SET OFF AND CARRY FORWARD OF LOSSES

If an assessee incurs any loss under one or more heads of income, it can be set off against income under any other heads of income. This is known as set off and carry forward of losses. Losses can be set off subject to the following rules. 1. Intra head set off 2. Inter head set off 3. Carry forward of losses Intra Head Set Off: If the net result of any head of income is a loss in any financial year, the assessee can set off such loss against his income from any other source of income under the same head of income. But the following are the exceptions to this rule. a) Loss from speculation business can be set off only against speculation business profit but not against non-speculation business profit. b) Loss incurred from owning and maintaining race gorse cannot be set off against any income other than from such business c) Losses cannot be set off against winnings from lotteries, cross word puzzles and card games d) Long term capital loss can be set off only against long term capital gain. Inter head set off: If the net result under any heads of income is a loss the same can be set off against the income under any other heads. But the following are exceptions to this rule. a) b) c) d) Losses in a speculation business cannot be set off against any other income Loss under the head capital gain cannot be set off against income under any other head. Loss from business or profession cannot be set off against income under the head salaries Loss cannot be set off against winnings from lotteries, crossword puzzles, card games etc.

Carry forward of losses: If in any year, loss cannot be set off either under the same head or under the different heads, because of absence or inadequacy of the income in the same year, it may be carried forward and set off against the income of the subsequent year. The following losses can be carried forwarded. a) b) c) d) Loss under the head income from house property Loss under the head income from business or profession Loss under the head capital gain Loss under the head income from other sources only from the activity of owning and maintaining race horse.

Set off and carry forward under different heads on income 1. Income from salary Carry forward and set off will not arise under the head salary as there is no chance of any loss 2. Income from house property a. Loss can be carried forward for a period of 8 AY b. Carried forward loss should be set off only from house property income c. Return of loss should be filed within the time limit 3. Income from business and profession a. Non speculative loss i. Loss can be carried forward for a period of 8 AY. ii. Carried forward loss should be set off only against business income iii. It is not necessary that loss should belong to the same business and continuity of business is also not necessary iv. Return of loss should be filed within the time limit b. Speculative loss i. Loss can be carried forward and set off only against speculative income ii. Loss can be carried forward for a period of 4 AY. iii. It is not necessary that the same business should be continued iv. Return of loss should be filed within the time limit 4. Income from capital gain a. Loss can be adjusted only from capital gains b. Loss can be carried forward for a period of 4 AY. c. Long term capital loss can carried forward and set off only against LTCG d. Shirt term capital loss can carried forward and set off against both LTCG and STCG e. Return of loss should be filed within the time limit 5. Income from other sources a. Loss can be carried forward for a period of 4 AY. b. Return of loss should be filed within the time limit c. Loss from owning and maintaining horse race can be adjusted against same income Loss under the head Carried forwarded to be set off against income of: Time limit from the year in which loss was occurred 8 AY non speculation 8 AY 4 AY No time limit

Income from house property[Sec 71B] Non speculation Business Loss [Sec72] Speculation Business Loss [Sec73] Unabsorbed depreciation

House property Speculation or business profit

Speculation business profit only Any Income

Long term capital loss[Sec74] Short term capital loss[Sec74]

Long term capital gain Any capital gains

8 AY 8 AY 4 AY

Loss from the activity of owning and Profit from the same activity maintaining race horse[Sec74A]

Un absorbed depreciation It refers to the amount of depreciation, which is still not absorbed from the profits of business or from other heads of income[except salary] in a particular financial year. a. Depreciation allowance should be deducted from the business income b. If the profit and gains is not sufficient then the same should be adjusted with other heads of income other than salary c. Any amount which is still remains unabsorbed should be carried forward to the next year d. There is not time for carry forwarding unabsorbed depreciation e. Unabsorbed depreciation carried forward can be adjusted with any heads of income except salary income f. The following order should be followed in charging unabsorbed depreciation i. Current year depreciation ii. Brought forward losses iii. Unabsorbed depreciation

Tax planning with respect to amalgamation and mergers Under Income Tax Act, 1961 Section 2(1B) of Income Tax Act defines amalgamation as merger of one or more companies with another company or merger of two or more companies to from one company in such a manner that:1. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation. 2. All the liabilities of the amalgamating company or companies immediately before the amalgamation becomes the liabilities of the amalgamated company by virtue of the amalgamation

3. Shareholders holding at least three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamated company or its nominee) becomes the shareholders of the amalgamated company by virtue of the amalgamation. (Example: Say, X Ltd merges with Y Ltd in a scheme of amalgamation and immediately before the amalgamation, Y Ltd held 20% of shares in X Ltd, the above mentioned condition will be satisfied if shareholders holding not less than 75% in the value of remaining 80% of shares in X Ltd i.e. 60% thereof, become shareholders in Y Ltd by virtue of amalgamation) The motive of giving this definition is that the benefits/concession under Income Tax Act, 1961 shall be available to both amalgamating company and amalgamated company only when all the conditions, mentioned in the said section, are satisfied. Amalgamating company means company which is merging and amalgamated company means the company with which it merges or the company which is formed after merger. However, acquisition of property of one company by another is not amalgamation. Income Tax Act defines amalgamation as merger of one or more companies with another company or merger of two or more companies to from one company. Let us take an example of X Ltd and Y Ltd. Here following situations may emerge:(a) X Ltd Merges with Y Ltd. Thus X Ltd goes out of existence. Here X Ltd is Amalgamating Company and Y Ltd is Amalgamated Company. X Ltd and Y Ltd both merges and form a new company say, Z Ltd. Thus both X Ltd and Y Ltd goes out of existence and form a new company Z Ltd. Here X Ltd and Y Ltd are Amalgamated Company and Z Ltd is Amalgamated Company.

