Beruflich Dokumente
Kultur Dokumente
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 2 of 182
CONTENTS
Module - 1) Income Tax Act (25 Marks)
Module - 2) Income Tax Act including Principles of Service Tax (25 Marks)
Module - 3) Gujarat Value Added Tax (VAT) (20 Marks)
Module - 4) Central Sales Tax Act (15 Marks)
Module - 5) Wealth Tax Act (15 Marks)
STATUTORY MATERIALS :
Income Tax Act, 1961 (including Service Tax provisions)
Value Added Tax Act, 2003
Central Sales Tax Act, 1965
Wealth Tax Act, 1957 :
Chapters: 1,2,3,4,5,6 and 8 only
Sections 35 and 43.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 3 of 182
Module - 2) Income Tax Act including Principles of Service Tax (25 Marks)
Module-1&2 QUESTIONS :
General Notes : What is tax ? What constitutes Income Tax Laws ?
General Notes : What is 'income' ?
General Notes : Scope of total income.
General Notes : Basis of charge : charge of income tax" and Deduction v/s Rebates v/s
Relief.
General Notes : Who is an Assessee ?
General Notes : What is Assessment year
General Notes : Discuss : Capital and revenue
Explain : Resident, Non-Resident and Ordinary Resident. (Oct-2013, Mar-2014,
Nov-2014)
Explain : Resident and non-resident. (Nov-2011, Nov-2012)
Write explanatory notes : Provisions relating to Resident of India and Non-resident of
India under the Income Tax Act. (Dec-2016)
Explain : Main heads of income With illustrations. (Oct-2013)
Discuss : Heads of income. (Nov-2012)
Explain in detail the various head of income under the Income Tax Act. (Dec-2016)
Which type of income fall under the head salary ? Discuss about the prerequisites and
its taxation. (Nov-2012)
Which type of income will fall under the head Salary? Discuss about the perquisites
and its valuation. (Nov-2011)
Which type of income will fall under the head salary ? Discuss about allowances and
perquisites and its valuation. (Oct-2013, Nov-2014)
Define annual value of house property. How would you derive the annual value of a
self occupied property? (Nov-2011, Nov-2012)
Define annual income of house property. How would you derive the annual income of
house property rented by owner. Explain in short. (Mar-2014)
Discuss in detail about the income and expences to be considered under the head
"Profits and Gains from business or profession. (Oct-2013)
Explain : Expences deductible from income of business profession. (Mar-2014)
Discuss the deductions which are available in computing the total income under
the head profits and gains of business. (Nov-2014)
Discuss the provision relating to depreciation allowance, while computing under the
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 4 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 5 of 182
Explain the procedure of appeals and revisions petition under Income Tax Act. (Mar-
2014)
Explain the procedure of Appeals and Revisions under the Income Tax Act. (Dec-
2016)
Write explanatory notes : Recovery of the service tax under the Service Tax Act
1994. (Dec-2016).
Write explanatory notes : Provisions relating to penalty under the Service Tax Act
1994. (Dec-2016).
Go To Contents
Module-1&2 ANSWERS :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 6 of 182
Laws relating to Income Tax : The various instruments of law containing the law
relating to income-tax are explained below :
Income-tax Act, 1961: The levy of income-tax in India is governed by the
Income-tax Act, 1961. This Act came into force on 1st April, 1962. The Act contains
298 sections and XIV schedules. These undergo change every year with additions
and deletions brought about by the annual Finance Act passed by Parliament. In
pursuance of the power given by the Income-tax Act, 1961 rules have been framed
to facilitate proper administration of the Income-tax Act, 1961.
Finance Act : Every year, the Finance Minister of the Government of India
presents the Budget to the Parliament. Part A of the budget speech contains the
proposed policies of the Government in fiscal areas. Part B of the budget speech
contains the detailed tax proposals. In order to implement the above proposals, the
Finance Bill is introduced in the Parliament. Once the Finance Bill is approved by
the Parliament and gets the assent of the President, it becomes the Finance Act.
Income-tax Rules 1962 : The administration of direct taxes is looked after by the
Central Board of Direct Taxes (CBDT). The CBDT is empowered to make rules for
carrying out the purposes of the Act. For the proper administration of the Income-
tax Act, the CBDT frames rules from time to time. These rules are collectively
called Income-tax Rules, 1962. It is important to keep in mind that along with the
Income-tax Act, 1961, these rules should also be studied.
Circulars and Notifications : Circulars are issued by the CBDT from time to time
to deal with certain specific problems and to clarify doubts regarding the scope and
meaning of the provisions. These circulars are issued for the guidance of the
officers and/or assessees. The department is bound by the circulars. While such
circulars are not binding the assessees they can take advantage of beneficial
circulars.
Case Laws : The study of case laws is an important and unavoidable part of the
study of income-tax law. It is not possible for Parliament to conceive and provide
for all possible issues that may arise in the implementation of any Act. Hence the
judiciary will hear the disputes between the assessees and the department and
give decisions on various issues. The Supreme Court is the Apex Court of the
country and the law laid down by the Supreme Court is the law of the land. The
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 7 of 182
decisions given by various High Courts will apply in the respective states in which
such High Courts have jurisdiction.
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 8 of 182
"hypothetical income".
application of income: where an income is applied to discharge an obligation after
such income reaches the assessee, it is an application of income and is taxable.
however, where there is a diversion of income before it reaches the assessee, it is
not treated as income of the assessee.
connection with outside agency: a person cannot have income without outside
agency. a person cannot make income out of oneself.
disputed title: income-tax assessment cannot be held up or postponed merely
because of existence of a dispute regarding the title of income. the recipient is,
therefore, chargeable to tax, though there may be rival claims to the sources of
income.
personal gifts: gifts received by a person on one's birthday, marriage etc. is not the
income of the assessee. however, gift received from unrelated person on or after
september 1, 2004 shall be chargeable to income-tax if the sum of money received
as gift exceeds rs. 25,000/- (rs. 50,000/- in aggregate w.e.f. assessment year
2007-08).
contingent income: contingent income i.e. an income which may or may not arise
is not chargeable to income tax until such contingency actually occurs and income
accrues to the assessee.
money received by a woman from husband for private or household expenses:
money received by a woman from her husband for her dress, jewellery etc. and the
savings effected by a housewife out of money received from her husband for
kitchen or household expenses is not her income. any property acquired with such
money or savings would be the capital asset belonging to the woman [r.b.n.j. naidu
verses c.i.t.]
Relief or reimbursement of expenses is not income. therefore, reimbursement of
actual travelling expense to an employee is not income.
compensation for death: any compensation for death on account of fatal accident
or fatal injuries sustained by the deceased would not be income [c.i.t. verses
fletcher (1937)].
compensation from insurance company: compensation received from a insurance
company against injuries sustained in a road accident is not income and therefore
not chargeable to tax.
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 9 of 182
ANSWER :
Definition : Section - 5 of IT Act 1961
(1) subject to the provisions of this act the total income of any previous year of a
person who is a resident includes all income from whatever source derived which
(a) is received or is deemed to be received in India in such year by or on
behalf such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during
such year; or
(c) accrues or arises to him outside India during such year;
provided that in the case of a person not ordinarily resident in India within the
meaning of sub-section (6) of section 6, the income which accrues or arises to
him outside India shall not be so included unless it is derived from a business
controlled in or a profession set up in India.
(2) subject to the provisions of this act the total income of any previous year of a
person who is non-resident includes all income from whatever source derived
which
(a) is received or is deemed to be received in India in such year by or on
behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during
such year.
explanation 1. income accruing or arising outside India shall not be deemed to
be received in India within the meaning of this section by reason only of the fact
that it is taken into account in a balance-sheet prepared in India.
explanation 2. for the removal of doubts, it is hereby declared that income which
has been included in the total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or arisen shall not again be so
included on the basis that it is received or deemed to be received by him in
India.
Discussion :
under the act, incidence of tax on a taxpayer depends on his residential status and
also on the place and time of accrual or receipt of income.
income is said to be received when it reaches the assessee;
income is said to accrue or arise when the right to receive the income becomes
vested in the assessee, c.lt. verses ashok bhai chimantihai.
income accrued in India is chargeable to tax in all cases irrespective of residential
status of the assessee.
according to section 9(1) (1) where income accrues or arises outside India, through
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 10 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
General Notes : Basis of charge : charge of income tax and Deduction v/s Rebates
v/s Relief :
ANSWER :
Definition : Section - 4 of IT Act 1961
(1) where any central act enacts that income tax shall be charged for any
assessment year at any rate or rates, income tax at that rate or those rates shall
be charged for that year in accordance with, and subject to the provisions
(including provisions for the levy of additional income tax) of this act in respect of
the total income of the previous year of every person.
provided that where by virtue of any provision of this act, income tax is to be
charged in respect of the income of a period other than the previous year
income tax shall be charged accordingly.
(2) in respect of income chargeable under sub-section (1), income tax shall be
deducted at the source or paid in advance, where it is so deductible or payable
under any provision of this act.
Deduction v/s Rebates v/s Relief :
Deductions from income : Income tax act allows certain specific reductions to be
made from the income of an assessee while computing the total income. These
reductions are termed as deductions. Two type of deductions have been
provided under the act, i.e. deductions from the specific heads of income and
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 11 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 12 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 13 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 14 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 15 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 16 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 17 of 182
Residential status may differ from year to year. In one year the assessee may be
resident while in another year he may be non-resident.
Residential status of an assessee during the previous year is important and
residential status during the assessment year is immaterial for tax purposes.
If a person is resident in India in a previous year in respect of any source of
income, he is deemed to be resident in India in respect of each of his other sources
of income as well.
Section 6 of the IT act 1961 divides taxable entities, on the basis of their residence, in
the following three categories:
(1) persons who are "resident" in India.
(2) persons who are "not ordinarily resident" in India,
(3) persons who are "non-resident".
Note that this division is applicable only in case of an individual and hindu undivided
family. in all other cases there are only two divisions: resident and non-resident.
for the purpose of determining the residence of a person, in the context of the
income-tax act, 1961, the categories of 'persons' have been grouped into four
separate classes as under:
(1) an individual
(2) a hindu undivided family, firm or other association of persons;
(3) a company; and
(4) every other person.
(1) residential status of an INDIVIDUAL :
"resident" : section 6 : For the purpose of this act,
(1) an individual is said to be resident in India in any previous year, if
(a) he is in India in that year for a period or periods amounting in all to 182
days or more {section 6(1) (a)}; OR
(b) . . . . omitted
(c) he has been in India for a period or periods amounting in all
to 365 days or more during the four years preceding that year, i.e., the
accounting year (previous year), AND
has been in India for 60 days or more in that year (previous year) {section
6 (1) (c)}.
the explanation to section 6(1) provides that in the case of an individual being a
citizen of India, who leaves India in any previous year as a member of the crew
of an Indian ship or for the purposes of employment outside India, in order to
fulfill the aforesaid condition (b) regarding residence, the minimum period of
stay in India has to be 182 days instead of 60 days.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 18 of 182
"resident and NOT ordinarily resident" : {section 6 (6) (a)} in order to become
"resident and NOT ordinarily resident" in India an individual has to,
satisfying any one of the conditions in sec-6(1) (for being resident), AND
also satisfy one of the following conditions :
(1) he has been non-resident in India in 9 out of 10 previous years preceding
the relevant previous year, OR
(2) he has been in India for a period or periods amounting in all to < 729
days during the seven years preceding the relevant previous year.
In short,
(a) non-resident if he does NOT satisfy any of the basic conditions as
mentioned in section 6 (1).
(b) resident and ordinarily resident if he satisfies at least one of the basic
conditions as mentioned in section 6(1) and none of the additional conditions as
mentioned in section 6(6) (a).
(c) resident and not ordinarily resident if he satisfies at least one of the
basic conditions as mentioned in section 6(1) and one of the two additional
conditions as mentioned in section 6(6) (a).
Note : For counting days in India it will be the total duration of his stay in India
that will be taken into consideration while deciding the issue. he may put up either
in his own house or in rented house or in a hotel or with his friend or anywhere he
likes, but he must have been in India for the relevant period. the reason or motive
for his stay in India is immaterial and even involuntary or forced presence in India
will be treated as presence for the purposes of this section [moosa s. madhu verses
c.i.t.
(2) residential status of HINDU UNDIVIDED FAMILY, firm or other
association of persons :
resident HUF {section 6 (2)}A Hindu undivided family, firm or other association
of persons is said to be resident in India, in any previous year, in every case
except where during that year the control and management (Manager/ Karta) of its
affairs is situated wholly outside India.
ie
even if a part of the control and management is situated in India during the
previous year, it will be called "resident" in India.
normally a hindu undivided family will be taken to be resident in India unless
the control and management of its affairs is proved to be situated wholly
outside India;
the word "affairs" must mean affairs which are relevant for the purpose of the
income-tax act and which have some relation to income;
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 19 of 182
the word "wholly suggests that hindu undivided family may have more than
one "residence" in the same way as a corporation may have.
