party whether such Chief Executive Officer is
known as secretary or by any other designation.

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Explain : Penalty provisions for concealment of income. (Nov-2014)


ANSWER :
Refer :

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Explain : Permanent Account Number. (Mar-2014)


Explain : PAN. (Nov-2014)
ANSWER :
Refer :
http://www.incometaxindia.gov.in/tutorials/1.permanent%20account%20number
%20(pan).pdf
https://en.wikipedia.org/wiki/Permanent_account_number
Permanent Account Number : Every person, who has not been allotted any
permanent account number, is obliged to obtain permanent account number, if ;
if his total income assessable during the previous year exceeds the maximum
amount which is not chargeable to tax or
any person carrying on business or profession whose total sales turnover or
gross receipts are or is likely to exceed Rs 5,00,000 in any previous year or
is required to furnish a return of income under Section 139(4A)
Besides above cases, the Assessing Officer may also allot a permanent account
number to any other person by whom tax is payable.
Any other person may also apply for a permanent account number.
What is PAN ?

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PAN is a code that acts as an identification for Indian nationals, especially those
who pay Income Tax. It is a unique, 10-character alpha-numeric identifier, issued
to all judicial entities identifiable under the Indian Income Tax Act, 1961. An
example number would be in the form of ARLPA0061H. It is issued by the Indian
Income Tax Department under the supervision of the Central Board for Direct
Taxes (CBDT) and it also serves as an important proof of identification.
Income Tax PAN card is issued under Section 139A of the Income Tax Act.
Unlike the Aadhaar Number and Driving License, it is also issued to foreign
nationals (such as investors) subject to a valid visa and hence, it is not acceptable
as a proof of Indian citizenship.
The PAN is mandatory for a majority of financial transactions such as opening a
bank account, receiving taxable salary or professional fees, sale or purchase of
assets above specified limits etc.; especially high-value transactions.
The primary purpose of the PAN is to bring a universal identification to all financial
transactions and to prevent tax evasion by keeping track of monetary transactions,
especially those of high-net-worth individuals who can impact the economy.
The PAN is unique to each individual and is valid for the life time of the holder,
throughout India. An important point to note would be that once issued, the PAN is
not affected by a change of address
Structure and provisions :
The PAN structure is as follows: AAAPL1234C :
First five characters are letters,
next four numerals,
last character letter.
The first three letters are sequence of alphabets from AAA to ZZZ
The fourth character informs about the type of holder of the card. Each holder is
uniquely defined as below:
A Association of Persons (AOP)
B Body of Individuals (BOI)
C Company
F Firm
G Government
H HUF (Hindu Undivided Family)
L Local Authority
J Artificial Juridical Person
P Individual
T AOP (Trust)

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K Krish (Trust Krish)


The fifth character of the PAN is the first character
(a) of the surname or last name of the person, in the case of a "Personal" PAN
card, or
(b) of the name of the Entity, Trust, society, or organisation in the case of
Company/ HUF/ Firm/ AOP/ BOI/ Local Authority/ Artificial Judicial Person/ Govt
The last character is an alphabetic check digit.
Use of PAN :
Failure to comply with the provisions of Section 139A (application for the allotment
of a permanent account number) of Income Tax Act, penalty of Rs. 10,000/- for
each default is payable.
Quoting the PAN is mandatory when filing Income Tax returns, tax deduction at
source, or any other communication with Income Tax Department. PAN is also
steadily becoming a mandatory document for opening a new bank account, a new
landline telephone connection / a mobile phone connection, purchase of foreign
currency, bank deposits above Rs. 50,000/=, purchase and sale of immovable
properties, vehicles etc.

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Explain : Rectification of Mistake u/s 154 of Income Tax Act. (Nov-2012, Oct-2013)
ANSWER :
Provision for Rectification Of Mistakes [Section 154] :
With a view to rectifying any mistakes apparent from the record, an income-tax
authority referred to in Section 116 may amend
any order passed by it under provisions of this Act or
any intimation or deemed intimation under Section 143(1).
This power of rectification can be exercised by the authorities either on their own
motion or at the instance of the assessee.
Mistake which can be rectified :
The mistake sought to be rectified may be a mistake of fact or of law.
The mistake must be one which is glaring, obvious or apparent from the records
and should not be one to discover which a long drawn process of reasoning,
arguments, etc., are needed, or for which there may be conceivably two opinions.
A decision on debatable point of law is not a mistake apparent from the record [T.
S. Balram v. Volkart Bros. (1971) 82 ITR p. 50 (S.C.)].

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However, the record contemplated under Section 154 does not mean only the
order of assessment but it comprises all proceedings on which the assessment
order is based. The relevant authority is entitled to look into the whole evidence
and the law applicable to ascertain whether there was an error [Moharana Mills Pvt.
Ltd. v. ITO (1959) 36 ITR p. 350 (S.C.)].
The power of rectification of mistake lies with the authority who passed the order
which is sought to be rectified.
For instance, the Assessing Officer may amend any order of assessment or refund
or any other order passed by him. Likewise, the Deputy Commissioner or
Commissioner (Appeals) or the Chief Commissioner or Commissioner may rectify
any order passed by him.
Where an order of rectification of assessment has the effect of enhancing the
amount of income assessed or reducing a refund granted to the assessee or in any
way otherwise increasing the liability of the assessee, the order of rectification can
be passed only after giving the assessee a notice in advance and, that too, after
giving him a reasonable opportunity of being heard.
Every order of rectification of assessment must be passed by the authority
concerned in writing and should specifically state how and in what respects the
assessment had been rectified.
Where any amendment has the effect of enhancing the assessment or reducing the
refund already made, the Assessing Officer shall serve on the assessee a notice of
demand in the prescribed manner specifying the amount of tax, interest or other
sum payable by him.
Time limit :
The time limit for rectification of mistakes is a period of four years from the end of
the financial year in which the order sought to be amended was passed.
where an application for an amendment under this section is made by the assessee
on or after the 1st day of June, 2001 to an Income-tax authority referred to in Sub-
section (1), the authority shall pass an order, within a period of six months from
the end of the month in which the application is received by it :
by making the amendment; or
refusing to allow the claim.

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Explain : Payment of advanced taxation. (Mar-2014)


ANSWER :

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Refer :

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Explain the procedure of appeals and revisions petition under Income Tax Act. (Mar-
2014)
Explain the procedure of Appeals and Revisions under the Income Tax Act. (Dec-
2016)
ANSWER :
page-531-553 of 788 page book
Intro :
The right of appeal arises where the taxpayer is aggrieved by the order passed by
the income-tax authority.
Where the Assessing Officer accepts the return filed by the tax payer and passes an
order making no modification, an appeal does not lie against that order as the
taxpayer cannot be said to be aggrieved of that order. Similarly, where an
appellate authority accepts the contention of the taxpayer and allows the appeal,
there is no further appeal by the assessee against that order.
Whom to address the appeal ?
The assessee may prefer an appeal against the orders of the Assessing Officer to
the Commissioner (Appeals), in accordance with the relevant provisions under
Section 246 and appeal against the order of the Commissioner (Appeals) can be
preferred by the Assessee or the Commissioner of Income Tax and such appeal lies
with the Appellate Tribunal.
The Finance (No.2) Act, 1998 has amended the provisions regarding remedy
against order of Tribunal. Where earlier the assessee or the CIT, if not satisfied
with the order of Tribunal, could only request the Tribunal to refer that matter to
the High Court. After 1.10.98 as provided by Finance (No.2) Act, 1998 the assessee
or CIT if not satisfied with the order of the tribunal can appeal directly to the High
Court, if High Court is satisfied that the case involve a substantial question of law
and if the assessee or Commissioner of Income-tax is not satisfied with the order
passed by the High Court they may file an appeal against the order of the High
Court to the Supreme Court.
However, it should be noted that in the case of question of fact tribunal is the final
& binding authority and its decision is final.

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PROCEDURE FOR FILING OF APPEAL [SECTION 249(1)] :


The appeal should be filed in the prescribed form and verified in the prescribed
manner. In case of an appeal made to the Commissioner (Appeals) on or after the
1st day of October, 1998, it shall be accompanied by a fees irrespective of the date
of initiation of the assessment proceedings. The rates of fees are as follows :
Rs 250 when the assessed income is one hundred thousand rupees or less
(income/loss).
Rs 500 when the assessed income is more than one hundred thousand rupees
but not more than two hundred thousand rupees.
Rs 1000 when the assessed income is more than two hundred thousand
rupees.
Rs 250 in any other case.
Form-35 :
Form No. 35 is the prescribed form [under Rule 45(1)] of the appeal.
The form of appeal, the grounds and the verification appended to the form should
be signed [Rule 45(2)] as per provisions applicable to the signing of return under
Section 140.
Form No.35 requires that the memorandum of appeal, statement of facts and the
grounds of the appeal must be in duplicate and should be accompanied by a copy
of the order appealed against and the notice of demand in original, if any.

.....
<work on this>

Go To Module-1&2 QUESTIONS
Go To Contents

Write explanatory notes : Recovery of the service tax under the Service Tax Act
1994. (Dec-2016)
ANSWER :

Go To Module-1&2 QUESTIONS
Go To Contents

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Write explanatory notes : Provisions relating to penalty under the Service Tax Act
1994. (Dec-2016)
ANSWER :

Go To Module-1&2 QUESTIONS
Go To Contents

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Module - 3) Gujarat Value Added Tax (VAT) (20 Marks)


Refer :
http://idtc-icai.s3.amazonaws.com/download/Gujarat-VAT.pdf - Technical Guide to
Gujarat VAT - The Institute of Chartered Accountants of India
http://www.icsi.edu/portals/25/Presentations/VAT%20Overview-1.pdf - VAT - A
Practice Area For CS - R. C. Tarpara & Associates

Module-3 QUESTIONS :
Explain : VAT and its objectives. (Oct-2013)
Explain : Incidence of VAT.
Explain : Input Tax Credit (ITC).
Write short note : Business (value added tax). (Nov-2011, Nov-2012)
Discuss : Sales and Dealer. (Nov-2014)
Explain (Gujarat Value Added Tax) : Sale. (Mar-2014)
Write short note : Dealers (value added tax). (Nov-2011, Nov-2012)
Discuss : Capital good and Sales price. (Nov-2014)
Write short note : Capital goods (value added tax). (Nov-2012, Mar-2014)
Explain (Gujarat Value Added Tax) : Sale price. (Mar-2014)
Write short note : Taxable turnover (value added tax). (Nov-2012, Oct-2013, Mar-
2014)
Discuss : Taxable turnover. (Nov-2014)
Define : Total turnover. (Nov-2011)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
Discuss in detail : Registration of traders and tax paying liabilities under VAT
Gujarat. (Nov-2014)
Explain the provisions relating to Registration of the dealer in detail under the
Value Added Tax Act and state its benefits to the Dealer. (Dec-2016)
Discuss in detail : Registration under VAT Act 2003. (Nov-2011, Oct-2013, Mar-2014)
Elaborate the scheme of payment of lump-sum tax in lieu of tax on sales. (Nov-
2011)
Write short note : Composition scheme (value added tax). (Nov-2012, Oct-2013)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
Explain (Gujarat Value Added Tax) : Purchase price. (Mar-2014)

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Go To Contents

Module-3 ANSWERS :
Explain : VAT and its objectives. (Oct-2013)
ANSWER :
Origin of VAT :
A really progressive and welfare oriented country should balance the requirements
of direct and indirect taxes in a fair manner. Too much dependence on direct taxes
will be repressive but at the same time passing heavy burdens to the general public
by way of indirect taxes will constitute hardships to the common citizen. Therefore,
economic administrators throughout the world have been constantly engaged in the
exercise of lightening the burden of indirect taxes on the ultimate consumers.
VAT is an internationally recognized multipoint tax system. The principle of VAT
contemplates levy of tax at each stage of value addition till the point of
consumption, and realization of full tax on the final sale value from the consumer.
In India, VAT was introduced in most of the State from April 1, 2005.
Introduction of uniform VAT in the States was a challenging exercise in the federal
country like India, where each State Government, in terms of constitutional
provision, is sovereign in levying and collecting state taxes. Though the broad
design of the State-level VAT is uniform across the country, every State has its
own VAT legislation and procedures differ on many counts from one State to
another
VAT System in other countries :
France is the first Country in the world, which has adopted VAT in 1954,
Brazil biggest country by area has adopted VAT in 1960,
China biggest country by population has adopted VAT in 1994,
Our neighbor countries like Pakistan, Nepal, Bangladesh have adopted before us,
Today around 130 countries have implemented VAT System,
Around 70% world populations living under VAT System,
Surprise to know that the U.S.A. has not adopted VAT,
VAT made Effective from 1st April, 2006 in Gujarat
Illustration (Need for VAT) :
Suppose, for manufacturing a product A, the manufacturer has to purchase four
types of commodities B, C, D and E on which he pays excise duty. When ultimately
he sells his manufactured product A on which he has to discharge his liability
towards excise, the excise duty leviable on such product will be on a tax base

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which will include excise duties paid by the manufacturer on products B, C, D and
E.
Thus, the final excise duty is a duty on duty, which will increase the cost of
production as well as the price of the final product.
However, we find a method by which the excise duties paid on commodities B, C, D
and E are allowed to be set-off from the final duty liability on product A, it is
obvious that the manufacturer will not only be able to avoid payment of duty on
duty but the cost of the product will also be reduced leading to a benefit to the
consumer. This is the origin of Value added tax (VAT).
VAT on Manufacturing : In VAT, the tax will be levied and collected at each stage of
manufacture ONLY on the value added by the manufacturer represented by the
purchase value and the value of the work performed on such purchased
commodities. In other words, the various taxes paid on inputs purchased will be
allowed as a credit and will be allowed to be set off against the tax liability on the
value of sales of the commodity. This will not only result in cost reduction but will
also ensure equity.
Gujarat VAT : In Gujarat VAT came into force from 1st April, 2006. Its basic legal
framework consists of,
The Gujarat Value Added Tax Act, 2003,
VAT Rules contain 67 Rules and 75 Forms,
VAT and Sales Tax collection contributes around 39.92% of the total revenue of
Gujarat Government.
Gujarat VAT Act, 2003 (VAT Act) replaced following Acts :
Gujarat Sales Tax Act, 1969
The Bombay Sales of Motor Spirit Taxation Act, 1958 (MST)
Gujarat Purchase Tax on Sugarcane Act, 1989
Note that CST Act is also administered by Gujarat VAT Dept.
WHO is liable to pay VAT [Section 3]
1. Every Registered Dealer, irrespective of his turnover,
2. Regular Dealer Whose total turnover during the year exceeded rupees Five
Lacs and whose taxable turnover exceeded rupees Ten Thousand.
3. A casual dealer or auctioneer whose taxable turnover exceeded rupees Ten
Thousand in a year.
All above dealers have to pay tax on their turnover after they cross above said
limit.
And dealer covered in Para 2 and 3 above shall have to apply for registration within
30 days of crossing limit of turnover under VAT in prescribed Form.

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WHO is not liable to pay VAT : Exception [Section 3]


Dealers NOT covered :
1) An Agriculturist who sells exclusively his own agricultural produce;
2) An individual who sells exclusively fish or any sea food caught by him or by
a member of his family;
3) A charitable, religious or educational institution, carrying on the
activity of manufacturing, buying, selling or supplying goods for
achieving its avowed objects, which are not in the nature of business,
above three categories of persons is not dealer and not covered by VAT
Act irrespective of his turnover.
4) A dealer dealing only in exempted goods: means goods covered under
Schedule I or exempted by Govt. u/s. 5 (1) or (2);
5) A dealer whose total turnover is less than Rupees Five Lacs.
6) A dealer doing only Job-work or labour work not involving use of any
material;
Transactions not covered under VAT : [Section 4,5,5A] : VAT shall NOT be
imposed on (shall not apply to)
inter state sales or purchases
sale or purchases taking place outside the State.
imports or exports.
goods specified in Schedule I, subject to specified conditions therein.
Exempted U/S. 5 (1) or (2) by notification in the Official Gazette.
Sales or purchase without any consideration, gifts, free samples etc.
Merits/ benefits of VAT :
1. No tax evasion : It is said that VAT is a logical beauty. Under VAT, credit of duty
paid is allowed against the liability on the final product manufactured or sold.
Therefore, unless proper records are kept in respect of various inputs, it is not
possible to claim credit. Hence, suppression of purchases or production will be
difficult because it will lead to loss of revenue. A perfect system of VAT will be a
perfect chain where tax evasion is difficult.
2. Neutrality : The greatest advantage of the system is that it does not interfere in
the choice of decision for purchases. This is because the system has anti-cascading
effect. How much value is added and at what stage it is added in the system of
production/ distribution is of no consequence. The system is neutral with regard to
choice of production technique, as well as business organisation. All other things
remaining the same, the issue of tax liability does not vary the decision about the
source of purchase. VAT facilitates precise identification and rebate of the tax on
purchases and thus ensures that there is no cascading effect of tax.

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In short, the allocation of resources is left to be decided by the free play of


market forces and competition.
3. Certainty : The VAT is a system based simply on transactions. Thus there is no
need to go through complicated definitions like sales, sales price, turnover of
purchases and turnover of sales. The tax is also broad-based and applicable to all
sales in business leaving little room for different interpretations. Thus, this system
brings certainty to a great extent.
4. Transparency : Under a VAT system, the buyer knows, out of the total
consideration paid for purchase of material, what is tax component. Thus, the
system ensures transparency also. This transparency enables the State
Governments to know as to what is the exact amount of tax coming at each stage.
Thus, it is a great aid to the Government while taking decisions with regard to rate
of tax etc.
5. Better revenue collection and stability : The Government will receive its due tax
on the final consumer/ retail sale price. There will be a minimum possibility of
revenue leakage, since the tax credit will be given only if the proof of tax paid at an
earlier stage is produced. This means that if the tax is evaded at one stage, full tax
will be recoverable from the person at the subsequent stage or from a person
unable to produce proof of such tax payment. Thus, in particular, an invoice of VAT
will be self enforcing and will induce business to demand invoices from the
suppliers. Another attribute of VAT is that it is an exceptionally stable and flexible
source of Government revenue.
6. Better accounting systems : Since the tax paid on an earlier stage is to be
received back, the system will promote better accounting systems.
7. Effect on retail price : A persistent criticism of the VAT form has been that since
the tax is payable on the final sale price, the VAT usually increases the prices of the
goods. However, VAT does not have any inflationary impact as it merely replaces
the existing equal sales tax. It may also be pointed out that with the introduction of
VAT; the tax impact on raw material is to be totally eliminated. Therefore, there
may not be any increase in the prices.
Demerits of VAT :
The merits accrue in full measure only under a situation where there is only one
rate of VAT and VAT applies to all commodities without any question of exemptions
whatsoever. Because, once concessions like differential rates of VAT, composition
schemes, exemption schemes, exempted category of goods etc. are built into the
system, distortions are bound to occur and the fundamental principle that VAT will
totally eliminate cascading effects of taxes will also be subject to qualifications.
In the federal structure of India in the context of sales-tax, so long as Central VAT
is not integrated with the State VAT, it will be difficult to put the purchases from
other States at par with the State purchases. Therefore, the advantage of

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neutrality will be confined only for purchases within the State.