(b)

Tax Benefits in case of Amalgamation and merger If an amalgamation takes place within the meaning of section 2(1B) of the Income Tax Act, 1961, the following tax reliefs and benefits shall available:1. Tax Relief to the Amalgamating Company:

a) Exemption from Capital Gains Tax [Sec. 47(vi)]: Under section 47(vi) of the Incometax Act, capital gain arising from the transfer of assets by the amalgamating companies to the Indian Amalgamated Company is exempt from tax as such transfer will not be regarded as a transfer for the purpose of Capital Gain. b) Exemption from Capital Gains Tax in case of International Restructuring [Sec. 47(via)]: Under Section 47(via), in case of amalgamation of foreign companies, transfer of shares held in Indian company by amalgamating foreign company to amalgamated foreign company is exempt from tax, if the following two conditions are satisfied:

c) At least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and d) Such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated 2. Tax Relief to the shareholders of an Amalgamating Company: a. Exemption from Capital Gains Tax [Sec 47(vii)]: Under section 47(vii) of the Incometax Act, capital gains arising from the transfer of shares by a shareholder of the amalgamating companies are exempt from tax as such transactions will not be regarded as a transfer for capital gain purpose, if: The transfer is made in consideration of the allotment to him of shares in the amalgamated company; and Amalgamated company is an Indian company. 3. Tax Relief to the Amalgamated Company: a) Carry Forward and Set Off of Accumulated loss and unabsorbed depreciation of the amalgamating company [Sec. 72A]: Section 72A of the Income Tax Act, 1961 deals with the mergers of the sick companies with healthy companies and to take advantage of the carry forward of accumulated losses and unabsorbed depreciation of the amalgamating company. But the benefits under this section with respect to unabsorbed depreciation and carry forward losses are available only if the followings conditions are fulfilled: There should be an amalgamation of (a) a company owning an industrial undertaking (Note 1) or ship or a hotel with another company, or (b) a banking company referred in section 5(c) of the Banking Regulation Act, 1949 with a specified bankNote 2), or (c) one or more public sector company or companies engaged in the business of operation of aircraft with one or more public sector company or companies engaged in similar business. The amalgamated company should be an Indian Company. The amalgamating company should be engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for 3 years or more. The amalgamating company should held continuously as on the date of amalgamation at least three-fourth of the book value of the fixed assets held by it two years prior to the date of amalgamation. The amalgamated company holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths in the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation The amalgamated company continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation. The amalgamated company fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. b) Expenditure on scientific research [Sec. 35(5)]: When an amalgamating company transfers any asset represented by capital expenditure on the scientific research to the

amalgamated Indian company in a scheme of amalgamation provisions of section 35 shall be applicable Unabsorbed expenditure on scientific research of the amalgamating company will be allowed to be carried forward and set off in the hands of the amalgamated company, If such asset ceases to be used in the previous year for scientific research related to the business of amalgamated company and is sold by the amalgamated company the sale price to the extend of cost of asset shall be treated as business income and the excess of sale price over the cost shall be subject to the provisions of capital gain. c) Amortization of expenditure in case of Amalgamation [Sec. 35DD]: Under Sec 35DD for expenditure incurred in connection with the amalgamation the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation takes place. d) Treatment of preliminary expenses [Sec. 35D(5)]: When and amalgamating company merges with an amalgamated company under a scheme of amalgamation, the amount of preliminary expenses of the amalgamating company to the extend not yet written off shall be allowed as deduction to the amalgamated company in the same manner as would have been allowed to the amalgamating company. e) Expenditure for obtaining a licence to operate telecommunication services [Sec. 35ABB(6)]: Where in a scheme of amalgamation, the amalgamating company sells or otherwise transfer its licence to the amalgamated company (Being an Indian Company), the provisions of Section 35ABB which were applicable to the amalgamating company shall become applicable in the same manner to the amalgamated company, consequently: The expenditure on acquisition on license, not yet written off, shall be allowed to the amalgamated company in the same number of balance installments. Where such licence is sold by the amalgamated company, the treatment of the deficiency/surplus will be same as would have been in the case of amalgamating company. f) Treatment of capital expenditure on family planning [U/S 36(1)(ix)]: If Asset representing capital expenditure on family planning is transferred by the amalgamating company to the amalgamated company under a scheme of amalgamation, such expenditure shall be allowed as deduction to the amalgamated company in the same manner as would have been allowed to the amalgamating company. g) Treatment of bad debts [Sec. 36(1)(vii)]: When due to amalgamation debts of the amalgamating company has been taken over by amalgamated company, and subsequently, such debts turn out to be bad, it shall be allowed as deduction to the amalgamated company. Double Taxation Treaties

To finance the welfare and the administrative expenditure, governments around the world impose certain taxes on their subjects. In cases, where cross country economic activity is carried out, it is a tricky affair to identify and justify the appropriate jurisdiction of tax authorities. In order to mitigate the hardships of multiple jurisdictions, the Governments enter into bilateral arrangements, which are commonly denoted as Double Taxation Avoidance Agreements Double Taxation Avoidance Agreements DTAA refers to an accord between two countries, aiming at elimination of double taxation. These are bilateral economic agreements wherein the countries concerned assess the sacrifices and advantages which the treaty brings for each contracting nation. It would promote exchange of goods, persons, services and investment of capital among such countries. Indian Government is actively pushing DTAA negotiations with several countries to help its residents in understanding their tax jurisdictions and accountability towards the appropriate authorities. So far India has signed DTAA with 81 countries and discussion is on with many others. The natures of DTAAs entered by India are greatly diverse in their nature and contents. Objectives DTAA treaties must help in avoiding and alleviating the burden of double taxation prevailing in the international arena. The tax treaties must clarify the taxpayer to know with certainty of his potential tax liability in the country, where he is carrying on economic activities. Tax Treaties must ensure that there is no prejudice between foreign tax payers who has permanent enterprise in the source countries and domestic tax payers of such countries. Treaties are made with the aim of allocation of taxes between treaty nations and the prevention of tax avoidance. The treaties must also ensure that equal and fair treatment of tax payers having different residential status, resolving differences in taxing the income and exchange of information and other details among treaty partners. Classification Double taxation avoidance agreements may be classified into comprehensive agreements and limited agreements based on the scope of such agreements. Comprehensive Double Taxation Avoidance Agreements provide for taxes on income, capital gains and capital investments whereas Limited Double Taxation Avoidance Agreements denote income from shipping and air transport or legacy and gifts. Comprehensive agreements ensure that the taxpayers in both the countries would be treated on equitable manner in respect of the issues relating to double taxation. Active & Passive Income Passive Income refers to income derived from investment in tangible / intangible assets eg. Immovable property, dividend, interest, royalties, capital gains, pensions etc. Active income is the income derived from carrying on active cross border business operations or by personal effort and exertion in case of employment eg. Business profits, shipping, air transport, employment etc. Current Scenario in India