"resident and NOT ordinarily resident HUF" : {section 6 (6) (b)} in order to
become "resident and NOT ordinarily resident HUF" in India an HUF has to,
satisfying conditions in sec-6(2) (for being resident), AND
also satisfy one of the following conditions :
(1) manager/ Karta of HUF has been non-resident in India in 9 out of 10
previous years preceding the relevant previous year, OR
(2) manager/ Karta of HUF has been in India for a period or periods
amounting in all to < 729 days during the seven years preceding the
relevant previous year.
In short,
(a) non-resident HUF if HUF does NOT satisfy conditions as mentioned in section
6 (2). ie through out the year control and management (Manager / Karta) of its
affairs is situated wholly outside India.
(b) resident and ordinarily resident if HUF satisfies section 6(2) and Manager/
Karta satisfies none of the additional conditions as mentioned in section 6(6)
(b).
(c) resident and not ordinarily resident if HUF satisfies section 6(2) and
Manager/ Karta satisfies one of the two additional conditions as mentioned in
section 6(6) (b).
(3) residential status of a COMPANY [section 6(3)] :
a company is said to be "resident" in India in any previous year if it satisfies any
of the two alternative conditions, viz:
(1) it is an Indian company; or
(2) if during the relevant previous years the control and management of its
affairs is situated wholly in India.
not ordinarily resident :
there is NO such category.
Non-resident :
if a company does not satisfy any of the aforesaid two alternative conditions of
resident, it is said to be "non- resident" in India.
In short,
if the assessee company is an Indian company, it is automatically resident. and
if it is a non-Indian company, it is resident if and only if, the control and
management of its affairs is situated wholly in India during the relevant previous
year.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 20 of 182
Even a little measure of control and management in India would make them
resident.
the expression "control and management" used in reference to a company has the
same meaning as it has in the case of hindu undivided family, or other association
of persons.
(4) residential status of "every other person" [section 6(4)] :
every other person (for example, local authority, an artificial judicial person etc.)
other than those described in the preceding paragraphs is said to be "resident" in
India in any previous year in every case, except where during that year the control
and management of his or its affairs is situated wholly outside India.
in case above condition is not satisfied, then it is non-resident
There are not other sub-categories,
residential status in case of other source of income (section 6 (5)) : if a person is
resident in India in any previous year relevant to an assessment year in respect of
any source of income, then he shall be deemed to be resident in India in the previous
year relevant to the assessment year in respect of each of his other sources of
income.
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 21 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 22 of 182
for example, under the head 'salaries' the different sources of income may be
wages, pension, gratuity, fees, commissions, perquisites or profits in lieu of or in
addition to salary or wages.
Go To Module-1&2 QUESTIONS
Go To Contents
Which type of income fall under the head salary ? Discuss about the prerequisites and
its taxation. (Nov-2012)
Which type of income will fall under the head Salary? Discuss about the perquisites
and its valuation. (Nov-2011)
Which type of income will fall under the head salary ? Discuss about allowances and
perquisites and its valuation. (Oct-2013, Nov-2014)
ANSWER :
Refer :
Definition (section 15) : The following incomes shall be chargeable to income-tax
under the head "salaries" :
(a) any salary due from an employer or a former employer to an assessee in the
previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, though not due or before it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on
behalf of an employer or a former employer, if not charged to income-tax for
any earlier previous year".
Explanation-1 to section 15 provides where any salary paid in advance is included
in the total income of any person for any previous year, it shall not be included
again in the total income of the person when the salary becomes due.
Explanation 2 provides that "any salary, bonus, commission or remuneration, by
whatever name called, due to, or received by, a partner of a firm from the firm
shall not he regarded as "salary" for the purposes of this section"
Discussion :
The term "salary" is used in section 15 in the broadest possible sense to include not
only the salaries which are due and paid to the employee, but,
every amount which is paid, (whether due or not), and
amount due (whether paid or not).
These include perquisite and profits in lieu of salary
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 23 of 182
For charging the income under the head "salaries" there must exist the relationship
of employee and employer between the payee and the payer. an employee is a
person employed by another to work for him on the conditions that he is to be
subject to the control and directions of his employer in respect of the manner in
which his work is to be done.
Salary due to or received by the assessee or by a third party on his behalf from the
present or past employee is also chargeable under the head "salaries".
However, the amount or loan advanced by the employer is not chargeable to
income tax.
every servant is an employee; but an agent may or may not be employee. in c.it.
Verses lady navaljhi tata, (1947) 15 itr 8, it was held that a director of a company,
though holding an office, is not an employee unless there is a contract to that
effect.
an agent is usually not an employee.
perquisites or profits or any remuneration received from persons other than the
employer, would be taxable under the head 'income from other sources' even if
they accrue to the employee by reason of his employment. for example
remuneration received by a lecturer of a college for acting as an examiner in a
university.
Salary :
Definition : section 17(1) "salary" includes
(1) wages;
(2) any annuity or pension;
(3) any gratuity;
(4) any fees, commissions, perquisites or profits in lieu of or in addition to
any salary or wages;
(5) any advance of salary;
(a) any payment received by an employee in respect of any period of leave
not availed of by him;
(6) the annual accretion to the balance at the credit of an employee
participating in a recognized provident fund to the extent to which it is
chargeable to tax (under rule 6 part a of the fourth schedule); and
(7) the aggregate of all sums that are comprised in the transferred balance of
an employee participating in a recognized provident fund, to the extent to
which it is chargeable to tax under sub-rule (4) of rule 11 of part a of the
fourth schedule.
(8) the contribution made by the central government or any other employer in
the previous year to the account of an employee under a pension scheme
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 24 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 25 of 182
arrear salary is taxable on receipt basis, if the same has not been subjected to
tax on due basis. however relief can be claimed in this case under section 89.
leave salary received by a central/state government employee in respect of
period of earned leave at his credit at the time of retirement/superannuation,
is exempt from tax. but in the case of non-government employee (including
an employee of a local authority or public sector undertaking) leave salary is
exempt from tax fully or partially in some cases.
salary in lieu of notice period is taxable under section 15 on receipt basis as
held in verses d. talwar verses c.lt.
salary paid to a partner is an appropriation of profit and is not chargeable
under the head "salaries" but is chargeable under the head profits and gains
of business profession".
retrenchment compensation received by a workman under the industrial
disputes act, 1947, or any other acts or contract of service, or award etc. is
exempt from tax to a certain extent.
Perquisites : {section {17 (2)} :
perquisites are taxable under the head "salaries" only if the following conditions
are satisfied :
(a) they are allowed by an employer to his employee.
(b) they are allowed during the continuance of employment.
(c) they are directly dependent upon service.
(d) they are resulting in the nature of personal advantage to the
employee.
(e) they are derived by virtue of employer's authority.
ie even a casual and non-recurring receipt can be perquisite if the aforesaid
conditions are satisfied.
Taxable perquisites (summary of long definition Sec-17(2)) : a combined
reading of sections 15 and 17 suggest that salary would include perquisites. thus
following perquisites are taxable in the hands of an employee:
(i) rent-free accommodation. value of rent-free accommodation provided to
the assessee by his employer [section 17(2)]] such accommodation may be
furnished or unfurnished.
however, rent-free official residence provided to a judge of the supreme
court or a high court is not taxable. similarly, rent-free official residence
provided to an official of parliament, or to a union minister or to a leader of
opposition in parliament is not taxable.
(ii) accommodation at concessional rate. value of any concession in rent in
respect of accommodation provided to the assessee by his employer [section
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 26 of 182
17(2)].
(iii) notified benefits and amenities. value of any benefit or amenity granted
or provided free of cost or at concessional rates in certain specified cases
[section 17(2)].
(iv) employee's obligation met by employer. amount paid by an employer in
respect of any obligation which otherwise would have been payable by the
assessee [section 17(2)]. for example, if a domestic servant is engaged by an
employee and salary of the servant is paid or reimbursed by the employer.
(v) amount payable by an employer, directly or indirectly, to effect an
assurance on the life of the assessee or to effect a contract for an annuity
other than payments made to a recognized provident fund
(vi) the value of any specified security or sweat equity shares free of cost or
at concessionable rate to the assessee is taxable as a perquisite.
(vii) the employer's contribution to the superannuation fund exceeding
rupees. one lakh.
(viii) value of any other prescribed fringe benefit. the value of any other fringe
benefit or amenity as may be prescribed.
Tax-free perquisites (for all employees) :
(1) food or beverages provided by the employer to his employees in the office
or factory or through paid non-transferable vouchers and usable only at eating
joints if value thereof in either case does not exceed a certain amount per
meal, is tax free perquisite.
(2) loans to employees: value of benefit to the assessee resulting from
interest-free loan or loan at concessional rate shall be nil if the amount of loan
is petty, not exceeding specified amount.
(3) rent free house or conveyance facility: rent free official residence and
conveyance facilities provided to a judge of the supreme court or high court is
not a 'taxable perquisite. similarly rent free furnished residence (including
maintenance thereof) provided to an officer of parliament, a union minister, or
leader of opposition in parliament, is not a taxable perquisite.
(4) perquisites provided outside India: perquisites provided by the
government of India to its employees, who are citizens of India for rendering
services outside India is not a taxable perquisite [section 10(7)].
(5) accommodation in a remote area: the accommodation provided by an
employer shall be tax free perquisite if the accommodation is provided to an
employee at certain sites being of temporary nature and located not less than
eight kilo metres away from the local limit of any municipality or cantonment
board or is located in a remote area.
(6) educational facility to children of the employee: where educational
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 27 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 28 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 29 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Define annual value of house property. How would you derive the annual value of a
self occupied property? (Nov-2011, Nov-2012)
Define annual income of house property. How would you derive the annual income of
house property rented by owner. Explain in short. (Mar-2014)
ANSWER :
Definition (section 22) :
the annual value of property consisting of any buildings or lands appurtenant
thereto
of which the assessee is the owner,
other than such portions of such property as he may occupy for the purposes
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 30 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 31 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 32 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 33 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 34 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 35 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 36 of 182
acquired or constructed with capital borrowed on or after the 1st day of april,
1999 and such acquisition or construction is completed within three years
from the end of the financial year in which capital was borrowed, the amount
of deduction under this clause shall not exceed one lakh fifty thousand rupees.
explanationwhere the property has been acquired or constructed with
borrowed capital, the interest, if any, payable on such capital for the period
prior to the previous year in which the property has been acquired or
constructed, as reduced by any part thereof allowed as a deduction under any
other provision of this act, shall be deducted under this clause in equal
instalments for the said previous year and for each of the four immediately
succeeding previous years;
provided also that no deduction shall be made under the second proviso
unless the assessee furnishes a certificate, from the person to whom any
interest is payable on the capital borrowed, specifying the amount of interest
payable by the assessee for the purpose of such acquisition or construction of
the property?, or, conversion of the whole or any part of the capital borrowed
which remains to be repaid as a new loan.
explanation.for the purposes of this proviso, the expression "new loan"
means the whole or any part of a loan taken by the assessee subsequent to
the capital borrowed for the purpose of repayment of such capital. "
Go To Module-1&2 QUESTIONS
Go To Contents
Discuss in detail about the income and expences to be considered under the head
"Profits and Gains" from business or profession. (Oct-2013)
Explain : Expences deductible from income of business profession. (Mar-2014)
ANSWER :
Refer :
http://taxguru.in/income-tax/profits-gains-business-profession.html
https://www.scribd.com/doc/311164141/Income-Under-the-Head-Profits-and-
Gains-From-Business-and-Profession
What is Business?
Definition : meaning of business {section 2 (13)} :
"business" includes any trade, commerce, or manufacture or any adventure or
concern in the nature of trade, commerce or manufacture".
Thus the word business in section 2(13) of IT Act 1961 has a very broad
meaning. the definition is not exhaustive. it covers every facet of an occupation
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 37 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 38 of 182
trade.
but where the purchase is made without intention to resell at a profit, a
resale under changed circumstances will be only a realization of capital
investment.
2. the quantity of the commodity : where the quantity purchased is so large
that it cannot be used or consumed by the assessee within a reasonable time.
it would raise a strong presumption that the transaction is an adventure in the
nature of trade.
3. transaction allied to business : where the transaction is allied to or related
to the business usually carried on by the assessee though not a part of it, the
transaction may be an adventure in the nature of trade.
4. alteration in the commodity by the purchaser : where the thing purchased
is such as must be subjected to processing for the purpose of making it
marketable or the purchaser by an act subsequent to the purchase, it may be
inferred that the transaction is an adventure in the nature of manufacture.
onus of proof: where a transaction is not in line of the business of the
assessee but is an isolated transaction, it is for the assessee to prove that the
transaction is an adventure in the nature of trade.
What is Profession ?
Definition Profession : {section 2(36)} :
"profession" includes vocation.
thus, section 2(36) does not state what profession means; it only states that
profession includes vocation.
according oxford dictionary, profession means "a vocation or calling, esp. one that
involves some branch of advanced learning or science". profession means an
occupation requiring either purely intellectual skill or if any manual skill, as in
painting and sculpture or surgery, which is controlled by the intellectual skill of the
person.
examples of profession are medicine, law, auditing, engineering, architecture,
painting, sculpture etc.
vocation means the work in which a person is more or less regularly employed
usually, but not necessarily, for earning livelihood and which requires some special
fitness or sense of duty.
vocation is analogous to the way in which a man passes his life. it is the activity
upon which a person spends major portion of his time. for example, writing of
books and contributing of articles to periodicals and magazines constitute the
vocation of an assessee.