For complying with the VAT provisions, the accounting cost will increase. The
burden of this increase may not be commensurate with the benefit to traders and
small firms.
Another possible weak point in the introduction of VAT, which will have an adverse
impact on it is that, since the tax is to be imposed or paid at various stages and not
on last stage, it would increase the working capital requirements and the interest
burden on the same. In this way it is considered to be non-beneficial as compared
to the single stage-last point taxation system.
VAT is a form of consumption tax. Since, the proportion of income spent on
consumption is larger for the poor than for the rich, VAT tends to be regressive.
However, this weakness is inherent in all the forms of consumption tax. While it
may be possible to moderate the distribution impact of VAT by taxing necessities at
a lower rate, it is always advisable to moderate the distribution considerations
through other programmes rather than concessions or exemptions, which create
complications for administration.
As a result of introduction of VAT, the administration cost to the State can increase
as the number of dealers to be administered will go up significantly.

Go To Module-3 QUESTIONS
Go To Contents

Explain : Incidence of VAT.


ANSWER :
(Section 3) Incidence of VAT :
Section 3(1) and 3(3):- Every dealer,
Whose total turnover during the year exceeds rupees five lakhs and whose
taxable turnover exceeds rupees ten thousand in a year (thresholds of
turnover) shall be liable to pay tax with effect from the day on which the
remaining provisions of this Act shall come into force as per Sec. 1 (3)
(hereinafter referred to as appointed day ), or
Who was registered under the earlier law (Sales Tax) or under the Central Act
(CST Act) shall be liable to pay tax with effect from the appointed day or
Whose total turnover and taxable turnover in any year first exceeds the
thresholds of turnover shall be liable to pay tax with immediate effect when
his turnover calculated from the commencement of the year first exceeds the
thresholds of turnover, or
Who is registered or liable to be registered as a dealer under this Act or under

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the Central Act


shall be liable to pay tax with immediate effect when he becomes so liable or the
date of registration under this Act, whichever is earlier.
Section 3(2): A casual dealer or an auctioneer shall be liable to be registered if his
taxable turnover of sales exceeds ten thousand rupees and shall be liable to pay
tax in accordance with the provisions of this Act.
Section 3(3): The dealer shall not be liable to pay tax in respect of thresholds of
turnover as takes place during the period prior to the relevant date of effect under
this sub-section.
Section 3(4): Every dealer who has become liable to pay tax under this Act shall
continue to be so liable until the expiry of one year during which his turnover has
remained below the thresholds of turnover.
Any dealer whose liability to pay tax under this Act ceases or his total turnover
and taxable turnover during the year remains below the thresholds of turnover,
may apply for the cancellation of his certificate of registration;
on such cancellation, his liability to pay tax shall cease, but such a dealer shall
have to pay tax till his certificate of registration is cancelled.
Section 3(5): Every dealer whose liability to pay tax under this Act has ceased
under sub-section (4) or whose certificate of registration has been cancelled, shall,
if his total turnover of sales or purchases calculated from the commencement of
any year (including the year in which the registration has been cancelled) again
exceeds the thresholds of turnover, on any day within such year, be liable to pay
tax with effect from the date immediately following the day on which his total
turnover again exceeds thresholds of turnover of sales effected by him after that
date.
Section 3(6): Whereby an order passed under this Act, it is found that any person
registered as a dealer ought not to have been so registered, then, notwithstanding
anything contained in this Act, such a person shall be liable to pay tax for the
period commencing with the date of his registration and ending with the date of
such order, as if he were a dealer.
(Section 4) Certain Sales and Purchases not liable to tax : Gujarat VAT Act or rules
made there under shall not apply to the following transactions of sales or purchase :
(a) in the course of inter-state trade or commerce; or
(b) trade or commerce outside the State; or
(c) in the course of the import of goods into or export of goods out of the territory
of India,
(Section 5) Exemptions from Levy of VAT :
(1) The sale and purchase of the goods specified in Schedule I shall be exempt

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from tax subject to the conditions and exceptions set out therein against each of
them in column 3 of the Schedule.
(1A) The state government may, by notification in the official Gazette, add to, or
enlarge, any entry in Schedule I, or relax or omit any conditions or exceptions
specified therein, and thereupon the said Schedule shall be deemed to be amended
accordingly.
(2)(a) Subject to such conditions as it may impose, the state government may, if it
considers it necessary in the public interest, by notification in the official Gazette,
exempt any specified class of sales or purchases or sales or purchases of goods by
any specified dealer or specified class of dealers from payment of the whole or any
part of the tax payable under the provisions of this Act.
(2)(b) Where the state government considers it necessary in the public interest to
continue tax exemption granted to the sale or purchase of goods by industrial units
under sub-section (2) of section 49 of the Gujarat Sales Tax Act, 1969, it may, by
notification in the official Gazette, continue such exemption with such modification,
subject to such conditions and for such period, as may be prescribed.
METHODS OF COMPUTATION : VAT can be computed by using any of the three
methods detailed below :
1. The Subtraction method: Under this method the tax rate is applied to the
difference between the value of output and the cost of input;
2. The Addition method: Under this method value added is computed by adding
all the payments that are payable to the factors of production (viz., wages,
salaries, interest payments, etc.);
3. Tax Credit method: Under this method, it entails set-off of the tax paid on
inputs from tax collected on sales.
We in India have opted for tax credit method, which is similar to CENVAT .
PROCEDURE : The VAT is based on the value addition to the goods and the related
VAT liability of the dealer is calculated by :
Deducting input tax credit from tax collected on sales during the payment period.
This input tax credit is given for both manufacturers and traders for purchase of
input/ supplies meant for both sales within the State as well as to the other States
irrespective of their date of utilization or sale.
If the tax credit exceeds the tax payable on sales in a month, the excess credit will
be carried over to the end of the next financial year.
If there is any excess unadjusted input tax credit at the end of the second year
then the same will be eligible for refund.
For all exports made out of the country, tax paid within the State will be refunded
in full.

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Tax paid on inputs procured from other States through inter-State sale and stock
transfer shall not be eligible for credit.
VAT Regime :
Though, VAT has been introduced by 30 States / Uts, Central Sales Tax will
continue to govern inter-State Sales and Exports
Each State has its own VAT Act, Rules, Schedules, and Forms. therefore there will
remain differences even in definitions among various Acts.
Petroleum products, like Aviation Turbine Fuel, Naphtha, etc. used as fuel for
running automobiles are brought under VAT, but credit cannot be taken on the tax
paid thereon.
Tobacco, Textiles and Sugar, which were under additional duty in lieu of excise and
not under State taxation, are brought into the State Tax net at a rate not more
than 4%, thereby integrating these products in the VAT structure.

Go To Module-3 QUESTIONS
Go To Contents

Explain : Input Tax Credit (ITC).


ANSWER :
CREDIT AND SET-OFF UNDER VAT :
Provision relating to ITC is the heart of Vat Act. Under Gujarat VAT, Tax is levied at
each point of sale. Tax levied on purchase point will be allowed to be Credit, also
referred to as input tax credit under VAT.
VAT aims at providing set-off for the tax paid earlier and this is given effect
through the concept of input tax credit.
Input tax credit in relation to any period means setting the amount of input tax by
a registered dealer against the amount of his output tax.
Tax paid on the earlier point is termed as, input tax. This amount is adjusted
against the tax payable by the purchasing dealer on his sales. This credit
availability is called input tax credit.
Input tax is the tax paid or payable in the course of business on purchase of any
goods made from a registered dealer of the State.
Output tax means the tax charged or chargeable under the Act, by a registered
dealer for the sale of goods in the course of business.
In simple words,
input tax is the tax a dealer pays on his local purchases of business inputs which
include raw materials, capital goods as well as other inputs used directly or

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indirectly in his business.


Output tax is the tax that a dealer charges on his sales that are subject to tax.
The input tax credit is to be given for both manufacturers and traders for purchase
of inputs/ supplies meant for both sale within the State as well as to other States,
irrespective of when these were utilized or sold. This also reduces immediate tax
liability.
Input tax paid in excess of 2% on stock transfers to other states will be eligible for
tax credit. It is also to be noted that in certain cases, partial input tax credit is
available in respect of input used for manufacture of exempted goods.
Input tax credit is allowable to a registered dealer for purchase of any goods made
within the State from a dealer holding a valid certificate of registration under the
Act.
No input credit on CST paid on purchases from other states : Central sales tax paid
on inter-state purchases is not eligible for being set off against Value Added Tax
payable in the state..
Input tax credit on capital goods is available for traders and manufacturers.
Input tax on capital goods : While taxes paid on raw materials and inputs are
eligible for set off against taxes on output, taxes paid on capital goods are not
eligible for immediate set-off. The reason perhaps is the huge credit that States
may have to grant in cases of capital purchases of large value. Due to this, tax on
capital goods may be granted, but over a certain period of time.
Input tax in case of export sales : Export sales are zero rated and thereby
exporters are either granted refund of input taxes paid by them or they can adjust
such input tax while making domestic sales.
In some cases, the input tax paid and taken credit of, may have to be reversed as
such, for example, when the material is consumed for personal purposes and not
for business purposes, or when the input including packing materials is used for
manufacture and/or sale as exempt goods etc.
Input Tax Credit provisions can be summarized as under :
Section-11(1) :
(a) A registered dealer who has purchased the taxable goods (hereinafter
referred to as the purchasing dealer) shall be entitled to claim tax credit equal
to the amount of :-
(i) tax collected from dealer by a registered dealer from whom he has
purchased such goods or the tax payable by the purchasing dealer to
registered dealer who has sold such goods to him during the tax period, or
(ii) tax paid by him during the tax period under sub-section (1) or (2) of
section 9 or

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(iii) tax paid by the purchasing dealer under the Gujarat Tax on Entry of
Specified Goods into Local Areas Act, 2001.
(b) The tax credit to be so claimed under this sub-section shall be subject to the
provisions of sub-sections (2) to (12); and the tax credit shall be calculated in
such manner as may be prescribed.
Taxes covered for ITC :
Only VAT, Additional VAT, Purchase Tax (PT) paid under VAT Act, Entry Tax, are
eligible for ITC.
the ITC shall not exceeded to the tax actually paid on purchase.
Purchases Eligible for ITC : Goods must be purchased with following intention:
For sales or resale in the state
For inter state sales or for Export
For branch transfer or consignment to other state (ITC to be reduced by 4 %)
For sales to EOU (Export Oriented Units) or units in SEZ (Special Economic Zone) in
the courses of export
For use as raw material in the manufacture of goods referred in above Para
For use as packing material of goods so manufactured
For use as Capital Goods (not being second hand plant and machinery) in the
manufacture of taxable goods and must be accounted as Fixed Assets and not to be
sold upto five years.
General Conditions for ITC :
1. ITC is available to Registered Dealer (RD) only.
2. No co-relation or nexus with goods is required. Tax paid on any taxable goods
can be used as input tax credit against tax payable on any other taxable goods.
3. ITC made available at the point of purchase itself, if other conditions are fulfilled.
4. Local Purchase made through Tax Invoice is only eligible and purchasing dealer
must receive original Tax invoice.
5. In case of Consignment / Branch or Depot Transfer / Fuel used in
manufacturing, ITC to be reduced by 4%
6. 2% ITC shall be reduced on all local purchase, when the purchase is used for
inter state transactions. w.e.f. 01.07.2010 ( now 1% w.e.f. 1.10.2014)
7. Dealer shall maintain the registers and books of accounts in such manner as
may be prescribed.
ITC NOT available in following case :
1. Not available for purchase from Unregistered Dealer (URD)
2. Purchase made before effective date of your Registration, not eligible

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3. Purchase made from a dealer who has opted for lump sum scheme is not eligible
for ITC.
4. OGS (Other Governmental Service) purchase, Import
5. Purchase of goods which are disposed of otherwise than in sale, resale or
manufacture.
6. Purchase of Exempted Goods under the Act,
7. Purchase of goods used in the manufacture or packing of exempted goods.
8. Purchase of capital goods used in the manufacture of exempted goods or in
generation of electrical energy including captive power.
9. Vehicles of any type and its parts or accessories (not for resale)
10. Purchase not connected with business e.g. stationery, A.C. for office, computer
11. Purchase of goods used as fuels in generation of electrical energy meant for
captive use or otherwise.
12. Purchase of fuel for motor vehicles
13. Purchase of petrol, HSD (High Speed Diesel), crude oils and lignite unless such
purchase is for resale.
14. Purchase of goods for which right to use is transferred.
15. Purchase of capital goods used in execution of any works contract,
16. Purchase made from a dealer after the name of such dealer has been published
u/s. 27 or 97 (suspended or cancelled dealer)
17. Purchase of goods for which no tax invoice is available or in tax invoice the
amount of tax is not separately mentioned.
18. Govt. may by notification specify any goods or the class of dealers that shall
not be entitled to whole or partial tax credit. eg Under this clause, Neptha, Netural
& Associated Gas and LSHS used by Fertilizer Industries.[ No ITC on these goods]
Reversal of ITC :
ITC is required to be reversed (fully or partly) when ITC availed goods are used for
non-specified purposes.
ITC is also required to be adjusted for Debit Note or Credit Note for any change in
consideration if tax is separately shown or for purchase return

Go To Module-3 QUESTIONS
Go To Contents

Write short note : Business (value added tax). (Nov-2012)


Define : Business. (Nov-2011)

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ANSWER :
<work on this>
Business includes,
(i) any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is carried on with a motive to
make profit or gain and whether or not any profit or gain accrues from such
trade, commerce, manufacture, adventure or concern; and
(ii) any transaction of buying, selling or supplying plant, machinery, raw
materials, processing materials, packing materials, empties, consumable stores,
waste products, or such other goods, or waste or scrap of any of them which is
ancillary or incidental to or resulting from such trade, commerce, manufacture,
adventure or concern;

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Discuss : Sales and Dealer. (Nov-2014)


Explain (Gujarat Value Added Tax) : Sale. (Mar-2014)
Write short note : Dealers (value added tax). (Nov-2012)
Define : Dealer. (Nov-2011)
ANSWER :
Sale :
take def from the act <work on this>
sale means a sale of goods made within the State for cash or deferred
payment or other valuable consideration and includes,-
a) transfer, otherwise than in pursuance of a contract, of property in goods for
cash, deferred payment or other valuable consideration,
b) transfer of property in goods (whether as goods or in some other form)
involved in execution of a works contract,
c) delivery of goods on hire purchase or any system of payment by
instalments,
d) transfer of the right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration,
e) supply of goods by any unincorporated association or body of persons to a
member thereof for cash, deferred payment or other valuable consideration,
f) supply of goods by a society or club or an association to its members on

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payment of a price or of fees or subscription or any consideration,


g) supply of goods by way of or as part of any service or in any other manner
whatsoever, or
h) supply of goods being food or any other article for human consumption or
any drink (whether or not intoxicating) where such supply or service is for
cash, deferred payment or other valuable consideration,
i) supply by way of barter of goods,
j) disposal of goods by a person in the manner prescribed in Explanation (iii)
However, "sale" does not include a mortgage, hypothecation, charge or pledge;
and the words sell, buy and purchase with all their grammatical variations
and cognate expressions shall be construed accordingly.
Dealer :
dealer means any person who, for the purpose of or consequential to his
engagement in or, in connection with or incidental to or in the course of his
business buys, sells, manufactures, makes supplies or distributes goods, directly or
otherwise, whether for cash or deferred payment, or for commission, remuneration
or otherwise and includes,-
(a) the central government or a state government or any local authority such as
municipality or municipal corporation or panchayat, a statutory authority, a
company, a partnership firm, a Hindu Undivided Family or any society, club,
association or body, incorporated or not, of persons which carries on business;
(b) a casual dealer, that is to say, a person who whether as principal, agent or in
any other capacity, undertakes occasional transaction of a business nature in
any exhibition-cum-sale or auction or otherwise in the state, whether for cash,
deferred payment, commission, remuneration or other valuable consideration;
(c) an auctioneer, who sells or auctions goods belonging to any principal whether
disclosed or not and whether the offer of the intending purchaser is accepted by
him or by the principal or a nominee of the principal;
(d) a factor, broker, commission agent, del credere agent or an auctioneer or
any mercantile agent, by whatever name called, who carries on business on
behalf of any principal whether disclosed or not;
(e) any person who transfers, otherwise than in pursuance of a contract,
property in any goods for cash, deferred payment or other valuable
consideration;
(f) any person who transfers property in goods (whether as goods or in some
other form) involved in the execution of a works contract;
(g) any person who delivers goods on hire purchase or any system of payment
by installments;

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(h) any person who transfers the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred payment or other
valuable consideration; and
(i) any person who supplies, by way of or as part of any service or in any other
manner whatsoever, goods being food or any other article for human
consumption or any drink (whether or not intoxicating) where such supply or
service is for cash, deferred payment or other valuable consideration.
Explanation:
(i) A society (including a co-operative society), club or firm or an association,
which, whether or not in the course of business, buys, sells, supplies or
distributes goods, directly or otherwise, from or to its members or other persons
for cash, deferred payment, commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for the purposes of this Act.
(ii) The central government or state government or a local authority or railway
administration or port trusts or a statutory body, which, whether or not in the
course of business, buys, sells, supplies or distributes goods, directly or
otherwise, for cash, deferred payment, commission, remuneration or other
valuable consideration, shall be deemed to be a dealer for the purposes of this
Act.
(iii) Any person or body, which disposes of any goods including unclaimed,
confiscated, un-serviceable, scrap, surplus, old, obsolete, discarded, waste or
surplus product or goods, whether by auction or otherwise, directly or through
an agent, for cash deferred payment, commission , remuneration or other
valuable consideration, shall be deemed to be a dealer for the purposes of this
Act.
Exceptions : The following shall not be deemed to be a dealer within the meaning
of this clause :
(i) an agriculturist who sells agricultural produce grown exclusively on land
cultivated by him personally;
(ii) an individual who sells exclusively any fish or any sea-food caught by him
personally or by any member of his family on account of or on behalf of such
individual; and
(iii) a charitable, religious or educational institution, carrying on the activity of
manufacturing, buying, selling or supplying goods, in performance of its
functions, for achieving its avowed objects, which are not in the nature of
business.