The Indian Income Tax Act, 1961 administrates the taxation of income accrued in India. As per Section 5 of the Income Tax Act, 1961 residents of India are liable to tax on their global income and non-residents are taxed only on income that has its source in India. The Provisions of DTAA override the general provisions of taxing statute of a particular country. It is now well settled that in India the provisions of the DTAA override the provisions of the domestic statute. Moreover, with the insertion of Sec.90 (2) in the Indian Income Tax Act, it is clear that assessee have an option of choosing to be governed either by the provisions of particular DTAA or the provisions of the Income Tax Act, whichever are more beneficial. Further if Income tax Act itself does not levy any tax on some income then Tax Treaty has no power to levy any tax on such income. Section 90(2) of the Income Tax Act recognizes this principle. Relief to the tax payer In order to prevent the hardship of double taxation, relief is provided to the tax payer. Such relief is provided by two ways: Bilateral Relief Bilateral relief is provided in section 90 and 90A of the Indian Income Tax Act. Bilateral relief is provided through following methods: (i) Exemption Method One method of avoiding double taxation is for the residence country to altogether exclude foreign income from its tax base. The country of source is then given exclusive right to tax such incomes. This is known as complete exemption method and is sometimes followed in respect of profits attributable to foreign permanent establishments or income from immovable property. Indian tax treaties with Denmark, Norway and Sweden embody with respect to certain incomes. (ii) Credit Method This method reflects the underline concept that the resident remains liable in the country of residence on its global income, however as far the quantum of tax liabilities is concerned credit for tax paid in the source country is given by the residence country against its domestic tax as if the foreign tax were paid to the country of residence itself. (iii) Tax Sparing One of the aims of the Indian Double Taxation Avoidance Agreements is to stimulate foreign investment flows in India from foreign developed countries. One way to achieve this aim is to let the investor to preserve to himself/itself benefits of tax incentives available in India for such investments. This is done through Tax Sparing. Here the tax credit is allowed by the country of its residence, not only in respect of taxes actually paid by it in India but also in respect of those taxes India forgoes due to its fiscal incentive provisions under the Indian Income Tax Act. Unilateral Relief Unilateral Relief is provided in section 91 of the Income Tax Act. The aforesaid method is depending on bilateral activity of both the countries. However, no country will have such an agreement with every country in the world. In order to avoid double taxation in such cases, country of residence itself may provide relief on unilateral basis. Apart from relief to persons of a country where India has entered in Double Taxation Avoidance Agreement, there is relief given even in cases where the Government of India has not entered into DTA agreement with any foreign country. In such cases if any resident Indian produces evidences to show that, he has paid any tax in any country with which the Government of India

has not entered into a DTA agreement, tax relief on that part of his income which suffered taxation in the foreign country, to the extent of tax so paid in such foreign country, or the tax leviable in India under the Income Tax Act on such income whichever is less shall be allowed as deduction u/s 91 while calculating his tax liabilities on such income. TAX PLANNING IN CASE OF FOREIGN COLLABORATIONS AND JOINT VENTURE There are two types of foreign collaborations: a) Financial collaboration (foreign equity participation) where foreign equity alone is involved . b) Technical collaboration (technology transfer) involving licensing of technology by the foreign collaborator on due compensation. There are two approving authorities 1) Reserve Bank of India, and 2) Department of Industrial Development in the Ministry of Industry, Government of India. Government Policy The Government of Indias policy on foreign private investment is based mainly on the Approach adopted in 1949. The basic policy is to welcome foreign private investment on a selective basis in areas advantageous to the Indian economy. The conditions under which foreign capital is welcome are as follows: a) All undertakings (Indian or foreign) have to conform to the general requirements of the Governments Industrial Policy. b) Foreign enterprises are to be treated at par with their Indian counterparts. c) Foreign enterprises would have the freedom to remit profits and repatriate capital subject to foreign exchange considerations. The Industrial Policy 1991, is based on the view that while freeing Indian Industry from official controls, opportunities for promoting foreign investments in India should also be fully exploited. It is felt that foreign investment would bring attendant advantages of technology transfer, marketing expertise, introduction of modern managerial techniques and new possibilities for promotion of exports. Areas of Foreign Collaboration The Government of India issues from time to time a list of industries indicating where foreign investments may be permitted. The lists so issued are illustrative only The Government of India (Foreign Investment Promotion Board) also considers import of technology in Industries listed in Annexure A & Annexure B of Schedule 1 of Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 subject to compliance with the provisions of the Industrial Policy and Procedures as notified by Secretariat for Industrial Assistance (SIA) in the Ministry of Commerce and Industry Government of India from time to time. Technical Collaboration The Industrial Policy, 1991, also provides that equity collaboration need not necessarily be accompanied with technical collaborations. The salient features of the Policy relating to Foreign Technology Agreements are outlined below:

Paragraph 39C - Foreign Technology Agreements. Standard Conditions Attached to Approvals for Foreign Investment & Technology Agreements 1) The total non-resident shareholding in the undertaking should not exceed the percentage(s) specified in the approval letter. 2) A) The royalty will be calculated on the basis of the net ex-factory sales price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, customs duties, etc. The payment of royalty will be restricted to the licensed capacity plus 25% in excess thereof for such items requiring industrial licence or on such capacity as specified in the approval letter. This restriction will not apply to items not requiring industrial licence. In case of production in excess of this quantum, prior approval of Government would have to be obtained regarding the terms of payment of royalty in respect of such excess production. B) The royalty would not be payable beyond the period of the agreement if the orders had not been executed during the period of agreement. However, where the orders themselves took a long time to execute or were executed after the period of agreement, then in such cases the royalty for an order booked during the period of agreement would be payable only after a Chartered Accountant certifies that the orders in fact were firmly booked and execution began during the period of agreement and the technical assistance was available on a continuing basis even after the period of agreement. C) No minimum guaranteed royalty would be allowed. 3) The lumpsum shall be paid in three instalments as detailed below, unless otherwise stipulated in the approval letter:i. First 1/3rd after the approval for collaboration proposal is obtained from Reserve Bank of India and collaboration agreement is filed with the Authorised Dealer in Foreign Exchange. ii. Second 1/3rd on delivery of know-how documentation. iii. Third and final 1/3rd on commencement of commercial production, or four years after the proposal is approved by Reserve Bank of India and agreement is filed with the Authorized Dealer in Foreign Exchange, whichever is earlier. The lumpsum can be paid in more than three instalments, subject to completion of the activities as specified above. 1) All remittances to the foreign collaborator shall be made as per the exchange rates prevailing on the date of remittance. 2) The applications for remittances may be made to the Authorised Dealer in Form A2 with the undernoted documents:a) A No Objection certificate issued by the Income-tax authorities in the standard form or a copy of the certificate issued by the designated bank regarding the payment of tax where the tax has been paid at a flat rate of 30% to the designated bank. b) A certificate from the Chartered Accountant in Form TCK/TCR (depending upon the purpose of payment). c) A declaration by the applicant to the effect that the proposed remittance is strictly in accordance with the terms and conditions of the collaboration approved by RBI/Government.

