Income Tax

SHORT NOTES

1. Agricultural income [S.2(1A)] (5 Marks) Apr 22

2. Capital Assets [S.S2(14)] and Transfer in relation to Capital Nov 23

Assets. [S.2(47)] (5 Marks)

3. Define Residential Status of Individuals and Companies under Nov 23

the Income Tax Act. What is the basis of charge of tax based on Apr 23

residential status for Individuals and Companies? (S.6) (5

Marks)

Or

Define Residential Status of Individuals and Companies under

the Income Tax Act. (S.6) (5 Marks)

4. Income deemed to accrue or arise in India from any "business Nov 23

connection" in case of a non – resident. (S.9) (5 Marks) Apr 23

Or

Income deemed to accrue or arise in India from any "business

connection". Elaborate with explanation and exceptions under

Section 9 of the Income Tax Act. (6 Marks)

5. Give instances of Incomes which do not form part of Total Apr 23

Income. (S.10) (5 Marks) Nov 23

6. Income from the Property held for Charitable or Religious Apr 23

purposes. (S.11) (5 Marks)

7. Income of Trusts or Institutions from Contributions. (S.12) (4 Nov 23

Marks)

8. What are the conditions for applicability of Sections 11 and 12 Apr 23

of the Income Tax Act. (S.12A) (5 Marks)

9. Salary (S.15 to 17) (10 Marks) Oct 21

10. Income from house property (S.22 to 27) (5 Marks) and (10 Apr 24

Marks) Oct 21

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11. Explain concept and conditions for availing of Depreciation Apr 23

under Section 32 of the Income Tax Act. (S.32) (5 Marks)

12. Capital Gains (S.45) (5 Marks) Apr 22

13. Long Term Capital gains. [S.2(29A) and (29B) and S.112] (4 Oct 21

Marks)

14. Please explain, in no more than 150 words, the concept of a Apr 24

slump sale. [S.2(42C) and 50B] (4 Marks) Oct 21

15. What kind of receipt does section 56(2)(vii)(b) seek to tax? Apr 24

Please explain and answer in no more than 150 words (4

Marks)

16. Irrevocable transfer of Assets. (S.62) (4 Marks) Oct 21

17. Aggregation of Income. (4 Marks) and (5 Marks) Nov 22

Apr 22

18. Unexplained Investment (S.69) (4 Marks) Oct 21

19. Rebate and reliefs (5 Marks) Nov 22

20. Double taxation relief (S. 90) (4 Marks) and (5 Marks) Nov 23

Apr 23

Nov 22

21. Unilateral relief from double taxation (S.91) (5 Marks) Apr 24

22. Discuss the meaning of the terms associated enterprise' and Nov 22

"deemed associate enterprise under section 92A (1) Income

from house property. (S.92A) (8 Marks)

23. The Arm’s Length Principal (S. 92C) (5 Marks) Apr 24

Apr 22

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24. Write a detailed note on General Anti Avoidance Rules and its Nov 22

applicability. (S.95) (8 Marks)

25. When can an arrangement be declared as an Impermissible Apr 22

Avoidance Arrangement? (S.96) (5 Marks)

26. Consequences of Impermissible Avoidance Arrangement? Oct 21

(S.98) (5 Marks)

27. Jurisdiction of Income tax authorities (S.120) (5 Marks) Nov 22

28. Power of Commissioner to transfer cases. (S.127) (5 Marks) Apr 22

29. Power of assessing officer in respect of discovery, inspection Oct 21

and production of evidence. (S.131) (5 Marks)

30. Income escaping Assessment (S.147) (5 Marks) Apr 23

31. Representative Assessee (S.160) (5 Marks) Apr 22

Oct 21

32. Agent as a representative assessee (S.163) (4 Marks) Nov 22

33. Advance Rulings (S. 245N to 245V) (5 Marks) Oct 21

34. Appealable Orders. (S.246 and 246A) (4 Marks) and (5 Nov 22

Marks) Apr 22

35. Appeals to Appellate Tribunal (S.253) (4 Marks) Apr 23

36. Appeals to a High Court (S.260A) (5 Marks) Apr 24

Nov 23

Apr 23

37. Powers of the Principal Commissioner or Commissioner of Nov 23

Income Tax to revise orders. (S. 263) (4 Marks)

38. Void Transfers under the Income Tax Act (S.281) (4 Marks) Nov 23

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 Nov 22

39. Please explain, in no more than 300 words, the distinction Apr 24

between a capital receipt and revenue receipt. Please give two

instances in which capital receipts are taxable under the

Income Tax Act 1961. (4 Marks)

40. Please explain the concept of “undertaking”. Does a holding Apr 24

company have undertaking? Why? Please explain in no more

than 300 words. (4 Marks)

41. Faceless Assessments [S.144B] (5 Marks) Nov 23

42. Income by the way of Royalty (6 Marks) Apr 23

43. How is tax avoidance different from tax planning (5 Marks) Oct 21

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 SHORT NOTES
1. Agricultural income [S.2(1A)] (5 Marks)

 Section 2 subsection 1A of the Income Tax Act,1961 defines Agricultural

Income. This definition is very wide and covers the income of not only

cultivators but also land holders who might have rented out the lands.

Agricultural income may be received in cash or kind.

 Agricultural income may arise in any one of the following three ways:

i. It may be rented or revenue derived from land situated in India

and used for agricultural purposes.

ii. It may be income derived from such land by

a) Agriculture; or

b) the performance of a process ordinarily employed by a

cultivator or receiver of rent-in-kind to render the produce fit

to be taken to market; or

c) the sale of such agricultural produce in the market.

iii. Lastly, agricultural income may be derived from any farm building

required for agricultural operations.

 Rent or revenue derived from land situated and used for

agricultural purposes:

Following 3 conditions have to be satisfied for income to be treated as

agricultural income:

i. Rent or revenue should be derived from land;

ii. Land has to be situated in India (If agricultural land is situated in a

foreign country, the entire income would be taxable); and

iii. Land should be used for agricultural purposes.

 Income derived from such land by:

a) Agriculture

The term agriculture has not been defined in the Act. However,

cultivation of a field involving human skill and labour on the land can be

broadly termed as agriculture.

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b) Process ordinarily employed to render the produce fit to be taken to

market:

To make the agricultural produce a saleable commodity, it becomes

necessary to perform some kind of process on the produce. The Income

from the process employed to render the produce fit to be taken to the

market would be agricultural Income. However, it must be process

ordinarily employed by the cultivator or receiver of rent in kind and the

process must be applied to make the produce fit to be taken to the

market.

c) Sale of such agricultural produce in the market:

Any income from the sale of any produce to the cultivator or receiver of

rent-in-kind is agricultural income provided it is from the land situated in

India and used for agricultural purpose. However, if the produce is

subjected to any process other than process ordinarily employed to

make the produce fit for market, the income arising on sale of such

produce would be partly agricultural income and partly non-agricultural

income.

 Income from farm building:

Income from the farm building which owned and occupied by the

receiver of the rent or revenue of any such land or occupied by the

cultivator or the receiver of rent-in-kind, of any land with respect to

which, or the produce of which, any process discussed above is carried

on, would be agricultural income. However, the income from such farm

building would be agricultural income only if following conditions are

satisfied:

a) The building should be on or in the immediate vicinity of the land; and

b) The receiver of the rent or revenue or the cultivator or the receiver of

rent on kind should, by reason of his connection with such land acquire

it as a dwelling house or as a store house.

 Example of Agricultural Income:

i. Income from sale of seeds;

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 ii. Income from growing bamboo;

iii. Rent received from land used for grazing of cattle required for

agricultural activities.

 Example of non-agricultural Income;

i. Income from breeding of livestock;

ii. Income from dairy farming;

iii. Income from fisheries.

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2. Capital Assets [S.S2(14)] and Transfer in relation to Capital

Assets. [S.2(47)] (5 Marks)

 Capital Assets - [S.S2(14)]

Capital Asset means:

a. Property of any kind held by an assessee, whether or not

connected with his business or profession;

b. Any securities held by a FII, which has invested in such securities

in accordance with SEBI regulations.

c. Any unit linked insurance policy (ULIP) to which exemption u/s.

10(10D) does not apply on account of:

i. Any sum received, on or after 01.01.2021, if the amount of

premium payable for any of the PY during the term of such policy

exceeds Rs. 2.5 Lakh; or

ii. Where a person subscribed to more than one ULIP and aggregate

of premium paid on all such policies exceeds Rs. 2.5 Lakh in PY.

 However, these restrictions shall not apply to any sum received upon

the death of a person. It is required to be noted that only investment

can be treated as capital asset and anything held by assessee as a

stock-in-trade is not a capital asset. CIT v. Yatish Trading Co. Pvt.

Ltd. (2013) 359 ITR 320 (Bom).

 Transfer in relation to Capital Asset – S.2(47)

The term “transfer” defined u/s. 2(47) of the act has much wider connotation

than common parlance or TOPA u/s. 5, as it includes:

a) Sale, exchange or relinquishment of the assets;

b) Extinguishment of any rights therein;

c) Conversion of an asset into stock-in-trade;

d) Maturity or redemption of zero-coupon bond;

e) Allowing possession of Immoveable property to be taken or retained in

part performance of a contract act of the nature referred to in section

53A of TOPA;

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f) Any transaction which has the effect of transferring or enabling the

enjoyment of any immoveable property.

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3. Define Residential Status of Individuals and Companies under

the Income Tax Act. What is the basis of charge of tax based on

residential status for Individuals and Companies? (5 Marks)

Or

Define Residential Status of Individuals and Companies under

the Income Tax Act. (5 Marks)

 Residential Status of Individuals: S.6(1)

An individual is said to be resident in India in any PY if he fulfils any one

of the following 2 basic conditions:

i. He is in India in that PY for a period or periods amounting in all to

182 days or more; OR

ii. He is in India for a period or periods amounting in all to (a) 60

days of more during the PY; and (b) 365 days or more during

the 4 years preceding that PY.

 Exception to the above conditions:

i. When a Citizen of India leaving India

An individual, who is a citizen of India, goes abroad in any year for the

purpose of employment or as a member of the crew of an Indian ship,

is considered as resident in India in that year only if he has been in

India in that year for 182 days or more.

ii. When a Citizen of India or a person of Indian origin visits India

A citizen of India or a person of Indian origin who is residing outside

India and comes to India on a visit in any previous year is required to

stay in India for 182 days or more for being treated as Resident.

 Non- Resident

If an individual does not satisfy both the basic conditions mentioned

above, he shall be considered as a non-resident.

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 Resident but not ordinary resident: s.6(6)

In addition to fulfilling one of the above basic conditions, case an

individual fulfils any one of the following additional conditions, he will be

treated as "Not Ordinarily Resident" in India in that previous year.