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Discuss : Capital good and sales price. (Nov-2014)


Write short note : Capital goods (value added tax). (Nov-2012, Mar-2014)
Explain (Gujarat Value Added Tax) : Sale price. (Mar-2014)
ANSWER :
Capital Goods :
Section 2(5) Capital goods means plant and machinery (other than second hand
plant and machinery) meant for use in the manufacture of taxable goods and
accounted as capital assets in books of accounts.
Input Tax Credit (ITC) On Capital Goods : ITC on Capital Goods is also available,
except on the following :
Capital goods used in the manufacture of goods specified in Schedule I or the
goods exempted from the whole of the tax by a notification under Section 5(2)
or in generation of electrical energy including captive power;
Capital goods, used in transfer of property in goods (whether as goods or in
some other form) involved in the execution of works contract;
Further, the capital good on which input tax credit has been claimed should be
used for a continuous period of 5 years, or else input tax credit is reduced
proportionately.
Sale price :
Sale price [section 2 (h)] (under CST Act)
It means amount payable to a dealer as consideration for the sale of any Goods
which includes the following
central sales tax
excise duty
cost of packing material
packing charges
bonus given for effecting additional sales
insurance charges, if goods are insured by seller
freight charges if, not shown separately
any sum charged for anything done by the dealer in respect of goods at the
time of or before delivery thereof;
Sale price does not includes the following -
freight or transport charges for delivery of goods, if charged separately
cost of installations, if charged separately
cash discounts for making timely payments.

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trade discount
insurance charges of goods insured on behalf of the buyer
goods rejected
goods returned within 6 months of the date of sale

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Write short note : Taxable turnover (value added tax). (Nov-2012, Oct-2013, Mar-
2014)
Discuss : Taxable turnover. (Nov-2014)
Define : Total turnover. (Nov-2011)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
ANSWER :
Definition : Turnover [section 2 (j)] :
It is the aggregate of the sale prices received and receivable by the dealer In
respect of sales of any goods in the course of inter-state trade or commerce made
during a prescribed period. Prescribed period is the period in which sales tax return
is filed.
Situs : (situs means the place to which for purposes of legal jurisdiction or taxation a
property belongs)
Section 4 of the CST Act determines situs of sale: i.e. State in which the sale takes
place. Accordingly the situs is to be decided on the location of the goods at the
time of sale.
Sale/purchase taking place in course of import/export :
Section 5 defines the sale/purchase taking place in course of import/export and
such transactions are immune from levy of any tax by State Government or Central
Government. [(Sections 5(1), 5(2) and 5(3)].
The sale of goods to any exporter for the purpose of complying with the preexisting
order and covered by Section 5(3) is also exempt as deemed export. These sales
are to be supported by Form H along with export order details and copy of bill of
lading etc. as evidence of actual export.
Determination of Turnover : As per section 8 (A) , to determine turnover following
amounts will be deducted
Central sales tax
Sale price of goods returned within six months

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Other items as the central government may notify


Turnover of Purchases means the aggregate of the amounts of purchase price paid
or payable by a dealer in respect of any purchase of goods made by him during a
given period after deducting the amount of purchase price, if any, refunded to the
dealer by the seller in respect of any goods purchased from the seller and returned to
him within the prescribed period;
Turnover of Sales means the aggregate of the amount of sale price received or
receivable by a dealer in respect of any sale of goods made during a given period
after deducting the amount of sale price, if any, refunded by the dealer to a
purchaser, in respect of any goods purchased and returned by the purchaser within
the prescribed period;
Total Turnover means aggregate of the following transactions effected by a dealer :
(a) turnover of sales or purchases of goods within the state whether such sales or
purchases of goods are taxable or exempt under this Act;
(b) turnover of sales of goods in the course of inter-state trade or commerce;
(c) turnover of sales of goods in the course of export of goods out of the territory
of India;
(d) turnover of sales by a dealer on his own account and also on behalf of his
principal.
Taxable Turnover means the turnover of all sales or purchases of a dealer during
the prescribed period in any year, which remains after deducting there from
(a) the turnover of sales not subject to tax under this Act;
(b) the turnover of goods declared exempt under Section 5(1) or under a
notification under Section 5(2), and
(c) in case of turnover of sales in relation to works contract, the charges towards
labour, service and other like charges, and subject to such conditions as may be
prescribed:
Provided that in the cases where the amount of charges towards labour, service
and other like charges in such contract are not ascertainable from the terms and
conditions of the contract, the amount of such charges shall be calculated in a
manner as may be prescribed;

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Discuss in detail : Registration of traders and tax paying liabilities under VAT
Gujarat. (Nov-2014)
Explain the provisions relating to Registration of the dealer in detail under the

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Value Added Tax Act and state its benefits to the Dealer. (Dec-2016)
Discuss in detail : Registration under VAT Act 2003. (Nov-2011, Oct-2013, Mar-2014)
ANSWER :
Registration of traders :
Under Gujarat Value Added Tax Act, 2003 registration can be obtained in the
following three ways :
1. Compulsory Registration :
2. Voluntary Registration :
3. Deemed Registration :
1. Compulsory Registration :
A dealer is compulsorily liable to obtain registration, when it crosses the limit of
turnover as specified u/s 3. A dealer must apply within 30 days in Form 101
immediately after he becomes liable to pay tax under the Gujarat VAT Act.
A dealer who is registered or liable to be registered under the CST Act also will
be required to register under VAT
2. Voluntary Registration :
A dealer having a fixed or regular place of business in the state and is not
required to be registered under section 21, may apply in the prescribed manner
for the certificate of registration to the authority prescribed for the purpose
under section 21.
Dealers applying for voluntary registration have to deposit an amount of rupees
twenty-five thousand in the government treasury otherwise certificate of
registration shall not be granted.
The dealer may, in his return to be furnished in accordance with section 29,
adjust the amount so deposited (Rupees Twenty Five Thousand) against his
liability to pay tax, penalty or interest payable under this Act.
3. Deemed Registration :
Every dealer registered on the appointed day under any of the earlier laws or
under the Central Act shall be deemed to be registered under section 21.
Registration Procedure :
The dealer has to apply for registration in Form 101 to the registering authority in
whose jurisdiction the dealers chief place of business is situated.
A dealer applying for registration voluntarily or compulsorily has to deposit 10,000
as security by filling challan Form 207. This amount will be returned to him within 2
years from the date on which the number is granted. However, the deposit so paid
cannot be adjusted against the payment of tax that is due to the dealer.
In order to obtain voluntary registration a dealer is required to deposit 25,000 in

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the government treasury. The amount so deposited is eligible to be adjusted


against the future liability of Vat Tax, Vat Interest and Vat Penalty. However, it
cannot be set off against any liability to pay CST.
Registration shall be effective from the date he became liable to pay tax. However,
in case of belated application, registration shall be effective from the date he was
liable to be registered under GVAT Act, 2003 and not from the date of application,
and penalty may be levied for late filing of application, and the assessment of
unregistered period will be done separately.
Within 3 working days from the date of application the dealer will get a provisional
registration number and within 30 days from the date of application permanent
registration number will be issued. If the permanent registration number is not
issued within 30 days then it is deemed that the provisional number has been
converted into a permanent number.
The Certificate of Registration is issued in Form 102 under GVAT Act, 2003 and in
Form B under CST Act, 1956.
Dealers can also apply for Tatkal Registration. For purposes of documentation, the
procedure will be the same as above. However, in addition to documentation and
security deposits by e-payment as above, 1000 by e-payment for each registration
as processing fee will also be paid by the dealer. A provisional number will be
issued within 5 working days and a permanent one within 30 days from the date of
online application.
Application for Registration (Rule 5) :
(1) Every dealer who is required by sub-section (1) of section 21 to possess a
certificate of registration or any dealer who intends to apply under sub-section (1)
of section 22 for a certificate of registration, shall make an application in Form 101
along with following documents :
- proof of Identity
- proof of Residential address
- proof of place of business
- certificate issued by the registrar of companies, or Partnership deed in case of
partnership firm or HUF.
- copies of the Challan for payment of the amount of security.
(2) A dealer who becomes liable to pay tax under section 3 shall submit an
application for registration within thirty days of the relevant date of effect
applicable to him as per sub-section (3) of section 3
(3) A dealer having,
(a) one place of business shall make an application for registration to the
registering authority within whose jurisdiction his place of business is situated;

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(b) more than one place of business shall make an application to the registering
authority in whose jurisdiction his chief place of business is situated.
(4) An application for registration shall be made, verified and signed in the case of
a business carried on by proprietor / partner / HUF Karta / Company Director /
Competent Government Authority
(5) The application for registration shall be accompanied by two copies of a recent
passport size photograph of proprietor / partner / HUF Karta / Company Director,
duly attested by a Sales-tax Practitioner whose name has been registered in the list
maintained by the Commissioner or by a gazetted officer or an advocate.
Tax paying liabilities : VAT Liability Determination : work on this
VAT payable = Output tax (Including PT) Input tax (Including PT) + entry Tax if
paid.
If answer comes in negative then it is termed as excess tax credit.
Tax credit of the particular tax period will be adjusted firstly with VAT payable,
thereafter if any excess shall be adjusted against CST payable for the same period
and excess Credit can be carried forward to the next return period. In case of
excess un-utilised tax credit at the year end, the same will be carried forward in
the subsequent year.

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Elaborate the scheme of payment of lump-sum tax in lieu of tax on sales. (Nov-
2011)
Write short note : Composition scheme (value added tax). (Nov-2012, Oct-2013)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
ANSWER :
Lump sum tax in lieu of tax on sales :
1. Option for payment of lump sum tax in lieu of tax on sales Section 14(1)(a) :
The commissioner may subject to such circumstances and such conditions as
may be prescribed permit any dealer whose total turnover has not exceeded
rupees seventy five lakhs in the previous year to pay lump sum tax in lieu of the
amount of tax payable under section 7 of this Act. Permission to pay lump sum
tax shall NOT be granted to a dealer who
(i) Is an importer/exporter
(ii) Does transaction of sale or purchase in the course of interstate trade or

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commerce
(iii) Does the transaction of branch/ consignment transfer to/from outside
the state
(iv) was engaged in the previous year or engaged in the activity of
manufacturing (except notified by the Commissioner)
(v) has effected in previous year or effects the sales or purchases through a
commission agent
(vi) has effected in previous year or effects the sales falling under section
2(23)(b) or (d)
The current rate of lump sum payment of tax as notified by the state
government is 0.5%
The permission granted for lump sum payment of tax remains valid as long as
the total turnover of the registered dealer does not exceed rupees seventy five
lakhs or the registered dealer does not undertake any of the activities mentioned
in clauses (i) to (vi).
Section 14(3): A dealer who is permitted under section 14(1) to pay lump sum
tax shall not
(a) be entitled to claim tax credit in respect of tax paid by him on his
purchases,
(b) charge any tax under this Act in his sales bill or sales invoice in respect
of the sales on which lump sum tax is payable; and
(c) issue tax invoice to any dealer who has purchased goods from him.
A dealer who is permitted to pay lump sum tax under section 14(1) shall be
liable to pay, in addition to the lump sum tax under this section, purchase tax
leviable under subsections (1), (3),(4) and (6) of section 9;
2. Procedure for application and permission for lump sum payment of tax :
Dealers registered after 1 st April, 2006 have to file an application within 90
days from the date of registration.
From 1 st April, 2008, a dealer who is granted permission to pay tax in lump
sum need not file fresh application for renewal of permission every year.
The Commissioner shall communicate his decision regarding the permission or
rejection thereof to the applicant dealer within fifteen working days from the
date of receipt of application. And after making such inquiry as he thinks fit,
ensure compliance of the provisions of the Act and the rules, grant permission
under Section 14 (1) for lump sum payment of tax in Form 211.
If the registered dealer to whom such permission was granted contravenes the
provisions of the Act or the rules, such permission shall be liable to be cancelled
forthwith from the date of the event concerning such contravention.

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If a registered dealer to whom such permission was granted chooses not to avail
it, he shall intimate accordingly to the authority with whom he files the returns
and the authority shall cancel the permission. He shall be liable to pay tax under
the Act from the month immediately succeeding the month during which
permission to pay lump sum has been cancelled on the basis of his application.
Composition Scheme :
Composition of Tax on Works Contract : Section 14A
Section 14A provides for a scheme of composition of tax on works contract. The
Commissioner may, in such circumstances and subject to such cconditions as
may be prescribed, permit every dealer who transfers property in goods
(whether as goods or in some other form) involved in the execution of a works
contract [section 2(10)(f)], to pay lump sum tax by way of composition at the
rate of 2% as notified by the state government in its official Gazette.
Procedure for application and permission for payment of tax under composition
scheme (Section 14A) :
Application in Form 214 is to be made within 30 days from the beginning of
the contract by a dealer who has under section 14 A (Works Contract) opted
to pay a lump sum tax by way of composition of tax. Permission is granted in
Form 215 within fifteen working days from the date of application. Such
permission is effective from the date of the beginning of the contract and is
valid till its conclusion
In case of On Going Works Contract as well as new works contract to be
executed during the year or for the remaining period of the year referred to in
Rule 28(8)(bb), application for paying lump sum tax is to be made in Form
214 A within 30 days before the commencement of the year and permission
shall be granted in Form 215 A within fifteen working days from the date of
application, and permission shall be effective from the beginning of the year.
Dealers who are granted permission to pay lump sum tax under section 14A
need not file a fresh application for renewal and permission granted to them
earlier shall continue subject to other provision of the Act and these rules.
Composition of Tax on Agricultural Produce : (Section 14B) :
The Commissioner may, in such circumstances and subject to such conditions as
may be prescribed, permit a commission agent engaged in the business of
agricultural produce to pay lump sum tax by way of composition at the rate of
0.05% as notified by state government in its official Gazette.
The permission to pay lump sum tax under section 14B(1) shall be granted by
the Commissioner to a commission agent who,-
(a) carries on a business exclusively of agricultural produce, and
(b) is licensed as general commission agent with a market committee

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established under the Gujarat Agricultural Produce Markets Act, 1963.


Procedure and conditions for lump sum payment under section 14B :
An application in Form No 210A is required to be made at any time during a
financial year by a commission agent to the CTO in whose jurisdiction he is
required to furnish return. The required permission shall be granted in Form
211A, subject to the condition that the agricultural produce shall be sold by
the commission agent within twelve months from the date of purchase.
The permission shall be effective from the tax period subsequent to the month
in which application for the permission is submitted.
Composition of Tax on Turnover of right to use the goods : (Section 14C)
The Commissioner may, in such circumstances and subject to such conditions as
may be prescribed, permit a dealer referred to in section 2 (10)(h) to pay at his
option lump sum tax by way of composition at the rate of 4% as notified by the
state government in its official Gazette.
Procedure and conditions for lump sum payment under section 14C :
An application in Form 210 B is required to be made at any time during a
financial year by a dealer to the CTO in whose jurisdiction he is required to
furnish return. The required permission shall be granted in Form 211B, and
shall be effective from the tax period subsequent to the month in which the
application for the permission is submitted.
Composition of Tax on Turnover on sales of eatables by hotels, restaurants,
Caterers etc. (Section 14D) :
The Commissioner may, in such circumstances and subject to such conditions as
may be prescribed, permit a dealer engaged in sale of eatables in any form
(whether processed or unprocessed), served, delivered or given in package from
the place of business of the dealer or any other place, to pay a lump sum tax by
way of composition at the rate of 4% in respect of sale of eatables.
For the purpose of this section, the word eatables means all kind of foods for
the purpose of consumption, including all types of beverages, water (mineral,
purified or aerated) and soda waters, ice-cream and kulfi, sweets and
sweetmeats, fruits and fruit juice, all type of milk preparations, bakery products
and such other goods as the state government may, by order, specify.
The dealers engaged in the manufacture of alcoholic and non-alcoholic
beverages including soda water, aerated, mineral, purified, medicinal, ionic or
demineralized water or water sold in sealed containers, ice cream, kulfi, biscuits
(branded) shall NOT be granted permission to pay lump sum tax u/s.14D
Procedure and conditions for lump sum payment under section 14D :
From F.Y. 2007-08 and onwards, application is to be filed in Form 210C within
30 days before the commencement of a new financial year. The required

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permission granted in Form 211C is valid as long as provisions in this respect


are complied with.
With effect from 1 st April 2008, the permission once granted need not be
renewed every year.
A dealer is required to display conspicuously at each place of his business,
including branches, a notice with the phrase Tax is not charged separately.
As per Rule 28C, permission shall not be granted to the dealer who has in
stock or who purchases eatables or any raw material thereof, in any form
(whether processed or unprocessed) in the course of inter-state trade or
commerce or import such goods from a place outside the territory of India, or
receives eatables or raw material thereof (whether processed or unprocessed)
in any form from his branch situated outside the state or from a consigning
agent outside the state or who have not borne the tax payable under the Act.
Exception: The dealer who has been granted such permission may
purchase goods which are not produced in the state due to legal
constraints, for the purpose of sales in the same form, subject to the
following conditions
Such a dealer shall be liable to pay tax under section 7 on the turnover
of sales of such goods;
Such sales shall not be included in the total turnover of sales for
calculating the amount of lump sum tax;
Such a dealer shall keep separate accounts for the purchase and sale of
such goods.