Note :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 39 of 182
Distinction between business, profession and vocation is not important as the rules
for assessment are the same.
Definition (section 28) : Profits and gains of business or profession : The
following income shall be chargeable to income-tax under the head Profits and gains
of business or profession,
(i) the profits and gains of any business or profession which was carried on by the
assessee at any time during the previous year ;
Note :
the income-tax is not concerned with the legality or illegality of the business
and once it is found that there is business, legal or illegal, the profits and
gains of that business shall be chargeable to tax.
the expression "carried on by the assessee" means that the activities which
constitute business should be those of the assessee. this also means that
taxability under this clause does not depend upon the ownership of the
business or profession.
(ii) any compensation or other payment due to or received by,
(a) any person, by whatever name called, managing the whole or substantially
the whole of the affairs of an Indian company, at or in connection with the
termination of his management or the modification of the terms and conditions
relating thereto;
(b) any person, by whatever name called, managing the whole or substantially
the whole of the affairs in India of any other company, at or in connection with
the termination of his office or the modification of the terms and conditions
relating thereto ;
(c) any person, by whatever name called, holding an agency in India for any part
of the activities relating to the business of any other person, at or in connection
with the termination of the agency or the modification of the terms and
conditions relating thereto ;
(d) any person, for or in connection with the vesting in the Government, or in
any corporation owned or controlled by the Government, under any law for the
time being in force, of the management of any property or business ;]
(iii) income derived by a trade, professional or similar association from specific
services performed for its members ;
Note : the association, here, means an association formed by businessman for
protection or advancement of their common interests. this clause taxes the
income derived only from specific services rendered to the members of the
association. the expression "specific services" means conferring on the members
some tangible benefit which would not be available to them unless they paid
specific fees charged for such benefit.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 40 of 182
(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955,
made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ;]
(iiib) cash assistance (by whatever name called) received or receivable by
any person against exports under any scheme of the Government of India ;
(iiic) any duty of customs or excise re-paid or re-payable as drawback to any
person against exports under the Customs and Central Excise Duties Drawback
Rules, 1971 ;
(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being
the Duty Remission Scheme under the export and import policy formulated and
announced under section 5 of the Foreign Trade (Development and Regulation) Act,
1992 (22 of 1992);
(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being
the Duty Remission Scheme under the export and import policy formulated and
announced under section 5 of the Foreign Trade (Development and Regulation) Act,
1992 (22 of 1992) ;
(iv) the value of any benefit or perquisite, whether convertible into money or
not, arising from business or the exercise of a profession ;
for example gift to a doctor by a patient in addition to the doctor's fees for
curing the patient is taxable as a revenue receipt in the hands of the doctor.
(v) any interest, salary, bonus, commission or remuneration, by whatever
name called, due to, or received by, a partner of a firm from such firm :
Provided that where any interest, salary, bonus, commission or remuneration, by
whatever name called, or any part thereof has not been allowed to be deducted
under clause (b) of section 40, the income under this clause shall be adjusted to
the extent of the amount not so allowed to be deducted.
(va) any sum, whether received or receivable, under an agreement for
(a) not carrying out any activity in relation to any business; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence,
franchise or any other business or commercial right of similar nature or
information or technique likely to assist in the manufacture or processing of
goods or provision for services:
Provided that sub-clause (a) shall not apply to
(i) any sum, whether received or receivable, in cash or kind, on account of
transfer of the right to manufacture, produce or process any article or thing or
right to carry on any business, which is chargeable under the head Capital
gains;
(ii) any sum received as compensation, from the multilateral fund of the
Montreal Protocol on Substances that Deplete the Ozone layer under the
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 41 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 42 of 182
This system is best suitable for professional persons like doctors, chartered
accountants etc.
2. MERCANTILE SYSTEM:
In this system proper record of cash as well as credit transactions is made.
Under this system any income which relates to the current year whether it is
received or not and any expenditure whether actually paid or not, is taken
into consideration for computing the profits and losses of the business.
The profit and loss account prepared under this system shows correct profits
and losses and balance sheet gives correct financial position of the business.
3. Hybrid system:
Under this system of accounting, the assessee adopts both the previous
methods in a mixed form.
Some transactions are recorded in cash system and some under mercantile
system depending upon the choice of book keeper.
Acceptable Accounting Methods : The income tax authorities accept all the above
methods. However, the accounting system once adopted cannot be changed
without the prior approval of Income tax authorities. He will have to adopt his
accounting method on regular basis and not merely for one particular year.
Go To Module-1&2 QUESTIONS
Go To Contents
Discuss the deductions which are available in computing the total income under
the head profits and gains of business. (Nov-2014)
Discuss the provision relating to depreciation allowance, while computing under the
head profit and gains of business or profession. (Nov-2012)
ANSWER :
Refer :
http://taxguru.in/income-tax/profits-gains-business-profession.html
https://www.scribd.com/doc/311164141/Income-Under-the-Head-Profits-and-
Gains-From-Business-and-Profession
Deductions : Section 37(1) :
Definition : in order to claim deduction, following conditions should be satisfied :
1. the expenditure should not be of the nature described under sections 30 to
36.
2. it should not be in the nature of capital expenditure.
3. it should not be personal expenditure of the assessee.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 43 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 44 of 182
allowed as deductions.
If a business has been discontinued before the commencement of the previous
year, it expenses cannot be allowed as deductions against the income of any other
running business of the assessee.
There are some essential expenses, though neither expressly allowed nor
disallowed, but are deductible while computing the profits of business or profession
on the basis of general commercial principles provided that these are not expenses
or losses of a capital nature or personal nature.
Any expenditure incurred in consideration of commercial expediency is allowed as
deduction.
Deduction can be made from the income of that business only for which the
expenses were incurred. The expenses of one business cannot be charged against
the income of any other business.
Deductions in case of illegal business : Tax is payable on the income of every
business or profession whether legal or illegal. The expenses incurred to earn
income from illegal business which are incidental to such business are to be
allowed as deduction out of the income earned from illegal business.
However, penalties levied for infraction of law and expenses incurred in defence of
criminal proceedings are not allowed. Also, losses computed under illegal business
cannot be set-off against the profits of legal business.
Intro :
The profits and gains of business or profession are computed in accordance with
the provisions contained sections 30 to 43D.
Deductions may be divided in to following 4 categories/ types :
1. DEDUCTIONS EXPRESSLY ALLOWED : Sections 30 to 37 contain those
deductions which are expressly allowed while computing profits of business or
profession.
2. EXPENSES EXPRESSLY DISALLOWED : Section 40 provides those expenses
which are expressly disallowed.
3. EXPENSES NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES AT A GLANCE
4. DEDUCTIONS ALLOWABLE ONLY ON ACTUAL PAYMENT (Sec. 43B)
Besides these ,there are some other deductions which are allowed on the basis of
general commercial principles while computing profits of business or profession.
1. DEDUCTIONS EXPRESSLY ALLOWED :
page-232, 200-215
Sec-30 Expenses in respect of buildings-rent, repairs, land revenue, local taxes,
insurance premium.
Sec-31 Expenses in respect of plant, machinery, furniture-Repairs and insurance
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 45 of 182
premium.
Sec-32
(a)Depreciation on Tangible Assets: Tangible assets are buildings, plant and
machinery and furniture.
(b) Depreciation on Intangible Assets: Intangible assets are know-how, patents,
copyrights, trademarks, licences, franchises and commercial rights.
Sec-33AB Deduction regarding deposit in Tea Development Account, Coffee
Development Account or Rubber Development Account-Deduction shall be allowed
on the amount deposited or 40% of the profits of such business, whichever is less.
Sec-33ABA Deduction regarding deposit in special account for prospecting for, or
extraction or production of petroleum or natural gas-Deduction shall be allowed on
the amount deposited or 20% of the profits of such business, whichever is less.
Sec-35 Expenditure on Scientific Research:
(i) Revenue expenditure and capital expenditure
(ii) Sum paid for scientific research or social or statistical research
(iii) Deduction 125% of sum paid
(iv) Expenditure on in-house research and development- Deduction 150% of the
expenditure.
Sec-35ABB Deduction regarding capital expenditure to obtain licence to operate
telecommunication services.
Sec-35AC Expenditure on eligible project or scheme.
Sec-35CCA Payment to Rural Development Fund, National Poverty Eradication
Fund.
Sec-35D Deduction to an Indian company or resident in India regarding preliminary
expenses-Deductible in five previous years upto a specified limit.
Sec-35DD Deduction to an Indian company regarding expenditure for
amalgamation or demerger of an undertaking-Deductible in five equal instalments
annually.
Sec-35DDA Expenditure on voluntary retirement during any previous year-
Deductible in five instalments annually.
Sec-35E Deduction to an Indian company or resident in India regarding
expenditure on prospecting of minerals etc.- Deductible in ten instalments
annually.
Sec-36 Other deductions:
(i) Insurance premium regarding stocks and stores.
(ii) Insurance premium for the health of employees.
(iii) Bonus or commission to employees.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 46 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 47 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 48 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Write explanatory notes : Tax deduction at source under the Income Tax Act. (Dec-
2016).
ANSWER :
Go To Module-1&2 QUESTIONS
Go To Contents
What is capital gain? Explain the method of calculating of long term and short term
capital gain under Income Tax Act. (Nov-2011, Oct-2013)
What do you understand by Capital gain? How many kinds of capital gain are
there? Explain the provision regarding capital gain. At what rate and how capital gain
tax is to be calculated? (Nov-2012)
ANSWER :
Refer :
https://www.scribd.com/document/186661983/PROFITS-AND-GAINS-OF-
BUSINESS-OR-PROFESSION-docx
definition section-45 is very long. Given after the discussion.
Basis of taxation of capital gains :
The fourth head of income under the income tax act, 1961 is "capital gains".
Sections 45 to 55-A provide for computation of the amount of capital gains that
would be subject to the levy of tax.
Any profits and gains arising from the transfer of a capital assets effected in the
previous year shall be chargeable to income tax under the head capital gain in the
PY in which the transfer took place. Capital gains tax liability arises if the following
conditions are satisfied :
(1) there should be a capital asset.
(2) the capital asset is transferred by the assessee
(3) the transfer of capital asset takes place during the previous year.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 49 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 50 of 182
treated as a full value of sale consideration, Book entries are irrelevant for the
purpose. Adequacy or inadequacy of the consideration is also irrelevant.
What is Cost of Acquisition ?
Cost of Acquisition is the price for which a capital asset is acquired or purchased by
the assessee. It even includes expenses of a capital nature for completing or
acquiring a title or ownership of a property.
As per section 55(2b), the Cost of acquisition of a Capital Asset acquired before
01st April, 1981 shall be either the actual cost of acquisition or its Fair Market
Value as on 01st April, 1981, whichever is higher.
If the capital asset came into possession of the assessee by means of gift,
inheritance, succession, etc then cost of acquisition to the assessee means cost of
the asset to the previous owner.
If cost of acquisition to the previous owner cannot be ascertained then fair market
value on the date on which the capital asset became the property of the previous
owner shall be taken.
What is cost of improvement [C.O.I.] [Section 55(1)] ?
C.O.I in relation to any tangible asset means all expenses of a capital nature,
incurred in connection with an Addition, Alteration, Modification, or Rectification to
the tangible asset.
However, Cost of Improvement for any asset incurred before 01st April, 1981, shall
always be taken as NIL.
For e.g.: A Building consisting of three floors was acquired by an assessee for Rs.
50 Lacs in 1992. In 1995 assessee spent Rs. 8 Lacs and constructed the fourth
floor. In this case Rs. 50 Lacs is the cost of acquisition of the building, whereas Rs.
8 Lacs is the cost of improvement.
What are transfer expenses while computing capital gains ?
Transfer Expenses incurred by an assessee wholly and exclusively in connection
with the transfer of the capital asset, are allowed to be deducted from the full value
of consideration, provided such expenses are not deductible under any other head
of income, i.e. no double deduction of any expense is allowed.
For e.g.: Commission, Brokerage, Stamp Charges, Registration Charges, Travelling
and Conveyance Charges, etc. incurred in connection with the transfer of the asset.
Expenses shall be real ones; Notional Expenses are not allowed to be deducted.
Explain the types of capital assets / gains :
From Income Tax Act point of view, Capital Assets are of two types, namely, Short
Term or Long Term. Short Term and Long Term Assets are not two separate
assets. An asset, which is a short term capital asset, can become long term capital
asset, if held by assessee for some more period of time. In other words, character
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 51 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 52 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 53 of 182
purposes of section 48, the fair market value of the asset on the date of such
transfer shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer.
(5) : notwithstanding anything contained in sub-section (1), where the capital gain
arises from the transfer of a capital asset, being a transfer by way of compulsory
acquisition under any law, or a transfer the consideration for which was determined
or approved by the central government or the reserve bank of India, and the
compensation or the consideration for such transfer is enhanced or further
enhanced by any court, tribunal or other authority, the capital gain shall be dealt
with in the following manner, namely
(a) the capital gain computed with reference to the compensation awarded in
the first instance or, as the case may be, the consideration determined or
approved in the first instance by the central government or the reserve bank
of India shall be chargeable as income under the head "capital gains" of the
previous year in which such compensation or part thereof, or such
consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration is enhanced or
further enhanced by the court, tribunal or other authority shall be deemed to
be income chargeable under the head "capital gains" of the previous year in
which such amount is received by the assessee.