3) The agreement shall be subject to Indian Laws. 4) A copy of the foreign investment and technology transfer agreement signed by both the parties may be furnished to the following authorities:a) Administrative Ministry/Department. b) Department of Scientific and Industrial Research, New Delhi. c) Concerned Regional Officer of Exchange Control Department, RBI. d) Authorised Dealer designated to service the agreement. 5) All payments under the foreign investment and technology transfer agreement including rupee payments (if any) to be made in connection with the engagement/deputation of foreign technical personnel such as passage fare living expenses, etc. of foreign technicians, would be liable for the levy of ces under the Research and Development Cess Act, 1986 and the Indian Company while making such payments should pay the cess prescribed under the Act. 6) A return (in duplicate) in Form TCD should be submitted to Regional Office of the Reserve Bank of India in the first fortnight of January each year. Withholding Tax for NRIs and Foreign Companies: Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates are: i) Interest 20% ii) Dividends paid by domestic companies : Nil iii) Royalties 10% iv) Technical Services 10% v) Any Other Services Individuals: 30% of the income Companies: 40% of the net income The above rates are general and in respect of the countries with which India does not have a Double Taxation Avoidance Agreement (DTAA). Tax consideration in MAKE or BUY Management decision should be based on careful consideration of all the factors, including implication as regard to tax liability. Keeping view various tax implications that are relevant while taking some specific management decision under different provision of Income tax Act have dealt with: Make or Buy: One of the vital investment subject to the influence of tax factor is Make or buy decision. Most of the companies have to decide sometimes or the other whether they should buy a part from a market and stop making it themselves or whether they should stop buying it and start making it. There are various consideration affecting this decision, chief of which is cost. In other words, in making this sort of decision the various cost of making the product or part component of product is compared with its purchase price in market. A host of other consideration such as capacity utilization, supply position of the article to be bought, terms of purchase, ill effect of layoffs etc.

are kept in view while taking such decision. Tax planning can be helpful in decision as regards making or buying a particular product, component etc. The decision to make or buy is a costing decision and is also influenced by many general factors which are as follows: Availability of financial resources Investment required in fixed assets Availability of skilled and unskilled labour Availability of suppliers Existence of idle capacity in organization Price at which the product is available in the market Other miscellaneous factors

Apart from costing considerations following factors also go in decision making process: Utilization of Capacity Inadequacy of funds Latest Technology Dependence of Supplier Labor problem in the factory What are the cost involved in making of a part Fixed Cost Variable Cost What are the cost involved in buying of a part from outside agency: Buying cost Inventory cost Comparision of both the cost shall determine which decision the company shall follow, therefore tax saved in both the cases are same. Tax Consideration Establishing a new unit: If the decision to manufacture a part or a component involves a setting up separate industrial unit than tax incentives available u/s 10a,10b, 32, 80 IA,80 IB should be considered. Export: If Make or Buy decision is taken for exporting goods then tax incentives available under section 80 HHC depends upon whether goods manufactured by tax player himself are exported or goods manufactured by others are exported by tax players.

Sale of plant and machinery: If buying is cheaper than manufacturing and the assessee decides to buy parts or components for a long period of time, he may like sell the existing plant and machinery. Tax implications as specified by section 50 has to be considered. If the decision is taken to produce a part, then any other industrial unit to be established. When a separate industrial unit is established then the company may get tax benefits and also deductions under various sections to a company which decides to produce a part, are: 1. Deduction in respect of profits and gains from newly established small scale undertakings in rural area (Sec 80 HHA) A tax players deriving a profits and gains from a new small scale industries undertaking set up in rural area will entitled to deduction of an amount equal to 20% of such profits and gains. The deduction will be admissible for a period of 10 previous years in which the small scale industrial undertaking commences production of any article. 2. Deduction in respect of profits and gains from industrial undertaking (Ship or Hotel etc.): (Sec 80-1) Under sction-80-1, a deduction will be allowed in respect of profits and gain derived from industrial undertakings, ship or hotel established after a certain date. The deduction will be of an amount equal to 30% of such industrial undertakings or Ship or Hotel, If its company and 25% in categories of assesses. 3. Deduction in respect of profits and gains from newly established small scale undertakings or Hotel business in Backward area (Sec 80 HHA) All assesses are entitled to a deduction of 20% of the profit derived by them for new industrial undertakings and Hotel setup in backward area. The deduction will be allowed in respect of the ten assessment year relevant to previous year in which the industrial undertaking begins to manufacture or produce articles. 4. Depreciation Allowance A company which produces a part or a component will be allowed an allowance in respect of depreciation of buildings, machinery, plant or furniture owned and used the assesee for the purpose of business and profession. Two primary factors which have a decisive influence on the choice of make or buy are the cost and availability of production capacity. Facilities are made available and other things being equal cost consideration assumes primacy. If the cost of making an item inhouse is going to be higher than the cost of acquiring it from an outside supplier, the choice is to buy it. On the other hand, if the cost of making the item in ones own plant is cheaper than buying it from the supplier, the choice is to make it. A good make-or-buy decision, nevertheless, requires the evaluation of several less tangible factors in addition to the two basics ones. Considerations which favor making the parts are: 1. Cost considerations less expensive to make the part

2. 3. 4. 5. 6. 7. 8.

Desire to integrate plan operations Productive use of excess plant capacity to help absorb fixed overheads. Needs to exert direct control over production and/or quality Design secrecy. Unreliable suppliers. No suitable supplier quotation Desire to maintain a stable workforce in periods of declining sales

Considerations which favor buying the part: 1. Cost considerations less expensive to buy the part 2. Suppliers research and specialized know-how 3. 4. 5. 6. 7. 8. Small volume requirements Limited production facilities Desire to maintain stable workforce in periods of rising sales. Desire to maintain multiple source policy. Government policy favoring ancillary industries. Monopoly items which are rationed by the government and on which, the buyer has no option.

Other Factors Some companies, by tradition, prefer to make almost every component of their products. Others prefer to buy as much as possible from outside suppliers. In general, an aggressive company in an industry that is expanding rapidly with many technological changes (e.g. electronics), will prefer to buy many of its components from outside suppliers. In such industries, the company has many opportunities to employ its capital profitably through horizontal diversification, expanding its line of finished products. Tax Consideration in Make or Buy decision: If a business house/company decides to make a product/part instead of buying it and the making of product involves setting up of new industrial undertaking then a business house should make a detailed analysis of following tax incentives available to new industrial undertaking under Income-Tax Act: (a)Tax holiday u/s 10 A (b)Tax holiday u/s 10 B (c)Tax holiday u/s 80 1A (d)Deduction u/s 80 1B

If the decision to buy the product or component will render the plant machinery, furniture, land and building etc; earlier used in manufacturing the product, idle then the business house may have to sell these assets. In such a case, before taking decision to buy, the provision related to capital gain tax should also be studied. LEASE VS. PURCHASE With the concept of leasing gaining immense popularity in recent times, any business management is faced with the choice to purchase assets or to go in for leasing the asset. One must resolve this issue on economic consideration taking into account the different tax shield effects. If asset is purchased, the assessee can claim depreciation. Besides interest n capital is borrowed to finance investment in plant and machinery can also claim as deduction. If, however, asset is obtained on lease, deductions can be claimed in respect of lease rentals and lease management fees. INSTALMENT VS HIRE If an asset is purchased by instalments, then the taxpayer claim depreciation under section 32. Besides interest payable on unpaid purchase price can also be claimed as deduction. In the case of obtaining an asset n hire, deduction can be claimed in respect of hire charges. By comparing present value of cash outflows a correct decision can be taken. TRANSFER PRICING The existence of different tax rates in different countries offers a potential incentive to multinational enterprises to manipulate their transfer prices to recognize lower profit in countries with higher taxes and vice versa. In order to monitor transfer prices for goods, facilities and services, transfer pricing regulations were introduces in the form of sections 92 and 92A to 92F. The basic intention underlying the transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the countrys tax base. Provisions relating to computation of income from international transactions sec 92 1) Income to be computed as per arms length price 2) Section not to apply when arms length prices decreases income or increases loss.