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Explain (Gujarat Value Added Tax) : Purchase price. (Mar-2014)


ANSWER :
Refer :

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Module - 4) Central Sales Tax Act (15 Marks)


Refer :
http://cyberadvocate.in/pluginfile.php/482/mod_resource/content/1/NOTES%20ON
%20CENTRAL%20SALES%20TAX.pdf
https://www.scribd.com/doc/23986366/Central-Sales-Tax-Act

Module-4 QUESTIONS :
General Notes : Central Sales Tax
Discuss in detail : Provisions relating to inter-state purchase and sales under central
sales tax act. (Nov-2014)
Write short note : Sale outside state (Central sales tax). (Nov-2012)
Explain : Interstate sales and purchase (Central Sales Tax Act). (Oct-2013)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
Write short note : Compulsory and voluntary registration (central sales tax). (Nov-
2012, Nov-2014)
Write short note : Registration of a dealer. (Nov-2011)
Write short note : Place of business (central sales tax). (Nov-2012)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
Write short note : Appropriate state (central sales tax). (Nov-2012)
Explain : Sales and dealer (Central sales tax). (Oct-2013)
Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
Explain : Sales Price (Central Sales Tax Act). (Oct-2013)
Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
Write short note : Declared goods (Central sales tax). (Nov-2011, Nov-2012, Oct-
2013, Mar-2014)
Explain (Central Sales Tax) : Sale-purchase in the course of export/ import. (Mar-
2014)
Explain (Central Sales Tax) : Discuss different rates of taxes under CST. (Mar-2014)
Discuss : Provisions relating to different types of offence and penalty and different
rates of taxes under CST act. (Nov-2014)
Discuss the provision of penalties and offenses under Central Sales Tax Act 1956.
(Nov-2011)

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Explain : Discuss different types of offenses and provisions of penalty under Central
Sales Tax. (Mar-2014)
Write short note : Appellate authority. (Nov-2011)

Go To Contents

Module-4 ANSWERS :

General Notes : Central Sales Tax


ANSWER :
Introduction :-
India is a democracy which is run by the people for the people, where the money to
administer and develop the country also come from the people. Taxes are the
primary source of income for the government and are used to maintain the nation.
The government imposes different types of taxes on different products and
services, in a bid to improve governance and improve infrastructure.
Central Sales Tax is an integral component of the tax structure of the country,
having been introduced in the sixth Constitutional Amendment. Central Sales Tax
has been a major source of revenue for the government since its inception and is
considered crucial in Indian trade and commerce.
Sales Tax is a state subject. Entry 92A of List I and entry 54 of List II of the
constitution of India demarcates the power of Central Govt. and State Govt. to levy
tax on sale of goods.
Entry 92A of List I empowers Central Govt. to levy taxes on the sale and purchase
of goods other than newspaper, where such sale or purchase takes place in the
course of interstate trade or commerce. Thus legislation in respect of interstate
transactions, exports and imports is a prerogative of the parliament.
The Central Sales Tax Act 1956 extends to whole of India. Therefore interstate
movement of goods from and to any part of India as a result of trade, commerce
and other business activity, export of goods from any part of the India and import
of goods in any part of India would be governed by the Central Sales Tax 1956.
CST is an indirect, origin based tax on customers and is payable in the state where
a particular product is sold. CST is charged only on inter-state transactions and any
transaction within a state or import/ export of goods does NOT fall under its
purview.
Levy and collection of tax under CST :-
Even though the Act is called as the Central Sales Tax Act, the taxes are levied
under the Act by the concerned State Governments and collected by them and they

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retain the full amount collected under CST.


Concerned State Sales Tax law is applicable in relation to return, assessment,
appeals, recovery, etc.
It is matter of interest that only 24 sections are there in the CST Act.
Under the CST Act the right to tax a sale in the interstate trade is conferred on the
State from where the movement of goods commences. Such state is defined as an
Appropriate State in the Act.
OBJECTIVES OF CST ACT :
a. To give out the principles for determining Inter State Sale (ISS) or Sale outside
a state or Export sale or Import sale.
b. Provide for the levy, collection and distribution of taxes on sale of goods in the
course of interState trade.
c. Declare certain goods to be of special importance (Called Declared goods).
d. Specify the restrictions and conditions on state laws imposing taxes on declared
goods.
e. To provide for collection of tax in the event of liquidation of a company.
FEATURES OF CST ACT :
a. It states that every dealer who makes an ISS must be a registered dealer.
b. Such dealer, who makes an Inter State Sales, is liable to pay Central Sales Tax
c. Sec.3 explains when the sale of goods will be called an ISS.
d. It explains what is an import and export sale.
e. Sec.4 explains when a sale will be outside all other States.
f. Normally CST is charged at a single point, but in some cases there can be
multiple point tax on account of subsequent sale.
g. Goods for the purpose of CST have been divided into Declared & other goods.
h. CST is leviable from the first rupee of sales made in the course of Inter State
sale.
i. The Central Sales Tax is levied under this Act but it is collected by the State
Government from where the goods have been sold.
CHARGE OF CST :
Sec.6(1) of CST Act provides that subject to other provisions of the CST Act, every
dealer shall be liable to pay tax under this Act on all sale of goods (other than
electrical energy) effected by him in the course of Inter State trade. Sec.6(1) is
called Charging Section as it imposes levy on sale of goods on Inter State sale.
Illustrations :
No tax on sale of newspaper, because it is Not goods (Sec.2(d))

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No tax on sale of Electricity, because it is excluded from charging Section 6.


No tax on Export/Import Sale, because CST applies to ISS sale only (Sec.6(1)).
CST is leviable on all sales, because the wordings in Sec.6(1) are such (No free
limit or second sales exemption as in state laws).
Central Sales Tax Exemptions : Central Sales Tax is exempted on certain occasions,
some of which are mentioned below :
Central Sales Tax is excluded if outward freight is charged separately and if the
outward insurance of goods are passed on to a buyer during dispatch.
No CST is to be paid if goods are returned within 180 days.
CST is exempted in cases when a sale within a particular state is exempt.
Any sale to SEZs and foreign missions are exempt from CST

Go To Module-4 QUESTIONS
Go To Contents

Discuss in detail : Provisions relating to inter-state purchase and sales under central
sales tax act. (Nov-2014)
Write short note : Sale outside state (Central sales tax). (Nov-2012)
Explain : Interstate sales and purchase (Central Sales Tax Act). (Oct-2013)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
ANSWER :
Introduction :
Objectives stated in the text of the CENTRAL SALES TAX ACT is To formulate
principles for determining--
(a) When a sale or purchase takes place in the course of inter-state trade or
commerce.
(b) When a sale or purchase takes place outside a State.
Definition : Inter-Sate sale : Section 3 of the CST Act :
A sale or purchase of goods shall be deemed to take place in the course of inter-
state trade or commerce if the sale or purchase-
(a) occasions the movement of goods from one state to another ; or
(b) is effected by a transfer documents of title to the goods during their
movement from one State to another.
Explanation 1.Where goods are delivered to a carrier or other baileee for
transmission, the movement of the goods shall, for the purposes of clause (b),

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be deemed to commence at the time of such delivery and terminate at the


time when delivery is taken from such carrier or bailee.
Explanation 2. Where the movement of goods commences and terminates in
the same State it shall not be deemed to be a movement of goods from one
State to another by reason merely of the fact that in the course of such
movement the goods pass
through the territory of any other State.
An analysis of the above definition would reveal that there are two parts of Section
3 which lay down the circumstances under which the sale is said to take place in
the course of Inter-State Trade or Commerce.
Section 3(a) deals with inter-state sale which occasions the movement of goods
from one state to another.
Section 3(b)deals with sale which is effected by transfer of documents of title to
the goods during their movement from one State to another.
Salient features of inter-State sale :-
(i) There should be a completed sale.
(ii) There should be agreement or contract with a stipulation regarding movement
of goods from one State to another State.
(iii) The goods should move due to the stipulation in the agreement or contract.
(iv) Concluded sale should take place in a State which is different from the State
from where the movement started.
(v) The movement might be incidental to the contract of sale.
(vi) Where the property in the goods passes on to the buyer is not important.
(vii) The sale can precede the movement of the goods or movement of the goods
can precede the sale.
(viii) If the movements of the goods commence and terminates in the same State,
even though it passed through other State, it will not be treated as inter-State
sale.
Who can collect the tax ?
State from which movement of goods commences is entitled to collect the CST.
As per the provision of sec.9(1) The Tax payable by any dealer under this Act on
sales of goods effected by him in the course of interstate trade or commerce,
whether such sales fall within clause (a) or clause (b) of sec.3 shall be levied by the
Government of India and the tax so levied shall be collected by that Government in
accordance with the provisions of sub sec.(2), in the state from which the
movement of the goods commenced.
Important Case Laws distinguishing Inter-State Sales and Local Sales :

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(1) CST v.Lakhmi Ladha & Co. 77 STC 366(Bom) In this case Lakhmi Ladha & Co
was manufacturer of Tarpaulins at Bombay. They entered into contract with Gujrat
State Road Transport Corporation for supply of Tarpaulins to Ahemedabad. The
goods were first transferred to Branch at Surat and that branch delivered the goods
to the Transport Corporation. It was held to be inter-State transaction as the goods
had moved from Bombay to Surat under a contract of sale.
(2) State of Bihar v. Tata Engineering & Locomotive Company Ltd. 27 STC
127(S.C.) Tata Engineering & Locomotive Company Ltd. had agreement with the
dealers stipulating that delivery of the vehicles will be made in the State of Bihar
and the dealer had to remove the goods to place outside the State. TELCO
delivered the vehicles against payment to the dealers in Bihar and this was held by
Supreme Court as inter-State sale.
(3) CST Delhi v. Motorades 89 STC 542(Delhi) Dealer in Delhi sold auto part to
government departments of Himachal Pradesh and Haryana Governments. Vehicles
sent from those state to Delhi, parts were fitted therein by the dealer and vehicles
reached to purchasers and parts supplied approved orally. In this case Delhi High
Court held that there is implied term that parts will move from Delhi to H.P. or
Haryana and it was held as inter-State sale.
(4) Sahney Steel Press Works Ltd. v. Commercial Tax Officer (1985)60 STC 301
(S.C.) The customer placed an order with the local branch office and the branch
office communicated the terms and specifications of order to registered office.
While delivering this landmark judgment the apex court has observed that the
movement of goods from the registered office in Hyderabad was occasioned by the
order placed by the customer and movement was an incident of the contract and
therefore from the very beginning from Hyderabad all the way until delivery to the
customer it was an interstate movement.
(5) NCR Corporation India Pvt.Ltd. VS. Dy.Commssioner of Commercial Taxes,
Bangalore. The Karnataka High court decided if there is a conceivable link between
movement of goods and the buyers contract and such a nexus otherwise
inexplicable, then the sale of specific or ascertain goods ought to be deemed to
have taken place in the course of interstate trade or commerce irrespective of
presence of an intermediary such as the sellers own representative or branch
office.
(6) In the case of State of Tamilnadu Vs. Sun Paper Mill Ltd. (2009) 23 VST 191
(Mad) Madras High court decided that newsprints sold by seller in Tamilnadu to
buyer in Kerala during the movement the said goods were dispatched to the
place in Tamilnadu only for converting newsprints into news magazine and
thereafter sent to Kerala. Movement of goods contemplated under contract and no
sale thereof in Tamilnadu. Sale was interstate sale.
(7) In the case of DCM Ltd. Vs. Commissioner of Sales Tax Delhi (2009) 21 VST

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417 (SC). The apex court laid down the principle that purchasing dealers took the
deliveries in the state of sale but were under obligation to take the delivered
material out of the state of sale (Delhi) and to sale in respective assigned
territories at the price fixed by the assessee , such sale to purchasing dealer is an
interstate sale only.
(8) In the case of state of A.P. Vs. Computer Graphics Pvt.Ltd. (2009) 21 VST 42
(A.P) The A.P. High court decided as the goods sold were ascertained goods in a
deliverable state, --->the property in those goods, sold by respondent, passed to
the buyer immediately on the delivery of the goods to the person authorized by the
principal outside state <--- even though such authorized person dispatched those
goods outside the state to the said principal the sale is decided as local sale.
Inter-State Sale by a transfer documents of title : section 3(b)
Sale under this sub-section is known as Sale In Transit or Sale effected by of
Documents of title to the goods.
Section 2(4) of the Sale of Goods Act, 1930 defines Document of the title of
Goods.
Ingredients of Sale in Transit u/s 6(2) read with sec. 3(b) :
A sale or purchase of goods shall be deemed to take place in the course of inter-
State trade, if the sale or purchase is effected by a transfer of documents of titles
to the goods during their movements from one State to another. If any sale is to
be treated as sale in transit, the following conditions are to be satisfied :
(i) Subsequent sale should be of the very goods which were sold under the first
Inter-State sale.
(ii) It is to the dealer, registered under C.S.T.
(iii) Goods sold are covered in Registration Certificate by description of goods
covered by Section 8(3) of the CST so far as subsequent purchaser is concerned.
(iv) Form E-I or E-II issued by dealer from whom the goods were purchased
were produced.
(v) Form-C issued by subsequent purchaser is produced.
(vi) If subsequent buyer is a Government Department, it has to issue Form-D.
W.e.f. 01.04.2007 Form D not allowed.
SEC.6(1A) : LIABILITY TO TAX ON INTER-STATE SALES :
A dealer shall be liable to pay tax under the CST Act on the sale of any goods
effected in the course of inter State trade though no tax is leviable under the local
sales tax Act of the appropriate State if such sale is Intra state sale.
Therefore exemption in the local sales tax law is irrelevant for the purpose of
Central Sales Tax Act. E.g.: In some states, take for e.g. Tamilnadu, no Local
sales tax is levied on sales upto prescribed limit (For e.g. it is 3 lakhs in

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Tamilnadu). But these goods which escape tax under local sales tax cannot avoid
tax in CST ACT.
Suppose Mr.A's sales turnover under TNGST is less than Rs.3,00,000. No tax
under TNGST up to a turnover of Rs.3,00,000. However CST is payable on 3
lakhs also.
Sec.6(2) - Concept of subsequent sales in CST:
However exemption is available to the 2nd & subsequent inter state
sale provided such sale is effected by transfer of documents of title
during the movement from one State to another.
Conditions to be fulfilled for availing this exemption :
a. There must be an ISS by a registered dealer to another
registered dealer/Government.
b. During the movement of such goods from one state to another, a 2 nd inter
State sale by transfer of documents of title should take place.
c. Such transfer of documents should be either to the Government
or to a registered dealer other than Government.
d. The dealer who makes the first inter state sale should give Form E-I to the
purchasing registered dealer /Govt. and obtain Form C/D as the case may be,
from him.
e. The registered purchasing dealer, who made the subsequent sale by transfer
of documents of title, will issue Form E-II to the subsequent
registered purchasing dealer / Government and must obtain C/D form from
them.
f. Similar procedure will be followed for any subsequent sale which may take
place during the movement of such goods.
E.g.: X of Delhi places an order of 1000 bales of cotton with Y of Bombay. Y
dispatches the goods and sends railway receipt to X. X sells an
identical quantity of cotton to Z of Amritsar. He endorses the railway
receipt (sent by Y) in favour of Z and rerouted the goods to Amritsar.
In this case, if other conditions are satisfied, the sale of goods by X to Z is
exempt from the central sales tax. If, however, X takes delivery of cotton bales
at Delhi and then books these goods to Amritsar in pursuance to his sale to Z,
the sale from X to Z cannot be subsequent sale as it is not effected during the
movement of goods from one State to another (it is effected after the movement
of goods comes to an end).
The following declaration forms must be issued by the various dealers:
Original Inter State Sale [Section 3(a)] --- Buyer Issues From C --- Seller Issues
Form E-I

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Next Inter State sale by transfer of documents of title to goods --- Buyer Issues
From C --- Seller Issues Form E-II
Subsequent sale u/s. 6(2) in Sec.3(b) mode --- Buyer Issues From C --- Seller
Issues Form E-II
Second subsequent sale during same transit --- Buyer Issues From C --- Seller
Issues Form E-II
Note :
a. Any number of subsequent Inter state sales effected in the course movement of
the goods from one state to another by transfer of documents of title by one
dealer to another shall be exempt provided the above conditions are
fulfilled and relevant forms are obtained and filed.
b. Inspite of the exemptions available for subsequent sale u\s. 6(2), multiple
taxation takes place in the following situations
Subsequent sale u\s. 6 (2) made by one registered dealer to an
unregistered dealer.
Subsequent sale made by the above said unregistered dealer to a
registered dealer and a subsequent sale by the latter to another registered
dealer and so on.

Go To Module-4 QUESTIONS
Go To Contents

Write short note : Compulsory and voluntary registration (central sales tax). (Nov-
2012, Nov-2014)
Write short note : Registration of a dealer. (Nov-2011)
ANSWER :
Registration of Dealers (SEC.7) : Sec-2(f) --- REGISTERED DEALER - Means a
dealer who is registered u/s.7.
According to Sec-2(b), DEALER means any person who carries on the business of
buying or selling or supplying or distributing goods, for cash or for credit or for
commission and includes:
a. A local authority, a company, any co operative society or other society, club,
firm, Hindu Undivided Family or other association of persons which carries on
such business.
b. A broker, commission agent, del credere agent by whatever name called, who
carries on business of buying, selling, supplying or distributing goods belonging
to any principal whether disclosed or not

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c. An auctioneer who carries on the business of selling or auctioning goods


belonging to any principal, whether disclosed or not.
Is government a dealer ? (Expl.2)
Government when buys or sells or supplies or distributes goods, for cash or for
credit or for commission shall be deemed to be a dealer.
However, such Government shall not be deemed to be a dealer in relation to any
sale, supply or distribution of surplus, un-serviceable or old stores or waste
products or obsolete or discarded machinery or parts thereof.
Illustration :
a. The goods of a Maharaja are sold by an Auctioneer. Who will pay tax, Maharaja
or Auctioneer?
Auctioneer is the dealer. Tax is payable by the dealer.
b. A forest officer of the Government of Andhra Pradesh sells sandalwood as well as
discarded furniture. Is he a dealer?
He is a dealer for the sale of sandalwood only. He is not a dealer for the sale of
condemned furniture.
Note : In order to be a dealer, ownership of goods is not essential, as the dealer
can be an agent on behalf of the principal for such goods.
Registration : Mandatory/ Optional :
1. Compulsory : As per Sec.7(1), every dealer liable to pay Central Sale Tax has to
register himself with sales tax authority. (As per section 6(1) of CST Act, every
dealer effecting sale in the course of Inter State trade is liable to pay CST).
2. Voluntary registration : It can be applied if the following two conditions are
satisfied :
a. He must be a dealer liable to pay tax under the Sales Tax Law of
appropriate State.
b. He is not liable to pay tax under the CST Act, i.e. he does not make an ISS.
Voluntary registration is useful when dealer makes Inter state PURCHASES but
all his sales are intra state.
Voluntary registration is also useful when dealer, who usually makes intra-state
sale, but saves headache of emergency registration in case an opportunity
presents him to make Inter state sales.
BENEFITS OF REGISTRATION :
Concessional rate of tax on Inter state purchases under cover of C form.
Exemption from payment of tax under Sec.6 (2) {re-sale involving
telecommunications, mining, generation or distrubution of electricity.
Branch transfer/stock transfer is exempt by submitting Form F.