(c) where in the assessment for any year, the capital gain arising from the
transfer of a capital asset is computed by taking the compensation or
consideration referred to in clause (a) or, as the case may be, enhanced
compensation or consideration referred to in clause (b), and subsequently
such compensation or consideration is reduced by any court, tribunal or other
authority, such assessed capital gain of that year shall be recomputed by
taking the compensation or consideration as so reduced by such court,
tribunal or other authority to be the full value of the consideration.
Explanationfor the purposes of this sub-section
(i) in relation to the amount referred to in clause (b), the cost of acquisition
and the cost of improvement shall be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the
transfer took place prior to the 1st day of april, 1988;
(iii) where by reason of the death of the person who made the transfer, or for
any other reason, the enhanced compensation or consideration is received by
any other person, the amount referred to in clause (b) shall be deemed to be
the income, chargeable to tax under the head "capital gains", of such other
person.'
(6) : Notwithstanding anything contained in subsection 1, the difference between
the repurchase price of the units of an equity-linked savings scheme (ELSS) of
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 54 of 182
a mutual fund under section 80-ccb and the capital value of such units shall be
deemed to be the capital gains arising to the assessee in the previous year in which
such repurchase takes place or the plan is terminated and shall be taxed
accordingly.
Explanation-for the purposes of this sub-section, "capital value of such units"
means any amount invested by the assessee in the units referred to in
subsection (2) of section 80 ccb.
Discussion : The income to be taken as "capital gains", must arise from the transfer
of a capital asset and therefore the meaning of the term 'transfer' and 'capital asset'
have to be understood in the context of the act.
where in relation to original shares held by the assessee in company, bonus shares
are issued by the company, in computing the capital gains arising from the transfer
of original shares, issue of bonus shares should be taken into account for the
purpose of averaging and reducing the cost of acquisition of those original shares.
where the assessee had mortgaged his immovable property to the excise
department as security for "kist" due to the state, the state government sold the
immovable property in an auction and after deducting the amount due, paid the
balance due to the assessee, it was held that capital gains had to be computed on
the full price. [c.lt. verses attili n. rao air 2002 sc 388].
tenancy right is a capital asset surrender of which is a transfer and the
consideration received thereof is a capital receipt. it may be noted that the law
prior to assessment year 1995-96 was that if the cost of acquisition cannot in fact
be determined the transfer of such asset would not attract capital gains tax. [c.lt.
verses p. sandu brothers chembur (p) ltd.].
New methods of calculating capital gains :
Long term capital gain,
LT Capital gain = sale consideration (Index cost of property acquisition + index
cost of improvements + cost of transfer)
Short term capital gain
ST Capital gain = sale consideration (cost of property acquisition + cost of
improvements + cost of transfer)
Deductions : Amounts received as set-off :
Following are allowed as deductions from the chargable amount received as
capiutal gain :
Registration expences, including stamp duty, advocate charges, borckerage, etc
(under the head cost of transfer)
purchase price of the property and all amounts spent for additions/ alterations of
property (under the head cost of acquisition and improvement)
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 55 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Define long term capital asset. Explain in detail how capital gains on transfer of long
term capital asset is taxed. (Mar-2014, Nov-2014)
ANSWER :
What is Capital asset ?
Definition : {section 2(14)} : Capital asset means property of any kind held by an
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 56 of 182
assessee, whether or not connected with his business or profession, BUT DOES
NOT INCLUDE
(1) any stock-in trade, consumable stores or raw materials held for the purposes
of the assessee's business or profession;
(2) personal effects, that is to say, movable property (including wearing apparel
and furniture) held for personal use by the assessee or any member of his family
dependent on him, but excludes
(a) jewelery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art. explanationfor the purposes of this sub-clause
"jewelery" includes
(a) ornaments made of gold, silver, platinum or any other precious metal or
any alloy containing one or more of such precious metals, whether or not
containing any precious or semi-precious stone, and whether or not worked
or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture,
utensil or other article or worked or sewn into any wearing apparel;
(3) agricultural land in India provided it is not situated
(a) in any area which is comprised within the jurisdiction of a
municipality/corporation or cantonment board and which has a population of
not less than 10,000 according to the last preceding census; or
(b) in any area within such distance, not being more than eight kilometers,
from the local limits of any municipality or cantonment board referred to in
item (a), as the central government may specify by notification in the official
gazette;
(4) 6 1/2% gold bonds 1977 or 7% gold bonds 1980 or national defense gold
bonds 1980, issued by the central government;
(5) special bearer bonds, 1991, issued by the central government.
(6) (w.e.f. 1-4-2000) gold deposit bonds issued under gold deposit scheme,
1999 notified by the central government.
Thus, capital asset, for the purpose of the income tax, includes,
all kinds of property movable or immovable, tangible or intangible, fixed or
circulating incorporated rights, and chose in action except those referred above.
the purchased goodwill of business, a partner's share in a firm,
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 57 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 58 of 182
ANSWER :
Section 56(1) : "income from other sources" is the residuary head of income.
Definition :
(1) income of every kind, which is not to be excluded from the total income
under the act, shall be chargeable to income-tax under this head if it is not
chargeable to income-tax under any of the preceding heads.
(2) In particular, and without prejudice to the generality of the provisions of sub-
section (1), the following incomes, shall be chargeable to income-tax under the
head Income from other sources, namely :
(i) dividends ;
(ii) income from machinery, plant or furniture belonging to the assessee and
let on hire, if the income is not chargeable to income-tax under the head
Profits and gains of business or profession;
. . . .<read bare act>
(viii) income by way of interest received on compensation or on enhanced
compensation referred to in clause (b) of section 145A.
List in Sec-56(2) is not exhaustive. In s.g. mercantile corporation (p) ltd. verses
c.i.t. held that section 56 (2) specifically provides for inclusion of some incomes
under this head but it will certainly not curtail the scope of the section in any way
on account of the use of the words 'without prejudice to the generality of the
provisions.
Discussion :
The residuary head does not come into operation until the preceding heads are
excluded.
where a particular item of income is to be computed under a particular head of
income as required under the act, that item of income must be assessed as income
falling under that particular head.
income under this head is to be computed in accordance with the method regularly
employed by the assessee, provided the method is such that the income can be
properly deduced there from.(section 145).
if books of accounts are maintained on mercantile system, the income is to be
computed on actual basis and on the other hand, if books of accounts are
maintained on cash system, the income is chargeable on receipt basis and
expenditure will be allowed on payment basis.
Ingredients : for charging income-tax under the head "income from other
sources" the following conditions must be satisfied:
1. there is income within the meaning of section 2(24) of the act.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 59 of 182
2. the income is not exempt from tax under the provisions (section 10 to 13 a)
of the act.
3. the income is not chargeable to tax under any first four heads viz. "salaries",
"income from house property", "profits and gains of business or profession" and
"capital gains".
Thus, income from other sources is, a residuary head of income.
Inclusions : under the head "income from other sources" the following kinds of
income shall be chargeable to income-tax :
[section 56(2) (1)] dividends ;
[section 56(2)(1b)] any winnings from lotteries, crossword puzzles, races including
horse races
[section 56(2)(1c)] any sum received by the assessee from his employees as
contributions to any provident fund or superannuation fund
[section 56(2)(1d)] income by way of interest on securities, if the income is not
chargeable to income tax under the head "profits and gains of business or
profession." ;
[section 56(2)(2)] income from machinery, plant or furniture belonging to the
assessee and let on hire, if the income is not chargeable to income-tax under the
head "profits and gains of business or profession" ;
[section 56(2)(3)] where an assessee lets on hire machinery, plant or furniture
belonging to him and also buildings, and the letting of the buildings is inseparable
from the letting of the said machinery, plant or furniture, the income from such
letting, if it is not chargeable to income-tax under the head "profits and gains of
business or profession". ;
[section 56(2)(4)] any sum received under a keyman insurance policy, including
the sum allocated by way of bonus on such policy, if such income is not taxable
under the heads "salaries" and "profits and gains of business or profession" ;
[section 56(2)(5)] where any sum of money exceeding twenty-five thousand
rupees is received without consideration by an individual or hindu undivided family
from any person on or after the 1st day of september 2004 but before 1st day of
april, 2006, the whole of such sum. ;
[section 56(2)(a)(6)] any sum of money the aggregate value of which exceeds fifty
thousand rupees, is received without consideration, by an individual or a hindu
undivided family, in any previous year from any person or persons on or after 1st
day of april 2006 but before the 1st day of october, 2009, the whole of the
aggregate value of such sum .
[section 56(2)(7 & 8)] According to clause (7) and clause (8) of sub-section (2) of
section 56 [inserted by the finance act (no. 2) 2009], the following incomes shall
also be chargeable to income-tax under the head "income from other sources" :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 60 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 61 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 62 of 182
(1) without consideration, the aggregate fair market value of which exceeds fifty
thousand rupees, the whole of the aggregate fair market value of such property;
(2) for a consideration which is less than the aggregate, fair market value of the
property by an amount exceeding fifty thousand rupees, the aggregate fair
market value of such property as exceeds such consideration.
The proviso to this clause states that this clause shall not apply to any such
property received by way of a transaction not regarded as transfer under clause
(6a) or clause (6e) or clause (6cb) or clause (6d) or clause (7) of section 47.
Deductions in Income from other sources : Section 57 deals with deduction to
be made in the income under this head. the deductions are :
Section-57 : Amounts deductible : The income chargeable under the head
Income from other sources shall be computed AFTER making the following
deductions, namely :
(1) in case of dividends or interest on securities, any reasonable sum paid by
way of commission or remuneration to a banker or any other person for the
purpose of realizing such dividend or interest on behalf of the assessee.
(1a) in case of income of the nature referred to section 2(24) (x) (PF
subscription), if such sum is credited by the assessee to the employee's account
in the relevant fund or funds on or before the due date.
(2) in case of income from machinery, plant, furniture, buildings, etc being let on
hire, the following deductions are allowed on the same pattern as is done in the
case of "income from business or profession",
e.g., (a) current repairs of buildings, (b) insurance premium paid against risk
of damage or destruction of the premises, (c) repairs and insurance of
machinery, plant or furniture and (d) depreciation on buildings, machinery,
plant or furniture.
(2a) in the case of income in the nature of family pension, a deduction of a sum
equal to 33 1/3% of such income or rs. 15,000, whichever is less.
(3) any other expenditure (not being in the nature of capital expenditure) laid
out or expended wholly and exclusively for the purpose of making or earning
such income.
(4) in the case of income by way of interest received on compensation or
enhanced compensation referred to in section 56(2)(viii), a deduction a sum
equal to fifty per cent of such income and no deduction shall be allowed under
any other clause of this section.
Section 58 : Amounts NOT deductible :
(1) The following amounts shall not be deductible in computing the income
chargeable under the head "income from other sources" namely :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 63 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Define Agricultural Income and Incidental Income. How agricultural income and
incidental income is taxed under Income Tax Act. (Mar-2014)
Discuss : Agricultural income. (Nov-2012)
Explain : Incidental income. (Nov-2011, Nov-2012, Oct-2013, Nov-2014)
Explain in detail the Agricultural Income and Incidental Income under the Income
Tax Act. (Dec-2016)
ANSWER :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 64 of 182
Incidental Income :
Agricultural Income :
under the constitution parliament has no power to levy tax on agricultural income.
only the state governments are empowered to levy tax on agricultural income.
therefore, according to section 10 (1) of the income-tax, act, 1961, agricultural
income is exempt from central income-tax.
but with effect from the assessment year 1974-73 agricultural income became a
factor in the determination of tax on the non-agricultural income, it becomes
necessary therefore, to determine what is agricultural income. the definition is
given in section 2(1A) of the act.
Definition : Sec-2(1A) : agricultural income means
(a) any rent or revenue derived from land which is situated in India and is used
for agricultural purposes;
(b) any income derived from such land by
(i) agriculture; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any
process ordinarily employed by a cultivator or receiver of rent-in-kind to
render the produce raised or received by him fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or
received by him, in respect of which no process has been performed other
than a process of the nature described in paragraph (ii) of this sub-clause ;
(c) any income derived from any building owned and occupied occupied by the
cultivator or the receiver of rent-in-kind, of any land with respect to which any
process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :
Provided that
(i) the building is on or in the immediate vicinity of the land, and is a
building which the cultivator, or the receiver of rent-in-kind, requires as a
dwelling house, or as a store-house, or other out-building, and
(ii) the land is assessed to land revenue in India or where the land is not so
assessed to land revenue, it is not situated
(A) in any area which is comprised within the jurisdiction of a
municipality or a cantonment board and which has a population of not
less than ten thousand ; or
(B) in any area within such distance, not being more than eight
kilometres, from the local limits of any municipality or cantonment board
referred to in item (A), as the Central Government may specify in this
behalf by notification in the Official Gazette
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 65 of 182
Thus the three basic conditions which must be satisfied before a particular item of
income may be treated as agricultural income are :
(1) that the income has relation to land;,
(2) that such land is situated in India; and
(3) that the land is used for agricultural purposes.