Additional conditions:

i. He has been a non-resident in India in 9 out of 10 preceding PYs; or

ii. He has been in India for a period not exceeding 729 days during the 7

preceding PY.

Note: Conditions for determining residential status of HUF [S. 6(2)]

is similar to Individual.

 RESIDENTIAL STATUS OF COMPANY: S. 6(3)

A company is said to be resident in India, if in any PY:

i. It is an Indian company; and

ii. In case of other companies, where its place of effective management

(POEM) in that year, is in India.

In any other case, the company shall be considered to be a non-resident.

Note: “POEM” means a place where the key management and

commercial decision that are necessary for the conduct of business

of an entity as a whole are, in substance made.

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4. Income deemed to accrue or arise in India from any "business

connection" in case of a non – resident. (5 Marks)

OR

Income deemed to accrue or arise in India from any "business

connection". Elaborate with explanation and exceptions under

Section 9 of the Income Tax Act. (S. 9) (6 Marks)

 As per S.9 of the act, the following income shall be deemed to accrue or

arise in India:

SECTION INCOME

9(1)(i) a) Any income through or from any business connection in

India;

b) Any income through or from any property in India;

c) Any income through or from any asset or source of income

in India; or

d) Any income through transfer of a capital asset situated in

India.

9(1)(ii) Any salary income, if it is earned in India.

9(1)(iii) Any salary payable by the Government to an Indian citizen for

service outside India.

9(1)(iv) Dividend paid by an Indian company outside India.

9(1)(v) Interest payable by Government, resident or non-resident.

9(1)(vi) Royalty payable by Government, resident or non-resident.

9(1)(vii) Fees for technical services payable by Government, resident or

non-resident.

9(1)(viii) Any sum of money paid/property transferred by a resident

Indian to a non-resident or foreign company.

 The concept of business connection is that a non-resident should be

liable to tax, for profit earned in India if he has real and significant or

substantial economic nexus with India. “Business connection” includes:

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i. Business activity is said to be carried out by a non-resident in

India through an agent, if such agent performs any of the

following functions:

a) he has, authority to conclude contracts on behalf of the non-resident,

or

b) he concludes contracts; or

c) he plays the principal role leading to conclusion of contracts by that

non-resident and the contracts are:

(1) in the name of the non-resident, or

(2)(a) for the transfer of the ownership of property owned by that non-

resident; or

(b) for the granting of the right to use property owned by that non-

resident, or

(c) for the granting of the right to use property which that non-

resident has the right to use;

(3) for the provision of service by the non-resident

d) without any authority, maintains stock of goods or merchandise in

India and regularly delivers them

e) such agent, secures orders in India mainly or wholly for the non-

resident or various non-residents who are subject to the same common

control.

ii. Significant economic presence of non-resident in India.

The significant economic presence of a non-resident in India shall

constitute "business connection" in India, if any of the following

conditions are satisfied:

a) Where the aggregate of payments arising from transaction in respect of

any goods, services or property including download of data or software

during the previous year exceeds Rs. 2 crores; or

b) Where systematic and continuous soliciting of business activities or

engaging in interactions with such number of users should be atleast 3

lakhs, in India through digital means.

Page 13 of 79
However, where a business connection is established by reason of significant

economic presence in India, only so much of income as is attributable to the

transactions or activities referred to in (a) or (b) above shall be deemed to

accrue or arise in India.

Transactions constitute significant economic presence in India, whether or

not:

i. The agreement for such transaction or activities is entered in India; or

ii. The non-resident has a residence or place of business in India, or

iii. The non-resident renders services in India.

EXCEPTION U/S. 9

1. Transactions with non-resident on a principal-principal basis

(Agent having Independent Status)

 Where, the agent acts in his own capacity as an agent in normal course

of his business, no business connection is established as there is no

dependency.

 Where the business is carried on in India through a dependant agent

referred above, only so much of income as is attributable to the

operations carried out in India shall be deemed to accrue or arise in

India.

2. Commissions paid to foreign agents if Indian Exporters

 A foreign agent of Indian exporter operates in his own country and no

part of his income arises in India. Commissions for such foreign agency

service is usually remitted directly to him and is therefore, not received

by him or on his behalf in India.

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3. Non-resident purchasing goods in India

 In respect of the transactions that are confined to mere purchase of

goods in India for export outside India, no income shall be deemed to

accrue or arise in India for non-resident.

4. Operations confined to certain activities caries on by non-

resident

 News agency: Collection of news and views in India for transmission

out of India by or on behalf of non-resident, who is engaged in the

business of running news agency or of publishing newspaper or

magazines or journals.

 Cinematography films: Shooting of cinematography film in India by

a non-resident shall not be deemed to accrue or arise in India, where

such non-resident is:

a) An individual – who is not a citizen of India; or

b) A firm – not having any partner who is a citizen of India or who is

resident in India.

c) A company – not having any shareholders who is a citizen of India or

who is resident in India.

 Display of diamond: In case of a foreign company engaged in the

business of mining diamonds, no income shall be deemed to accrue of

arise in India to it through or from the activities which are confined to

display of uncut and unassorted diamonds in special notified zone.

Page 15 of 79
5. Give instances of Incomes which do not form part of Total

Income. (S.10) (5 Marks)

 All receipts which give rise to income are taxable under the Income-tax

Act, unless they are expressly provided, that it does not form part of

total income. Sec. 10 provides for exemption in computing the total

income of a previous year of any person, any income falling within any

of the following provisions of Sec. 10 shall not be included.

 Some of the instances which do not form a part of the total income are

as follows:

1) Agricultural income derived in India is exempt.

2) Receipts out of the income of HUF or the income of the impartible

estate, by an individual as a member of a HUF are exempt from tax.

Such receipts are not chargeable to tax in the hands of a member of

HUF even if tax is not paid or payable by the HUF on its total income.

3) Share of profit of a partner in a firm, which is separately assessed to tax

in the hands of the firm, is exempt. Similar exemption is available to the

partners of LLP.

4) Any sum received under a life insurance policy, including bonus thereon,

shall be exempt subject to certain limitation.

5) Income of a pension fund set up by Life Insurance Corporation of India

or any other insurer approved by the Controller of Insurance or IRDA

shall be exempt from tax.

6) Any income of the Insurance Regulatory and Development Authority is

exempt from tax.

7) Scholarships granted to meet the cost of education shall be exempt.

8) Any income received by any person for, or on behalf of the New Pension

System Trust, is exempt from tax.

9) The annual value of any one palace in occupation of a former ruler shall

be exempt from tax.

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10) Any income of a corporation established by the Central Government or

any State Government for promoting the interests of the members of a

notified minority community is exempt from tax.

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6. Income from the Property held for Charitable or Religious

purposes. (S.11) (5 Marks)

 Section 11(1) of the act provides; the following income shall not be

included in the total income of the previous year of the person in receipt

of the income:

a. income derived from property held under trust wholly for charitable or

religious purposes, to the extent to which such income is applied to such

purposes in India, subject to the restriction placed under the Act;

b. income derived from property held under trust in part only for such

purposes, the trust having been created before the commencement of

this Act, to the extent to which such income is applied to such purposes

in India; and, where any such income is finally set apart for application

to such purposes in India, subject to the restriction placed under the Act;

c. income derived from property held under trust:

i. for a charitable purpose which tends to promote international welfare

in which India is interested, to the extent to which such income is

applied to such purposes outside India, and

ii. for charitable or religious purposes, to the extent to which such income

is applied to such purposes outside India

Provided that the Board, by general or special order, has directed in either

case that it shall not be included in the total income of the person in

receipt of such income.

d. income in the form of voluntary contributions made with a specific

direction that they shall form part of the corpus of the trust or

institution.

 For the purposes of this section “property held under trust” includes a

business undertaking so held, and where a claim is made that the

income of any such undertaking shall not be included in the total

income of the persons in receipt thereof, the Assessing Officer shall

have power to determine the income of such undertaking in accordance

Page 18 of 79
 with the provisions of this Act relating to assessment; and where any

income so determined is in excess of the income as shown in the

accounts of the undertaking, such excess shall be deemed to be applied

to purposes other than charitable or religious purposes. S.11(4)

 Where any income is required to be applied or accumulated or set apart

for application, then, the income shall be determined without any

deduction or allowance by way of depreciation or otherwise in respect of

any asset, acquisition of which has been claimed as an application of

income under this section in the same or any other previous year.

S.11(6). While computing income of charitable trust, the depreciation

(u/s.32) is prospective in nature and operates w.e.f 01.04.2015. CIT v.

Rajasthan & Gujarat Charitable Foundation Poona [2018] 89

taxmann.com 127 (SC).

 While computing exempt income u/s. 11, income which are exempt u/s.

10 are to be excluded. DIT v. Jasubhai Foundation [2015] 58

taxmann.com 218 (Bom.)

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7. Income of Trusts or Institutions from Contributions. (S.12) (4

Marks)

 Any voluntary contributions received by a trust created wholly for

charitable or religious purposes or by an institution established wholly

for such purposes (not being contributions made with a specific direction

that they shall form part of the corpus of the trust or institution) shall for

the purposes of section 11, be deemed to be income derived from

property held under trust wholly for charitable or religious purposes and

the provisions of that section and section 13 shall apply accordingly.

S.12(1)

 The value of any services, being medical or educational services, made

available by any charitable or religious trust running a hospital or

medical institution or an educational institution, to any person referred

to in section 13(3)- (a), (b), (c), (cc) or (d), shall be deemed to be

income of such trust or institution derived from property held under

trust wholly for charitable or religious purposes during the previous year

in which such services are so provided and shall be chargeable to

income-tax notwithstanding the provisions of section 11(1). S.12(2)

 Any amount of donation received by the trust or institution in terms of

section 80G(2)(d) in respect of which accounts of income and

expenditure have not been rendered to the authority prescribed under

section 80G(5C)(v), in the manner specified in that clause, or which has

been utilised for purposes other than providing relief to the victims of

earthquake in Gujarat or which remains unutilised in terms of section

80G(5C) and not transferred to the Prime Minister's National Relief Fund

on or before the 31.03.2004 shall be deemed to be the income of the

previous year and shall accordingly be charged to tax. S.12(3)

 The most relevant condition is that the contributions are applicable

solely to charitable or religious purposes. It is implied that there has to

be specific directive for applying the donations solely for charitable or

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religious purposes. R. B. Shreeram Religious & Charitable Trust v.

CIT [1998] 99 Taxman 318 (SC).