Associated enterprise means an enterprise which participates, directly or indirectly, in management or control or capital of other enterprise. Further, if one or more persons participate,

directly or indirectly in the management or control or capital of two enterprises those two enterprises are associated enterprises. Deemed associated enterprises: two enterprises are deemed to be associated enterprises. If, at any time during the PY, a) One holds, directly or indirectly shares carrying 26% or more of voting power in other enterprise. b) Any person holds, directly or indirectly shares carrying 26% or more voting power in both of them. c) A loan advanced by one to the other constitutes 51% or more of BV of total assets of other. d) One enterprise guarantees 10% or more of the total borrowings of the other enterprise. e) One appoints more than half of board of directors or one or more executive directors of the other. f) Any person appoints more than half board of directors or one or more executive directors of both. g) Manufacture/ processing of goods or business carried on by one is fully dependent on use of know how, patents, copyright, etc. owned by the other, or in respect of which other has exclusive rights. h) 90% or more of RM required by one are supplied by the other or by persons specified by other, and prices and other conditions relating to the supply are influenced by the other enterprise. i) Goods manufactured/ processed by one are sold to the other enterprise or to persons specified by other, and the prices and other conditions relating thereto are influenced by such other enterprise. j) Where one enterprise is controlled by an individual/HUF, the other enterprise is also controlled by such individual/ HUF or his relatives or jointly by such individual/HUF and such relative. k) One enterprise is a firm/AOP/BOI and other enterprise holds 10% or more interest in such firm/AOP/BOI. l) There exists between the two enterprises, any relationship of mutual interest, as may be prescribed. Section 92B international transaction It means a transaction entered into between two or more associated enterprise (at least one is a non resident) for purchase/sale/ lease of tangible/ intangible property or provision of services or lending/ borrowing money or any other transaction (including sharing agreements for common costs) having bearing on income and assets. Deemed associated transaction: If an associated enterprise and a third person determine the terms of a transaction between third person and another associated enterprise, such transaction shall be regarded as having being entered into between two associated enterprise. Section 92C methods under which arms length price is determined

1) Arms length price (ALP) means a price applicable in a uncontrolled transaction i.e. a transaction between non associated enterprises, in uncontrolled conditions. 2) Methods for computation of arms length price: arms length price is determined by the most appropriate of the following methods, selected as per the mode prescribed by the board a) Comparable uncontrolled price method b) Resale price method c) Cost plus method d) Transaction net margin method e) Profit split method f) Other prescribed method. 3) When more than one price determined : by the most appropriate method, the arms length price shall be taken to be the lower of the following a) The arithmetical mean of such prices, or, b) A price varying up to 5% of such arithmetical mean.

ASSESSMENT PROCEDURE
Assessment of income relating to one PY starts in the succeeding financial year, which is called AY. Assessment procedure begins when an assessee files his return of income to the income tax department. Filing of return [Sec 139 (1)] A person has to file return of income in the prescribed form within the specified time limit if his total income exceeds the maximum non-taxable limit. As per section 139(1), it is compulsory for companies and firms to file a return of income for every previous Year. Filing of return of income is mandatory for certain category of assessees. Incidental provisions for accompaniments to the return of income, error correction, belated returns have been made. Now filing of the return electronically has been made mandatory for certain category of assessees. Return of income is the format in which the assessee has to furnish information as to his total income and tax payable. The format for filing of returns by different assessees is notified by the CBDT. Due date means (a) 30th September of the assessment year, where the assessee is (i) a company; or (ii) a person (other than a company) whose accounts are required to be audited under the Income-tax Act, 1961 or any other law in force; or (iii) a working partner of a firm whose accounts are required to be audited under the Incometax Act, 1961 or any other law for the time being in force. RETURN BY WHOM TO BE SIGNED [Section 140] Managing director or where for any unavoidable reason managing director is not able to sign or where there is no managing director, by any director thereof. Exceptions : (a) where the company is being wound up : by the liquidator

(b) where the management of the company has been taken over by the Government : the principal officer thereof (c) company is not resident in India : a person who holds a valid power of attorney Return of loss [Sec 139 (3)] Return can also be filed in the prescribed form in respect of loss suffered by the assessee. It is not compulsory to file a return of loss, but certain losses can be carried forward only on filing return of loss

Belated return [Sec 139(4)]

If the return is not furnished within the time, the person may furnish the return of any PY at any time before the end of one year form the end of the relevant AY or before making assessment whichever is earlier. An assessee who files belated return are liable for penal interest Revised return [Sec 139(5)] If after filing a return of income or in pursuance of a notice the assessee discovers any omission or wrong statement in return originally filed, he can file a revised return. It should be filed within one year from the AY or before the completion of assessment whichever is earlier. Defective return [Sec 139(9)] Where the AO finds that the return filed by an assessee is defective he should intimate the assessee about the defect and give him an opportunity to rectify the defects within 15 days from the date of intimation or within such further extended time as the AO may allow. If the defect is not rectified within the time allowed, the return will be treated as invalid and it will be deemed that no return has been filed by the assessee attracting penal interest TYPES OF ASSESSMENT 1. Self assessment [Sec 140A] When a return is furnished the assessee will have to pay tax, if any payable on the basis of return. He has also to pay interest up to the date of filing the return along with self-assessment of tax. The return of income is to be accompanied by proof of payment of both tax and interest. Assessing officer may make an enquiry for getting full information in respect of assesses income. The assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry so made. The assessing authority may also direct the assessee to get his accounts audited by an accountant nominated by chief commissioner, even if the accounts of the assessee have been audited under nay other provision. 2. Summery assessment [Sec 143(1)] If on the basis of return filed, any tax or interest is due the A.O shall send intimation to the assessee specifying the sum so payable. If any refund is due on the basis of such return it shall be granted to the assessee. Such intimation shall be deemed to be a notice of demand. Such an intimation should be send before the expiry of 2 years from the end of the AY in which income was first assessable 3. Assessment in response to an order [Sec 143(2)] Assessment of income after receiving a notice from income tax authorities is called assessment in response to an order. A.O can send notice if he considers it necessary to ensure that the assessee has not understated the income or has not underpaid tax. After hearing such evidence as the assessee may produce in response to the notice and after taking into account all relevant materials, which the A.O has gathered, he shall pass an assessment order in writing determining the