Case-law :
The supreme court explained the meaning of "agricultural" and "agricultural
purposes" in c.lt. verses raja benoy kumar sahas roy,. the relevant portion from
judgment is reproduced below :
(a) "agricultural" in its primary sense denotes the cultivation of the field and is
restricted to cultivation of the land in the strict sense of the term, meaning
thereby tilling of the land, sowing of seeds, planting and similar operations on
the land. these are the 'basic operations' requiring expenditure of human skill
and labour on land itself. these are absolutely necessary for the purpose of
effectively raising produce.
(b) operations to be performed subsequently like "weeding" "digging" etc.
(c) "agriculture" comprises within its scope all produce "regardless of the
nature". these produce may be grain, vegetable or fruits including plantations
and grass or pastures or articles of luxury such as betel, coffee, tea, spices,
tobacco or commercial crops like cotton, jute etc."
It was further observed that activities not involving any basic operation on the
land would not constitute agriculture merely because they have relation to or
connected with the land e.g., breeding and rearing of livestock, dairy-farming,
butter and cheese making and poultry fanning, would not by themselves be
agricultural processes
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 66 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 67 of 182
the government is NOT agricultural income even through the land had always
been used for agricultural purposes.
2. income derived from agriculture {section 2(1) (b) (1) 1} :
Any income from agriculture derived from land, situated in India and used for
agriculture purposes, is agricultural income.
for example, the income from the sale of standing crop or raw produce after
harvest (without performing marketing process) is income derived from
agriculture.
temporary use of land for non- agricultural purposes will not alter the
character of land as agricultural land, but a permanent abandonment will do
so.
in cwt verses officer-in-charge (court of wards) parigah, (1976) it was held
that the land must not only be capable of being used for agricultural purposes
but it must have been actually used for such purposes at some point of time.
mere potential or possible use of the land for agricultural purposes is not
sufficient to treat it as an agricultural land.
in c.i.t. verses gemini pictures circuit pvt. ltd., it was held that the land
situated on the busiest road of the city within limits of municipal corporation
and surrounded on all sides by industrial and commercial buildings was held
to be not agricultural land.
the mere fact that vegetables were being raised at the time of sale does
not change the nature and character of the land.
3. income derived from land by performing any process to render the
produce fit to be taken to market {section 2(l) (b) (2)} :
in sakar lal verses c.i.t., the gujarat high court explained the reason behind
this provision and explanation of the provision in the following words :
"a cultivator raises produce from the land with a view to selling it. if there is
a market for the produce as grown there is no difficulty; the cultivator can
in such a case sell the produce with anything more and he need not
perform any process on the produce. but if there is no market for the
produce as grown and it can be sold only by performing some process in
order to be able to sell the produce; otherwise the produce would not be
marketable and the raising of it would be futile.
where such is the case, the legislature says that, though strictly the
agricultural operations cease when the produce is raised and removed from
the soil, the performance of the process should be regarded as a
continuation of the agricultural operations since the process has to be
performed by the cultivator for the purpose of enabling him to sell the
produce which he otherwise cannot.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 68 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 69 of 182
Important note :
burden of proof : the assessee who claims the exemption has to prove
that the income is agricultural income.
partially agricultural income (rule 7) :
in the case of income which is partially agricultural income and partially
income chargeable to tax under the head "profits and gains of the business:
in determining that part which is chargeable to income-tax the market
value of the agricultural produce which has been raised by the assessee
and which has been utilized as a raw material in such business shall be
made in respect of any expenditure, by the assessee, as a cultivator.
income derived from the manufacture of tea :
income derived from the sale of tea grown and manufactured by the seller in
India shall be computed as if it were income derived from business and 40%
of such income shall be deemed to be income liable to tax.
Non-agricultural income : the following are not agricultural income :
(1) income from supply of water for irrigation purposes;
(2) income from land used for storing agricultural produce;
(3) remuneration received by the manager of an agriculture farm;
(4) income from forest trees of spontaneous growth;
(5) income from dairying;
(6) income from poultry farming, butter and cheese making;
(7) income from mining royalties;
(8) income from stone quarries;
(9) income from fisheries;
(10) income from land used for brick-making;
(11) income from the sale of silk cocoons produced by silk worms fed by
mulberry leaves, (1981) 5 taxman 272;
(12)income from supply of water from a tank situated in the agricultural land,
(1982) 133 itr 85.
Go To Module-1&2 QUESTIONS
Go To Contents
Mention the income which is fully exempt under the Income Tax Act and discuss
any five in detail. (Nov-2011)
Mention the income which is fully exempt under the Income Tax Act and discuss any
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 70 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 71 of 182
mentioned above is carried on, subject to certain conditions about the building
being on or in the vicinity of the land, etc.
Note : The Finance Act, 2000 inserted a new Explanation in Section 2(1A) to
clarify that any income from such building or land arising from the use of the
building or land for any purpose other than agriculture, would not be included in
the definition of agricultural income. For example, if a person has income from
using such building or land for purposes, such as letting it out for residential
purposes or for the purposes of any business or profession, then such income is
not treated as agricultural income from the AY 2001-2002.
Income from saplings and seedlings in a nursery to be exempt Section 2
(IA) :
Any income derived from saplings and seedlings grown in a nursery would be
agricultural income and thus be fully exempt from tax. This is as per the
Finance Act 2008 w.e.f. the AY 2009-20 10.
ALL Agricultural income which fulfills the above conditions is completely exempt
from tax. The manner of calculating tax on total income and agricultural income,
is explained in Illustration
RECEIPTS FROM HUF :
Any sum received by an individual as a member of a Hindu Undivided Family,
where the said sum has been paid out of the income of the family, or, in the
case of an impartible estate, where such sum has been paid out of the income of
the estate belonging to the family, is completely exempt from income tax in the
hands of an individual member of the family under Section 10(2).
SHARE FROM A PARTNERSHIP FIRM :
Under the provisions of Section 10(2A), in the case of a person being a partner
of a firm which is separately assessed as such, his share in the total income of
the firm is completely exempt from income tax since the AY 1993-94.
For this purpose, the share of a partner in the total income of a firm
separately assessed as such would be an amount which bears to the total
income of the firm the same share as the amount of the share in the profits of
the firm in accordance with the partnership deed bears to such profits.
The share of profit from a Limited Liability Partnership (LLP) is also exempt
from tax.
GRATUITIES :
Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement
gratuity of a government servant is completely exempt from income tax.
However, in respect of private sector employees gratuity received on retirement
or on becoming incapacitated or on termination or any gratuity received by his
widow, children or dependants on his death is exempt subject to certain
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 72 of 182
conditions.
The maximum amount of exemption is Rs 10,00,000. Of course, this is further
subject to certain other limits like the one half months salary for each year of
completed service, calculated on the basis of average salary for the 10 months
immediately preceding the year in which the gratuity is paid or 20 months
salary as calculated. Thus, the least of these items is exempt from income tax
under Section 10(10).
COMMUTATION OF PENSION :
The entire amount of any payment in commutation of pension by a government
servant or any payment in commutation of pension from LIC pension fund is
exempt from income tax under Section 10(1OA) of IT Act. However, in respect of
private sector employees, only the following amount of commuted pension is
exempt, namely:
(a) Where the employee received any gratuity, the commuted value of one-
third of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is
liable to full income tax like any other item of salary or income and no standard
deduction is now available in respect of pension received by a tax payer.
VOLUNTARY RETIREMENT OR SEPARATION PAYMENT :
Under the provisions of Section 10(1OC), any amount received by an employee
of a public sector company or of any other company or of a local authority or a
statutory authority or a cooperative society or university or IIT or IIM at the time
of his voluntary retirement (VR) or voluntary separation in accordance with any
scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The
maximum amount of money received at such VR which is so exempt is `5 Lakh.
However, an assessee cannot enjoy both the exemption in respect of VRS upto
`5 Lakh and also a deduction under Section 89.
LIFE INSURANCE MONEYS :
Under Section 10(1OD), any sum received under a Life Insurance Policy (LIP),
including the sum allocated by way of bonus on such policy, other than u/s
8ODDA or under a Keyman Insurance Policy, or under an insurance policy issued
on or after 1.4.2003 in respect of which the premium payable for any of the
years during the term of the policy exceeds 2O% of the actual capital sum
assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully exempt from
tax Thus, generally moneys received from life insurance policies whether from
the Life Insurance Corporation or any other private insurance company would
be exempt from income tax.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 73 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 74 of 182
It may be noted that the gift from relatives, as mentioned in the Section can be
received without any upper limit.
As per the Finance (No.2) Act, 2009 various items have been included in the list
of items liable to be included as income from other sources if received from non-
relatives on or after 1-10-2009 including immovable properties, shares and
securities, jewellery, archaeological collections, drawings, paintings, sculptures
and any work of art.
As per the Finance Act, 2010 even Bullion received from a non-relative would
be taxed as income of the assessee.
Conclusion :
Paying income tax is a moral and legal obligation of every proud citizen of the
country. The taxation system is designed to make sure there are no unnecessary
taxes that may become a financial burden on the tax payer. The above heads of
incomes are example of the flexibility of the Indian income tax system allowing tax
exemption on various earnings.
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 75 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 76 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 77 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 78 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 79 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 80 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 81 of 182
which these occurred, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET-OFF
OUT OF THE FOLLOWING LOSSES, can be carried forward to the following
assessment year and so on to be set-off against the income of those years
provided the losses have been determined in pursuance of a return filed by the
asessee and it is the same assessee who sustained the loss.
Types of loses :
(A) Loss in non-speculation business or profession.
(B) Loss in speculation business.
(C) losses by specified business (Section 73A)
(D) Loss in transfer of capital assets [whether short-term or long-term].
(E) Loss from activity of owning and maintaining of race horses.
(F) Loss under the head Income from House Property.
HOWEVER, losses suffered under the following heads are not allowed to be
carried forward and set off :
Losses under the head salaries.
Losses under the head Income from other sources (excepting loss suffered
from the activity of owning and maintaining race horses).
(A) Loss in non-speculation business :
It shall be set-off against the profits and gains, if any, of any business or
profession carried on by him and assessable for that assessment year.
From this it follows that the loss from non-speculation business or profession can
be set-off against the income of the business in which it was suffered or any
other business or profession either old or new including speculation business
income or from any other head, such as house property, or other sources, if the
income under this head forms part of the trading activities of the assessee.
[Western States Trading Co. (P) Ltd. v. C.I.T. (1971) 80 ITR 21 (SC)].
The loss can be set-off against the business profits of the year provided such
profits are assessable to tax. If the profits are exempt from tax for any reason,
no set-off can be made by the income-tax officer against such profits.
Conditions for carry forward and set-off of business loss :
(i) The right of carry-forward and set-off is available to the same assessee
who has sustained the loss. A holding company however, cannot claim to
carry forward the losses, if any, incurred by its wholly owned subsidiary
company.
Exceptions to this rule are
(a) cases of succession by inheritance [a loss incurred by the father in
the course of carrying on his business can be carried forward and set-off
by his son, if the son succeeds to the business of his father on account of
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 82 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 83 of 182
there is loss is discontinued, this loss can be carried forward to be set-off in the
succeeding year against the profits of ANY OTHER speculation business.
This loss can be carried forward to a maximum of four consecutive assessment
years immediately succeeding the assessment year for which the loss was first
computed.
However, the loss from an illegal speculation business or loss incurred in
speculation business in banned items can be neither set-off against income from
any lawful speculation business nor can it be carried forward for being set-off in
the subsequent year against income EVEN FROM an illegal speculation business
because the law assumes that any illegal business dies with all its losses in the
same year [CIT v. Kurji Jinabhai Kotecha (1977) 107 ITR 101 (SC)].
Where any unabsorbed depreciation or capital expenditure on scientific research
has been brought forward along with speculation loss, the speculation loss shall
first be set-off.
Sometimes there may be brought-forward speculation loss and current years
non-speculation business loss. Now the problem arises whether the brought
forward speculation loss should be adjusted first against the current years
speculation income or current years non-speculative business loss should be
set-off first against the current years speculative income. Accordingly to the
administrative instructions the Assessing Officer may allow the assessee :
(i) either to first set-off the speculation loss carried forward from an earlier
year against the speculation profits of the current year and then to set-off the
current years losses against other sources and against the remaining part, if
any, of the current years speculation profits; or
(ii) to first set-off the current years losses from non-speculation business and
other sources against the current years speculation profits and then to set-
off the carried forward speculation losses of the earlier year against the
remaining part, if any, of the current years speculation profits, whichever is
advantageous to the assessee.
Where an assessee has brought forward speculative loss from his individual
business and during the current year he receives some speculative gains from a
firm in which he is a partner, the brought forward loss can be set-off against the
speculative profits received from the firm.
Similarly, where a speculation business is carried on by sole proprietor and after
his death the business is continued by legal heirs forming partnership, the firm is
entitled to carry forward and set-off such loss. [C.I.T. v. Madhukant M. Mehta
(1981) 132 ITR 159 (Guj.)].
(C) Carry forward and set off of losses by specified business (Section 73A) :
(1) Any loss of any specified business in section 35AD shall not be set off except
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 84 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 85 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 86 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 87 of 182
bad debt falls short of the amount of such debt, such deficiency is further
deductible in the year of final recovery.