Page 21 of 79
8. What are the conditions for applicability of Sections 11 and 12

of the Income Tax Act. (S.12A) (5 Marks)

 The provisions of section 11 and section 12 shall not apply in relation to

the income of any trust or institution unless the following conditions are

fulfilled, namely:

a. the person in receipt of the income has made an application for

registration of the trust or institution in the prescribed form and in the

prescribed manner to the Principal Commissioner or Commissioner

before the 01.07.1973, or before the expiry of a period of one year from

the date of the creation of the trust or the establishment of the

institution, whichever is later and such trust or institution is registered

under section 12AA;

b. The person in receipt of the income has made an application for

registration of the trust or institution on or after the 01.07.2007 in the

prescribed form and manner to the Principal Commissioner or

Commissioner and such trust or institution is registered under section

12AA;

c. The person in receipt of the income has made an application for

registration of the trust or institution, in a case where a trust or an

institution has been granted registration under section 12AA or has

obtained registration at any time under section 12A and, subsequently,

it has adopted or undertaken modifications of the objects which do not

conform to the conditions of registration, in the prescribed form and

manner, within a period of 30 days from the date of said adoption or

modification, to the Principal Commissioner or Commissioner and such

trust or institution is registered under section 12AA;

d. The person in receipt of the income has furnished the return of income

for the previous year in accordance with the provisions of section

139(4A), within the time allowed under that section.

 Pre-requisite for claiming exemption

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A conjoint reading of sections 11, 12 and 12A makes it clear that

registration u/s 12A is a condition precedent for availing benefit under

sections 11 and 12. Unless and until an institution is registered u/s 12A,

it cannot claim the benefit of section 11(1)(a). U. P. Forest

Corporation v. DCIT [2007] 165 Taxman 533 (SC).

Page 23 of 79
9. Salary (S.15 to 17) (10 Marks)

 Chargeability of Income under the head “Salary” - (S.15)

The following income 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; S.15(a)

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; S.15(b)

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. S.15(c)

 Relationship of an employer and employee essential:

There must be an employer and employee relationship, either in the

present or in past, between the persons liable to pay the amount and

the person entitled to receive the amount. Dharangadhara Chemical

Works Ltd. v. State of Saurashtra, (1957) SCR 152 (SC)

 Deductions – S.16

The income chargeable under the head “salaries” shall be computed

after making the following deductions from gross salary:

i. Standard deduction or ad-hoc deduction

ii. Deduction for entertainment allowance

iii. Deduction towards professional tax

Note: Deduction for entertainment allowance is only available to

government employees.

Page 24 of 79
 Definition of salary – S.17(1)

Salary includes:

i. Wages v. Any advance of salary

ii. Annuity or pension vi. Leave encashment
iii. Any gratuity vii. Annual accretion to the
recognised provident fund
iv. Any fees, commissions, viii. Contribution made by
perquisites or profit in lieu Central government or any
of or in addition to any other employer in previous
salary or wages. year to the account of an
employee under the
pension scheme.

 Perquisite – S. 17(2)

Perquisite includes:

i. Value of rent-free v. Any sum payable by the

accommodation provided by employer to effect an
the employer; assurance on life of the
employee or to effect a
contract for an annuity.
ii. The value of concession in vi. The value of specified
the matter of rent in respect securities or sweat equity
of accommodation provided shares allotted or
by the employer; transferred to employees by
an employer or former
employer free of cost or at
concessional rate.
iii. The value of any benefit or vii. Any contribution made by
amenity granted or provided the employer to:
free of cost or at a. Recognised provident fund
concessional rate in case of b. National pension scheme
specified employees; c. Superannuation fund
iv. Any sum paid by the viii. Value of any other fringe
employer in respect of any benefit or amenity as may
obligation on behalf of the be prescribed.
employer;

 Profits in lieu of salary – S.17(3)

Page 25 of 79
 Payment received from employer to the employee which are:

i. Compensation received on termination or modifications of the terms

and conditions of employment;

ii. Payment from an unrecognised Provident fund or unapproved

Superannuation fund;

iii. Payment under Keyman Insurance Policy;

iv. Any amount due or received, whether in lumpsum or otherwise by the

employee.

Page 26 of 79
10. Income from house property (S.22 to 27) (5 Marks) and (10

Marks)

 Income from house property– S.22 (Chargeability section)

The annual value of any property comprising of buildings or land

appurtenant thereto, of which the assessee is the owner, is chargeable

to tax under the head “Income from house property”. The annual value

of any building or portion of a building occupied by the assessee for the

purpose of business or profession carried on by him is not chargeable to

tax.

 Where the main business of the assessee is deriving rental income from

letting out the properties, and the same is included as principal object in

the Memorandum of Association, the same would be chargeable to tax

as “Business Income”. Chennai Properties and Investments Ltd., v.

CIT (2015) 373 ITR 673 (SC). In all other cases, the rental income

shall be subject to tax under the head “Income from House Property”

 Computation of income from house property – S.23 to 25

For computing tax all house properties can be divided as follows:

a) Let-out property – S.23(1)

b) Self-occupied property or unoccupied property – S.23(2)(a) & (b)

c) Deemed let out property – S.23(4)

d) Property held as stock-in-trade – S.23(5)

 The provisions of sec. 23 deals with computation of annual value of any

property comprising of building or land appurtenant thereto. After

computation of the annual value, deductions prescribed u/s. 24 are

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

property. The provisions of sec. 25 provides for disallowances of interest,

otherwise allowable u/s. 24, which is payable outside India and the tax is

not deducted or paid.

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 Income from co-owned property – S.26

Where property consisting of buildings or buildings and lands

appurtenant thereto is owned by two or more persons 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 share of each such person in the income from the property as

computed in accordance with sections 22 to 25 shall be included in his

total income.

 Deemed owner – S.27

a. 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 the house

property so transferred;

b. The holder of an impartible estate shall be deemed to be the individual

owner of all the properties comprised in the estate;

c. A member of a CHS, company or other AOP 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, shall be deemed

to be the owner of that building or part thereof;

d. 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 53A of the TOPA, shall be deemed to be the owner of that

building or part thereof.

 Set-off of losses – S.71 and 71B

S.71 enables set-off of loss from house property against income under

any other head, including salary. S.71B enables an assessee to carry

forward any loss computed under the head, “Income from House

Property” and the same shall be set off against income computed under

“Income from House Property” in the subsequent year.

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11. Explain concept and conditions for availing of Depreciation

under Section 32 of the Income Tax Act. (S.32) (5 Marks)

 Concept of Depreciation – S.32

Depreciation is the reduction in the usable value of fixed assets due to

normal wear and tear or efflux of time. One of the most important

accounting principles is the matching principle of accounting. It means

all the expenses incurred whether directly or indirectly are to be

considered while determining the profits. Depreciation is an indirect

non-cash expenditure. It is actually not incurred but statutorily

provided to arrive at the correct profits.

While depreciation can be provided either on Straight Line Method

(SLM) or Written Down Value (WDV) under Companies Act, it shall be

claimed on the basis of WDV method under Income-tax Act. However,

power generating undertaking can opt to depreciate assets under SLM.

Depreciation u/s. 32(1) is mandatory and therefore, shall be allowed

even if the assessee has not claimed the deduction in respect of

depreciation in computing his total income. The Assessing Officer must

allow the depreciation in accordance with the provisions of law.

 Conditions for availing Depreciation u/s. 32

A. The assessee must be owner of the assets:

Assets may be wholly or partially owned by the assessee for the

purpose of S.32, since even fractional ownership is also recognised for

the claim of depreciation. It is not mandatory for the assessee to have

legal ownership of a property. Beneficial ownership in terms of

possession, usage and control is sufficient to claim depreciation u/s. 32

– Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC)

Page 29 of 79
 B. The assessee must use the asset for the purpose of carrying on

the business or profession:

S.32 makes it mandatory that the asset should be used for the purpose

of his business or profession.

C. The assets must be used during the relevant previous year:

While the asset should have been used during the PY, S.32 does not

suggest a condition that it should have been used throughout the PY.

Thus, even if the asset is use for part of the year, depreciation shall be

allowed. Where any asset is used partly for business and partly for

personal purposes, only proportionate depreciation as determined by

the Assessing Officer can be claimed as deduction. If assets are

continued in block, so long as the block is in use or available for use,

depreciation can be claimed. However, if an asset acquired during the

previous year is put to use for less than 180 days during that previous

year, then, only 50% of the depreciation is permissible in respect of

that asset.

D. The asset must fall under eligible class of assets

The asset in respect of which depreciation is claimed should fall within

the eligible classification of assets as detailed hereunder:

i. Tangible assets viz., buildings, machinery, plant or furniture;

ii. Intangible assets such as know-how, patents, copyrights,

trademarks, licences, franchises or any other business or

commercial rights of similar nature.

Note: Goodwill of a business or profession is not to be considered as an

Intangible asset and therefore no depreciation is available on it.

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12. Capital Gains (S.45) (5 Marks)

 The following are the critical aspect of chargeability under the head

“Capital gains”:

a) There must be capital asset; S.2(14)

b) Such capital asset has been transferred; S.2(47)

c) There are gains/losses from such transfer;

d) Applicability of exemptions.

 There must be Capital Asset – S.2(14)

Capital Asset means:

d. Property of any kind held by an assessee, whether or not

connected with his business or profession;

e. Any securities held by a FII, which has invested in such securities

in accordance with SEBI regulations.

f. Any unit linked insurance policy (ULIP) to which exemption u/s.

10(10D) does not apply on account of:

iii. Any sum received, on or after 01.01.2021, if the amount of

premium payable for any of the PY during the term of such policy

exceeds Rs. 2.5 Lakh; or

iv. Where a person subscribed to more than one ULIP and aggregate

of premium paid on all such policies exceeds Rs. 2.5 Lakh in PY.

However, these restrictions shall not apply to any sum received

upon the death of a person. It is required to be noted that only

investment can be treated as capital asset and anything held by

assessee as a stock-in-trade is not a capital asset. CIT v. Yatish

Trading Co. Pvt. Ltd. (2013) 359 ITR 320 (Bom).

 Such capital asset has been transferred – S. 2(47)

Capital assets are of 2 types, Long-term Capital Asset [s.2(29A)] and

Short-Term Capital Asset [s.2(42A)]. As per s.2(29B), LTCG means

capital gain arising from the transfer of LTCA and as per s.2(42B), STCG

means capital gain arising from the transfer of STCA. In order to treat a

Page 31 of 79
 capital asset as long term or short term, the relevant factor is a period

of holding of asset before the date of its transfer by assessee.

 There are gains/losses from such transfer

Capital gains are taxed in the year in which the capital asset is

transferred. It is the date of transfer that determines the previous year

in which the capital gain is to be taxed. In view of Finance Act, 2024

following factors are important in computing the capital gains and tax

thereon:

a) The period of holding of capital assets;

b) Availability of indexation;

c) Applicable tax rates.