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Can claim benefit U/s 5(3) by issuing H form.


No tax on purchases by a unit in Special economic zone.
The dealer can avoid penalty or prosecution proceedings for non-registration.
SECURITY AMOUNT FOR REGISTRATION :
1. Purpose : The security is demanded for ensuring
(a) Proper collection of tax payable under the Act
(b) For the proper custody and use of the forms prescribed under the Act.
2. Amount :
a. The registering authority can demand for security not exceeding in the
aggregate the tax payable for the year on the turnover estimated.
b. Demand can also be raised for furnishing of security in addition to the security
already furnished, for keeping pace with the growth of business.
3. Timing : The security can be demanded before or after granting the registration.
4. Mode of security : The registering authority may require the dealer to furnish
security in any one or more of the following modes: (a) Cash (b) Promissory notes
(c) Post office certificates (d) Post office savings pass book (e) FDRs of any
scheduled bank (f) Surety bond of a dealer etc.
5. Surety :
a. Where the security furnished by a dealer is in the form of a surety bond &
b. The surety becomes insolvent or dies, the dealer should inform the
registration authority within 30 days of the occurrence of the event &
c. Within 90 days furnish a fresh bond or furnish other security for the amount of
the bond.
6. Forfeiture :
a. The Security can be forfeited by the authority granting the registration :
For realising any amount of tax or penalty payable by the dealer.
If the dealer is found to have misused any of the forms or
If the dealer is found to have failed to keep them in proper custody.
b. The dealer shall be given an opportunity of being heard.
7. Refund : The authority granting a certificate of registration may, on application
by the concerned dealer, refund the part or whole of the security if not required.
8. Appeal : Any person aggrieved by an order passed by the registration authority
demanding security or forfeiting or refunding security can prefer an appeal against
such order within 30 days of the service of order, after furnishing the security.
9. Delay :
a. The appellate authority may, for sufficient cause, permit the filing of appeal

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belatedly or without furnishing whole or part of such security.


b. The order passed by the appellate authority in any appeal shall be final.
WHO CAN APPLY FOR REGISTRATION ?
Application has to be signed by (a) Proprietor of business (b) One of the partners in
case of business owned by partnership firm (c) Karta or Manager of HUF (d)
Director or principal officer of Company (e) Principal Officer in case of AOP or (f)
Officer authorised by Government in case of Government.
AMENDMENT OF CERTIFICATE OF REGISTRATION :
A certificate may be amended either on the request of the dealer or by the
authority himself after due notice to the dealer. The amendment is done in the
following circumstances :
a. When there is a change in the name of the business Or
b. When there is a change in the nature of the dealers business Or
c. When there is a change in the class or classes of goods Or
d. Change/addition of place of business, warehouse etc.,
e. For any other reason.
CANCELLATION OF REGISTRATION :
1. Cancellation by the Assessing Authority by its own motion: This can be done,
after giving an opportunity to the dealer, under the following circumstances :
a. If the dealer has ceased to carry on business Or
b. If the dealer has ceased to exist Or
c. If the dealer fails to furnish security or additional security when asked for Or
d. If the dealer fails to furnish fresh surety bond within 90 days on the death of
the surety or his becoming insolvent Or
e. If the dealer fails to pay any tax or penalty payable under this Act.
f. If the dealer ceases to pay tax under the Sales Tax law of the appropriate
State.
g. For any other sufficient reason.
2. Voluntary :
a. A registered dealer may apply within 6 months before the end of a year to the
authority for the cancellation & the authority shall cancel the registration if the
dealer is not liable to pay tax under this Act.
b. Any such cancellation shall take effect from the end of the year.
Note : Registration certificate is not transferable.
EFFECTIVE DATE OF REGISTRATION :
Compulsory registration is effective from the date of inter state sale if the

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registration is applied within 30 days of making the inter state sale. However,
voluntary, registration will be effective from the date of making the application for
registration.

Go To Module-4 QUESTIONS
Go To Contents

Write short note : Place of business (central sales tax). (Nov-2012)


Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
ANSWER :
Definition : Section 2 (aa) of CST Act : business includes
(i) any trade, commerce or manufacture, or any adventure or concern in the
nature of trade, commerce or manufacture, whether or not such trade
commerce, manufacture, adventure or concern is carried on with a motive to
make gains or profit and whether or not any gains or profit accrues from such
trade, commerce, manufacture, adventure or concern; and
(ii) any transaction in connection with or incidental or ancillary to, such trade,
commerce, manufacture, adventure or concern.
Note:
<highlighted portion is same as definition of business in IT Act>
Profit motive is immaterial.
Business includes Adventure, occasional transactions will also be covered.
Adventure implies some speculation.
Incidental or ancillary business is also covered e.g. sale of used fixed assets,
sale of scrap, sale of old machinery & old furniture etc. is taxable, though
normally the dealer may not be in business of selling fixed assets, furniture or
machinery e.g. Central Excise Authorities selling the goods confiscated by them
are liable to pay sales tax
Definition : Section 2(dd) : Place of business includes -
(i) In any case where a dealer carries on business through an agent by [whatever
name called], the place of business of such agent;
(ii) a warehouse, godown or other place where a dealer stores his goods, and
(iii) a place where a dealer keeps his books of account;
Discussion :
This is an inclusive definition i.e.other places of business e.g. where dealer has a
shop factory is obviously covered.

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A dealer can be have more than one places of business within one State or even
within one city.
If he has places of business in different States, he will have to register in each
such State.
There are certain rules which an individual participating in interstate trade is
expected to adhere to. Accordingly, the certificate of registration should be kept at
the principal place of business and copies of the registration should be displayed at
all other business locations.

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Write short note : Appropriate state (central sales tax). (Nov-2012)


ANSWER :
Refer :
https://www.scribd.com/doc/23986366/Central-Sales-Tax-Act
Definition : Section 2(a) of CST Act : Appropriate State means
(a) in relation to dealer who has one or more places of business in the same State,
that State,
(b) in relation to a dealer who has places of business situated in different States,
every such State with respect to place or places of business situated within its
territory.
Thus, a dealer has to register only with sales tax authorities where he has place of
business.
Illustration :
1. IF a dealer has place of business at Allahbad, Kanpur, Varanasi and Lucknow,
THEN appropriate state is Uttar Pradesh.
2. IF a dealer has place of business at Allahbad and Varanasi, Bhopal and Katni,
THEN
for Allahabad & Varanasi appropriate state is Uttar Pradeshand, while
for Bhopal and Katni appropriate state is M.P.
Importance of Appropriate State :
The administration, levy and collection of tax has been delegated to the state,
although it is a Central Act.
The provisions regarding returns, appeals, penalties, etc. are dealt with by the
appropriate state.

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The tax payable by a dealer depends on the rates applicable to the sale or
purchase of goods in the appropriate state.
Registration is carried out in the appropriate state.
The authority to assess, reassess, collect and enforce the payment is entrusted to
the officers of the appropriate state.

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Explain : Sales and dealer (Central sales tax). (Oct-2013)


Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
ANSWER :
Sales :
Section 2 (g) defines that Sale with its grammatical variations and cognate
expressions, means any transfer of property in goods by one person to another for
cash or for deferred payment or for any other valuable consideration, and
includes a transfer of goods on hire-purchase or other system of payment by
installments,
but does not include a mortgage or hypothecation or a charge or pledge on
goods.
Essential elements of sale :
(1) there must be transfer of goods;
(2) general property in the goods should be transferred to buyer from seller;
(3) consideration i.e. price must be paid or agreed to be paid;
(4) there must be two parties buyer &seller;
(5) valid mutual consent of both parties is essential.
Deemed Sale [ Sec.2(g) (i), (ii), (iii), (iv), (v) and (vi)]
i. Transfer of property in goods for Cash, Deferred Payment or Other Valuable
Consideration;
ii. Transfer of Property in goods (whether as goods or in some other form)
involved in the execution of Works Contract;
iii. Delivery of goods on Hire Purchase or under Instalment System;
iv. Transfer of right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration;
v. Supply of goods by any unincorporated association or body of persons to a

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member thereof for cash, deferred payment or other valuable consideration;


vi. Supply, by way of any service, of goods, being food or any other article for
human consumption or any drink (whether or not intoxication), where such
supply or service, is for cash, deferred payment or other valuable consideration.
Notes :
Hire-purchase is also included in the definition of sale.
Sales tax cannot be levied on the full value of Works Contract but only on value
of goods actually transferred in execution of works contract.
Incidence of tax only when property in goods is transferred, and property is
transferred only when goods are ascertained. ie No Tax untill the goods remain
un ascertained.
CST is payable even if there is compulsory transfer under Government orders, if
goods are a controlled commodity.
Sale of illegal goods are also liable to sales tax.
Sales include Barter. There are some transactions which are not sales : (a)
Charge/ mortgage/ hypothecation etc. (b) Leasing (c) Job work/ processing (d)
Consignment/ depot transfer/ branch transfer (e) Work contract.
Dealer :
Definition : Dealer [Sec. 2 (b)] : dealer means any person who carries on
(whether regularly or otherwise) the business of buying, selling, supplying or
distribution of goods, directly or indirectly, for cash, or for deferred payment, or for
valuable consideration, and includes
(i) a local authority, a body corporate, a company, any co-operative society,
club, firm, Hindu Undivided Family or other association of persons which
carries on such business
(ii) a factor, broker, commission agent, del- credere agent, or any other
mercantile agent, by whatever name called, whether the same description as
herein-before mentioned or not, who carries on the business of buying,
selling, supplying, or distribution, goods belonging to any principal whether
disclosed or not and
(iii) an auctioneer who carries on the business of selling or auctioning goods
belonging to any principal, whether disclosed or not and whether the offer of
the intending purchaser is accepted by him or by the principal or a nominee of
principal and
(iv) Any government which whether or not in course of business, buys or
sells, supplies or distributes goods for cash or for deferred payment or for
commission, remuneration or other valuable consideration
IS DEEMED TO BE A DEALER.

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However, in relation to any sale, supply or distribution of surplus, un-serviceable or


old stores or materials or waste products or obsolete or discarded machinery or
part of accessories, thereof, the government shall NOT be deemed to be a dealer
under this Act.
Illustration : Following are not dealers :-
(a) a tailor; (b) a dry cleaner; (c) a doctor who treats a patient; (d) ornament
maker who is contractor for work and labour; (e) a photographer; (f) a painter;
(g) a sculptor; (h) an advertising professional (i) an artist who creates a work of
art for reward (j) a newspaper publisher (k) a radiologist.
Note: If the damaged goods of insurer are possessed by insurance company
under the doctrine of Subrogation; which is sold by the insurance company
later on, than the insurance company shall be treated as dealer.

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Explain : Sales Price (Central Sales Tax Act). (Oct-2013)


Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
ANSWER :
Sale :
<discussed elsewhere in this doc>
Sale Price :
[Sec-2(h)] : Sale Price means the amount payable to a dealer as consideration
for the sale of any goods, less any sum allowed as cash discount according to the
practice in the trade, but inclusive of any sum charged for anything done by the
dealer in respect of the goods at the time of or before the delivery thereof other
than the cost of freight or delivery or the cost of installation in cases where such
cost is separately charged.
Sale price is the amount payable to the seller by the buyer, which includes the
following :
(a) Consideration for the sale of any goods;
(b) Any sum charged for anything done by the seller in respect of the goods at
the time of or before the delivery thereof.
However, the following deductions will be allowed from the above sale price :
(i) Any sum allowed as cash discount according to the practice prevailing in the
trade. This deduction will be allowed from the amount given from the

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consideration.
Although the Act talks above cash discount as deduction it has been held by
various courts that the trade discount, additional discount, quantity discount,
etc., are also deductible from the consideration.
(ii) The cost of freight for delivery or the cost of installation in case where such
cost is separately charged. If the freight or delivery or installation charges are
already included in the selling price and not being separately charged, no
deduction of such freight etc., will be allowed in calculating the sale price.
The sale price includes Central Sales Tax whether it is shown separately or not.
The Andhra Pradesh High Court held in State of Andhra Pradesh v. T.V. Sundaram
Iyengar and Sons Ltd.(1987) 65 STC 41, that ordinarily any concession shown in
the price of goods for any commercial reason would be a trade discount which can
be legitimately claimed as a deduction from the turnover and the fact that the
discount was not allowed at the time of sale but on a later date, does not make it
any-the-less a trade discount.
Cash discount should be known at the time of sale : In C.T.O.v. Radiant Industries
of India (1994)95 STC 463, it was a contrary decision. The court held that if at the
time of effecting the sale or entering into the contract of sale no such stipulation is
made and subsequently a contract is entered into then it would not be reducing the
price of the sale which has already been concluded.

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Write short note : Declared goods (Central sales tax). (Nov-2011, Nov-2012, Oct-
2013, Mar-2014)
ANSWER :
What are goods ? Section 2 (d) of CST Act defines that goods includes all materials,
articles, commodities and all kinds of movable property, but does NOT include
newspapers, actionable claims, stocks, Shares and securities.
Goods must be movable. CST cannot be levied on immovable property.
Following are the instances of goods for C.S.T. Act : (a) Electricity; (b) Copy right;
(c) Patent; (d) Lottery ticket; (e) Ready made computer software; (f) Advance REP
license; (g) growing crops, grass, standing tress on the land, IF these have been
served from the land, they shall become goods; (h) Air or water, if there are made
available to customers or consumers at cost (i) Old Newspaper if sold as waste.
Following are the instances of NOT goods (since these items has been specially
excluded from the meaning of goods for CST Act) : (a) Share; (b) securities like

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debentures; (c) Money; (d) Stocks; (e) Newspapers; (f) Actionable claims; (g)
Growing crops, grass, standing trees on the land.
Declared Goods : Definition :
Section 2(c) of CST Act defines Declared Goods as those declared under Section
14 of CST Act as goods of special importance in inter-state Trade or Commerce.
List of declared goods : Section 14 of CST Act gives a list of such goods which have
been declared as goods of special importance in inter state trade or commerce.
(1) Cereals i.e. paddy, rice, wheat, bajra, jowar, barley, maize, ragi, kolon, kutki
etc.
(2) Coals and coke in all forms (excluding charcoal)
(3) Cotton in un manufactured form but not cotton waste.
(4) Cotton fabrics, cotton yarn (excluding cotton yarn waste).
(5) Manmade fabrics : fabrics of manmade filament yarn i.e. artificial textile
material, polyester filament yarn, staple fibres, polyester staple fibre tyre card,
fabric, impregnated textile fabrics etc.
(6) Iron and steel
(7) Jute whether baled or otherwise
(8) Liquified Petroleum Gas for domestic use
(9) Oilseeds
(10) Sugar and Khandsari sugar
(11) Unmanufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc.
(12) Hides and skins (Raw or cleaned)
(13) Crude oil i.e. crude petroleum oil and crude oil obtained from bituminous
minerals
(14) Pulses i.e. gram, tur, masur, moong, urad, arhar, moth, khesari etc.
(15) Woven fabrics of wool.
(16) Aviation Turbine fuel sold to a Turbo Prop Aircraft.
Restrictions and conditions in regard to tax on sale purchase of declared goods within
a State : Section 15 of CST Act : Every sales tax law of a State shall, insofar as it
impose or authorize the imposition of a tax on the sale or purchase of of declared
goods, be subject to the following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of any sale or purchase of such goods
inside the State shall not exceed [five] per cent of the sale or purchase price
thereof,
(b) where a tax has been levied under the law in respect of the sale or purchase
inside the State of any declared goods and such goods are sold in the course of
inter-State trade or commerce, and tax has been paid under this Act in respect of

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the sales of such goods in the course of inter-State trade or commerce the tax
levied under such law shall be reimbursed to the person making such sale in the
course of inter-State trade or commerce in such manner and subject or such
conditions a smay be provided in any law in that State;
(c) where a tax has been levied under that law in respect o the sale or purchase
inside State of any paddy referred to in sub-clause (i) of clause (i) of Section 14,
the tax leviable on rice procured out of such paddy shall be reduced by the amount
of tax levied on such paddy;
(ca) where a tax on sale or purchase of paddy referred to in sub-clause (i) of
clause (i) of Section 14 is leviable under that law and the rice procured out of such
paddy is exported out of India, then, for the treated as a single commodity;
(d) each of the pulses referred to in clause (vi-a) of Section 14, whether whole or
separated, and whether with or without husk, shall be treated as a single
commodity for the purposes of levy of tax under that law.
Thus,
Tax shall not be levied at more than one stage in case of declared goods.
The dealer shall be entitled to refund of tax, if the following conditions are satisfied.
(a) Tax on declared goods has been paid at the time of sale or purchase to a
state government
(b) Afterwards, all above goods are sold in the course of interstate trade or
commerce.
(c) Tax has been paid on such goods under CST Act.
(d) The dealer is fulfilling the conditions with regard to refund in the State Act.
(e) The refund shall be granted to the dealer who sells the goods in the course of
Inter-State trade commerce.

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Explain (Central Sales Tax) : Sale-purchase in the course of export/ import. (Mar-
2014)
ANSWER :
Refer :
http://cacareer.weebly.com/uploads/2/0/4/0/2040831/central_sales_tax_act.doc
EXPORT OR IMPORT SALE - SEC.5
Export : Movement of goods from a place in India to a place outside India.
A of Delhi enters into a contract of sale with G of Germany and sends the goods

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out of the territory of India. Such sale is an export sale.