Illustration :
An assessee claims a debt of Rs 25,000 as bad in 1987-88. The Assessing Officer
accepted a claim of Rs 12,000 only. As a final settlement, the assessee
recovered Rs 8,000 in 1989-90 in respect of such debt. The amount of final
recovery (Rs 12,000 + Rs 8,000) falls short of the amount of the debt. Such
deficiency of Rs 5,000 is deductible in the year in which the assessee writes it off
in his books of account.
Conversely, if the amount of final recovery and the amount allowed as bad debt
in respect of a debt exceed the amount of such debt, such excess is chargeable
profit of the previous year in which such recovery is made [Section 41(4)]. It is
immaterial whether the business or profession is in existence in such year or
not.
Continuing with the above example, if the amount of final recovery is Rs 16,000,
there is a taxable profit of Rs 3,000 (16,000 + 12,000 - 25,000).
Note that recovery of bad debts is chargeable to tax as deemed profit [under
Section 41(4)] if the recovery is made by the same person who got the allowance
of the deduction. If the two entities are different the recovery of bad debt is not
chargeable to tax [under Section 41(4)]. For example, a firm got the allowance of
deduction in respect of bad debts. Subsequently, the firm is dissolved and it is
taken over by one of the partners who recovers a part of the bad debt earlier
allowed in the assessment of the firm. The partner is not assessable in respect of
such recovery. C.I.T. v. P.K. Kaimil (1980) 123 IRE 755 (Madras).
5. No allowance for bad debts of a discontinued business :
No deduction is allowed for a bad debt of a business which has been discontinued
before the commencement of the accounting year. Such a bad debt cannot be
deducted from the profits of a separate existing business. Kameshwar Singh v.
C.I.T. (1947) 15 ITR 248. An assessee can claim the deduction for a bad debt of a
business which is carried on by the assessee for at least sometime during the
previous year. It is not necessary that the business should be carried on
throughout the previous year.
6. Successor not entitled to write off predecessors debts :
The deduction of a bad debt can be claimed if the debt had been taken into account
in computing the income of the assessee of that previous year or an earlier
previous year unless it represents money lent in the ordinary course of the
business of banking or money-lending which is carried on by the assessee.
Therefore, the debts of a predecessor-in-business may not be deductible in the
hands of a successor-in-business.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 88 of 182
Thus, where the entire business of a partnership, after retirement of one of the
partners, was taken over by the other partner who continued with the same
stock-in-trade, he is not entitled to claim a debt of the partnership as bad if the
same is not realised. However, in certain cases even a successor is entitled to
write off predecessors debts.
On dissolution of the firm, if one of the partners takes over the business with all
assets and liabilities and carries it on as successor, he is entitled to allowance
when a debt originally due to firm becomes bad. It is merely an incident flowing
from the transfer of the business together with its assets and liabilities, from the
previous owner to the transferee. It is a right which should, on a proper
appreciation of all that is implied in a transfer of a business be regarded as
belonging to the new owner. (CIT v. T. Veerabhadra Rao, K. Koteswara Rao &
Company (1985) 155 ITR 152 (SC).
If business is carried on without any break, change merely occurring in persons
carrying on business would not disentitle business to claim deduction under this
Section [E.A.V. Krishnamurty & Son v. CIT (1985) 152 ITR 640 (Mad.)].
7. No Deduction for provision for bad & doubtful debt :
Any bad debt or part thereof written off as irrecoverable in the accounts of the
assessee shall not include any provision for bad and doubtful debts made in the
accounts of the assessee. [Explanation 2 to section 36(1)(vii)]
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 89 of 182
department.
Every person, before furnishing return under sections 139(return of income),
142(1), 148 (issue of notice where income has escaped assessment) and 153A
(Assessment in case of search or requisition) shall make self assessment of his
income and pay the tax, if due on the basis of such assessment.
The total tax payable is calculated on the total income of the assessee after
considering the following amount :
(i) the amount of tax already paid under any provision of this Act;
(ii) any tax deducted or collected at source;
(iii) any relief of tax or deduction of tax claimed under section 90 or section 91
on account of tax paid in a country outside India;
(iv) any relief of tax claimed under section 90A on account of tax paid in any
specified territory outside India referred to in that section; and
(v) any tax credit claimed to be set off in accordance with the provisions of
section 115JAA.
Such determined value of tax along with the interest payable under any provision
of this Act for any delay in furnishing the return or any default or delay in payment
of advance tax is paid before furnishing the return and the proof of payment of
such tax is attached with the return.
Effect of self assessment : The work of income tax department became easy due to
the system of Self Assessment.
INQUIRY BEFORE ASSESSMENT UNDER SECTION 142 OR 142A
1. Issue of notice to the assessee to submit return(if not submitted earlier) :
The existing provisions contained in section 142(1)(i), inter alia, provide that
for the purpose of making assessment in a case where a person has not made
a return of his income within the time specified under sub-section (1) of
section 139, the Assessing Officer may serve a notice under sub-section on
such a person requiring him to furnish the return of his income in the
prescribed form and manner.
Clause (i) of sub-section (1) has been amended so as to provide that in a case
where a person has not made a return of his income before the end of the
relevant assessment year, the Assessing Officer may serve a notice after the
end of the relevant assessment year under said sub-section requiring such
person to furnish his return of income.
2. Make Inquiry and give opportunity of being heard u/s 142(2) : For the
purpose of obtaining full information in respect of the income or loss of any
person, the Assessing Officer may make such inquiry as he considers necessary
3. Give direction to get books of accounts audited u/s 142(2A) to (2D) : Having
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 90 of 182
regard to the nature and complexity of the accounts volume of the accounts, etc,
IF assessing officer is of the opinion that it is necessary to order audit then with
the previous approval of the Chief Commissioner or Commissioner the Assessing
Officer may direct an assessee to get his accounts audited by an accountant
even if the accounts have earlier been audited.
Summary assessment/Intimation to the assessee u/s 143(1) :
Under summary assessment, Assessing Officer completes the assessment
without passing a regular assessment order. The Assessing Officer issue an
acknowledgement/intimation under section 143(1) of tax payable or refundable
as the case may be on the basis of Return of Income filed by the assessee under
section 139 or in response to a notice issued under section 142(1).
The Assessing Officer (AO) processes the return in the following manner :
(1) The total income or loss after making adjustments for any arithmetical
error in the return or for any incorrect claim which is apparent from any
information in the return is calculated.
(2) Then the tax and interest, if any, on the basis of the total income
computed in step (1) is computed.
(3) Now following adjustments are made to the tax and interest calculated
above to determine the sum payable by the assessee or any amount of refund
due to him :
tax deducted at source,
any tax collected at source,
any advance tax paid,
any relief allowable under an agreement under section 90, 90A and 91,
any rebate allowable under Part A of Chapter VIII,
any tax paid on self-assessment and
any amount paid otherwise by way of tax or interest;
(4) The AO shall prepare or generate intimation and send it to the assessee
specifying the sum determined to be payable by, or the amount of refund due
to the assessee.
(5) The amount of refund due to the assessee shall be granted to the
assessee.
Since, herein this case, no assessment order is issued by the department for
legal purposes the intimation/ acknowledgement shall not be considered as
assessment.
Time limit for intimation under section 143(1) : No intimation for tax or interest
due under section 143(1) shall be sent after the expiry of 1 year from the end of
financial year in which return of income is made.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 91 of 182
Example : For the assessment year 2014-15, Mr. Rajan files the ITR on 25th July
2014. Intimation under section 143(1) may be sent up to 31st March 2016.
(B) SCRUTINY (REGULAR) ASSESSMENT [SECTION 143(2) & (3)]
Where a return has been made under Section 139, or in response to a notice under
Section 142(1), the Assessing Officer shall, if he considers necessary or expedient
to ensure that the assessee has not understated the income or has not computed
excessive loss or has not underpaid the tax in any manner, serve on the assessee a
notice requiring him, on a date to be specified therein, either to attend his office or
to produce, or cause to be produced there, any evidence on which the assessee
may rely in support of the return
Provided that no notice under this sub-section shall be served on the assessee
after the expiry of six months from the end of the Financial year in which the
return is furnished.
On the day specified in the notice issued, or as soon afterwards as may be, after
hearing such evidence as the assessee may produce and such other evidence as
the Assessing Officer may require on specified points, and after taking into account
all relevant material which he has gathered, the Assessing Officer shall, by an order
in writing, make an assessment of the total income or loss of the assessee, and
determine the sum payable by him or refund of any amount due to him on the
basis of such assessment.
(C) BEST JUDGMENT ASSESSMENT U/S 144 :
The Assessing Officer, after taking into account all relevant material which he has
gathered, and after giving the assessee an opportunity of being heard, makes the
assessment of the total income or loss to the best of his judgment and determine
the sum payable by the assessee on the basis of such assessment in the following
cases :
If any person fails to make the return required under section 139(1) and has
not made a return or a revised return under section 139(4) or 139(5), or
When a person fails to comply with all the terms of a notice issued under
section 142(1) or fails to comply with a direction issued under section 142(2A)
for getting the accounts audited, or
If any person having made a return, fails to comply with all the terms of a
notice issued under section 143(2).
Prior to the proceedings the AO should issue a show cause notice to the assessee.
However if the assessee has already issued notice under section 142(1)(i) and the
assessee has not complied with the terms then AO can proceed further without
issuing a show cause notice.
Further AO cannot assess the income below returned income and cannot assess
losses higher than the returned losses. Moreover, NO refund can be granted under
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 92 of 182
section 144.
The assessing officer can also reject the accounts book under section 145 and can
make best judgment assessment under section 144 if :
The accounts books are incorrect, false or incomplete.
If the accounting method employed is such that the profit cannot be derived
from it correctly.
Where the method of accounting adopted by the assessee is not followed by
him regularly.
If the assessee has not followed the accounting standards notified by the
government.
Note : From 1st day of April, 2014 section 144BA shall be omitted.
(D) INCOME ESCAPING ASSESSMENT OR RE-ASSESSMENT (SECTION 147)
If the Assessing Officer has reason to believe that any income chargeable to tax
has escaped assessment for any assessment year, he may, subject to the
provisions of sections 148 to 153,
assess or reassess income which has escaped assessment or
recompute the loss or the depreciation allowance or any other allowance, as
the case may be for the relevant assessment year.
- Section 147 : The Assessing Officer shall serve on the assessee a notice
requiring him to furnish, within such period, as may be specified in the notice,
a return of his income or the income of any other person in respect of which
he is assessable.
The following shall also be deemed to be cases where income chargeable to tax
has escaped assessment, namely :
(i) where no return of income has been furnished by the assessee although
his total income or the total income of any other person in respect of which he
is assessable under this Act during the previous year exceeded the maximum
amount which is not chargeable to income-tax
(ii) where a return of income has been furnished by the assessee but no
assessment has been made and it is noticed by the Assessing Officer that the
assessee has understated the income or has claimed excessive loss,
deduction, allowance or relief in the return
(iii) where the assessee has failed to furnish a report in respect of any
international transaction which he was so required under section 92E
(iv) where an assessment has been made, but
income chargeable to tax has been under assessed ; or
such income has been assessed at too low a rate ; or
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 93 of 182
such income has been made the subject of excessive relief under this Act ;
or
excessive loss or depreciation allowance or any other allowance under this
Act has been computed;]
where a person is found to have any asset (including financial interest in any
entity) located outside India.
The assessing officer before making the assessment under this section will have
to issue notice u/s 148 to the assessee requiring him to file the return even if he
has already filed the return under section 139 or 142(1). The AO is duty bound
to provide the assessee the reasons recorded by him, if the assessee request for
it. If on request the reasons are not supplied then AO cannot proceed the
assessment.
(E) Precautionary Assessment :
Where it is not clear as to who has received the income and prima facie, it appears
that the income may have been received either by A or by B or by both together,
the Assessing Officer can commence proceedings against both A and B to
determine the question as to who is responsible to pay the tax [Lalji Haridas v.
I.T.O. (1961) 43 ITR p. 387 (S.C.)].
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 94 of 182
in respect of individual, HUF, AOP, BOI, Artificial juridical Person, filing of return of
income shall be compulsory if their total income before allowing deductions under
Sections 10A, 10B,10BA or chapter VI-A exceeds the maximum amount which is
not chargeable to income tax.
Compulsory filing of Income Tax return in relation to assets located outside India :
From assessment year 2012-13, it is mandatory to file a return of income where a
person, being a resident other than not ordinarily resident in India and who during
the previous year has any asset (including any financial interest in any entity)
located outside India or signing authority in any account located outside India.
In such a case, it is immaterial that the taxable income is less than the maximum
amount not chargeable to tax.
Exemption from filing of Return of Income :
CBDT has clarified vide Press Release [No. 402/92/2006-MC (15 of 2012)], dated
20-7-2012 that under what conditions exemption from filing of return is available.
Exemption is available to salaried employees from the requirement of filing the
returns for A.Y. 2012-13.
The exemption is applicable only if all the following conditions are fulfilled :-
Employee has earned only salary income and income from savings bank account
and the annual interest earned from savings bank account is less than Rs 10
thousand.