If the transfer is made before 23 rd July, 2024, the old provisions shall

continue to apply. But, if the transfer is made on or after 23 rd July, 2024,

there shall be following consequences:

a) The new holding period shall apply to determine the nature of capital

gain;

b) The tax on short-term capital gains covered under section 111A shall

be 20% instead of 15%;

c) The tax on long-term capital gains covered under section 112A shall be

12.5% instead of 10%;

No benefit of indexation shall be available on long term Capital Gain.

 Transaction not regarded as transfer – S.47

i. Transfer by way of gift, will of by HUF;

ii. Transfer of work of Art;

iii. Transfer between holding company and subsidiary company;

iv. Amalgamation of companies;

v. Conversion of firm/AOP/BOI into company listed on Stock exchange;

vi. Conversion of Pvt. Company or unlisted public company into LLP.

13. Long Term Capital gains. [S.2(29A) and (29B) and S.112] (4

Marks)

 Long-term Capital Asset - [s.2(29A)]

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 Long-term capital asset means capital asset which is not short-term

capital Asset.

 Long-term Capital Gain - [s.2(29B)]

Long-term capital gain capital gain arising from the transfer of Long-

term capital asset.

 Tax on long term capital gain – S.112

Section 112 provides the tax rates on long-term capital gains in respect

of different categories such as:

a. Resident individual/HUFs – S.112(1)(a)

b. Domestic companies - S.112(1)(b)

c. Non-resident/Foreign companies - S.112(1)(c)

d. Other resident persons - S.112(1)(d)

A. Pre-amended provision (i.e. before Finance act 2024)

The tax rate on LTCG was uniformly set at 20% for all categories except

in certain cases as provided in s.112A. In certain cases, the LTCG were

computed after adjustment for foreign currency fluctuations and

indexation of the cost of acquisition. Additionally, S.112 offered

assesses the option to chose between the tax rate of 20% after claiming

the indexation benefits or 10% without the indexation benefits in

respect of LTCG arising from transfer of listed securities (other than

units) or zero-coupon bonds.

B. Post-amended provision (i.e. After Finance act 2024)

The Finance act has introduced a uniform tax rate of 12.5% without

indexation benefits for all categories of taxpayers where the LTCG is

transferred after 23.07.2024. However, the resident individual and HUFs

can choose between the old and the new law when computing LTCG tax

on the transfer of land or buildings acquired on or before 22.07.2024.

14. Please explain, in no more than 150 words, the concept of a

slump sale. [S.2(42C) and 50B] (4 Marks)

 Slump Sale – S.2(42C)

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 "Slump sale" means the transfer of one or more undertaking, by any

means, for a lump sum consideration without values being assigned to

the individual assets and liabilities in such sales.

 Computation of capital gain in case of slump sale – S.50B

1. Any profits or gains arising from the slump sale effected in the previous

year shall be chargeable to income-tax as capital gains arising from the

transfer of long-term capital assets and shall be deemed to be the

income of the previous year in which the transfer took place.

2. Any profits or gains arising from the transfer under the slump sale of

any capital asset being one or more undertakings owned and held by an

assessee for not more than 24 months immediately preceding the date

of its transfer shall be deemed to be the capital gains arising from the

transfer of short-term capital assets.

3. In relation to capital assets being an undertaking or division transferred

by way of such sale, the “net worth” of the undertaking or the division,

shall be deemed to be the cost of acquisition and the cost of

improvement.

4. Every assessee, shall furnish, along with the return of income, a report

of an accountant indicating the computation of the net worth of the

undertaking or division, and certifying that the net worth of the

undertaking or division, has been correctly arrived.

Page 34 of 79
15. What kind of receipt does section 56(2)(vii)(b) seek to tax?

Please explain and answer in no more than 150 words (4 Marks)

 “Income from other source” is a residuary head of income. Any receipt

which fulfils the following criteria shall be subject to tax under the head

“Income from other sources”:

i. It must be in the nature of income;

ii. Such income is not exempt under the Income Tax;

iii. Such income is not chargeable under any other head of income.

 Income chargeable only under the head “Income from other

sources” – S.56

a. Dividends – S.56(2)(i);

b. Winnings from lotteries, crossword puzzles, races, games etc. – S.56(2)

(ib);

c. Immoveable property received by Individual or HUF – S.56(2)(viib);

d. Interest on compensation or enhanced compensation received during

the year - S.56(2)(viii)

e. Forfeiture of advance received - S.56(2)(ix);

f. Sum of money or property, received - S.56(2)(x);

g. Family pension;

h. All other income chargeable under the Income-Tax, but not falling under

any other specific heads of income shall be chargeable to tax under the

head “Income from other sources”.

 Section 56(2)(viib) deals with any immoveable property received by an

Individual or HUF and therefore it is a capital receipt as it is not recurring

in nature.

 Section 56(2)(vii)

Where an individual or a Hindu undivided family receives, in any

previous year, from any person or persons on or after the 01.10.2009

but before the 01.04.2017

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 a. Any sum of money, without consideration, the aggregate value of

which exceeds fifty thousand rupees, the whole of the aggregate

value of such sum;

b. Any immovable property:

i. without consideration, the stamp duty value of which exceeds

50K rupees, the stamp duty value of such property.

ii. for a consideration which is less than the stamp duty , value

of the property by an amount exceeding 50K rupees, the stamp

duty value of such property as exceeds such consideration.

c. Any property, other than immovable property:

i. without consideration, the aggregate fair market value of which

exceeds 50K rupees, the whole of the aggregate fair market value

of such property.

ii. for a consideration which is less than the aggregate fair

market value of the property by an amount exceeding 50K

rupees, the aggregate fair market value of such property as

exceeds such consideration.

Page 36 of 79
16. Irrevocable transfer of Assets. (S.62) (4 Marks)

 Transfer irrevocable for a specific period – S.62

Any income arising to any person by virtue of a transfer- [S.62(1)]

a. by way of trust which is not revocable during the lifetime of the

beneficiary, and, in the case of any other transfer, which is not

revocable during the lifetime of the transferee;

b. made before the 01.04.1961, which is not revocable for a period

exceeding 6 years.

Provided that the transferor derives no direct or indirect benefit from

such income in either case.

 All income arising to any person by virtue of any such transfer shall be

chargeable to income-tax as the income of the transferor as and when

the power to revoke the transfer arises, and shall then be included in his

total income [S.62(2)].

 If revocability relates only to a part of income, then only that part of

income which accrued or was received by the settlor could be assesses

as his income and chargeable to tax. Hrishikesh Ganguly v. CIT

[1971] 82 ITR 160 (SC).

Page 37 of 79
17. Aggregation of Income. (4 Marks) and (5 Marks)

 Aggregated income of the assessee includes the following incomes:

 Income of the assessee – S.2(24)

Any amount received or income received by an Assessee in a PY in a

manner provided under S.2(24), shall be termed as Income of an

assessee and shall be chargeable to tax under the relevant head.

 Deemed Incomes includes:

i. Cash credits – S.68

Amount credited in books of accounts maintained by assessee but no

explanation is offered as to source or nature of credit.

ii. Unexplained investment – S.69

Investment made by assessee but not recorded in books of account, if

any, maintained by him and no explanation is offered to satisfaction of

AO.

iii. Unexplained money – S.69A

Assessee found to be owner of any money, gold, bullion, jewellery or

other valuable article which is not recorded in books of account, if any,

maintained by him and no explanation is offered to satisfaction of AO.

iv. Amounts of Investment, etc. not fully disclosed in books of account –

S.69B

Assessee has made an investment in FY or is found to be owner of

bullion, jewellery or other valuable article and the cost of acquiring

such items exceed the amount recorded in books of accounts and no

explanation is offered to satisfaction of AO.

v. Unexplained expenditure – S.69C

Assessee has made an expenditure and offered no explanation about

the source of such expenditure or part thereof.

vi. Amount borrowed or repaid on hundi – S.69D

Where any amount is borrowed on hundi or any amount is repaid

otherwise than such an account payee cheque drawn on the bank, the

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 amount borrowed or repaid shall be deemed to be income of the

person borrowing or repaying the same.

 Clubbing of Income

When following incomes of other persons are included in assessee's

total income, it is called as clubbing of Income. Following are such

cases:

i. Transfer of Income without transfer of asset.

ii. Income transferred under revocable transfer of the ownership of the

asset.

iii. Income of spouse:

a. Income of spouse from a concern by way of Salary, Commission

etc. in which such individual has substantial interest is included in

the total income of such individual.

b. When an individual transfers an asset to spouse without adequate

consideration or in connection with an agreement to live apart,

any income from such asset will be deemed to be the income of

the transferor.

 Share of a member in the income of AOP or BOI – S.86

1. If an assessee is a member of AOP or BOI, the share of assessee in AOP

or BOI shall be included in his total income. However, if the AOP or BOI is

liable to pay tax on its total income, the assessee shall be entitled to

rebate of such income tax on such share of income including any

remuneration at the average rate of income tax.

2. Where the assessee is a member of AOP or BOI but such AOP or BOI is

not liable to pay tax on its total income, the assessee shall not be

entitled to rebate of income tax on his share of income from such AOP or

BOI. It means the assessee will pay tax on such income.

3. If the total income of AOP or BOI is chargeable to tax at the maximum

marginal rate or any higher rate, under any provision of this Act, the

share income of the member assessee of such AOP or BOI shall not be

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included in his Total Income. In such case, the assessee's share of

income from AOP or BOI shall be exempt from tax.

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18. Unexplained Investment (S.69) (4 Marks)

 Unexplained Investment - (S.69)

Where in the financial year immediately preceding the assessment year

the assessee has made investments which are not recorded in the books

of account, if any, maintained by him for any source of income, and the

assessee offers no explanation about the nature and source of the

investments or the explanation offered by him is not, in the opinion of

the Assessing Officer, satisfactory, the value of the investments may be

deemed to be the income of the assessee of such financial year.

 Tax on income referred to in section 68 or 69 or 69A or 69B or

69C or 69D – S.115BBE

1. Where the total income of an assessee:

a. includes any income referred to in section 68, section 69, section 69A,

section 69B, section 69C or section 69D and reflected in the return of

income furnished under section 139; or

b. determined by the Assessing Officer, includes any income referred to in

section 68, section 69, section 69A, section 69B, section 69C or section

69D, if such income is not covered under clause (a), the income-tax

payable shall be the aggregate of:

i. the amount of income-tax calculated on the income referred to in

clause (a) and clause (b), at the rate of 60%; and

ii. the amount of income-tax with which the assessee would have been

chargeable had his total income been reduced by the amount of

income referred to in clause (i).

2. No deduction in respect of any expenditure or allowance or set off of any

loss shall be allowed to the assessee under any provision of this Act in

computing his income referred to in sub-section (1)

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19. Rebate and reliefs [S.87, 87A and 89] (5 Marks)

 Rebate to be allowed in computing income tax – S.87

i. In computing the amount of income tax on the total income of an

assessee with which he is chargeable for any assessment year, there

shall be allowed from the amount of Income tax, the deduction.

ii. The aggregate amount of deduction shall not exceed the amount of

income tax on the total income of the assessee with which he is

chargeable for any AY.