Import : Movement of goods from a place outside India to a place in India.
A of Delhi places an order for import of certain goods with G of Germany. G
sends the goods to Delhi. Such sale is an import sale.
The sale shall be deemed to take place in the course of export or import :
Deemed export sale (Sec.5(1) : Sale either occasions export (Called export
sale) or sale is effected by a transfer of documents of title to the goods after the
goods have crossed the customs frontiers of India (Called deemed export sale)
(Sec.5(1)).
A of Delhi sends goods by ship to his branch in Germany. After these goods
have crossed the customs frontiers of India, a sells there goods to G of
Germany by transfer of documents. Such sale is a deemed export sale.
Deemed import sale (Sec.5(2) : Sale either occasions import (Called import
sale) or sale is effected by a transfer of documents of title to the goods before
the goods have crossed the customs frontiers of India (Called deemed import
sale) (Sec.5(2)).
Y imports some goods from London. X of Delhi purchases goods from Y of
Delhi, while the goods are in transit from London to Delhi, this will be
considered as purchase in the course of import.
If these goods are resold by Y to Z, while the goods are still in transit/before
customs clearance, it will be termed as deemed import sale.
If, however, Y sells these goods after customs clearance, this will not be sale
in the course of import.
Thus, a sale or purchase of goods shall be deemed to take place in the course of
export of goods out side of the territory of India IF the sale or purchase is effected
by transfer of documents of title to the goods after the goods have crossed the
customs frontiers of India.
Note :
Sale of fuel, food, etc., to foreign going vessels/aircrafts going abroad are not
export sales because the goods sold do not have a foreign destination. But it is
treated as local sale.
Sale after import is a distinct and normal sale. Such sale may be Inter State or
Intra State.
All the above sales are not liable for any State or Central Sales tax.
Illustration diagram of Chennai Sea Port :

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The place Mark "A" is the harbour gate and going in / out through the gate is
crossing the Customs frontiers of India.
Important --->
In the customs law crossing is reckoned at the 12th nautical mile in the sea
However, for the purpose of CST the crossing is reckoned on the main land at
the harbor gate (in the above example it is represented by A)
Thus, going inside by crossing A into customs area for exporting
some goods and coming outside from the customs area with imported
goods after paying the import duty will be called as crossing of customs
frontier of India.
This definition is useful for the purpose of Sec. 5. As per which sales made by
transfer of documents of title (Bill of Lading) before crossing the customs
frontier are import sales and sales made after the crossing are export sales.
PRE EXPORT SALE OR PENULTIMATE SALE OR SALE FOR EXPORT SEC.5(3) :
Back ground: Export is a specialised business and many small units are unable to
export directly. Export is often affected through specialised agencies like export
Houses etc. Such indirect exports also need exemption from taxes (like
LST, CST) to make the products competitive. Hence, such penultimate
sale before export is also deemed to be in the course of export under
Sec.5(3). To remove this hardship Sec.5(3) was incorporated.)
Section 5(3) : Exemption to penultimate sale is available subject to the conditions

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that the penultimate sale (i.e., last but one sale before export sale) is :
a. For the purpose of complying with export order in relation to export.
b. Such penultimate sale is made after the export order in relation to export.
c. The same goods which are purchased in penultimate sale must be sold as
exports, and
d. The dealer claiming the benefit of Sec.5(3) should obtain Form H declaration
from the exporter. The details in form H prove prima facie that conditions of
section 5(3) have been fulfilled.
E.g.: A of Delhi receives an order for export of certain goods from G of Germany.
To execute this order, he buys the goods from B of Ludhiana. The sale by B to A,
which is the last sale before actual export sale, shall also be deemed to have taken
place in the course of export, although B has sold the goods to A in India. This sale
shall therefore, not be taxable under State Sales tax law or Central Sales tax law.
What is the benefit of Sec.5(3) ?: Sec 5(3) = 5(1) =Zero tax
Illustration :
X, the exporter, first procures goods from Y, the local dealer. Thereafter he finds a
foreign buyer Z and makes export sale.
Here Y will NOT be eligible for5 (3) benefit because his sale to X was prior to the
receipt of the export order by X from Z.
X of USA placed an export order for sandalwood oil with Y of India. Y obtained
sandalwood from Z, extracted oil and sold it to X.
Here, Z will NOT get Sec.5(3) concession because while the export order was for
sandalwood oil, Z sold sandalwood after the receipt of the order from X. Further
the rule called the same goods must be exported has not been complied.
The banians were exported, packed in the polythyne bags.
It was held that EVEN purchase of polythyne bags is eligible for Sec.5(3).

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Explain (Central Sales Tax) : Discuss different rates of taxes under CST. (Mar-2014)
ANSWER :

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Discuss : Provisions relating to different types of offence and penalty and different
rates of taxes under CST act. (Nov-2014)
Discuss the provision of penalties and offenses under Central Sales Tax Act 1956.
(Nov-2011)
Explain : Discuss different types of offenses and provisions of penalty under Central
Sales Tax. (Mar-2014)
ANSWER :
Refer :

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Write short note : Appellate authority. (Nov-2011)


ANSWER :
Refer :

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Module - 5) Wealth Tax Act (15 Marks)


Refer :
https://www.scribd.com/document/24201577/Wealth-Tax-33 --- "STUDY NOTE -
33 WEALTH TAX" - By The Institute of Cost and Works Accountants of India
http://www.cajoshikarandikar.com/images/pdfs/Wealth%20Tax.pdf
http://finotax.com/income-tax/info/wealth-tax
https://en.wikipedia.org/wiki/Wealth_Tax_Act,_1957
Please note that the Wealth tax has been abolished in the union budget
presented by Hon. finance minister Mr. Arun Jately on 28-Feb-2015. The wealth-
Tax has been replaced with additional surcharge of 2 per cent on super rich with
a taxable income of over Rs 1 crore annually.
The Wealth Tax Act, 1957 is an Act of the Parliament of India which provides for
levying of wealth tax on an individual, Hindu Undivided Family (HUF) or company
is in possession of, on the corresponding Valuation Date. The Act applies to the
whole of India including the state of Jammu and Kashmir and the Union
Territories. The application of the Act will be discontinued from 1 April 2016.

Module-5 QUESTIONS :
Explain : Provisions of submitting return of wealth under wealth act. (Mar-2014)
Write short note : Time limit for filing wealth tax returns. (Nov-2012)
Explain : Assessment date. (Nov-2014)
Explain under the wealth tax act : valuation date. (Nov-2011, Nov-2012, Oct-2013)
Explain under the wealth tax act : deemed assets. (Nov-2011)
Explain under the wealth tax act : exempted assets. (Nov-2011, Nov-2012, Oct-2013)
Write short notes : Exempted property from Wealth tax. (Oct-2013)
Explain : Exempted income under wealth tax. (Nov-2014)
Explain under the wealth tax act : net assets. (Nov-2011)
Write short note : Net wealth. (Nov-2012, Oct-2013, Mar-2014)
Write short notes : Assessment of tax on jewelery. (Oct-2013)
Explain : Taxable income under wealth tax. (Nov-2014)
Explain under the wealth tax act : penalty provision. (Nov-2011)
Write short note : Power of search and seizure. (Nov-2012, Oct-2013, Mar-2014)
Explain : Provision of investigation and seizure under wealth tax. (Nov-2014)
Write short note : Assessment procedure and seizure. (Nov-2012)
Explain : PAN. (Nov-2014)

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Module-5 ANSWERS :
Explain : Provisions of submitting return of wealth under wealth act. (Mar-2014)
ANSWER :
Refer :
https://en.wikipedia.org/wiki/Wealth_Tax_Act,_1957
https://www.scribd.com/document/24201577/Wealth-Tax-33
https://www.scribd.com/document/125865592/Wealth-Tax
http://www.mondaq.com/india/x/309916/property+taxes/Wealth+Tax+In+India+
An+Insight
Summary :
Please note that the Wealth tax has been abolished in the union budget
presented by Hon. finance minister Mr. Arun Jately on 28-Feb-2015. The wealth-
Tax has been replaced with additional surcharge of 2 per cent on super rich with a
taxable income of over Rs 1 crore annually.
The Wealth Tax Act, 1957 is an Act of the Parliament of India which provides for
levying of wealth tax on an individual, Hindu Undivided Family (HUF) or company is
in possession of, on the corresponding Valuation Date. The Act applies to the whole
of India including the state of Jammu and Kashmir and the Union Territories. The
application of the Act will be discontinued from 1 April 2016.
Wealth Tax in India is a form of Direct Tax and is levied under the provisions of
Wealth-Tax Act, 1957 ["W.T. Act" for short]. Wealth Tax is levied on every
Individual, Hindu Undivided Family (HUF) and Company on the value of their net
wealth which exceeds the sum of INR 30,00,000/- (Rupees Thirty Lakhs). Wealth
Tax is levied every year.
Wealth tax is not a very important or high revenue tax in view of various
exemptions. Wealth tax is a socialistic tax. It is not on income but payable only
because a person is wealthy.
Wealth tax is payable on net wealth on valuation date. As per Section 2(q),
valuation date is 31st March every year.
It is payable by every individual, HUF and company.
Tax rate is 1% on amount by which net wealth exceeds Rs 30 lakhs.
No surcharge or education cess is payable.
No wealth-tax is chargeable in respect of net wealth of any company registered
under section 25 of the Companies Act, 1956; any co-operative society; any social

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club; any political party; and a Mutual fund specified under section 10(23D) of the
Income-tax Act [section 45]
Some of the important terms under W.T. Act are as follows :
Net Wealth -
Sec-2(m) : Net Wealth =
The amount by which the aggregate value of all the assets, wherever located,
belonging to the assessee on the valuation date,
is in excess of the aggregate value of all the debts owed by the assessee on
the valuation date which have been incurred in relation to the said assets.
Formula ----> Net wealth = Value of assets [sec 2(ea)] + deemed assets [sec
4] - exempted assets [sec 5] - debt owed [sec 2(m)]
In brief net wealth is the value of the excess of assets over liabilities.
Sec-2(d) Assessment year means the period of twelve months commencing on
the 1st day of April, every year falling immediately after the valuation date.
Assets : Sec-2(ea) of WT Act :
The assets liable to wealth tax are as under :
(1) Any building or land appurtenant thereto which shall include :
commercial buildings;
residential buildings;
any guest house;
a farm house situated within 25 kilometres from the local limits of any
municipality (whether known as Municipality, Municipal Corporation or by
any other name) or a Cantonment Board.
However, the following buildings will not be included to assets:
a house meant for residential purposes which is allotted by a company to
an employee or an officer or a director who is in whole time employment,
having a gross annual salary of less than Rs. 5,00,000/-.
any house for residential or commercial purposes which forms part of
stock-in-trade;
any house which the assessee may occupy for the purposes of any
business of profession carried on by him.
The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000 :
any residential property that has been let out for a minimum period of
300 days in the previous year.
any property in the nature of commercial establishments or complexes.
(2) Motor Cars (excluding those used by the assessee in the business of

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running them on hire or as stock-in-trade).


(3) Jewellery, bullion, furniture, utensils or any other, article made wholly or
partly of gold, silver, platinum or any other previous metal or any alloy
containing one or more of such precious metals (excluding those held as
stock-in-trade by the assessee). Jewellery includes:
ornaments made of gold, silver, platinum or any other precious metal of
any alloy containing one or more of such precious metals, whether or
not containing any precious or semi-precious stones, and whether or
not set in any furniture, utensils or other article or worked or sewn
into~any wearing apparel;
precious or semi-precious stones, whether or not set in any furniture,
utensils or other articles or worked or sewn into any wearing apparel.
For the removal of doubts it has been clarified by explanation 2 to section
2(ea) that the term jewellery does not include the Gold Deposit Bonds
issued under the Gold Deposit Scheme, 1999 notified by the Central
Government.
(4) Yachts, boats and aircrafts (excluding those used by the assessee for
commercial purposes).
(5) Urban land : Any building or land appurtenant thereto (hereinafter
referred to as "house"), whether used for residential or commercial purposes
or for the purpose of maintaining a guest house or otherwise including a farm
house in urban area. However, the following urban land shall not be included
in assets;
land on which construction of a building is not permissible under any law
for the time being in force in the area in which such land is situated;
land occupied by any building which has been constructed with the
approval of the appropriate authority;
any unused land held by the assessee for industrial purposes for a period
of two years from the date of its acquisition by him.
land held by an assessee as stock-in-trade for a period of five years from
the date of its acquisition by him. (Ten years w.e.f. A.Y. 1999-2000).
Note: Agricultural land situated in urban area is not liable to wealth-tax.
(6) Cash in hand :
In case of an individual and HUF cash in hand in excess of Rs. 50,000/-
shall be included in assets.
In cash of any other person cash in hand not recorded in the books of
account shall be included in assets.
Text of Sec-2ea W T Act : Asset means, Any building or land appurtenant

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thereto (hereinafter referred to as "house"), whether used for residential or


commercial purposes or for the purpose of maintaining a guest house or
otherwise including a farm house in urban area, but does not include
a house meant exclusively for residential purposes and which is allotted by a
company to an employee or an officer or a director who is in whole-time
employment, having a gross annual salary of less than ten lakh rupees;
any house for residential or commercial purposes which forms part of stock-
in-trade;
any house which the assessee may occupy for the purposes of any business or
profession carried on by him;
any residential property that has been let-out for a minimum period of three
hundred days in the previous year;
any property in the nature of commercial establishments or complexes;
Motor cars (other than those used by the assessee in the business of running
them on hire or as stock-in-trade);
Jewellery, bullion, furniture, utensils or any other article made wholly or partly of
gold, silver, platinum or any other precious metal or any alloy containing one or
more of such precious metals other than those used by the assessee as stock-in-
trade; Provided "jewellery" does not include the Gold Deposit Bonds issued
under the Gold Deposit Scheme, 1999 notified by the Central Government;
Yachts, boats and aircrafts (other than those used by the assessee for
commercial purposes) ;
Urban land, but not including ;
land on which construction of a building is not permissible or
the land occupied by any building which has been constructed with the
approval of the appropriate authority or
any unused land held by the assessee for industrial purposes for a period of
two years from the date of its acquisition by him or
any land held by the assessee as stock-in-trade for a period of ten years from
the date of its acquisition by him.
Cash in hand, in excess of fifty thousand rupees, of individuals and Hindu
undivided families and in the case of other persons any amount not recorded in
the books of account.
Valuation Date, in relation to any year means the last day of the previous year.
CHARGE OF WEALTH-TAX [Sec. 3] : Wealth-tax is charged for every assessment year
in respect of the net wealth on the corresponding valuation date of every individual,
HUF, and company at the flat rate of 1% on net wealth exceeding Rs. 15 lakhs.
Partnership firm, association of persons or body of individuals is not liable to wealth

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tax. However, wealth belonging to a partner or member in firm, AOP or BOI is


included in his net wealth.
DEEMED ASSETS : Section 4 : Net Wealth to include certain asset : Assets belonging
to others but includible in the Net Wealth of an individual :
The value of following Assets will be added in the Asset Value of the assessee for
computing the Net wealth of the Assessee,
Section 4(1)(a) of W.T. Act Analogous to Section 64 of the Income Tax Act,
1961.
Assets transferred by the assessee to the spouse otherwise than for adequate
consideration. Assets transferred in consideration or in connection with
agreement to live apart are excluded.
Assets held by minor child other than minor married daughter or child suffering
from disability specified u/s. 80U Assets acquired by minor child out of income
not clubbed under Proviso to Section 64(1A) to be excluded.
Assets transferred to a person or an AOP (Association of Person) for the
immediate or deferred benefit of the transferor, his or her spouse otherwise than
for adequate consideration.
Assets transferred under revocable transfers.
Assets transferred to son's wife for inadequate consideration.
Section 4(1)(b) Partner of a firm or a member of an AOP Value of interest in
the assets of the firm or AOP computed in the manner laid down in Schedule III.
Section 4(1A) Analogous to Section 64(2) of the I.T. Act Separate assets
converted by a member of an HUF into the property of the HUF.
Section 4(5) Assets transferred under an irrevocable transfer, would be included
when power to revoke arises.
Section 4(6) Holder of an impartible estate
Section 4(7)/(8) Analogous to Sections 27(iii)/(iiia) and (iiib) of the I.T. Act
Deemed owner of a house
Member of a co-operative society, company and AOP.
Property in possession of a person as referred to in Sec. 53A of Transfer of
Property Act, 1882 under part performance.
Lessee other than month-to-month lessee and as referred to in clause (f) of
Section 269UA of the I.T. Act.
Assets to be excluded from net wealth : Net wealth as defined above excludes
certain assets : the value of following assets is not be taken into account for
computing the net wealth of the assessee :
Any property held by the assessee under trust or other legal obligation for any
public purpose of a charitable or religious nature in India;

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The interest of the assessee in the coparcenary property of any Hindu Undivided
Family of which he is a member ;
Any one building in the occupation of a Ruler, being a building which immediately
before the commencement of the Constitution (Twenty-sixth Amendment) Act,
1971, was his official residence;
Jewellery in the possession of any Ruler, not being his personal property, which has
been recognised before the commencement W.T. Act, by the Central Government
as his heirloom (valuable object that has belonged to a family for several
generations) or, where no such recognition exists, which the Board may, subject to
any rules that may be made by the Central Government in this behalf, recognise as
his heirloom at the time of his first assessment to wealth-tax under the W.T. Act;
In the case of an assessee, being a person of Indian origin or a citizen of India who
was ordinarily residing in a foreign country and who, on leaving such country, has
returned to India with the intention of permanently residing therein, moneys and
the value of assets brought by him into India and the value of the assets acquired
by him out of such moneys within one year immediately preceding the date of his
return and at any time thereafter. The exemption would be given for a period of 7
successive years commencing with the assessment year next following the date on
which such person returned to India;
one house or part of a house or a plot of land belonging to an individual or a Hindu
undivided family, provided that the plot of land should be comprising an area of
five hundred square meters or less.
Net wealth to exclude assets and debts outside India : in computing the net
wealth of an individual who is not a citizen of india or of an individual or a hindu
undivided family not resident in india or resident but not ordinarily resident in india,
or of a company not resident in india during the year ending on the valuation date
the value of the assets and debts located outside India; and
the value of the assets in India represented by any loans or debts owing to the
assessee in any case where the interest, if any, payable on such loans or debts
is not to be included in the total income of the assessee under section 10 of the
I.T. Act;
shall not be taken into account.
PERSON WHO ARE EXEMPTED FROM THE APPLICABILITY OF WEALTH TAX : Wealth
Tax is not applicable to,
Trusts
Artificial Judicial Persons
any Section 25 Company under Companies Act, 1956,
any co-operative society;

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any social club;


any political party.
a Mutual Fund specified under clause (23D) of section 10 of the I.T. Act.
the Reserve Bank of India incorporated under the Reserve Bank of India Act,
1934 (2 of 1934)
RATE OF WEALTH TAX : Wealth-tax is charged at the rate of 1 per cent on the taxable
wealth.
PENAL PROVISIONS FOR EVADING WEALTH TAX :
In case of willful attempt to evade any tax, penalty or interest chargeable or
imposable under the W. T Act and in case of failure to furnish returns of net wealth
by the assessee where the amount sought to be evaded exceeds one hundred
thousand rupees the assessee may be punished with rigorous imprisonment for a
term which shall not be less than six months but which may extend to seven years
and fine.

