business taxation and practice - chapter 1

8/3/2019 Business Taxation and Practice - Chapter 1

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BUSINESS TAXATION ANDPRACTICE


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TAXATION IN INDIA

Taxation is not merely considered as a tool to raise

revenue .

It is effectively utilized as a lever to direct the flow ofour scarce resources in the desired channels of

investments


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TAXATION IN INDIA

India has a well developed tax structure with a three tierfederal structure, comprising

1. The Union Government

2. The State Government

3. The Urban/Rural Local Bodies


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TAXATION IN INDIA2. The State Government

Eg: Sales tax( tax on intra-state sale of goods)Stamp DutyState ExciseLand Revenue etc.,


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TAXATION IN INDIA

Two major categories of Taxes are

1. Direct Taxes - ( Administered by CBDT)

2. Indirect Taxes


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Section 2 - DEFINITIONSSection 2(1A) defines Agricultural Income

Agricultural Income : It may be broadly classified as

A. Agricultural rent or revenue Section 2(1)(a)

Any rent or revenue derived from land which issituated in India and is used for agriculturalpurposes.


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Agricultural IncomeB. Income from agricultural produce and from the

processing of the produce to make it marketable

Section 2(1)(b)

Any Income derived from such land by agricultureor by the process employed to render the producefit for the market or by sale of such produce by acultivator or receiver of rent in kind.

C. Income from buildings Section 2(1)(c)


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Agricultural IncomeC. Income from buildings Section 2(1)(c)

Any income derived from any building provided the followingconditions are satisfied.1. The building is in the immediate vicinity of the

agricultural land2. It is occupied by the cultivator or receiver of rent or

revenue.3. It is used as a dwelling house or store house or out-

house.4. The land is assessed to land revenue or it is not situated

within the specified area


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Agricultural IncomeThe following items of income shall be considered asagricultural income.

1. Compensation received from an insurancecompany for damage of crop or garden.

2. Compensation received for being kept out ofcultivation of agricultural land.

3. Income from sale of replanted trees of a forest

4. Interest on capital received by a partner from thefirm engaged in agricultural income, etc.


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Non Agricultural IncomeThe following items of income shall not be consideredas agricultural income.

1. Income from sale of trees of spontaneous growth2. Interest on arrears of rent on agricultural land

3. Dividend received from a company involved inAgriculture

4. Rent of the site of a flour mill, etc


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Assessee - Section 2(7)The term assessee is defined as meaning a person bywhom any tax or any other sum of money(includes

penalty or interest) is payable under the IT Act and itincludes

i) every person in respect of whom any proceedinghas been taken under the Act for the assessment

of his income or the income of any other person.

ii) a person who is deemed to be an assessee underany provision of the Act.


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Assessment Section 2(8)

The term assessment means computation of tax andprocedure for imposing tax liability.


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Person - Section 2(31)It includes

a) An individual

b) A Hindu Undivided familyc) A Company

d) A firm

e) An Association of persons or Body of individuals,

whether incorporated or notf) A local authority, and

g) Every artificial juridical person, not falling withinany of the preceding sub-clauses.


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Individual , HUF & AOPIndividual - The term individual means only a naturalperson ie., a human being.

HUF - It consists of all persons lineally descendedfrom a common ancestor and includes their wives andunmarried daughters.

AOP - When persons combine together for promotionof joint enterprise they are assessable as an AOP whenthey do not in law constitute a partnership


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BOI & FirmBOI - The expression BOI denotes the status ofpersons like executors or trustees who merely receive

income jointly and who may be assessable in likemanner and to the same extent as the beneficiariesindividually.

Firm - Under the Act the term firm, partner andpartnership have the same meanings as assigned tothem in the Indian Partnership Act.


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Local Authority & Artificial personLocal Authority means a municipal committee,district board, body of port commissioners or other

authority legally entitled to or entrusted by theGovernment with the control or management of amunicipal or local fund.

Artificial person - It is intended primarily to refer toprivate religious trusts.