 Rebate from income tax to resident individual – S.87A

An assessee, being an individual resident in India, whose total income

does not exceed Rs. 5,00,000/- shall be entitled to a deduction of an

amount equal to 100% of the income tax or an amount of Rs. 12,500/-,

whichever is less. Rebate is not applicable in following case:

a. In case of a non-resident, irrespective of his age;

b. Resident individual aged 80 years and above, since such individual

are not required to pay tax upto a total income of Rs. 5,00,000/-;

c. Long term capital gains covered u/s. 112A;

d. Income from lottery, crossword puzzle, race, etc. covered u/s.

115BB.

 Relief from income tax – S.89

Where any portion of an assessee's salary being paid in arrears or in

advance or by reason of his, having received in any one financial year,

salary for more than twelve months or a payment of a profit in lieu of

salary, his income is assessed at a rate higher than that at which it

would otherwise have been assessed, the Assessing Officer shall, on an

application made to him in this behalf, grant such relief as may be

prescribed. Sec. 89 of the Income-tax Act, provides for relief when salary

is paid in arrears or in advance.

Where an employee receives any amount upon his voluntary retirement or

termination of services, he can claim exemption. In case an employee opts

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for claiming exemption, he is not eligible to claim relief in respect of amount

for which benefit availed. Where an assessee opts for tax relief, exemption

shall not be allowed in respect of such income. It may be noted that

exemption and relief are mutually exclusive and only one tax benefit shall be

availed.

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20. Double taxation relief (S. 90 to 91) (4 Marks) and (5 Marks)

 A Double Taxation Avoidance Agreement (DTAA) is an agreement

entered into between the 2 countries in order to avoid taxing the same

income twice. Generally, the 2 legal criteria for taxability under any tax

law are “Residence” and “Source”. Double taxation relief can be

obtained in 2 ways (i) Bilateral relief – S. 90 (ii) Unilateral relief – S.91.

If DTAA exists, the double taxation is avoided by providing Bilateral

relief which is granted by either exemption method or tax credit

method.

 Exemption Method

The treaty may provide for exemption from tax liability in one

jurisdiction i.e. the country in question will refrain from taxing the

particular income and allow the other jurisdiction to impose tax. Thus,

this method completely avoids overlapping of taxation of same income

in 2 different countries.

 Tax Credit method

Treaty may not provide for exemption from tax liability which implies

that both the countries shall be entitled to levy tax. However, the tax

paid in the source country shall be allowed as credit in the country of

residence and only the balance, if any, shall be collected.

 Agreement with foreign countries or specified territories or

Bilateral relief – S.90

A. The Central government may enter into an agreement with any foreign

government or specified territory outside India:

i. For granting relief in respect of:

a. Income on which income tax has been paid, both under the Indian

income tax act and income tax in the foreign country or specified

territory; or

b. Income-tax in India and under the corresponding law in force in that

foreign country or specified territory to promote mutual economic

relations, trade and investment.

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ii. For avoidance of double taxation of income under the Indian income tax

act and under the corresponding law in force in that foreign country or

specified territory as the case maybe;

iii. For exchange of information for the prevention of evasion or avoidance

of Income tax or investigation of such case; or

iv. For recover of Income tax. – S.90(1)

B. Where the central government has entered into any such agreement,

then the provisions of that agreement would normally apply to an

assessee who is covered by such agreement. However, if the relevant

provisions of the Indian income tax act are more beneficial, then to that

extent, the assessee may seek application of the provisions of the Indian

Income Tax at as against the provisions of the agreement – S.90(2)

C. A non-resident assessee, inorder to claim any relief under DTAA shall

obtain Tax Residence Certificate, containing such particulars of his

residency in a foreign country or specified territory outside India from

the government of that country or specified territory – S.90(4)

 Countries with which no agreement exists or Unilateral relief –

S.91

Where an assessee earns income from a country with which there is no

DTAA executed with India, such income may be doubly taxed. In order to

claim a benefit in respect of such doubly taxed income u/s. 91, the

following requirements have to be satisfied by an assessee:

i. The assessee must have been resident in India in the relevant previous

year;

ii. Income must have accrued or arose during that previous year outside

India (and which is not deemed to accrue or arise in India);

iii. Tax has been paid by deduction or otherwise under the law in force in

the country in question, in respect of the income which accrued or

arose outside India. Where the above conditions are satisfied, a benefit

shall be extended to the assessee entitling him to the deduction from

the Indian Income-tax payable by him, a sum calculated on such

Page 45 of 79
doubly taxed income at the Indian rate of tax or at the rate of tax of

the said country, whichever is lower. Where the tax rates are equal,

Indian rate shall apply.

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21. Unilateral relief from double taxation (S.91) (5 Marks)

 Countries with which no agreement exists or Unilateral relief –

S.91

Where an assessee earns income from a country with which there is no

DTAA executed with India, such income may be doubly taxed. In order to

claim a benefit in respect of such doubly taxed income u/s. 91, the

following requirements have to be satisfied by an assessee:

i. The assessee must have been resident in India in the relevant previous

year;

ii. Income must have accrued or arose during that previous year outside

India (and which is not deemed to accrue or arise in India);

iii. Tax has been paid by deduction or otherwise under the law in force in

the country in question, in respect of the income which accrued or

arose outside India. Where the above conditions are satisfied, a benefit

shall be extended to the assessee entitling him to the deduction from

the Indian Income-tax payable by him, a sum calculated on such

doubly taxed income at the Indian rate of tax or at the rate of tax of

the said country, whichever is lower. Where the tax rates are equal,

Indian rate shall apply.

 Relief (or deduction) u/s. 91(1) is to be calculated on calculated on

country-wise basis and not on basis of aggregation or amalgamation of

income of all foreign countries. Therefore, assessee was entitled to

double income tax relief in respect of income from Tanzania without

adjusting losses from Thailand branch. CIT v. Bombay Burmah

Trading Corporation Ltd. [2003] 126 Taxman 403 (Bom).

Page 47 of 79
22. Discuss the meaning of the terms “associated enterprise” and

"deemed associate enterprise” under section 92A (1) Income

from house property. (S.92A) (8 Marks)

 Associated Enterprise – S.92A(1)

Associated Enterprise, in relation to another enterprise, means an

enterprise:

a. Which participates, directly or indirectly, or through one or more

intermediaries, in the management or control or capital of the other

enterprise; or

b. In respect of which one or more persons who participate, directly or

indirectly, or through one or more intermediaries, in its management or

control or capital, are the same persons who participate, directly or

indirectly, or through one or more intermediaries, in the management or

control or capital of other enterprise.

 Deemed Associate Enterprise – S.92A(2)

2 enterprises shall be deemed to be associated enterprises if, at any

time during the previous year:

1. One enterprise holds, directly or indirectly, shares carrying not less than

26% of the voting power in the other enterprise; or

2. Any person or enterprise holds, directly or indirectly, shares carrying not

less than 26% of the voting power in each of such enterprises; or

3. A loan advanced by one enterprise to the other enterprise constitutes

not less than 51% of the book value of the total assets of the other

enterprise;

4. one enterprise guarantees not less than 10% of the total borrowings of

the other enterprise;

5. More than half of the board of directors or members of the governing

board, or one or more executive directors or executive members of the

governing board of one enterprise, are appointed by the other

enterprise;

Page 48 of 79
6. More than half of the directors or members of the governing board, or

one or more of the executive directors or members of the governing

board, of each of the two enterprises are appointed by the same

person or persons;

7. The manufacture or processing of goods or articles or business carried

out by one enterprise is wholly dependent (i.e. 100%) on the use of

know-how, patents, copyrights, trade-marks, licences, franchises or any

other business or commercial rights of similar nature, or any data,

documentation, drawing or specification relating to any patent,

invention, model, design, secret formula or process, of which the other

enterprise is the owner or in respect of which the other enterprise has

exclusive rights;

8. 90% or more of the raw materials and consumables required for the

manufacture or processing of goods or articles carried out by one

enterprise, are supplied by the other enterprise, or by persons specified

by the other enterprise, and the prices and other conditions relating to

the supply are influenced by such other enterprise;

9. where one enterprise is controlled by an individual, the other enterprise

is also controlled by such individual or his relative or jointly by such

individual and relative of such individual;

10. where one enterprise is controlled by a HUF, the other enterprise is

controlled by a member of such HUF or by a relative of a member of

such Hindu undivided family or jointly by such member and his relative;

11. where one enterprise is a firm, AOP or BOI, the other enterprise holds

not less than 10% interest in such firm, AOP or BOI.

12.

Page 49 of 79
23. The Arm’s Length Principal (S. 92C) (5 Marks)

 Arm’s length price is the price what would have prevailed between

enterprises not related or associated with each other. Accordingly, it

must be the price between enterprises, which are not controlled,

influenced or associated with each other. The arm’s length price in

relation to an international transaction or specified domestic transaction

shall be determined by any of the following method:

a. Comparable uncontrolled price method

Method for Computation Rs.

A) Price charged/paid in comparable uncontrolled transaction XX

B) Add/Less: Adjustments made for related party specific XX

transaction

C) Arm’s Length Price (A) +/- (B) XX

b. Resale price method

Method for Computation Rs.

A) Final Sale price of the product dealt by Associate Enterprise XX

(Resale Price)

B) Less:

i. Average Gross Profit Margin of Industry Comparable XX

ii. Expenses in connection with the purchase of the property XX

iii. Adjustment for functional and other differences (+/-) XX

C) Arm’s Length Price XX

c. Cost Plus method;

Method for Computation Rs.

Ascertain the following for transaction with Associate Enterprise

a. Direct Cost XX

b. Indirect cost XX

c. Cost of Production (a+b) XX

Page 50 of 79
 d. Add: Industry GP margin to cost adjusted for functional and XX

other differences

Arm’s Length Price XX

d. Profit split method;

Method for Computation Entit Entity Total

yA B
a) Ascertain the Total net profit of the XX
transaction for the whole group.
b) Apportion the net profit directly attributable XX XX XX
to each of the entities
c) Residual remaining net profit XX
d) Apportion the residual net profit in the XX XX
proportion of the relative contribution of
each entity
e) Total net profit of the entities (b) + (d) XX XX

e. Transactional Net Margin Method;

Method for Computation Rs.

a. Ascertain the average net profit margin of industry XX
comparable
b. Add/Less: The difference occurring due to specific scenarios XX
of the AE transactions
c. Adjust Net profit margin of the industry comparable XX
d. The above adjusted net profit margin shall be applied to
determine arms’ length price

f. Such other method as may be prescribed by the Board – Rule

10AB

Page 51 of 79
 24. Write a detailed note on General Anti Avoidance Rules and its

applicability. (S.95) (8 Marks)

 Applicability of GAAR – S.95

i. Notwithstanding anything contained in the Act, any arrangement

entered into by an assessee may be declared to be an ‘impermissible

avoidance arrangement’ and the consequences on relation to tax arising

therefrom may be determined subject to the provisions of the chapter

XA;

ii. This Chapter shall apply in respect of any assessment year beginning on

or after the 01.04.2018.

iii. The provisions of this Chapter may be applied to any step in, or a part

of, the arrangement as they are applicable to the arrangement.