total income of the assessee and the sum payable or refund due to the assessee on the basis of such assessment order. 4. Best Judgment Assessment [Sec 144] In the following situation the A.O can make a best judgment assessment after considering all relevant materials, which he has gathered. a. if the assessee has not filed a return or a belated return or a revised return b. if he fails to comply with the terms of the notice or fails to comply with the direction to get his account audited c. if he fails to comply with the terms of the notice requiring the presence or production of evidence and documents d. if the A.O is not satisfied with the correctness or completeness of the accounts of the assessee The best judgment assessment can be made only after giving the assessee a reasonable opportunity of being heard. Assessee has a right to file an appeal or to make an application for revision to the commissioner. 5. Income escaping assessment or reassessment [Sec 147] If the AO has reason to believe that any income chargeable to tax has escaped assessment for any AY he may assess or re assess such income. If an assessee has not furnished a return of income although total income is above the taxable limit or where a return of income has been made but assessee is found to have understated his income where an assessment is made but income chargeable to tax has been under assessed, reassessment can be made. Rectification of mistakes [Sec 154] The AO may amend any order passed by it or amend nay intimation sent by it if he finds that a mistake apparent from record is made. This is called rectification of mistake. Where a rectification has the effect of enhancing tax liability or reducing the refund, the AO is required to issue a notice of its intention to do so the assessee and give the assessee a reasonable opportunity of being heard. Rectification of mistakes may be made either on its own motion or on the application of the assessee. Rectification can be made only within 4 years from the end of financial year in which the order sought to be rectified was passed.

Tax Deduction at source (TDS) The provisions of the Income Tax Act relating to Tax Deduction at source (TDS) are of very important in the present scenario when TDS collections contribute almost 39% of total collection of Direct Taxes. The Income Tax Act also provides for penalty & prosecution for any default in respect of deduction of tax at source or deposit of the deducted amount in the Government account. Thus, the Tax Deductors need to be well conversant with the provisions relating to Tax Deduction at Source as provided in sections 192 to 198 of the Income Tax Act. The Indian Income Tax Act provides for chargeability of tax on the total income of a person on an annual basis. The quantum of tax determined as per the statutory provisions is payable as: a) Advance Tax b) Self Assessment Tax c) Tax Deducted at Source (TDS)

d) Tax Collected at Source (TCS) Tax deducted at source (TDS), as name imply aims at collection of revenue at the very source of income. It is an indirect method of collecting tax with the concepts of collect as it is being earned. Its significance to the government lies in the fact that it pre-pones the collection of tax & to ensures a regular source of revenue. The concept of TDS requires that the person, on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient. The deducted sum is required to be deposited to the credit of the Central Government. The recipient from whose income, tax has been deducted at source, gets the credit of the amount deducted in his personal assessment.

TDS RATES FOR THE A.Y. 2012-13 (IN %)

Nature of Payment Made To Residents Threshold (Rs.) Company / Firm / Co-operative Society / Local Authority Rate (%) NA 10 10 10 10 30 30 2 2 10 10 20 20 20 10 10 10 2 10 10 5 Individual / HUF If No / Invalid PAN Rate (%) 30 20 20 20 20 30 30 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Section - Description 192 - Salaries 193 - Interest on securities 194 - Dividends 194A - Interest other than interest on securities Others 194A - Banks 194B - Winning from Lotteries 194BB - Winnings from Horse Race 194 C - Payment to Contractors - Payment to Contractor - Single Transaction - Payment to Contractor - Aggregate During the F.Y. - Contract - Transporter who has provided valid PAN 194D - Insurance Commission 194E - Payment to Non-Resident Sportsmen or Sports Association - Applicable up to June 30, 2012 - Applicable from July 1, 2012 194EE - Payments out of deposits under NSS 194F - Repurchase Units by MFs 194G - Commission - Lottery 194H - Commission / Brokerage 194I - Rent - Land and Building 194I - Rent - Plant / Machinery 194J - Professional Fees 194LA - Immovable Property 194LB - Income by way of interest from infrastructure debt fund (non-resident) 5000 10000 10000 5000 30000 75000 20000 2500 1000 1000 5000 180000 180000 30000 100000 -

Rate (%) Average rates as applicable 10 10 10 10 30 30 1 1 10 10 20 20 10 10 10 2 10 10 5

Sec 194 LC - Income by way of interest by an Indian specified company to a non-resident / foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India (applicable from July 1, 2012) 195 - Other Sums 196B - Income from units 196C-Income from foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds) (not being dividend) 196D - Income of FIIs from securities

20

Average rates as applicable 10 10

10 10

30 20 20

20

20

20

20

Permanent Account Number (PAN) PAN is an all India, unique ten-digit alphanumeric number, issued in the form of a laminated card by the Income Tax Department. It does not change with changes in address or place where you are being assessed. For obtaining PAN related information the Income Tax department has authorized :- (i) UTI Technology Services Ltd (UTITSL) to set up and manage IT PAN Service Centers in all those cities or towns where there is an Income Tax office and (ii) National Securities Depository Limited (NSDL) to dispense PAN services from Tax Information Network (TIN) Facilitation Centers. Who shall apply for PAN :Income Tax Act provides that every person whose total income exceeds the maximum amount not chargeable to tax or every person who carries on any business or profession whose total turnover or gross receipts exceed Rs. 5 lakhs in any previous year or any person required to a file a return of income shall apply for PAN. Besides, any person not fulfilling the above conditions may also apply for allotment of PAN. With effect from 01.06.2000, the Central Government may by notification specify any class/classes of person including importers and exporters, whether or not any tax is payable by them, and such persons shall also then apply to the Assessing Officer for allotment of PAN. With effect from 01.04.2006 a person liable to furnish a return of fringe benefits is also required to apply for allotment of PAN. And if such a person already has been allotted a PAN he shall not be required to obtain another PAN. Since income of any financial year is taxed in the subsequent year called as the assessment year, application for PAN must be made on or before the 30th of June of the relevant assessment year. How to apply for PAN :Application for allotment of PAN is to be made in Form 49A. Following points must be noted while filling this form:

Application form must be typewritten or handwritten in black ink in BLOCK LETTERS. Two black & white photographs are to be annexed.