The total Income of the employee does not exceed Rs 5 Lakh (Total Income
means Gross Total Income Less deductions under Chapter VIA).
The Employee has reported his PAN to the employer.
Employee has reported his income from interest on savings bank account to
employer.
Employee has received Form 16 from his employer.
Total Tax Liability of employee has been paid off by employer by way of TDS and
employer has deposited TDS with central government.
Employee has no refund claim.
Employee has received salary only from one employer.
Employee has not received any Notice from Income Tax Department for filing of
Income Tax return.
Due date for filing return of income :
The assessee is obliged to voluntarily file the return of income without waiting for
the notice of the Assessing Officer calling for the filing of the return.
The time limit for filing of the return by an assessee if his total income of any other
person in respect of which he is assessable exceeds the maximum amount not
chargeable to tax, shall be as follows :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 95 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 96 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 97 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 98 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 99 of 182
PAN is a code that acts as an identification for Indian nationals, especially those
who pay Income Tax. It is a unique, 10-character alpha-numeric identifier, issued
to all judicial entities identifiable under the Indian Income Tax Act, 1961. An
example number would be in the form of ARLPA0061H. It is issued by the Indian
Income Tax Department under the supervision of the Central Board for Direct
Taxes (CBDT) and it also serves as an important proof of identification.
Income Tax PAN card is issued under Section 139A of the Income Tax Act.
Unlike the Aadhaar Number and Driving License, it is also issued to foreign
nationals (such as investors) subject to a valid visa and hence, it is not acceptable
as a proof of Indian citizenship.
The PAN is mandatory for a majority of financial transactions such as opening a
bank account, receiving taxable salary or professional fees, sale or purchase of
assets above specified limits etc.; especially high-value transactions.
The primary purpose of the PAN is to bring a universal identification to all financial
transactions and to prevent tax evasion by keeping track of monetary transactions,
especially those of high-net-worth individuals who can impact the economy.
The PAN is unique to each individual and is valid for the life time of the holder,
throughout India. An important point to note would be that once issued, the PAN is
not affected by a change of address
Structure and provisions :
The PAN structure is as follows: AAAPL1234C :
First five characters are letters,
next four numerals,
last character letter.
The first three letters are sequence of alphabets from AAA to ZZZ
The fourth character informs about the type of holder of the card. Each holder is
uniquely defined as below:
A Association of Persons (AOP)
B Body of Individuals (BOI)
C Company
F Firm
G Government
H HUF (Hindu Undivided Family)
L Local Authority
J Artificial Juridical Person
P Individual
T AOP (Trust)
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 100 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Explain : Rectification of Mistake u/s 154 of Income Tax Act. (Nov-2012, Oct-2013)
ANSWER :
Provision for Rectification Of Mistakes [Section 154] :
With a view to rectifying any mistakes apparent from the record, an income-tax
authority referred to in Section 116 may amend
any order passed by it under provisions of this Act or
any intimation or deemed intimation under Section 143(1).
This power of rectification can be exercised by the authorities either on their own
motion or at the instance of the assessee.
Mistake which can be rectified :
The mistake sought to be rectified may be a mistake of fact or of law.
The mistake must be one which is glaring, obvious or apparent from the records
and should not be one to discover which a long drawn process of reasoning,
arguments, etc., are needed, or for which there may be conceivably two opinions.
A decision on debatable point of law is not a mistake apparent from the record [T.
S. Balram v. Volkart Bros. (1971) 82 ITR p. 50 (S.C.)].
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 101 of 182
However, the record contemplated under Section 154 does not mean only the
order of assessment but it comprises all proceedings on which the assessment
order is based. The relevant authority is entitled to look into the whole evidence
and the law applicable to ascertain whether there was an error [Moharana Mills Pvt.
Ltd. v. ITO (1959) 36 ITR p. 350 (S.C.)].
The power of rectification of mistake lies with the authority who passed the order
which is sought to be rectified.
For instance, the Assessing Officer may amend any order of assessment or refund
or any other order passed by him. Likewise, the Deputy Commissioner or
Commissioner (Appeals) or the Chief Commissioner or Commissioner may rectify
any order passed by him.
Where an order of rectification of assessment has the effect of enhancing the
amount of income assessed or reducing a refund granted to the assessee or in any
way otherwise increasing the liability of the assessee, the order of rectification can
be passed only after giving the assessee a notice in advance and, that too, after
giving him a reasonable opportunity of being heard.
Every order of rectification of assessment must be passed by the authority
concerned in writing and should specifically state how and in what respects the
assessment had been rectified.
Where any amendment has the effect of enhancing the assessment or reducing the
refund already made, the Assessing Officer shall serve on the assessee a notice of
demand in the prescribed manner specifying the amount of tax, interest or other
sum payable by him.
Time limit :
The time limit for rectification of mistakes is a period of four years from the end of
the financial year in which the order sought to be amended was passed.
where an application for an amendment under this section is made by the assessee
on or after the 1st day of June, 2001 to an Income-tax authority referred to in Sub-
section (1), the authority shall pass an order, within a period of six months from
the end of the month in which the application is received by it :
by making the amendment; or
refusing to allow the claim.
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 102 of 182
Refer :
Go To Module-1&2 QUESTIONS
Go To Contents
Explain the procedure of appeals and revisions petition under Income Tax Act. (Mar-
2014)
Explain the procedure of Appeals and Revisions under the Income Tax Act. (Dec-
2016)
ANSWER :
page-531-553 of 788 page book
Intro :
The right of appeal arises where the taxpayer is aggrieved by the order passed by
the income-tax authority.
Where the Assessing Officer accepts the return filed by the tax payer and passes an
order making no modification, an appeal does not lie against that order as the
taxpayer cannot be said to be aggrieved of that order. Similarly, where an
appellate authority accepts the contention of the taxpayer and allows the appeal,
there is no further appeal by the assessee against that order.
Whom to address the appeal ?
The assessee may prefer an appeal against the orders of the Assessing Officer to
the Commissioner (Appeals), in accordance with the relevant provisions under
Section 246 and appeal against the order of the Commissioner (Appeals) can be
preferred by the Assessee or the Commissioner of Income Tax and such appeal lies
with the Appellate Tribunal.
The Finance (No.2) Act, 1998 has amended the provisions regarding remedy
against order of Tribunal. Where earlier the assessee or the CIT, if not satisfied
with the order of Tribunal, could only request the Tribunal to refer that matter to
the High Court. After 1.10.98 as provided by Finance (No.2) Act, 1998 the assessee
or CIT if not satisfied with the order of the tribunal can appeal directly to the High
Court, if High Court is satisfied that the case involve a substantial question of law
and if the assessee or Commissioner of Income-tax is not satisfied with the order
passed by the High Court they may file an appeal against the order of the High
Court to the Supreme Court.
However, it should be noted that in the case of question of fact tribunal is the final
& binding authority and its decision is final.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 103 of 182
Go To Module-1&2 QUESTIONS
Go To Contents
Write explanatory notes : Recovery of the service tax under the Service Tax Act
1994. (Dec-2016)
ANSWER :
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 104 of 182
Write explanatory notes : Provisions relating to penalty under the Service Tax Act
1994. (Dec-2016)
ANSWER :
Go To Module-1&2 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 105 of 182
Module-3 QUESTIONS :
Explain : VAT and its objectives. (Oct-2013)
Explain : Incidence of VAT.
Explain : Input Tax Credit (ITC).
Write short note : Business (value added tax). (Nov-2011, Nov-2012)
Discuss : Sales and Dealer. (Nov-2014)
Explain (Gujarat Value Added Tax) : Sale. (Mar-2014)
Write short note : Dealers (value added tax). (Nov-2011, Nov-2012)
Discuss : Capital good and Sales price. (Nov-2014)
Write short note : Capital goods (value added tax). (Nov-2012, Mar-2014)
Explain (Gujarat Value Added Tax) : Sale price. (Mar-2014)
Write short note : Taxable turnover (value added tax). (Nov-2012, Oct-2013, Mar-
2014)
Discuss : Taxable turnover. (Nov-2014)
Define : Total turnover. (Nov-2011)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
Discuss in detail : Registration of traders and tax paying liabilities under VAT
Gujarat. (Nov-2014)
Explain the provisions relating to Registration of the dealer in detail under the
Value Added Tax Act and state its benefits to the Dealer. (Dec-2016)
Discuss in detail : Registration under VAT Act 2003. (Nov-2011, Oct-2013, Mar-2014)
Elaborate the scheme of payment of lump-sum tax in lieu of tax on sales. (Nov-
2011)
Write short note : Composition scheme (value added tax). (Nov-2012, Oct-2013)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
Explain (Gujarat Value Added Tax) : Purchase price. (Mar-2014)
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 106 of 182
Go To Contents
Module-3 ANSWERS :
Explain : VAT and its objectives. (Oct-2013)
ANSWER :
Origin of VAT :
A really progressive and welfare oriented country should balance the requirements
of direct and indirect taxes in a fair manner. Too much dependence on direct taxes
will be repressive but at the same time passing heavy burdens to the general public
by way of indirect taxes will constitute hardships to the common citizen. Therefore,
economic administrators throughout the world have been constantly engaged in the
exercise of lightening the burden of indirect taxes on the ultimate consumers.
VAT is an internationally recognized multipoint tax system. The principle of VAT
contemplates levy of tax at each stage of value addition till the point of
consumption, and realization of full tax on the final sale value from the consumer.
In India, VAT was introduced in most of the State from April 1, 2005.
Introduction of uniform VAT in the States was a challenging exercise in the federal
country like India, where each State Government, in terms of constitutional
provision, is sovereign in levying and collecting state taxes. Though the broad
design of the State-level VAT is uniform across the country, every State has its
own VAT legislation and procedures differ on many counts from one State to
another
VAT System in other countries :
France is the first Country in the world, which has adopted VAT in 1954,
Brazil biggest country by area has adopted VAT in 1960,
China biggest country by population has adopted VAT in 1994,
Our neighbor countries like Pakistan, Nepal, Bangladesh have adopted before us,
Today around 130 countries have implemented VAT System,
Around 70% world populations living under VAT System,
Surprise to know that the U.S.A. has not adopted VAT,
VAT made Effective from 1st April, 2006 in Gujarat
Illustration (Need for VAT) :
Suppose, for manufacturing a product A, the manufacturer has to purchase four
types of commodities B, C, D and E on which he pays excise duty. When ultimately
he sells his manufactured product A on which he has to discharge his liability
towards excise, the excise duty leviable on such product will be on a tax base
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 107 of 182
which will include excise duties paid by the manufacturer on products B, C, D and
E.
Thus, the final excise duty is a duty on duty, which will increase the cost of
production as well as the price of the final product.
However, we find a method by which the excise duties paid on commodities B, C, D
and E are allowed to be set-off from the final duty liability on product A, it is
obvious that the manufacturer will not only be able to avoid payment of duty on
duty but the cost of the product will also be reduced leading to a benefit to the
consumer. This is the origin of Value added tax (VAT).
VAT on Manufacturing : In VAT, the tax will be levied and collected at each stage of
manufacture ONLY on the value added by the manufacturer represented by the
purchase value and the value of the work performed on such purchased
commodities. In other words, the various taxes paid on inputs purchased will be
allowed as a credit and will be allowed to be set off against the tax liability on the
value of sales of the commodity. This will not only result in cost reduction but will
also ensure equity.
Gujarat VAT : In Gujarat VAT came into force from 1st April, 2006. Its basic legal
framework consists of,
The Gujarat Value Added Tax Act, 2003,
VAT Rules contain 67 Rules and 75 Forms,
VAT and Sales Tax collection contributes around 39.92% of the total revenue of
Gujarat Government.
Gujarat VAT Act, 2003 (VAT Act) replaced following Acts :
Gujarat Sales Tax Act, 1969
The Bombay Sales of Motor Spirit Taxation Act, 1958 (MST)
Gujarat Purchase Tax on Sugarcane Act, 1989
Note that CST Act is also administered by Gujarat VAT Dept.
WHO is liable to pay VAT [Section 3]
1. Every Registered Dealer, irrespective of his turnover,
2. Regular Dealer Whose total turnover during the year exceeded rupees Five
Lacs and whose taxable turnover exceeded rupees Ten Thousand.
3. A casual dealer or auctioneer whose taxable turnover exceeded rupees Ten
Thousand in a year.
All above dealers have to pay tax on their turnover after they cross above said
limit.
And dealer covered in Para 2 and 3 above shall have to apply for registration within
30 days of crossing limit of turnover under VAT in prescribed Form.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 108 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 109 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 110 of 182
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 111 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 112 of 182
from tax subject to the conditions and exceptions set out therein against each of
them in column 3 of the Schedule.
(1A) The state government may, by notification in the official Gazette, add to, or
enlarge, any entry in Schedule I, or relax or omit any conditions or exceptions
specified therein, and thereupon the said Schedule shall be deemed to be amended
accordingly.
(2)(a) Subject to such conditions as it may impose, the state government may, if it
considers it necessary in the public interest, by notification in the official Gazette,
exempt any specified class of sales or purchases or sales or purchases of goods by
any specified dealer or specified class of dealers from payment of the whole or any
part of the tax payable under the provisions of this Act.