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Write short note : Time limit for filing wealth tax returns. (Nov-2012)
ANSWER :
The Wealth Tax return for Individuals, Hindu Undivided Families and Companies is
to be filed in Form BA.
Value of assets for an assessment year is to be declared as on the relevant
Valuation Date i.e. 31st March of each year. Thus, for the assessment year 2013-
14, the valuation date will be 31.3.2013.
The due date for filing the Wealth-tax return shall be the same due date
applicable to an assessee for filing the Income-tax return under section 139(1) of
the Income-tax Act. [sec.14(1)] (i.e. if the assessee is liable to audit, the due date
will be 30th September and in other cases the due date will be 31st July.
Value of an asset, other than cash, is to be determined on the basis of the rules of
Schedule III. The details of calculation of the value of each asset under the
relevant rule of this schedule should be attached with the return. Also, Wherever
any rule of this schedule prescribes that a particular document in support of the
valuation is to be attached with the return, the same must be attached.
Return by whom to be signed : The provision of sec. 15A are similar to that of the
provision of sec. 140 of the Income-tax Act. [sec. 15A]. The assessee must sign all
attached documents.
If a person files a return of net wealth below exemption limit, he shall be deemed

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never to have been furnished. However, a return furnished u/s. 17 shall be a valid
return even if the net wealth disclosed therein in not exceeding the basic
exemption limit. [sec. 14(2)]
Belated and Revised return : The provisions relating to filing of belated/revised
return are similar to that of the provision of sec. 139(4)/139(5) of the Income-tax
Act. [s. 15]

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Explain : Assessment date. (Nov-2014)


ANSWER :
http://www.iaao.org/media/Pubs/IAAO_GLOSSARY.pdf
Assessment Date The status date for tax purposes. Appraised values reflect the
status of the property and any partially completed construction as of this date.
Assessment Period (1) The period beginning with the assessment date and
ending with the date on which the assessor is required to complete the
original assessment. (2) Sometimes used synonymously with assessment year.

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Explain under the wealth tax act : valuation date. (Nov-2011, Nov-2012, Oct-2013)
ANSWER :
The valuation date is an important component in the calculation of Wealth Tax. The
Net Wealth that an assessee possesses on the valuation date determines,
the amount of tax,
the residential status of the assessee,
value of an asset, and
exact amount of wealth at the end of the date.
Valuation Date, in relation to any year means the last day of the previous year.
The valuation date is considered the day of 31 March immediately preceding the
Assessment Year. E.g., When the Assessment Year is 1 April 2012 to 31 March
2013, the valuation date will be 31 March 2012.

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Explain under the wealth tax act : deemed assets. (Nov-2011)


ANSWER :
ASSETS BELONGING TO OTHERS BUT INCLUDIBLE IN THE NET-WEALTH OF AN
INDIVIDUAL (DEEMED ASSETS) SECTION 4 :
In some cases the assets belonging to other persons are also to be included in the
net wealth of an individual assessee. This is similar to clubbing of income under
the I.T. Act.
The following assets transferred by an assessee on or after 1st April, 1956, are
includible in his net wealth u/s. 4 of the Act.
The assets so transferred may be held by the transferee in the same form or it may
be sold or converted into any other asset. In the latter cases, its sale proceeds or
the value of such converted asset, shall be included in the transferors wealth.
In computing the net wealth of an individual, there shall be included, as belonging to
that individual, the value of,
1. Assets held by the spouse of an individual where such assets have been
transferred, directly or indirectly, by the individual, without adequate consideration
or in connection with an agreement to live part. [sec. 4(1)(a)(i)]
2. Assets held by a minor child, not being a married daughter of such individual. If
the child attains majority or daughter gets married before the valuation date, then
this section will not apply. [Sec.4(1)(a)(ii)].
However, assets acquired by a minor child out of his income derived from
manual work or from any activity involving his skill, talent, specialized
knowledge or experience, shall not be included in the net wealth of his parent.
In case the marriage of parents subsist, then the assets held by a minor child,
shall included in the net wealth of that parent whose net wealth is greater.
In case the marriage does not subsist, then it will be added to the wealth of that
parent who maintains the minor.
Once these assets are included in the wealth of either of parents, they will not
be included in the wealth of other parent unless the Assessing officer is satisfied
after giving the parent an opportunity of being heard that it is necessary so to
do. [sec.4(1)(a) third proviso]
3. Assets held by a person or association of persons to whom such assets have
been transferred by an individual, directly or indirectly, without adequate
consideration for the immediate or deferred benefit of such individual, his or her
spouse. [sec.4(1)(a)(iii)]
4. Assets held by person or association of persons to whom such assets have been

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transferred by an individual, **otherwise** than under an irrevocable transfer.


However, if transferor has reserved the right to resume power directly or
indirectly of the whole or any part of the assets or income therefrom the value of
such assets will be included in the net wealth of the transferor. [sec. 4(1)(a)(iv)]
5. Assets held by an individuals sons wife, to whom such assets have been
transferred by such individual, directly or indirectly, on or after 1.6.1973, without
adequate consideration. [sec. 4(1)(a)(v)]
6. Assets held by any person or association of persons to whom such assets have
been transferred by an individual, directly or indirectly, after 1.6.1973 for the
benefit of his sons wife. [sec. 4(1)(a)(vi)]
7. [sec. 4(1A)] : If an individual after 31.12.1969, transfers his self acquired
property to the joint family of which he is a member by making a gift to it or by
throwing it in common stock or in any other way, without adequate consideration,
which property shall continue to be included in net wealth of that individual.
Where the converted property has been partitioned, wholly or partially, amongst
the members of family then such converted property or any part thereof which is
received by the spouse of the individual on such portion, shall be deemed to be
assets transferred indirectly by the individual to the spouse.
Thus, no deduction shall be allowed for any debt referable to assets of other
persons liable to be clubbed u/s. 4(1)(A) OR 4(1A). Nor any exemption u/s. 5
shall be allowed against any such assets.
8. Where the assessee is partner of a firm or a member of an association of
persons, the value of his interest in the firm or association shall be included in his
net wealth. The association of person does not include a cooperative housing
society.
Where minor is admitted to benefits of partnership, his interest in the firm, shall
be included in wealth of the parent whose net wealth is greater. [Sec. 4(1)(b)]
9. The value of any assets transferred under the revocable transfer shall be liable
to be included in computing the net wealth of the transferor as and when the power
to revoke arises to him. [sec. 4(5)]
10. Where a gift of money from one person to another is made by means of entries
in the books of accounts maintained by the persons making the gift, the value of
such gift shall be liable to be included in computing the net wealth of persons
making the gift unless he proves to the Wealth-tax Officer that money of such gift
has actually been delivered to person concerned at the time when entries were
made. [sec. 4(5A)]
11. The holder of an impartible estate shall be deemed to be the individual owner
of all the properties comprised in the estate. [sec. 4(6)]
12. Where the assessee is a member of an association of persons, being a

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cooperative housing society, and a building or a part thereof is allotted or leased to


him under the house building scheme, the assessee shall be deemed to be the
owner of such building or part shall be included in computing the net wealth of the
assessee, and in determining the value of such building, the value of any out
standing installments of amount payable by the assessee towards the cost of such
building, shall be deducted as a debt owed by him in relation to such building. [sec.
4(7)]
13. Any person who is in possession of any building or part thereof in part
performance of contract of the nature referred to in sec. 53A of the Transfer of
Property Act, i.e. those who have acquired a property under a Power of Attorney
transaction, or who acquires rights u/s. 269UA(f), by way of sale of exchange or
under a long lease extending to 12 years or more, shall be deemed to be the owner
of that building or part thereof, and its value shall be included in his net wealth.
[sec. 4(8)]
Case Law :
CWT v. Krishan Mohan 96 ITR 432 It is not correct to contend that section 4 has
introduced a legal fiction and therefore even if the asset does not exist in reality, it
is deemed to be in existence by virtue of the deeming provision.
The only fiction which has been introduced in the section operates to make the
asset held by the minor as the asset of the assessee, it has been transferred by the
assessee to the minor otherwise than for adequate consideration.
The fiction does not operate to bring into existence any asset. It only brings about
a change in the ownership of an existing asset.
CWT v. Kishan Lal Bubna - 204 ITR 600 Where transferred asset is converted into
some other asset, value of such converted asset on valuation date must be treated
as value of the deemed wealth.

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Explain under the wealth tax act : exempted assets. (Nov-2011, Nov-2012, Oct-2013)
Write short notes : Exempted property from Wealth tax. (Oct-2013)
Explain : Exempted income under wealth tax. (Nov-2014)
ANSWER :
Refer :
http://taxmasala.in/wealth-tax-exemption/
Wealth tax is direct tax which is collected on properties held. There are taxable assets
and Similarly wealth tax exemption is also available for many assets. In this article, I

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have given list of taxable assets under wealth tax act in India and exemption
available under wealth tax act.
Whom to charge wealth tax? Wealth tax is charged to following persons who are
residents of India :
Individual
HUF
company
Wealth tax is charged on all assets (located in India and outside India ) of Resident
person of India.
Wealth tax exemption to following person : Wealth tax is not chargeable to following
persons :
Company registered u/s 25 of companies act, 1956
cooperative society
social club
mutual fund
political party
RBI
Rate of wealth tax :
Wealth tax rate is 1%.
Basic wealth tax exemption limit :
Basic exemption limit for wealth tax liability is Rs. 30 lakh. So for up to wealth
(assets) of Rs. 30 lakh, you have to no need to pay tax.
Computation of wealth tax liability : Steps for calculation of wealth tax liability :
Compute value of total assets on the date of 31/3 of previous year. The asset
should be included in the definition of asset.
Reduce amount of debt taken for that asset which is still pending for payment
on 31/3.
Minus exemption available.
Minus basic exemption limit of Rs. 30,00,000
Calculate net amount and charge 1% tax on it.
So the basic step to compute and pay wealth tax is get knowledge of taxable
assets under wealth tax act.After that we will shift to wealth tax exemption and
valuation of various assets. Final step will be online return filling of wealth tax.
ASSETS EXEMPT FROM WEALTH-TAX [Sec. 5] : Wealth-tax shall not be payable by an
assessee in respect of the following assets and such assets shall not be included in
the net wealth of the assessee :

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1. Property held under trust any property held by assessee under trust or other
legal obligation wholly for public purpose of a charitable/ religious nature. [sec.
5(i)]
Case Law : For purpose of exemption u/s 5(i), the situs (situs means the place
to which for purposes of legal jurisdiction or taxation a property belongs) of the
property is irrelevant; what is relevant is that public purpose of charitable/
religious nature should be in India Trustees of H.E.H. The Nizams Pilgrimage
Money Trust v. CIT - 111 Taxman 228 / 243 ITR 676.
2. Interest on coparcenary property the interest on an assessee in coparcenary
property of a HUF of which he is a member as the family itself is liable to Wealth-
tax. [sec. 5(ii)]
3. Official residence of Indian Ruler any one building in the occupation of a Ruler
of an erstwhile Indian State where it is declared as his official residence by the
Central Government . [sec. 5(iii)]
Case Law : Buildings, forming part of palace declared as official residence of
Ruler under Merged States (Taxation Concessions) Order, 1949, which were let
out on rent, could not said to be in occupation of Ruler within meaning of section
5(1)(iii) and, hence, value thereof was includible in his net wealth Mohammad
Ali Khan v. CWT - 92 Taxman 52 / 224 ITR 672
4. Jewellery of Ruler provided it is in the possession of the Ruler but is not his
personal property and that it has been recognised by the Central Government as
his heirloom. [sec.5(iv)]
5. Value of Assets brought by persons of Indian origin In the case of an
assessee, being a person of Indian origin or a citizen of India (hereafter in this
clause referred to as such person) who was ordinarily residing in a foreign country
and who, on leaving such country, has returned to India with the intention of
permanently residing therein, moneys and the value of assets brought by him into
India and the value of the assets acquired by him out of such moneys. Such
exemption is available for 7 successive assessment years from the date of his
arrival in India. [sec. 5(v)]
6. One residential house In case of an individual or a HUF (a) one house or part
of a house; (b) a plot of land comprises of an area upto 500 sq. metres. [sec.
5(vi)]
Case Law : For the purpose of section 5(iv) [clause (vi) from 01-04-1993], a
person who has come into possession of property on payment of the full
consideration, is entitled to exemption even though in the relevant years such
property had not been conveyed to him under a registered document CWT v.
P. Babul Reddy 85 Taxman 627 / 28 ITR 625
7. Exemption in case of non-residents In case of an individual who is not a
citizen of India, or of an individual or a HUF not resident in India, or resident but

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not ordinarily resident in India, or of a company not resident in India during the
year ending on the valuation date
(i) the value of assets and debts located outside India is totally exempt.
(ii) the value of any assets in India, the income from which is exempt u/s. 10 of
the Income-tax Act, is fully exempt. [sec. 6]

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Explain under the wealth tax act : net assets. (Nov-2011)


ANSWER :
ASSETS [SECTION 2(ea)]
The Finance Act, 1992 has amended the term assets with effect from the
assessment year 1993-94 onwards.
assets means :
(i) House
(ii) Motor Cars (other than those used by the assessee in the business of
running them on hire or as stock-in-trade);
(iii) Jewellery
(iv) Yachts, boats and aircrafts (other than those used by the assessee for
commercial purposes);
(v) Urban land;
(vi) Cash in hand, in excess of fifty thousand rupees, of individuals and Hindu
undivided families and in the case of other persons any amount not recorded
in the books of account.
(i) House :
1. The house means any building or land appurtenant thereto used for-
residential or commercial purposes
maintaining a guest house or
a farm house.
2. The house must be situated within twenty-five kilometers from local limits of
any municipality/ Municipality Corporation or by any other name or a
Cantonment Board.
3. The house will not include-
a house meant exclusively for residential purposes and which is allotted by a
company to an employee or an officer or a director who is in whole-time

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employment, having a gross annual salary of less than ten lakh rupees;
any house for residential or commercial purposes which forms part of stock-
in-trade;
any house which the assessee may occupy for the purposes of any business or
profession carried on by him;
any residential property that has been let-out for a minimum period of three
hundred (300) days in the previous year;
any property in the nature of commercial establishments or complexes;
(ii) Motor Car :
All motor cars whether Indian or Foreign (other than those used by the assessee
in the business of running them on hire or as stock-in-trade);
(iii) Jewellery :
(1) Jewellery includes any jewellery, bullion, furniture, utensils or any other
article made wholly or partly of gold, silver, platinum or any other precious metal
or any alloy containing one or more of such precious metals (other than those
held by the assessee as stock-in-trade);
(2) It also includes - (i) ornaments made of gold, silver, platinum or any other
precious metal or any alloy containing one or more of such precious metals,
whether or not containing any precious or semi-precious stones, and whether or
not worked or sewn into any wearing apparel; (ii) precious or semi-precious
stones, whether or not set in any furniture, utensils or other article or worked or
sewn into any wearing apparel;
(3) And does not include: The Gold Deposit Bonds issued under the Gold Deposit
Scheme, 1999 notified by the Central Government.
(iv) Yachts, boats and aircrafts (other than those used by the assessee for
commercial purposes);
(v) Urban land :
1. The urban land means land situated in any area which is comprised within the
jurisdiction of a municipality (whether known as a municipality, municipal
corporation, notified area committee, town area committee, town committee, or
by any other name) or a cantonment board And
which has a population of not less than ten thousand according to the last
preceding census of which the relevant figures have been published before the
valuation date or not being 2 km from the local limits of any municipality and
which has a population of more than 10,000 and upto 1 lakh or not more than
6 km, from the local limits of any muncipality
which has a population of more than 1 lakh or upto 10 lakh or not being more
than 8 km, from the local limits of any muncipality

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which has a population of more than 10 lakh


2. The urban land means any area located within eight kilometers from the local
limits of any municipality (whether known as a municipality, municipal
corporation, notified area committee, town area committee, town committee, or
by any other name) or a cantonment board but does not include:
But does not include land classified as agricultural land in the records of the
government and used for agricultural purposes or land on which construction
of a building is not permissible under any law for the time being in force in the
area in which such land is situated or
the land occupied by any building which has been constructed with the
approval of the appropriate authority or
any unused land held by the assessee for industrial purposes for a period of
two years from the date of its acquisition by him or
any land held by the assessee as stock-in-trade for a period of five years from
the date of its acquisition by him.
(vi) Cash in hand : Cash in hand, in excess of fifty thousand rupees, of individuals
and Hindu Undivided families and in the case of other persons any amount not
recorded in the books of account.
NET ASSETS = Assets + deemed assets exempted assets
read from elsewhere in this doc

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Write short note : Net wealth. (Nov-2012, Oct-2013, Mar-2014)


ANSWER :
Net Wealth [section 2(m)]
The concept of net-wealth is very important for wealth-tax purposes because net
wealth is the tax base.
According to Section 2(m) net-wealth means the amount by which the aggregate
value computed in accordance with the provisions of this Act of all the assets,
wherever located, belonging to the assessee on the valuation date, including assets
required to be included in his net wealth as on that date under this Act, is in excess
of the aggregate value of all the debts owed by the assessee on the valuation date
which have been incurred in relation to the said assets.
Computation of Net-Wealth : Net wealth shall be computed in the following manner :
GROSS WEALTH = Value of Assets u/s 2(ea) belong to the assessee as on valuation

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date + Deemed assets under section 4 - Assets exempt u/s 5


NET WEALTH = Gross wealth - Debts incurred in relation to the assets included in
the net wealth
Following assets are ***NOT*** includible in the net-wealth of an assessee :
(i) Assets exempt under Section 5(1).
(ii) Under Section 6, in case of an individual who is not a citizen of India or who is
citizen of India but a non-resident or not ordinarily resident in India during the
previous year and Hindu undivided family not resident or not ordinarily resident in
India or a company not resident in India, the assets and debts situated outside
India and loans and investments in India from foreign sources, interest on which is
exempt from income-tax under Section 10 of the Income-tax Act.
(iii) Assets lost, destroyed or stolen on or before the valuation date.
Ownership of Assets :
According to Section 2(ea) read with Section 2(m) of the Wealth-tax Act, the asset,
to be chargebale to wealth-tax, must belong to the assessee on the relevant
valuation date as the liability to wealth-tax arises out of ownership of the asset and
not otherwise. In this connection, ownership includes deemed ownership.
The following persons having beneficial enjoyment of property are deemed as
owner of immovable properties for the purpose of Section 2(m) of the Wealth-tax
Act :
a member of a co-operative society, company or other association of persons
to whom a building or part thereof is allotted or leased under a house building
scheme of the society, company or association, as the case may be.
A person who has taken possession of any building under an agreement to sell
(which is not registered) with the vendor and paid consideration or is willing to
perform his part of contract [Section 53A of the Transfer of Property Act].
A person who acquires any right (excluding any rights by way of a lease from
month to month or for a period not exceeding one year) with respect to any
building by virtue of any transaction as is referred in Section 269UA(f) of the
Income-tax Act.
According to Section 2(m), all the assets owned by the assessee have to be taken
into consideration, irrespective of the source from which he has acquired them. For
instance, property received by him as a donee (from the donor) or as a devisee
(according to the Will of a deceased testator), or as intestate heir of the deceased
is to be reckoned. Likewise, property acquired with the help of borrowed money or
with the assistance of some other person(s) has to be taken into account.
It was on this principle that the Supreme Court rejected the contention of the
Calcutta Electric Supply Corporation, that the service lines constructed at the
cost of consumers, and not from its own funds, were not owned by it. It was

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held in this case that the only relevant thing for the purposes of the Wealth-tax
Act was that the assessee should be the owner of the assets in question on the
relevant valuation date. Since the balance sheet showed the service connections
in question as assets, value thereof was not deductible in determining the net
value of assets. Mere possibility of confiscation does not impair ownership of
the assessee in the articles seized. Hence, the value of the assets seized on the
valuation date shall be included in the net-wealth. [Jayantilal Amritlal v. CWT
(1982) 135 ITR 742 (Guj.)].
This is subject of course to the condition that the asset in question is one of the six
specific assets mentioned in the exhaustive definition of assets given in Section
2(ea).