 Impermissible Avoidance Arrangement – S.96

[Refer next answer]

 Consequences of Impermissible Avoidance Arrangement – S.98

[Refer next to next answer]

Page 52 of 79
25. When can an arrangement be declared as an Impermissible

Avoidance Arrangement? (S.96) (5 Marks)

 Impermissible Avoidance Arrangement – S.96

1. An impermissible avoidance arrangement means an arrangement, the

main purpose of which is to obtain a tax benefit, and it;

a) creates rights, or obligations, which are not ordinarily created

between persons dealing at arm's length;

b) results, directly or indirectly, in the misuse, or abuse, of the

provisions of this Act;

c) lacks commercial substance or is deemed to lack commercial

substance under section 97, in whole or in part; or

d) is entered into, or carried out, by means, or in a manner, which

are not ordinarily employed for bona fide purposes.

2. An arrangement shall be presumed, unless it is proved to the contrary

by the assessee, to have been entered into, or carried out, for the main

purpose of obtaining a tax benefit, if the main purpose of a step in, or a

part of, the arrangement is to obtain a tax benefit, notwithstanding the

fact that the main purpose of the whole arrangement is not to obtain a

tax benefit.

Page 53 of 79
26. Consequences of Impermissible Avoidance Arrangement? (S.98)

(5 Marks)

 Consequences of Impermissible Avoidance Arrangement – S.98

If an arrangement is declared to be an impermissible avoidance

arrangement, then, the consequences, in relation to tax, of the

arrangement, including denial of tax benefit or a benefit under a tax

treaty, shall be determined, in such manner as is deemed appropriate,

in the circumstances of the case, including by way of but not limited to

the following, namely:

a) disregarding, combining or recharacterizing any step in, or a part or

whole of, the impermissible avoidance arrangement;

b) treating the impermissible avoidance arrangement as if it had not

been entered into or carried out;

c) disregarding any accommodating party or treating any

accommodating party and any other party as one and the same

person;

d) deeming persons who are connected persons in relation to each

other to be one and the same person for the purposes of

determining tax treatment of any amount;

e) reallocating amongst the parties to the arrangement –

i. any accrual, or receipt, of a capital nature or revenue nature;

or

ii. any expenditure, deduction, relief or rebate

f) treating –

i. the place of residence of any party to the arrangement; or

ii. the situs of an asset or of a transaction,

at a place other than the place of residence, location of the asset

or location of the transaction as provided under the arrangement;

g) considering or looking through any arrangement by disregarding any

corporate structure.

27. Jurisdiction of Income tax authorities (S.120) (5 Marks)

Page 54 of 79
 Income-tax authorities shall exercise all or any of the powers and

perform all or any of the functions conferred on them or assigned to

them in accordance with the directions issued by the Board.

 An income-tax authority, who is higher in rank, may exercise the powers

and perform the functions of the income-tax authority lower in rank, if

so directed by the CBDT.

 Any such directions or orders may be issued having regard to the

following criteria:

i. Territorial Area - e.g. Pin code, corporation division number;

ii. Persons or classes of persons - e.g. Companies, trusts;

iii. Incomes or classes of income e.g. Salary income;

iv. Cases or classes of cases - e.g. Professionals, contractors.

 The CBDT may authorize any Income tax authority to issue order in

writing to its sub-ordinate authorities.

 The Board can authorise through a general or specific order any

Principal Director General or Director General or Principal Director or

Director of Income-tax to perform such functions of any other income-

tax authority. The Board can also empower any Principal Director

General or Director General or Principal Chief Commissioner or Chief

Commissioner or Principal Commissioner or Commissioner to issue

orders in writing to the effect that the powers and functions conferred

on or assigned to an Assessing Officer shall be exercised or performed

by an Additional Commissioner or an Additional Director or a Joint

Commissioner or a Joint Director, in any case and any provision of this

Act requiring approval or sanction of the Joint Commissioner shall not

apply.

 Wherever necessary, the board may require, two or more Assessing

Officers (same or different class) to exercise and perform concurrently

the powers, duties and functions in respect of any area or persons or

classes of persons or incomes or classes of incomes or cases or classes

of cases. Any authority, lower in rank amongst the authorities exercising

Page 55 of 79
 the powers or performing duties concurrently, may perform the role of a

higher authority.

 Further, the Board may, by notification in the Official Gazette, direct that

for the purpose of furnishing of the return of income or the doing of any

other act or thing under this Act or any rule made thereunder by any

person or class of persons, the income-tax authority shall be such

authority as may be specified in the notification.

Page 56 of 79
28. Power of Commissioner to transfer cases. (S.127) (5 Marks)

 The Principal Director General or Director General or Principal Chief

Commissioner or Chief Commissioner or Principal Commissioner or

Commissioner of Income-tax may after giving the assessee a reasonable

opportunity of being heard, wherever possible to do so, and after

recording his reasons, transfer any case from one or more subordinate

Assessing Officers to any other subordinate Assessing Officer (with or

without concurrent jurisdiction).

 Where the Assessing Officer from whom the case is to be transferred

and the Assessing Officer to whom the case is to be transferred are not

subordinate to the same Principal Director General or Director General

or Principal Chief Commissioner or Chief Commissioner or Principal

Commissioner or Commissioner of Income- tax and where such

concerned authorities under whom such Assessing Officers are

subordinate mutually agree for such transfer, the Principal Director

General or Director General or Principal Chief Commissioner or Chief

Commissioner or Principal Commissioner, Commissioner or of Income-

tax from whose jurisdiction the case is to be transferred shall pass an

order after giving opportunity to the assessee and after recording his

reasons for doing so.

 If such concerned authorities are not in agreement about the transfer

then the Board or any such authority authorised by the Board through a

notification in the Official Gazette may pass the order.

 No opportunity of being heard needs to be given to the assessee if the

case is transferred between Assessing Officers within the same city or

locality or place.

 The transfer of a case may be made at any stage of the proceedings and

it shall not render it necessary to reissue any notice already issued.

Page 57 of 79
29. Power of assessing officer in respect of discovery, inspection

and production of evidence. (S.131) (5 Marks)

 Powers similar to that of a Court

The Assessing Officer, Deputy Commissioner (Appeals), Commissioner

(Appeals), Principal Chief Commissioner or Chief Commissioner or

Principal Commissioner or Commissioner and Dispute Resolution Panel

referred to in section 144C shall, for the purposes of this Act, have the

same powers as are vested in a court under the CPC, when trying a suit

in respect of the following matters, namely:

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a

banking company and examining him on oath;

(c) compelling the production of books of account and other documents;

(d) issuing commissions.

 Powers may be exercised irrespective of whether any

proceedings pending.

If the Principal Director General or Director General or Principal Director

or Director or Joint Director or Assistant Director or Deputy Director, or

the authorized officer referred to in section 132(1), has reason to

suspect that any income has been concealed, or is likely to be

concealed, by any person or class of persons, within his jurisdiction,

then, for the purposes of making any enquiry or investigation relating

thereto, it shall be competent for him to exercise the powers conferred

u/s.131(1)even though no proceedings with respect to such person or

class of persons are pending before him or any other income-tax

authority.

 Power may be exercised for making inquiry or investigation in

respect of any person on request from tax authorities outside

India.

For inquiry or investigation in respect of any person or class of persons

in relation to an agreement referred to in section 90 or section 90A, it

Page 58 of 79
 shall be competent for any income-tax authority not below the rank of

Assistant Commissioner of Income-tax, as may be notified by the Board

in this behalf, to exercise the powers conferred under this section. Such

power can be invoked even if no proceedings with respect to such

person or class of persons are pending before it or any other income-tax

authority.

 Power to impound books or documents

Any authority referred to in this section may impound and retain in its

custody for such period as it thinks fit any books of account or other

documents produced before it in any proceeding under this Act.

Page 59 of 79
30. Income escaping Assessment (S.147) (5 Marks)

 There are many ways a tax payer attempts to conceal his income and

tax. With the advancement of technology, the tax department source

all relevant data and information related to transactions of an assessee

from external sources through annual information system (u/s. 285BA).

Besides, other regulators like CBI, Enforcement Directorate also

exchange data to identity escapement of income.

 If any income of an assessee chargeable to income-tax has escaped

assessment for any assessment year, the AO is empowered to assess

or reassess such income or recompute the loss or the depreciation

allowance or any other allowance or deduction for such assessment

year. Sections 148 to 153 enables an AO to carry out such assessment,

reassessment, re-computation of income escaped assessment for a

particular assessment year.

 The AO may assess or reassess the income in respect of any issue,

which has escaped assessment, and such issue comes to his notice

subsequently in the course of the proceedings under this section,

irrespective of the fact that the provisions of sec. 148A have not been

complied with.

 It may be noted that sec.147 may be invoked not only for fresh

assessment (i.e., where no assessment was done earlier for the year

for escapement of income), but also for the AY for which the

assessment was already carried out earlier under any other sections,

namely, sec.143(3) or 144 or even u/s. 147. This is known as

'reassessment'.

 Sec.148 empowers an AO to issue notice for where income has

escaped assessment. Where it is a clear case of the AO issuing notice

without jurisdiction or the reasons for issue of the notice do not

disclose any escapement of income, the assessee can approach the

High Court under Article 226 of the Constitution of India - Calcutta

Discount Co. Ltd. vs. ITO (1961) 41 ITR 191. Mere availability of

Page 60 of 79
 alternative relief can be no bar for exercise of writ jurisdiction, when

the authorities seek to assume jurisdiction which they do not possess

or act in a totally arbitrary manner - Ajantha Pharma Ltd. vs. ACIT

(2004) 267 ITR 200 (Bom)

 Time Limit for issue of Notice – S.149

1. Notice u/s. 148, can be issued within 3 years and 3 months (before

Finance act 2024 period was 3 years) from the end of the relevant AY.

Notice u/s. 148, beyond 3 years and 3 moths but upto 5 years and

3 months (before Finance act 2024 period was 10 years) can only be

made where AO has evidence in his possession w.r.t income escaping

assessment and such income is likely to amount to 50 Lakh or more.