While selecting the Address for Communication, due care should be exercised as all communications thereafter would be sent at the indicated address. In the space given for Father's Name. Only the father's name should be given. Married ladies may note that husband's name is not required and should not be given. Due care should be exercised to fill the correct date of birth. The form should be signed in English or any of the Indian Languages in the 2 specified places. In case of thumb impressions attestation by a Gazetted Officer is necessary.

Transactions in which quoting of PAN is mandatory :

Purchase and sale of immovable property. Purchase and sale of motor vehicles. Transaction in shares exceeding Rs. 50,000. Opening of new bank accounts. Fixed deposits of more than Rs. 50,000. Application for allotment of telephone connections. Payment to hotels exceeding Rs. 25,000. Provided that till such time PAN is allotted to a person, he may quote his General Index register Number or GIR No.

The following changes must be intimated to the assessing officer :

Death of the assessee. Discontinuation of business. Dissolution of a firm. Partition of a Hindu Undivided Family(HUF). Liquidation or winding up of a company. Merger or amalgamation or acquisition of companies.

Application for a fresh PAN under the new series must be made under the following conditions :

Partition of a Hindu Undivided Family(HUF) into one or more new Hindu Undivided Families(HUF's). Coming into being of new HUF's. Change in constitution of a firm(entailing change of partners). Splitting up or demerger of an existing company into two or more companies.

APPEALS AND REVISION UNDER INCOME TAX ACT, 1961 The term appeal has no where been defined under the Income Tax Act. However as per Mozley and Whiteleys Law Dictionary Appeal is a complaint to a superior court of an injustice done by an inferior one. The party complaining is known as the Appellant and the other party is known as Respondent.

Under the scheme of the Income Tax Act, an assessment is normally the first Stage determining the Taxable Income and The Tax, Interest or Sum Payable by an assessee. The Act provides for various remedies available to an assessee on completion of the assessment. The primary remedies available to an assessee on completion of the assessment are: 1. Appeals 2. Revision 3. Rectification APPELLATE HIERARCHY NATURE OF TO WHOM IT SHOULD ACTION BE FIELD First Appeal Commissioner(appeals) [CIT (A)] Second Appeal The Income Tax Appellate Tribunal Appeal to high High Court court Appeal to Supreme Court supreme court

Against whose order it can be preferred Against the order of Assessing officer Against the order of the CIT(A)

Who can prefer Taxpayer or of or of or of

Taxpayer commissioner Income Tax Substantial question of Taxpayer law arising out of ITAT commissioner order Income Tax Judgment of High Court Taxpayer commissioner Income Tax

The proceedings of appeal work strictly as per the statutory provisions made in this regard. Therefore, it is essential to understand these provisions in greater detail and know exactly what are the powers, rights and duties of the CIT (A) as well as the assessee while dealing with the appeals. SECTION -249-FORM OF APPEAL AND LIMITATIONS Section 249(1) An appeal to the CIT (A) shall be in Form No. 35. Appeal shall be accompanied by appeal fees prescribed as under: APPEAL FEES FOR CIT (A) SITUTION If Total income as per assessment order is 1,00,000/- or less If Total income as per assessment order is more than 1,00,000 but Less than 2,00,000/If Total income as per assessment order is more than 2,00,000/If the subject matter of appeal is not covered by above The above appeal fees are based on assessed income exclusive of agriculture income. Documents to be filed with the Appeal form Form No. 35 along with statement of facts and grounds of appeal in duplicate. AMOUNT(Rs.) 250.00 500.00 1000.00 250.00

Receipted challans for the payment of Appeal Fees in original. Copy of the order appealed against (In case of appeal against the penalty order, also enclose a copy of the relevant assessment order). Original Notice of Demand

Section 249(2)-Time Limit for filing appeal As per section 249(2), an appeal shall be preferred within 30 days of the date of service of notice of demand in the case of an appeal against an assessment or penalty or of the intimation or any order sought to be appealed against. In the case of an appeal u/s. 248, the same shall be preferred within 30days of the payment of tax. Section 249 (3)- Condonation of delay in filing appeal Section 249(3) enables the CIT (A) to admit an appeal after the examination of the time limit of 30 days if he is satisfied that the appellant had sufficient cause for not presenting it within the time limit prescribed. In case of an appeal filed beyond the period of 30 days, it is recommended that the same shall be accompanied by a petition for condonation of delay explaining the reasons for the delay. In appropriate cases, it is also advisable to file an affidavit confirming the reasons for the delay. As far as possible an attempt shall be to explain the reasons for each and every days del ay in filing the appeal. Section-249 (4)-payment of tax on Returned Income before the appeal Section 249 (4) provides that no appeal shall be admitted unless the appellant has paid the tax due on the returned income before filing of the appeal. This is a very important part of appeal proceedings and one has to be extra careful on this front. If the tax on the returned income is not paid before the filing of the appeal, the appeal is not likely to be admitted. Section 249(4) is mandatory and there is no remedy available against the operation of the said section. If the Tax is not paid before the filing of the appeal, then legally the CIT (A) is empowered to dismiss the appeal. However, if the tax is paid before the final date of hearing of the appeal, then normally the CIT (A) allows the appeal to be heard and decides the same on merit. Section-250-Procedure of Appeal Section 250 of the act deals with the procedures in an appeal proceeding. As per the section, the CIT (A) shall give a notice in writing fixing a date of hearing to both the appellant and also the assessing officer. The assessee or his authorized representative is having a right to be heard at the time of the hearing of the appeal. Similarly right is made available to the assessing officer or his authorized representative to be heard however, normally in practice, only the appellant appears in the hearing. No right is available to the assessing officer to be heard in the appeals under the wealth tax Act. Appeal Order Sub-section(6) of section 250 provides that the order of the CIT (A) has to be in writing and the same has to be a speaking order giving reasons for the decision on all the issues raised in the appeal.

