INCOME TAX LAW & PRACTICE- I (UCM20302J)

Unit I
1. Definition of Tax

According to Hugh Dalton, “a tax is a compulsory charge imposed by a public authority,

irrespective of the exact amount of service rendered to the tax payer in return”.

2.What do you meant by assessment?

Assessment is the process of computation of Income and Tax Liability by the assessing
officer. Assessment may be “normal assessment” or it may be also be reassessment of income
already assessed.

3.Who is an assessee?

“Assessee” means a person by whom any tax or other sum of money is payable under
this act and includes :-

I. Every person in respect of whom any proceedings under this act has been taken for the
assessment of his income.
II. Every person who is deemed to be an assessee.
III. Every person who is deemed to be an assessee in default.

4.Explain the types of Assessee?

1. Ordinary Assessee
a) Any person who is liable to pay tax (or)
b) A person who filed return of loss
c) A person who is entitled to refund
2. Representative or Deemed Assessee
A person who is liable for the income or loss of other person is called as deemed or
representative assessee.
Eg. : A person liable for the income or loss of deemed person, Lunatic, Minor, Idiot, Non
resident.
3. Assessee-in-default

A person who fails to fulfill his statutory obligation as per the income tax act is called as
Assessee-in-default.

Eg.: Employees-who fails to deduct tax , fails to pay to govt. from employee.

A person paying Interest.

5.What do you mean by assessment year?

The year in which the Income and Tax liability is computed is called as Assessment year.
It is a period of twelve months beginning from 1st April of every year and ends on succeeding 31st
March. The year after the previous year is called as Assessment year. Current Assessment year
2022 - 2023

6. What do you mean by previous year?

The year in which the income is earned is called as previous year. The financial year
immediately preceding the assessment year is called as previous year. It is a period of twelve
months beginning from 1st April of every year and ends on succeeding 31st March. The current
previous year is 2021 - 2022

7. What is computation of total income?

Total income is computed on the basis of residential status of the Assessee. The income
is classified into the following five heads :

I. Income from salary

II. Income from house property
III. Profits and gains of business or profession
IV. Capital gains
V. Income from other sources.

8. State the Exceptional rule for previous year taxation rules :

The income of the Previous year is assessed to tax in the Assessment year. The income
of a previous year is taxed in that year itself at the rates applicable to that year in the following
cases.

 Income of any Non-resident from shipping business.

 Income of an individual leaving India permanently.
 Income of AOP or BOI formed for special event temporarily.
 Transfer of property to avoid tax.
 Discontinuance of a Business or Profession

9. State the difference between AOP & BOI

 AOP consist of Non individual also. But BOI consist only individual.
 AOP is formed by voluntarily getting together for a common good, where as BOI may or
may not be like that.
 10. Explain Sec 4 of Income Tax Act 1961?

It is called as charging section or back bone of the Law of Income Tax. In its absence, the
Act cannot be enforced. It provides the following :

 Income Tax shall be charge at the prescribed rates of the Act.

 The charge is on every person.
 Income Tax is that of the PY.
 Levy of Tax is on Total Income computed as per IT rules.

11. Who is a person?

According to sec 2 (31) the term person includes the following :

I. An individual V. An association of persons

II. A Hindu undivided family VI. Body of individuals
III. A company VII. A Local Authority
IV. A Firm VIII. Artificial Juridical person
12. Who is the resident?

An individual is said to be resident in India if he satisfies any one of the two basic conditions.

Basic Conditions:
I. An individual should stay in India for a period of 182 days or more during the relevant previous year
OR
II. An individual should stay in India for a period of 60 days or more during the relevant previous year
and 365 days or more during the 4 years preceding the previous year.

13. Explain the classification of Residential status?

I. Individual & HUF

Resident Non-Resident

Resident & Resident but not

Ordinary resident Ordinary resident
 II. Firm, AOP, BOI, Company

Resident Non Resident

14. Who is a Resident and Ordinary resident?

A resident who is satisfying both the additional conditions will be called as Resident and Ordinary Resident.
15. Who is a Non-Resident?
If an individual does not satisfy any of the basic conditions, he is said to be non-resident.
16. Who is resident but not ordinary resident?
A resident who is not satisfying any one (or) none of the additional conditions will be called as resident but
not ordinary resident.

Additional Conditions:
1. A resident has to stay in India for a period of 730 days (or) more during the 7 years preceding the
previous year

AND
2. A resident has to be an resident at least for 2 years out of 10 years preceding the previous year.

17.Explain the Residential status of HUF?

Resident: If the control and Management of a HUF is situated wholly or partly in India during the
relevant PY, the HUF is called as Resident.
Ordinary Resident: When Karta satisfies both of the additional conditions, HUF is called as ordinary
resident.
Not ordinary resident : When Karta satisfies any one or none of the additional condition, HUF is
called as Not ordinary resident.
Non-Resident : When the control and management of the HUF is outside India, it is called as Non
Resident.

18. State the rules for Residential Status of partnership firm and a company.
 Partnership Firm : If the control and management is wholly or partly in India, they are resident. If it is
wholly outside India, they are Non-resident. Control and Management means where the head directing
powers are situated.
Company : An Indian company is always resident. Foreign company shall be resident, when the
whole control & Management is in India. If it is wholly or partly outside India, they will be Non-resident.
19. What is Income?
The term Income includes :
I. Profit and gains from business (or) professions
II. Dividends
III. Perquisite
IV. Special allowance, Any allowances
V. Casual income – winnings from lottery, gambling, race income, etc.,
VI. Gifts exceeding Rs.50,000.
20. State the features of Income
 Define source
 Legal or illegal
 Cash or
 Receipt basis or accrual basis
 Relief or reimbursement
 Permanent or temporary
 Pin money is not an Income
 Award received by a sports person is treated as Income.
21.What do you meant by Indian Income?
1. Income is received in India during the previous year and it accrues in India.
2. Income is received in India during the previous year but it accrues outside India during the previous
year.
3. Income is received outside India during the previous year but it accrues in India during the previous
year.
22. List out any four fully exempted Income from Tax?
Section 10,11,12,13 and 13A deal with incomes which do not form part of an assessee’s total income.
These incomes are discussed under the following heading :
1. Income absolutely exempt from tax under sec10.
2. Exemptions in the form of tax – holiday.
3. Exemptions of income from property held for charitable or religious purposes u/s 11,12,13
4. Income of political parties u/s 13A.
23.What do you meant by Exempted Income?
‘Exempted Incomes’ are those incomes on which income tax is not charged. The exemption may be
based on the nature of the income, status of the Assessee or on the source from which the income is
derived.
24. List out any 15 Exempted Income u/s. 10 of the Income Tax Act 1961
 Agricultural Income from India
 Sum received from HUF
 Share of Income from Firm
 Any sum received from LIP (Life Insurance Policy)
 Scholarship received to meet the cost of education
 Allowances of MLA., MP.,MLC.,
 Any cash awards received from Government.
 Family pension received by members of armed forces.
 Income of scientific research association.
 Dividend and Interest received from UTI and Mutual Fund
 Capital Gain on sale of US64.
 LTCG (Long term capital gain) on transfer of listed equity shares.
 LTCG on transfer of equity shares covered by STT (Security Transaction Tax.)
 Gratuity, Leave Travel Concession, Commuted Pension, Leave Encashment, VRS, Retrenchment
Compensation.
 Perquisites and allowances of Government Employees working outside India.