2. Notice u/s. 148A, can be issued within 3 years from the end of the

relevant AY. Notice u/s. 148A, beyond 3 years but upto 5 years can

only be made where AO has evidence in his possession w.r.t income

escaping assessment and such income is likely to amount to 50 Lakh or

more. (Newly inserted clause by Finance Act, 2024)

Page 61 of 79
31. Representative Assessee (S.160) (5 Marks)

 In the case of certain assesses the assessment may be made on some

other person as a representative assessee. According to S.160,

“representative assessee” with reference to the following persons

means:

Non -resident Agent of non-resident including a

person treated as an agent u/s. 163

Minor, Lunatic or Idiot Guardian or Manager who is entitled

to receive or is in receipt of such

income on behalf of such person

Any person in respect of whom Such Official trustee, Court of Wards,

Official trustee or Court of Ward, Administrator General or receiver or

Administrator General or receiver or manager

manager is appointed by the Court

Trustee appointed under a trust Such trustee or trustees.

deed by an executed instrument in

writing or under oral trust

 Every representative assessee shall be deemed to be an assessee for

the purposes of this Act.

 In case where an incapacitated person has no trustee or guardians, or if

the trustee or guardian is not resident in India or cannot be found, the

assessment may be made on the incapacitated person directly.

Page 62 of 79
32. Agent as a representative assessee (S.163) (4 Marks)

 Agent in relation to a non-resident, includes any person in India:

a) who is employed by or on behalf of the non-resident; or

b) who has any business connection with the non-resident; or

c) from or through whom the non-resident is in receipt of any

income, whether directly or indirectly; or

d) who is the trustee of the non-resident

 It also includes any other person, resident or non-resident, who has

acquired a capital asset in India from the non-resident by means of a

transfer.

 Any broker dealing through a non-resident broker shall not be deemed

to be an agent if:

(i) he is acting in the ordinary course of business and

(ii) the non-resident broker is carrying on such transactions in the

ordinary course of his business and not as a principal.

 No person shall be treated as the agent of a non-resident unless he has

had an opportunity of being heard by the Assessing Officer in that

regard.

 A non-resident can be treated as agent of another non-resident. Sec.

163 does not contemplate that only a resident can be treated as agent -

(1954) A.P. Damodara Shenoy vs. CIT 26 ITR 650 (Bom).

Page 63 of 79
 33. Advance Rulings (S. 245N to 245V) (5 Marks)

 Advance ruling definition - S.245N

Advance ruling means a determination or decision by the Board: -

i. in relation to a transaction which has been undertaken or is proposed to

be undertaken by a non-resident applicant; or

ii. in relation to the tax liability of a non-resident arising out of a

transaction which has been undertaken or is proposed to be undertaken

by a resident applicant with such non-resident; or

iii. in relation to the tax liability of a resident applicant, arising out of a

transaction which has been undertaken or is proposed to be undertaken

by such applicant; and such determination shall include the

determination of any question of law or of fact specified in the

application;

iv. in respect of an issue relating to computation of total income which is

pending before any income-tax authority or the Appellate Tribunal and

such determination or decision shall include the determination or

decision of any question of law or of fact relating to such computation of

total income specified in the application;

v. whether an arrangement, which is proposed to be undertaken by any

person being a resident or a non-resident, is an impermissible avoidance

arrangement as referred to in Chapter X-A or not.

 Application for Advance Ruling – S.245Q

An applicant desirous of obtaining an advance ruling shall apply under

this section with prescribed fees.

 Ruling to be void – S.245T

Where the BAR finds, on representation made to it by Principal CIT or

CIT, that an advance ruling pronounced u/s. 245R has been obtained by

the applicant by fraud or misrepresentation of facts, it may, by order,

declare such ruling to be void ab initio and thereupon all the provisions

of the act shall apply to the applicant as if such advance ruling had

never been made.

Page 64 of 79
  Powers of Board for Advance Rulings – S.245U

i. BAR has all the power of a civil court under CPC, namely:

a) Discovery and Inspection;

b) Enforcing the attendance of a person including any officer of a

banking company and examine him on oath; and

c) Issuing commissions and compelling the production of books of

account and other records.

ii. Every proceeding before the BAR shall be deemed to be a judicial

proceeding under the IPC.

 Appeal against Ruling – S.245W

i. The applicant or the Assessing Officer (on the directions of the Principal

Commissioner or Commissioner), if aggrieved by any ruling pronounced

or order passed by the BAR, may appeal to the High Court within 60

days from the date of the communication of that ruling or order. Such

appeal shall be preferred in the applicable procedure laid down by the

jurisdictional High Court for filing an appeal to the High Court.

ii. In a case where an appeal has been preferred belatedly and the High

Court is satisfied, on an application made in this behalf, that the

appellant was prevented by sufficient cause from presenting the appeal

within 60 days, it may allow a further period of 30 days for filing such

appeal.

iii. The Central Government shall be empowered to notify a scheme for

filing of appeal by the Assessing Officer to impart greater efficiency,

transparency and accountability. For the purposes of the scheme, the

Central Government may by way of notification direct that any of the

provisions of this Act shall not apply or shall apply with such exceptions,

modifications and adaptations as may be specified.

iv. No such direction shall be issued after the 31.03.2023. Every such

notification shall, as soon as may be after the notification is issued, be

laid before each House of Parliament.

Page 65 of 79
34. Appealable Orders. (S.246 and 246A) (4 Marks) and (5 Marks)

 Appealable orders before Joint Commissioner (Appeals) – S.246

1. Any assessee aggrieved by any of the following orders of an AO (below

the rank of Joint Commissioner) may appeal to the Joint Commissioner

(Appeals) against:

a) an order being an intimation under section 143(1), where the assessee

objects to the making of adjustments, or any order of assessment under

section 143(3) or section 144, where the assessee objects to the

amount of income assessed, or to the amount of tax determined, or to

the amount of loss computed, or to the status under which he is

assessed;

b) an order of assessment, reassessment or recomputation under section

147;

c) an order being an intimation under section 200A(1);

d) an order under section 201;

e) an order being an intimation under section 206C(6A);

f) an order under section 206CB(1);

g) an order imposing a penalty under Chapter XXI;

h) an order under section 154 or section 155 amending any of the orders

mentioned in clauses (a) to (g).

2. Where any appeal filed against an order is pending before the

Commissioner (Appeals), the Board or an income-tax authority, may

transfer such appeal and any matter arising out of or connected with

such appeal and which is so pending, to the Joint Commissioner

(Appeals) who may proceed from the stage at which it was before it was

so transferred.

3. Where an appeal is transferred, the appellant shall be given an

opportunity of being reheard.

4. For the purposes of disposal of appeal, the Central Government may

make a scheme, so as to dispose of appeals in an expedient manner

with transparency and accountability, by eliminating the interface

Page 66 of 79
 between the Joint Commissioner (Appeals) and the appellant, in the

course of appellate proceedings to the extent technologically feasible

and direct that any of the provisions of this Act relating to jurisdiction

and procedure for disposal of appeals by the Joint Commissioner

(Appeals), shall not apply or shall apply with such exceptions,

modifications and adaptations as may be specified in the notification.

 Appealable orders before Commissioner (Appeals) – 246A

Any assessee or any deductor or any collector aggrieved by any of the

following orders may appeal to the Commissioner (Appeals) against:

a) An order passed by the Joint Commissioner for Tonnage Taxation

Scheme refusing to approve the option for tonnage tax scheme or where

the assessee denies his liability tib be assesses under the Income Tax

act.

b) An intimation where the assessee objects to the making of adjustments.

c) Any order of assessment where the assessee objects to the income

assessed or to the amount of tax determined or to amount of loss

computed or to the status under which he is assessed;

d) An order of assessment, reassessment or re-computation except an

order passed in pursuance of directions of the Dispute Resolution Panel

or an order passed under the provisions of Chapter X-A relating to

General Anti Avoidance Rules;

e) An order having the effect of enhancing the assessment or reducing a

refund or an order refusing to allow the claim made by the assessee

under either of the said sections except an order passed under the

provisions of Chapter X-A relating to General Anti Avoidance Rules;

f) An order of assessment, re-assessment or recomputation;

g) An order treating the assessee as the agent of non-resident;

h) An order assessing the successor when predecessor cannot be found or

when tax cannot be recovered from the predecessor;

i) An order made after partition of HUF;

j) An intimation where the deductor objects to the making of adjustment.

Page 67 of 79
35. Appeals to Appellate Tribunal (S.253) (4 Marks)

 Any assessee aggrieved by the order may appeal to the Appellate

Tribunal. Some of the orders are:

a) Order passed by the CIT(Exemption), refusing or cancelling approval;

b) Order passed by the Principal Commissioner or Commissioner for

refusing or cancelation of registration of trust;

c) Order passed by the Principal Commissioner or Commissioner for

refusing or cancelation of approval of an institution or fund in relation to

donation;

d) Orders passed by AO excluding such company from the tonnage tax

scheme.

e) Order passed for Assessment; Reassessment; Search or Requisition;

Assessment of Income of any other person; Reference to Dispute

Resolution Panel; order passed under the provisions of Chapter X-A

relating to General Anti Avoidance Rules; Rectification of mistake;

Amending or recomputing the income of the past years;

f) Order passed by CIT(A) for rectification of mistake apparent on record or

order passed by Principal Commissioner or Commissioner for amending

his order u/s. 263.

g) Order passed by CIT(A), imposing penalty for failure to keep, maintain or

retain books of account, documents etc.

 Time limit to file Appeal before Appellate Tribunal

Appeal to ITAT shall be filed within 60 days from the date on which the

order sought to be appealed is communicated to the assessee or the

Principal Commissioner or Commissioner as the case may be. However,

the ITAT may admit an appeal after the expiry of 60 days if it is satisfied

that the appellant had sufficient cause for not presenting it within the

specified period.

Page 68 of 79
36. Appeals to a High Court (S.260A) (5 Marks)

 An appeal shall lie to the High Court from every order passed in appeal

by the Appellate Tribunal, if the High Court is satisfied that the case

involves a substantial question of law. If the substantial question of law

is not involved, the appeal to High Court shall not be maintainable -

Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (SC).

 The Principal Chief Commissioner or Chief Commissioner or the Principal

Commissioner or Commissioner or an assessee aggrieved by any order

passed by the Appellate Tribunal may file an appeal to the High Court,

within 120 days from the date on which the order appealed against is

received by the assessee or the Principal Chief Commissioner or Chief

Commissioner or Principal Commissioner or Commissioner, in the form

of a memorandum of appeal precisely stating therein the substantial

question of law involved.

 The High Court may admit an appeal after the expiry of the period of

120 days, if it is satisfied that there was sufficient cause for not filing the

same within that period.