For any of the issues resulted from the appellate order an application for rectification u/s. 154 can be made to CIT(A). Time Limit for disposal of the appeal As per sub-section (6A), it is recommended that the appeal filed may be heard and decided within one year from the end of the financial year in which the appeal is filed. However, this is an advisory limit and not strictly mandatory. Further the appellate order shall be issued within 15 days of last hearing. Section-251-powers of the CIT (A) Section 251 of the acts deal with the powers of the CIT (A) while disposing off an appeal before him. The powers of the CIT (A) are co-terminus with that of the assessing officer and accordingly he can do everything which an assessing officer can do while making an assessment. Similarly he can not do something which an assessing officer can not do. As per section 25(1), while deciding an appeal against an order of assessment, the CIT (A) may either- confirm - reduce - enhance or - annual the assessment Similarly while deciding an appeal against the levy of penalty, the CIT (A) may either- confirm such order or - cancel such order - Vary it so as to either enhance or reduce the penalty. APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL The Income-Tax Appellate Tribunal (ITAT) is the second appellate authority to whom appeals can be filed against the order of the CIT (A). It is the final fact finding authority in the entire proceedings. The facts recorded in the order of the ITAT can not be challenged before the High Court or Supreme Court where only a substantial question of law can be contested by an assessee. The ITAT is a very important forum in the appellate proceedings because it is the first independent body. The ITAT is a Qusai-Judicial authority governed by the Ministry of law and not the Ministry of Finance. Due to this independence of the ITAT, normally the decisions of the ITAT are non-biased. There are different branches of ITAT like (a) Division Bench (b) SMC Bench (c) Third Member Bench and (d) Special Bench Who can file an appeal before ITAT An appeal to ITAT can be filed against the order of the CIT (A) by either of the aggrieved party i.e. the assessee or the assessing officer under the directions of the commissioner. Time Limit for filing an appeal

The appeal shall be filed before ITAT within 60days of the date of communication of the order appealed against. Condonation of Delay in Filing Sub-section (5) of section 253 grants a power to the appellate tribunal to admit an appeal or permit the filing of a cross objection after the expiry of the time prescribed if it is satisfied that there was a sufficient cause for not presenting it within the prescribed time. In a case where the appeal is filed after the expiry of the time limit, it is desirable that an application for condonation of the delay is filed along with the appeal itself. Further an affidavit explaining the reason for the delay shall also be filed along with the appeal papers. Appeal fees payable in the case of an appeal to ITAT by the assessee Situation If the total income as per assessment order is 1,00,000/- or less If the total income as per assessment order is more than 1,00,000/- but less than 2,00,000/If the total income as per assessment order is more than 2,00,000/If the subject matter of appeal is not covered by above Amount (RS.) 500.00 1500.00 1% of the assessed income subject to maximum Rs. 10,000/500.00

Note: The Appeal fee is payable on the basis of assessed income ignoring the relief allowed by CIT (A). Monetary Limit For Appeals To ITAT By The Department With a view to avoid litigation in smaller cases, the Central Board of Direct Taxes issues instructions from time to the authorities not to file the appeal to the Income Tax Appellate Tribunal, in Cases where the tax amount involved is less than the Rs. 3 Lakh. The above limit of Rs. 3 Lakhs shall apply to each appeal separately and not jointly. APPEAL TO THE HIGH COURT (SECTION 260A) Section 260A provides for direct appeal to the High Court against the order of Appellate Tribunal. Section 260A(1) provides that an appeal shell lie to High Court from every order passed in appeal by the Appellate Tribunal up to date of establishment of NTT, if High Court is satisfied that the case involve a substantial question of law. If the High Court is satisfied, so it shall formulate that question. After the establishment of the NTT, the appeal shall lie to the NTT. The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may be file an appeal to the High Court under this section. The appeal shall be in the form of the memorandum of appeal, precisely stating in the substantial question of law involved. Time Limit for Filling the Appeal

The appeal shall be filed within 120 days from the date on which the order appealed against is received by the assessee, or the Chief Commissioner or Commissioner. The High Court has and always had the power to condone the delay and admit an appeal after the expiry of the period of 120 days, if it is satisfied that there was sufficient cause for not filling the appeal within that period. Matters on which Appeal can be heard The appeal shall be heard only on the question formulated. However, the respondent shall at the hearing of the appeal, be allowed to argue that the case does not involve such question. Further, the Court shall be also have power to hear the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involve such question. However such power shall be exercised by the Court only after recording the reason for hearing such question. Further, the High Court may determine any issue which (A) Has not been determined by the Appellate Tribunal; or (B) Has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in section 260 A(1). APPEAL TO THE SUPREME COURT (SECTION 261) According to the Section 261, an Appeal shall lie to the Supreme Court from any judgment of the High Court delivered before the establishment of the NTT, in a case which the High Court certifies to be a fit one for Appeal to the Supreme Court. Thereafter, an appeal shall lie to the Supreme Court from any judgment of the NTT as per the provision of National Tax Tribunal Act, 2005: The provision of the Code of Civil Producer, 1908 in regard to appeal shall reply in the case of all appeals to the Supreme Court in the same manner as in the case of all appeals from decrease of a High Court. The cost of appeal shall be decided at the discretion of the Supreme Court. Where the judgment of a High Court is varied in the appeal, effect should be given to the order of the Supreme Court in the same manner as provided in the case of a judgment of the High Court. REVISION BY THE COMMISSIONER (SECTION 263 & 264) 1. The Commissioner may call for and examine the record of any proceeding under the Act. If he considers that any order passed by the Assessing 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 or causing to be made such inquiry as may be necessary, pass a suitable order. 2. He can enhance, modify or cancel an assessment. He can also direct that a fresh assessment should be made. 3. The term record shall include and shall be deemed always to have include all records relating to any proceedings under the Act available at the time of examination by the Commissioner. 4. Where any order referred to in section 263(1) passed by the Assessing Officer had been the subject-matter of any appeal, the power of the Commissioner under section 263(1) shall extend and shall be deemed always to have extend to such matters as had not been considered and decided in such appeal.

5. 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. 6. In computing the period of 2 years, the time taken in giving an opportunity to the assessee to be reheard under section 129 and any period during which the revision proceeding is stayed by an order or injunction of any court shall be excluded. 7. The time limit, however does not apply in case where the Commissioner has to give effect to a finding or direction contained in the order of the Appellate Tribunal, High Court or the Supreme Court. REVISION OF OTHER ORDER (SECTION 264) In the case of any other order (not being an order prejudicial to the Revenue) passed by any subordinate authority including the Deputy Commissioner may either on his own motion or no receipt of an application from the assessee, call for the record of any proceeding under the act in the course of which the order passed. After making such enquiries as may be necessary the Commissioner may pass such order as he thinks fit. The Commissioner is not empowered to revise any order on his own motion if a period of more than one year has expired from the date of the order sought to be revised. If the application for revision is made by the assessee, it must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise comes to know of it, whichever is later. However, the Commissioner may admit an application even after the expiry of one year, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period. The application to the Commissioner for revision must be accompanied by a fee of Rs.500. if an order is passed by the Commissioner declining to interfere in any proceeding, it shall not be deemed to be an order prejudicial to the assessee. However, the commissioner is not empowered to revise any order in the following cases. 1. Where an appeal against the order lies to the Commissioner (Appeal) or the Tribunal but has not been made and the time within which the appeal may be made has not expired or in the case of an appeal to the Tribunal the assessee has not waived his right of appeal. 2. Where the order is pending on an appeal before the Deputy Commissioner (Appeal). Where the order has been made subject to an appeal to the Commissioner (Appeal) or the Appellate Tribunal.