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Company Section 2(17)Company - means

i) any Indian company

ii) any body corporate incorporated by or under thelaws of a country outside India - foreign company

iii) any institution, association or body which is orwas assessable or was assessed as a company for

any assessment year under the Indian IT Act, 1922or for any assessment years commencing on orbefore 1stApril, 1970 under the present Act


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Company Section 2(17)iv) any institution, association or body, whether

incorporated or not and whether Indian or non-

Indian which is declared by a general or specialorder of the CBDT to be a company.


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Assessment Year Section 2(9)The expression Assessment year means the period oftwelve months commencing on the 1st day of April

every year

It is also known as income tax year

It is a financial year immediately succeeding therelevant previous year.


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Previous year - Section 3Section 3 of IT Act defines previous year to mean thefinancial year immediately preceding the assessment year.

It is the financial year in which the income is earned.

In the case of a business or profession newly set up or asource of income newly coming into existence, the previous

year shall be the period beginning with the date of settingup of the business or profession or the date on which thenew source comes into existence and ending with 31st

March of the said financial year.


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INCOME - Section 2 (24)According to the definition, income includes thefollowing items of receipts.

(i) Profits and gains(ii) dividends

(iii) the value of any benefit by way of perquisite orprofit in lieu of salary taxable as part of salaries

under Section 17.


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INCOME - Section 2 (24)

(iv) the value of any benefit or perquisite, whether

convertible into money or not, obtained from acompany either by a director or by a person havingsubstantial interest in the company or by a relativeof the director or of such person and any sum paid

by any such company in respect of any obligationwhich, but for such payment, would have beenpayable by the director or other person aforesaid.


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INCOME - Section 2 (24)(v) any compensation or other payment chargeable totax under Section 28(ii) or any amount chargeable totax in the hands of a trader, professional or similar

association under Section 28(iii) and the deemedprofits assessable under Section 41 and 59 of the Act;

(vi) the value of any profit or perquisite taxable as

business income under Section 28(iv)

(vii) any capital gains chargeable to tax under Section45


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INCOME - Section 2 (24)(viii) the profits and gains of any business of

insurance carried on by a mutual insurance

company or by a co-operative society computed inaccordance with Section 4 or any surplus taken tosuch profits and gains by virtue of the provisionscontained in the First Schedule to the Act;

(ix) any gratuity due or the commuted value of anyannuity paid under Section 280D;


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INCOME - Section 2 (24)(x) voluntary contributions received by a trust

created wholly, or partly for charitable purpose orby an institution established wholly or partly for

such purposes, not being contributions makewith a specific direction that they shall form partof the corpus of the trust or institution; and

(xi) any winnings from lotteries, crossword puzzles,races including horse race, card games and othergames of any sort or form, gambling or betting ofany form or nature whatsoever.


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Gross Total Income

According to Sec 80B of the IT Act,

Gross Total Income means total incomecomputed in accordance with theprovisions of the IT Act, before making

any deduction under Chapter VIA.


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Gross Total Income

The aggregate of taxable income under

all the five heads of income, togetherwith clubbed income/ deemed incomeand after giving effect to set off of

current year and brought forwardlosses shall be known as Gross totalIncome.


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Total Income - Section 2(45)

Total Income means the total amount of income

referred to in Section 5, computed in the manner laiddown in the IT Act.

Gross Total Income reduced by Chapter VIA

deductions results in Total Income


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Capital/Revenue receipts

A receipt referable to fixed capital would be a capital

receipt, whereas a receipt referable to circulatingcapital would be a revenue receipt.

Capital receipt is exempt from tax while the revenue

receipt is taxable


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Capital/Revenue receiptsThe distinction between capital receipt and a revenuereceipt should be perceived based on the facts and

circumstances of each case.

The capital or revenue nature of receipt does not dependon factors such as

1. the basis of measurement2. the quantum and periodicity

3. the nomenclature used by the parties

4. nature of the transaction etc.,

business taxation and practice - chapter 1

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