 Where the High Court is satisfied that a substantial question of law is

involved in any case, it shall formulate that question. The appeal shall

be heard only on the question so formulated, and the respondents shall,

at the hearing of the appeal, be allowed to argue that the case does not

involve such question. The High Court is also empowered to hear the

appeal for the reasons to be recorded in writing, on any other

substantial question of law not formulated by it, if it is satisfied that the

case involves such question.

 The High Court shall decide the question of law so formulated and

deliver such judgment thereon containing the grounds on which such

decision is founded and may award such cost as it deems fit.

 The High Court may determine any issue which, has not been

determined by the Appellate Tribunal or has been wrongly determined

Page 69 of 79
 by the Appellate Tribunal, by reason of a decision on such question of

law.

 The provisions of the CPC, relating to appeals to the High Court shall

apply.

Page 70 of 79
37. Powers of the Principal Commissioner or Commissioner of

Income Tax to revise orders. (S. 263) (4 Marks)

 The Principal Chief Commissioner or Chief Commissioner or Principal

Commissioner or Commissioner may call for and examine the record of

any proceeding, and if he considers that any order passed therein by the

Assessing Officer or the Transfer Pricing Officer, is erroneous in so far as

it is prejudicial to the interests of the revenue, he may, after giving the

assessee an opportunity of being heard and after making such inquiry

as he deems necessary, pass such order thereon as the circumstances

of the case justify, including:

i. an order enhancing or modifying the assessment or cancelling the

assessment and directing a fresh assessment; or

ii. an order modifying the order under section 92CA;

iii. an order cancelling the order under section 92CA and directing a

fresh order under the said section.

 In a case where, even if two views are possible, and the Assessing

officer has adopted one view, then CIT cannot invoke S.263 as it cannot

be held to be an erroneous view – CIT v. Kwality Steel Suppliers

Complex (2017) 395 ITR 1 (SC).

 No order shall be made after the expiry of 2 years from the end of the

financial year in which the order sought to be revised was passed.

 An order in revision may be passed at any time in the case of an order

which has been passed in consequence of, or to give effect to, any

finding or direction contained in an order of the Appellate Tribunal, the

High Court or the Supreme Court.

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38. Void Transfers under the Income Tax Act (S.281) (4 Marks)

 Where any assessee, during the pendency of any proceeding or after

the completion of any proceeding but before the service of notice by the

Tax Recovery Officer, creates a charge on, or parts with the possession

of any of his assets by way of sale, mortgage, gift, exchange or any

other mode of transfer, such charge or transfer shall be void as against

any claim in respect of any tax or any other sum payable under the

Income-tax Act.

 Such charge or transfer shall not be void in the following situations:

(i) if it is made for adequate consideration and without notice of the

pendency of such proceeding or without notice of the tax or other

sum payable by the assessee; or

(ii) if it is done with the prior permission of the Assessing Officer.

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39. Please explain, in no more than 300 words, the distinction

between a capital receipt and revenue receipt. Please give two

instances in which capital receipts are taxable under the Income

Tax Act 1961. (4 Marks)

Sr. Capital Receipts Revenue Receipts

No.
1) Are non-recurring in nature Are recurring in nature and
which either creates the are reported in the
liability of the company or statement of income of the
reduces the company’s company.
assets.

2) Don’t affect the Profit or Loss Affect the Profit or Loss of

of business. business.
3) Stem from non-operational Stem from operational
sources sources.

4) Cannot save it for creating Can be saved for creating

reserve funds. reserve funds.
5) Not available for distribution Available for distribution of

of profits. profits.

6) Can be loans raised from Are not loans, but rather,

banks/financial institutions. amount received from

operations (e.g., running a

business through sales

made).

7) Found in the Balance Sheet. Found in the Income

Statement.

8) Example: Sales of fixed Example: Sale of

assets. products/services.

 Capital receipts are subject to capital gains tax only when they involve a

transaction in capital assets. Two such instances are selling of share to

Public and Shareholders vide IPO and Sale of immoveable property.

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40. Please explain the concept of “undertaking” [S.2(19AA)]. Does

a holding company have undertaking? Why? Please explain in no

more than 300 words. (4 Marks)

 Undertaking - Explanation 1 of section 2(19AA)

"undertaking" shall include any part of an undertaking, or a unit or

division of an undertaking or a business activity taken as a whole, but

does not include individual assets or liabilities or any combination

thereof not constituting a business activity.

 If the holding company carries on the business in its individual capacity,

then such holding company will constitute as an undertaking. The

Income Tax act does not prescribe any specific test to determine as to

what would qualify as an undertaking for the purpose of S.2(19AA) and

in particular whether holding of investment can also qualify as an

undertaking.

 The Supreme Court in CIT, Gujarat v. Distributors (Baroda) P. Ltd,

[1972] 83 ITR 377 (SC), while interpreting the meaning of the term

business of ‘holding of investments’, has observed that it refers to real,

substantial and systematic or organised course of activity of investment

carried on by an assessee for a set purpose such as earning profits.

However, the determination on whether, in a particular case, the

proposed transfer in a demerger would satisfy the ‘undertaking’ test,

would need to be evaluated independently on the specific facts of each

case.

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 41. Faceless Assessments [S.144B] (5 Marks)

 Faceless assessment means an assessment proceedings conducted

electronically in e-proceeding facility through assessee’s registered

account in designated portal.

 Procedure for faceless assessment

The assessment, reassessment or recomputation under S.143(3) or

S.144 or S.147, shall be made in a faceless manner as per the following

procedure:

i. The National Faceless Assessment Centre (NFAC) shall assign the case

for faceless assessment to a specific assessment unit through an

automated allocation system;

ii. The NFAC shall intimate the assessee that assessment in his case shall

be completed in accordance with the procedure laid down under this

section;

iii. A notice shall be served to the assessee through NFAC and assessee

may file his response to the notice within the date specified therein to

NFAC which shall forward the same to the assessment unit;

iv. The assessment unit may make request through the NFAC for:

a. Obtaining information, documents or evidence from the assessee

or any other person;

b. Conducting inquiry or verification;

c. seeking technical assistance in respect of determination of arm's

length price, valuation of property, withdrawal of registration,

approval, exemption or any other technical matter;

v. Where a request has been initiated by assessment unit, NFAC shall serve

a notice upon the assessee of obtaining such information and the

assessee shall file a response to such notice within the timeline

specified therein which NFAC shall forward to the assessment unit;

vi. The NFAC shall sent the report received from the verification unit to the

concerned assessment unit;

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vii. Where the assessee fails to comply with the notice, the NFAC shall

intimate such failure to the assessment unit;

viii. The assessment unit then shall serve upon an assessee a notice giving

him an opportunity, to show cause on a date and time specified in the

notice as to why assessment in his case should not be completed to the

best of its judgment;

ix. The assessment unit shall after taking into account all the relevant

material available on record, prepare in writing:

a. an income or loss determination proposal, where no variation

prejudicial to assessee is proposed and send a copy of such

income or loss determination proposal to the NFAC; or

b. A show cause notice stating the variations prejudicial to the

interest of assessee proposed to be made to the income of the

assessee and calling upon him to submit as to why the proposed

variation should not be made and serve such show cause notice,

on the assessee, through the NFAC.

x. The NFAC shall:

a. upon receipt of acceptance from the eligible assessee; or

b. if no objections are received from the eligible assessee;

intimate the assessment unit to complete the assessment on the basis

of the draft order;

xi. The assessment unit shall, upon receipt of intimation, pass the

assessment order, in accordance with the relevant draft order, within

the time allowed and initiate penalty proceedings, if any, and send the

order to the NFAC.

xii. The NFAC shall, upon receipt of the assessment order, serve a copy of

such order and notice for initiating penalty proceedings, if any, on the

assessee, along with the demand notice, specifying the sum payable by,

or the amount of refund due to, the assessee on the basis of such

assessment

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42. Income by the way of Royalty [S.9(vi)] (6 Marks)

 “Royalty" means consideration (including any lump sum consideration

but excluding any consideration which would be the income of the

recipient chargeable under the head "Capital gains") for:

a. The transfer of all or any rights (including the granting of a licence) in

respect of a patent, invention, model, design, secret formula or process

or trade mark or similar property;

b. the imparting of any information concerning the working of, or the use

of, a patent, invention, model, design, secret formula or process or trade

mark or similar property;

c. the use of any patent, invention, model, design, secret formula or

process or trade mark or similar property;

d. the use of any patent, invention, model, design, secret formula or

process or trade mark or skill;

e. the use or right to use any industrial, commercial or scientific

equipment;

f. the transfer of all or any rights (including the granting of a licence) in

respect of any copyright, literary, artistic or scientific work including

films or video tapes for use in connection with television or tapes for use

in connection with radio broadcasting;

g. the rendering of any services in connection with the activities referred

above.

 Income by way of royalty payable by:

i. the government;

ii. a person who is a resident, except where the royalty is payable in

respect of any right, property or information used or services

utilised for the purposes of a business or profession carried on by

such person outside India or for the purposes of making or earning

any income from any source outside India;

iii. a person who is a non-resident, where the royalty is payable in

respect of any right, property or information used or services

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 utilised for the purposes of a business or profession carried on by

such person in India or for the purposes of making or earning any

income from any source in India.

 Provided that nothing contained in this clause shall apply in relation to

so much of the income by way of royalty as consists of lump sum

consideration for the transfer outside India of, or the imparting of

information outside India in respect of, any data, documentation,

drawing or specification relating to any patent, invention, model, design,

secret formula or process or trade mark or similar property, if such

income is payable in pursuance of an agreement made is approved by

the Central Government;

 Provided further that nothing contained in this clause shall apply in

relation to so much of the income by way of royalty as consists of lump

sum payment made by a person, who is a resident, for the transfer of all

or any rights (including the granting of a licence) in respect of computer

software supplied by a non-resident manufacturer along with a

computer or computer-based equipment under any scheme approved

under the Policy on Computer Software Export, Software Development

and Training, 1986 of the Government of India.

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43. How is tax avoidance different from tax planning (5 Marks)

Point of Tax Planning Tax Avoidance

Difference

Meaning Tax Planning involves Tax Avoidance is the

intelligent planning of method of deliberately
reducing the tax liability by indulging in the practice of
claiming all the eligible adjusting financial affairs to
deductions, rebates & the extent that the tax
exemptions as per law. liability is minimized.

Nature Tax Planning is morally Tax Avoidance is legal

correct and legal practice. practice but cannot be
considered moral.

Practice Tax Planning is the Tax Avoidance is the

practice of tax savings. practice of hedging of tax.

Legal Tax planning takes the Tax avoidance makes use

implication benefits of deductions, of loopholes for the
s exemptions, relief or reduction of tax liability.
rebates for reduction of
tax liability.

Benefits Tax minimized through Benefits of Tax Avoidance

proper planning can be remains for short term.
fruitful for long term.

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