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Write short notes : Assessment of tax on jewelery. (Oct-2013)


ANSWER :
Refer :

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Explain : Taxable income under wealth tax. (Nov-2014)


ANSWER :
Refer :

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Explain under the wealth tax act : penalty provision. (Nov-2011)


ANSWER :
Power to reduced Penalty or waive penalty : The power of the Commissioner are

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similar to the provisions of Sec. 273A of the Income-tax Act. [sec. 18B]
Prosecutions : Section 35A to 35N deal with prosecutions for offences under the
Wealth-tax Act. The nature of the offences and the quantum of penalty or other
punishment prescribed are briefly indicated below in a tabular form :

Section Nature of offence Quantum of fine or other


punishment

35A(1) Willful attempt to evade - In a case, where the amount sought


tax, penalty to be evaded exceeds Rs. 1 lakh,
rigorous imprisonment for a
minimum term of 6 months upto a
maximum term of 7 years and fine
- In any other case, rigorous
imprisonment for a minimum term of
3 months upto a maximum term 3
years and fine.

35A(2) Wilful attempt to evade Rigorous imprisonment for a


payment of tax, penalty or minimum term of3 months upto a
interest. maximum term of 3 years and in the
discretion of the Court also with fine.

35B Wilful failure to furnish - In a case, where the amount sought


return of net wealth u/s. to be evaded > 100,000 then
14(1) or 14(2) or 17(1). imprisonment for a minimum term
of 6 months upto a maximum term of
7 years and fine.
-In any other case, rigourous
imprisonment for a minimum term of
3 months upto a maximum term of 3
years and fine.
-Fine or prosecution under this
section will not be attracted if the
return is furnished by the assessee
before the expiry of assessment year
and the tax payable on the wealth
determined on regular assessment
does not exceed
Rs. 3,000.

35C Wilful failure to produce Rigorous imprisonment upto 1 year


accounts, records, etc. on or with fine equal to a sum calculated

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Section Nature of offence Quantum of fine or other


punishment

or before the date at a rate which shall not be less than


specified in sec. 16(4) Rs. 4 or more than Rs. 10 for every
day during which the default
continues or with both.

35D False statement in a -In a case, where the amount sought


verification (other than to be evaded exceeds Rs. 1 lakh
u/s. 35AB) under the Act rigorous imprisonment for a
or under any rule. minimum term of 6 months upto a
maximum term of 7 years and fine.
-In any other case, rigorous
imprisonment for a minimum term of
3 months upto a maximum term 3
years and fine.

35E False statement in a Imprisonment for a term which may


verification mentioned in extend to 6 months or with fine or
sec. 35AB (registration of with both.
valuers)

35EE Failure by a registered Imprisonment upto two years and


valuer, without reasonable fine.
cause or excuse to
intimate to the Board
particulars of conviction or
finding referred to in sec.
35ACC.

35EEE Contravention of order If a person makes any contravention


issued to effect of the above mentioned order, he
constructive seizure as per shall be punishable with rigorous
second proviso to sec. 37A imprisonment for a term which may
or sec. 37(3A).
extend to two year and with fine.

35F Abetting or inducting If a person convicted of an offence


another person to deliver a u/s. 35A or 35B or 35D or 35F is
false account, statement again convicted under any of these
or declaration in relation to sections, he shall be punishable for
any return of wealth or to the second and subsequent offences
commit an offence u/s. with rigorous imprisonment for a
minimum term of 6 months and upto

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Section Nature of offence Quantum of fine or other


punishment

35A(1). (wilful attempt a maximum of 7 years and with fine.


to evade tax, etc.)

Case Law :
CWT v. H.S.Chauhan 113 Taxman 630 / 245 ITR 704 - No penalties could be
levied under section 18(1)(a) on legal heir after death of assessee
Appeals, Revision & References [Secs. 23 to 29] Settlement Commission [Sec. 22A
to 22L]
The provisions regarding appeals, revision, references and Settlement
Commission under the Wealth-tax Act are analogous to the provisions contained
in the Income-tax Act
[Sec. 42D] : Where any books of account or other documents, articles or things
including money are found in the possession or control of any person in the course
of a search under section 37A, it may, in any proceeding under this Act, be
presumed that
(i) such books of account or other documents, articles or things including money
belong to such person;
(ii) the contents of such books of account or other documents are true; and
(iii) the signature and every other part of such books of account or other
documents which purport to be in the handwriting of any particular person or
which may reasonably be assumed to have been signed by, or to be in the
handwriting of, any particular person, are in that persons handwriting, and in
the case of a document stamped, executed or attested, that it was duly stamped
and executed or attested by the person by whom it purports to have been so
executed or attested.

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Write short note : Power of search and seizure. (Nov-2012, Oct-2013, Mar-2014)
Explain : Provision of investigation and seizure under wealth tax. (Nov-2014)
Write short note : Assessment procedure and search and seizure. (Nov-2012)
ANSWER :
Refer :

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http://www.taxdose.com/search-seizure-provisions-procedures-a-brief-overview/
Assessment Procedure :
[sec.14(1)] : The due date for filing the Wealth-tax return shall be the same due
date applicable to an assessee for filing the Income-tax return under section
139(1) of the Income-tax Act.
Sec-14 : Return of Wealth : If a person files a return of net wealth below
exemption limit, such return shall be deemed never to have been furnished.
However, a return furnished in responce to notice u/s 17 shall be a valid return
even if the net wealth disclosed therein in not exceeding the basic exemption
limit. [sec. 14(2)]
Belated and Revised return : The provisions relating to filing of belated/ revised
return are similar to that of the provision of sec. 139(4)/139(5) of the Income-tax
Act. [s. 15]
Return by whom to be signed : Sec. 15A : The return made under section 14 or
section 15 shall be signed and verified
(a) in the case of an individual,
(i) by the individual himself;
(ii) where he is absent from India, by the individual himself or by some person
duly authorised by him in this behalf;
(iii) where he is a mentally incapacitated from attending to his affairs, by his
guardian or any other person competent to act on his behalf; and
(iv) where for any other reason, it is not possible for the individual to sign the
return, by any person duly authorised by him in this behalf:
Provided that in a case referred to in sub-clause (ii) or sub-clause (iv), the
person signing the return holds a valid power of attorney from the
individual to do so, which shall be attached to the return;
(b) in the case of a Hindu undivided family, by the karta, and, where the karta is
absent from India or is mentally incapacitated from attending to his affairs, by
any other adult member of such family; and
(c) in the case of a company, by the managing director thereof, or where for any
unavoidable reason such managing director is not able to sign and verify the
return or where there is no managing director, by any director thereof
Provided that where the company is not resident in India, the return may be
signed and verified by a person who holds a valid power of attorney from such
company to do so, which shall be attached to the return
Sec 15B : Self assessment :
(1) Where any tax is payable on the basis of any return furnished under section
14 or section 15 or section 16 or section 17,

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after taking into account the amount of tax, if any, already paid, the assessee
shall be liable to pay such tax, together with interest payable for any delay in
furnishing the return, and
the return shall be accompanied by proof of payment of such tax and interest.
(2) After the regular assessment under section 16 has been made, any amount
paid under sub section (1) shall be deemed to have been paid towards such
regular assessment.
(3) If any assessee fails to pay the whole or any part of such tax or interest or
both in accordance with the provisions of sub-section (1), he shall, without
prejudice to any other consequences which he may incur, be deemed to be an
assessee in default and all the provisions of this Act shall apply accordingly.
Sec-16 : Assessment : Scrutiny and best judgement assessment [Sec. 16(1),
16(3), 16(5) are similar to that of Income-tax Act subject to certain modifications.
sec. 16A : Reference to Valuation Officer : The assessing officer may refer the
valuation of any asset to a Valuation Officer only if the following requirements are
fulfilled.
1. The valuation is necessary for the purpose of making an assessment. The
market value of the asset is required to be adopted while making such
assessment.
The Assessing officer may refer valuation of any asset to a valuation officer
under the following circumstances :-
(a) In a case where the value of the asset is returned (adopted) on the
basis of the estimate by a registered valuer which in the opinion of the
Assessing officer is than the fair market value (FMV).
(b) In any other case, if the Assessing officer is of the opinion :
that the fair market value of the asset exceeds by 33-1/3% or Rs.
50,000 over the value of such asset as adopted by the assessee ; or
that having regard to the nature of the asset and the other relevant
circum stances, it is necessary to make a reference.
2. The Valuation Officer, after hearing the assessee and the evidence furnished
by him in support of his objections, if any shall pass an order in writing,
determining the value of the asset and forward a copy to the Assessing officer
and the assessee.
3. On receipt of the report from the Valuation Officer, The Assessing officer shall
adopt the value determined by the Valuation Officer while making the
assessment.
Search & seizure-meaning :
Search, according to normal dictionary meaning, means to look out, to seek or to

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find something the presence of which is suspected etc.


Seize means to take possession of goods, contrary to the wishes of the owner or to
take forcible possession.
From income tax point of view, in common parlance search is referred to as RAID.
However, there is no such term as raid anywhere in income tax law.
Search & seizure-from income tax perspective :
The search and seizure provisions are contained in section 132 of the Act.
The current search provisions contained in the Act evolved over a period of time
and underwent thorough amendments in 1975, 1984 and 1987.
Search operations are exploratory exercises on the basis of information with the
income tax department to find hidden income and wealth in cases of tax payers,
who have not disclosed their true financial state of affairs in discharge of their tax
obligations.
Seizure implies taking possession of assets, which have not been disclosed to the
Income-tax Department and of accounts/documents, papers which contain details
of unaccounted wealth/income not disclosed to the income tax authorities.
Thus, search and seizure is a very powerful weapon in the armory of income tax
department to unearth any concealed income or valuables and to check the
tendencies of tax evasion thereby mitigating the generation of black money.
Why searches are conducted :
a. To collect evidences of undisclosed income/investment.
b. To seize undisclosed assets/money/bullion/jewellery.
c. To keep a check on tendencies of tax evasion.
d. To keep an eye on black money.
e. To act as a deterrent.
CBDT guidelines on conduct of searches :
According to a CBDT circular, searches should be conducted where there is a
credible evidence to indicate substantial unaccounted income/assets by the
assessee where the expected concealment is more than Rs. 1 crore.
Search operation would also be mounted when there is evidence of hidden
unaccounted assets arising out of a conspiracy to cause public harm, terrorism,
smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and
such other manifestations.
It has also been provided that professionals of repute not to be searched in the
absence of any corroborative evidence against them.
Reasons to believe-sine qua non :
The Authority authorizing the conduct of search must have reasons to believe

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that :
a. The person to be searched is likely not to produce or suppress any books of
account,
b. Found to be in possession of any money, bullion or jewellery which may be
his undisclosed income or property,
c. Not likely to honor any notice or summons.
Reasons to believe is a sine qua non for conduct of search proceedings as per the
provisions of law and various judicial pronouncements also supports this view.
Every authorizing offcer must record in writing the fact that he has suficient
reasons to believe that search operation should be mounted on a person.
Whether the person searched in entitled to get copy of reasons recorded :
The answer is loud and clear- NO.
The person searched is not entitled to get a copy of reasons recorded by the
department as it is a privileged document and cannot be shared with the person
searched.
It has been held in the case of Dr. PRATAP SINGH v DIRECTOR OF ENFORCEMENT
(1985) 155 ITR 166 (SC) that Only the High Courts and the Supreme Court have
the jurisdiction to call for and look into the reasons recorded to decide whether the
issue of the search warrant was called for.
The search procedure at a glance :
a. Authorization of search by issuing search warrant in form 45 of IT Rules.
b. Entering into the premises to be searched by producing search warrant.
Conducting search in presence of at least two witnesses.
c. Preparing Panchnamas for each premise and person.
d. Preparing inventories of cash/valuables/loose papers /jewellery found and
seized.
e. Recording statements.
What is a panchnama :
A panchnama is a vital document evidencing the conduct of search at a premise on
the day of search in the presence of at least two witnesses whose signatures are
taken on the panchnaama. The panchnama contains the name and address of the
person searched in whose respect search warrant has been issued. It is
accompanied by annexures prepared by the department as inventories of books of
account, cash and other valuables found and seized by the department. The person
searched is entitled to obtain a copy of the Panchnama.
Recording of statements :
Statements may be recorded during and after search u/s 132(4). They have strong
evidentiary value and are binding on the person searched unless retracted on valid

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grounds.
Retraction of statements is permissible only if made within a reasonable period of
time and burden of proof lies on the retractor to prove that the statements were
recorded under duress or undue influence.
Rights of person searched :
a. To check identity of each of the member of search party
b. To have authorized representative
c. To have witnesses
d. To search every person of search party when they leave the place
e. To call doctor for the ill person
f. To send kids to school after verification of their school bags
g. Female to be searched by female only
h. To have inventory of items found and seized
i. To use phones
j. To have copy of statements recorded
k. To have copy of books and documents seized
Duties of person searched :
a. To allow search party enter the premises without obstacles
b. To sign search warrant
c. To give explanation when asked
d. To restrict entry of any unauthorized persons
e. Not to move any items without permission of search party
f. To co-operate with search party
Items which can be seized :
During the course of search, the income tax oficers conducting the search are
empowered to seized books of account, cash, jewellery and other valuables such as
FDs/RDs, shares certificates, NSCs, hundies, promissory notes, title deeds of
immovable properties.
Items which cannot be seized :
a. Immovable assets
b. Stock held in business
c. Items disclosed in Income Tax and Wealth tax returns
d. Items appearing in books of accounts
e. Cash for which explanation can be given
f. Jewellery mentioned in wealth tax return

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g. Gold up to 500 Gm per married woman, 250Gm per unmarried woman and
100Gm per male member of the family
h. Jewellery as per the status of the family if so appear to investigating oficer
Assessment of a person other than the person searched :
Section 153C is a unique provision in itself in as much as it empowers the IT
authorities to conduct assessment proceedings even in case of a person who was
not searched as if a search has been conducted in his case also.
This happens when during search at a premise, some documents or valuables were
found in respect of which there was apprehension that they may belong to some
other person. In such a case section 153C may be invoked against that person by
the IT authorities after recording reasons for satisfaction and all the provisions of
section 153A shall apply as they apply in case of a person searched.

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Explain : PAN. (Permanent Account Number) (Nov-2014)


ANSWER :
Read the answer from similar question in Module-1&2

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*** End-of-Compilation ***


Source : Public domain print/ internet contents.
URLs of some such resources are listed herein above.
Credits/ copyrights duly acknowledged.

Suggested Reading :
Ramesh Sharma, Supreme Court on Direct Taxes, Bharath Law House, New Delhi.
Sampath Lyengar, Law of Income Tax, Bharath Law House, New Delhi
Diwan B. K. and Sanjay Mehttani, Formation, Taxation, and Assessment Charitable and
Religious Trusts, Bharath law House, New Delhi.
Kanga and Palkiwala. The Law and Practice of Income Tax, Wadha, Nagpur .
K. Parameswaran, Power of Taxation under the Constitution, Eastern Lucknow
V. Ramachandran & T.A. Ramakrishnan (eds) A. N. Aiyars Indian Tax Laws, Company

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Law Institute of India Pvt. Ltd. Chennai.


S. Bhattacharya & H. R. . Garg, Hbandbook of Direct Taxes. Eastern Law House,
Calcutta. C.A.
Gularickar, Law and Practice of Wealth Tax and Valuation, Gularikar, Mumbay. -
Walter R. Mahler, Sales and Excise Taxation in India, Orient Longman, Delhi.
R.V. Pattel. The Central Sales Tax Act, Thripathi Bombay.
S.D. Singh, Principles of Law of Sales Tax, Eastern, Lucknow.
Harish N. Shah : The Gujarat Vat Manual, SBD Publication
Sanjeev Malhotra : Practice Procedures & Conveyancing undge VAT & CST: Bharat
Publication

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