(2)(b) Where the state government considers it necessary in the public interest to
continue tax exemption granted to the sale or purchase of goods by industrial units
under sub-section (2) of section 49 of the Gujarat Sales Tax Act, 1969, it may, by
notification in the official Gazette, continue such exemption with such modification,
subject to such conditions and for such period, as may be prescribed.
METHODS OF COMPUTATION : VAT can be computed by using any of the three
methods detailed below :
1. The Subtraction method: Under this method the tax rate is applied to the
difference between the value of output and the cost of input;
2. The Addition method: Under this method value added is computed by adding
all the payments that are payable to the factors of production (viz., wages,
salaries, interest payments, etc.);
3. Tax Credit method: Under this method, it entails set-off of the tax paid on
inputs from tax collected on sales.
We in India have opted for tax credit method, which is similar to CENVAT .
PROCEDURE : The VAT is based on the value addition to the goods and the related
VAT liability of the dealer is calculated by :
Deducting input tax credit from tax collected on sales during the payment period.
This input tax credit is given for both manufacturers and traders for purchase of
input/ supplies meant for both sales within the State as well as to the other States
irrespective of their date of utilization or sale.
If the tax credit exceeds the tax payable on sales in a month, the excess credit will
be carried over to the end of the next financial year.
If there is any excess unadjusted input tax credit at the end of the second year
then the same will be eligible for refund.
For all exports made out of the country, tax paid within the State will be refunded
in full.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 113 of 182
Tax paid on inputs procured from other States through inter-State sale and stock
transfer shall not be eligible for credit.
VAT Regime :
Though, VAT has been introduced by 30 States / Uts, Central Sales Tax will
continue to govern inter-State Sales and Exports
Each State has its own VAT Act, Rules, Schedules, and Forms. therefore there will
remain differences even in definitions among various Acts.
Petroleum products, like Aviation Turbine Fuel, Naphtha, etc. used as fuel for
running automobiles are brought under VAT, but credit cannot be taken on the tax
paid thereon.
Tobacco, Textiles and Sugar, which were under additional duty in lieu of excise and
not under State taxation, are brought into the State Tax net at a rate not more
than 4%, thereby integrating these products in the VAT structure.
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 114 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 115 of 182
(iii) tax paid by the purchasing dealer under the Gujarat Tax on Entry of
Specified Goods into Local Areas Act, 2001.
(b) The tax credit to be so claimed under this sub-section shall be subject to the
provisions of sub-sections (2) to (12); and the tax credit shall be calculated in
such manner as may be prescribed.
Taxes covered for ITC :
Only VAT, Additional VAT, Purchase Tax (PT) paid under VAT Act, Entry Tax, are
eligible for ITC.
the ITC shall not exceeded to the tax actually paid on purchase.
Purchases Eligible for ITC : Goods must be purchased with following intention:
For sales or resale in the state
For inter state sales or for Export
For branch transfer or consignment to other state (ITC to be reduced by 4 %)
For sales to EOU (Export Oriented Units) or units in SEZ (Special Economic Zone) in
the courses of export
For use as raw material in the manufacture of goods referred in above Para
For use as packing material of goods so manufactured
For use as Capital Goods (not being second hand plant and machinery) in the
manufacture of taxable goods and must be accounted as Fixed Assets and not to be
sold upto five years.
General Conditions for ITC :
1. ITC is available to Registered Dealer (RD) only.
2. No co-relation or nexus with goods is required. Tax paid on any taxable goods
can be used as input tax credit against tax payable on any other taxable goods.
3. ITC made available at the point of purchase itself, if other conditions are fulfilled.
4. Local Purchase made through Tax Invoice is only eligible and purchasing dealer
must receive original Tax invoice.
5. In case of Consignment / Branch or Depot Transfer / Fuel used in
manufacturing, ITC to be reduced by 4%
6. 2% ITC shall be reduced on all local purchase, when the purchase is used for
inter state transactions. w.e.f. 01.07.2010 ( now 1% w.e.f. 1.10.2014)
7. Dealer shall maintain the registers and books of accounts in such manner as
may be prescribed.
ITC NOT available in following case :
1. Not available for purchase from Unregistered Dealer (URD)
2. Purchase made before effective date of your Registration, not eligible
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 116 of 182
3. Purchase made from a dealer who has opted for lump sum scheme is not eligible
for ITC.
4. OGS (Other Governmental Service) purchase, Import
5. Purchase of goods which are disposed of otherwise than in sale, resale or
manufacture.
6. Purchase of Exempted Goods under the Act,
7. Purchase of goods used in the manufacture or packing of exempted goods.
8. Purchase of capital goods used in the manufacture of exempted goods or in
generation of electrical energy including captive power.
9. Vehicles of any type and its parts or accessories (not for resale)
10. Purchase not connected with business e.g. stationery, A.C. for office, computer
11. Purchase of goods used as fuels in generation of electrical energy meant for
captive use or otherwise.
12. Purchase of fuel for motor vehicles
13. Purchase of petrol, HSD (High Speed Diesel), crude oils and lignite unless such
purchase is for resale.
14. Purchase of goods for which right to use is transferred.
15. Purchase of capital goods used in execution of any works contract,
16. Purchase made from a dealer after the name of such dealer has been published
u/s. 27 or 97 (suspended or cancelled dealer)
17. Purchase of goods for which no tax invoice is available or in tax invoice the
amount of tax is not separately mentioned.
18. Govt. may by notification specify any goods or the class of dealers that shall
not be entitled to whole or partial tax credit. eg Under this clause, Neptha, Netural
& Associated Gas and LSHS used by Fertilizer Industries.[ No ITC on these goods]
Reversal of ITC :
ITC is required to be reversed (fully or partly) when ITC availed goods are used for
non-specified purposes.
ITC is also required to be adjusted for Debit Note or Credit Note for any change in
consideration if tax is separately shown or for purchase return
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 117 of 182
ANSWER :
<work on this>
Business includes,
(i) any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is carried on with a motive to
make profit or gain and whether or not any profit or gain accrues from such
trade, commerce, manufacture, adventure or concern; and
(ii) any transaction of buying, selling or supplying plant, machinery, raw
materials, processing materials, packing materials, empties, consumable stores,
waste products, or such other goods, or waste or scrap of any of them which is
ancillary or incidental to or resulting from such trade, commerce, manufacture,
adventure or concern;
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 118 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 119 of 182
(h) any person who transfers the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred payment or other
valuable consideration; and
(i) any person who supplies, by way of or as part of any service or in any other
manner whatsoever, goods being food or any other article for human
consumption or any drink (whether or not intoxicating) where such supply or
service is for cash, deferred payment or other valuable consideration.
Explanation:
(i) A society (including a co-operative society), club or firm or an association,
which, whether or not in the course of business, buys, sells, supplies or
distributes goods, directly or otherwise, from or to its members or other persons
for cash, deferred payment, commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for the purposes of this Act.
(ii) The central government or state government or a local authority or railway
administration or port trusts or a statutory body, which, whether or not in the
course of business, buys, sells, supplies or distributes goods, directly or
otherwise, for cash, deferred payment, commission, remuneration or other
valuable consideration, shall be deemed to be a dealer for the purposes of this
Act.
(iii) Any person or body, which disposes of any goods including unclaimed,
confiscated, un-serviceable, scrap, surplus, old, obsolete, discarded, waste or
surplus product or goods, whether by auction or otherwise, directly or through
an agent, for cash deferred payment, commission , remuneration or other
valuable consideration, shall be deemed to be a dealer for the purposes of this
Act.
Exceptions : The following shall not be deemed to be a dealer within the meaning
of this clause :
(i) an agriculturist who sells agricultural produce grown exclusively on land
cultivated by him personally;
(ii) an individual who sells exclusively any fish or any sea-food caught by him
personally or by any member of his family on account of or on behalf of such
individual; and
(iii) a charitable, religious or educational institution, carrying on the activity of
manufacturing, buying, selling or supplying goods, in performance of its
functions, for achieving its avowed objects, which are not in the nature of
business.
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 120 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 121 of 182
trade discount
insurance charges of goods insured on behalf of the buyer
goods rejected
goods returned within 6 months of the date of sale
Go To Module-3 QUESTIONS
Go To Contents
Write short note : Taxable turnover (value added tax). (Nov-2012, Oct-2013, Mar-
2014)
Discuss : Taxable turnover. (Nov-2014)
Define : Total turnover. (Nov-2011)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
ANSWER :
Definition : Turnover [section 2 (j)] :
It is the aggregate of the sale prices received and receivable by the dealer In
respect of sales of any goods in the course of inter-state trade or commerce made
during a prescribed period. Prescribed period is the period in which sales tax return
is filed.
Situs : (situs means the place to which for purposes of legal jurisdiction or taxation a
property belongs)
Section 4 of the CST Act determines situs of sale: i.e. State in which the sale takes
place. Accordingly the situs is to be decided on the location of the goods at the
time of sale.
Sale/purchase taking place in course of import/export :
Section 5 defines the sale/purchase taking place in course of import/export and
such transactions are immune from levy of any tax by State Government or Central
Government. [(Sections 5(1), 5(2) and 5(3)].
The sale of goods to any exporter for the purpose of complying with the preexisting
order and covered by Section 5(3) is also exempt as deemed export. These sales
are to be supported by Form H along with export order details and copy of bill of
lading etc. as evidence of actual export.
Determination of Turnover : As per section 8 (A) , to determine turnover following
amounts will be deducted
Central sales tax
Sale price of goods returned within six months
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 122 of 182
Go To Module-3 QUESTIONS
Go To Contents
Discuss in detail : Registration of traders and tax paying liabilities under VAT
Gujarat. (Nov-2014)
Explain the provisions relating to Registration of the dealer in detail under the
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 123 of 182
Value Added Tax Act and state its benefits to the Dealer. (Dec-2016)
Discuss in detail : Registration under VAT Act 2003. (Nov-2011, Oct-2013, Mar-2014)
ANSWER :
Registration of traders :
Under Gujarat Value Added Tax Act, 2003 registration can be obtained in the
following three ways :
1. Compulsory Registration :
2. Voluntary Registration :
3. Deemed Registration :
1. Compulsory Registration :
A dealer is compulsorily liable to obtain registration, when it crosses the limit of
turnover as specified u/s 3. A dealer must apply within 30 days in Form 101
immediately after he becomes liable to pay tax under the Gujarat VAT Act.
A dealer who is registered or liable to be registered under the CST Act also will
be required to register under VAT
2. Voluntary Registration :
A dealer having a fixed or regular place of business in the state and is not
required to be registered under section 21, may apply in the prescribed manner
for the certificate of registration to the authority prescribed for the purpose
under section 21.
Dealers applying for voluntary registration have to deposit an amount of rupees
twenty-five thousand in the government treasury otherwise certificate of
registration shall not be granted.
The dealer may, in his return to be furnished in accordance with section 29,
adjust the amount so deposited (Rupees Twenty Five Thousand) against his
liability to pay tax, penalty or interest payable under this Act.
3. Deemed Registration :
Every dealer registered on the appointed day under any of the earlier laws or
under the Central Act shall be deemed to be registered under section 21.
Registration Procedure :
The dealer has to apply for registration in Form 101 to the registering authority in
whose jurisdiction the dealers chief place of business is situated.
A dealer applying for registration voluntarily or compulsorily has to deposit 10,000
as security by filling challan Form 207. This amount will be returned to him within 2
years from the date on which the number is granted. However, the deposit so paid
cannot be adjusted against the payment of tax that is due to the dealer.
In order to obtain voluntary registration a dealer is required to deposit 25,000 in
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 124 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 125 of 182
(b) more than one place of business shall make an application to the registering
authority in whose jurisdiction his chief place of business is situated.
(4) An application for registration shall be made, verified and signed in the case of
a business carried on by proprietor / partner / HUF Karta / Company Director /
Competent Government Authority
(5) The application for registration shall be accompanied by two copies of a recent
passport size photograph of proprietor / partner / HUF Karta / Company Director,
duly attested by a Sales-tax Practitioner whose name has been registered in the list
maintained by the Commissioner or by a gazetted officer or an advocate.
Tax paying liabilities : VAT Liability Determination : work on this
VAT payable = Output tax (Including PT) Input tax (Including PT) + entry Tax if
paid.
If answer comes in negative then it is termed as excess tax credit.
Tax credit of the particular tax period will be adjusted firstly with VAT payable,
thereafter if any excess shall be adjusted against CST payable for the same period
and excess Credit can be carried forward to the next return period. In case of
excess un-utilised tax credit at the year end, the same will be carried forward in
the subsequent year.
Go To Module-3 QUESTIONS
Go To Contents
Elaborate the scheme of payment of lump-sum tax in lieu of tax on sales. (Nov-
2011)
Write short note : Composition scheme (value added tax). (Nov-2012, Oct-2013)
Explain in detail the provisions relating to taxable turnover and state the composition
scheme under the Value Added Tax Act. (Dec-2016)
ANSWER :
Lump sum tax in lieu of tax on sales :
1. Option for payment of lump sum tax in lieu of tax on sales Section 14(1)(a) :
The commissioner may subject to such circumstances and such conditions as
may be prescribed permit any dealer whose total turnover has not exceeded
rupees seventy five lakhs in the previous year to pay lump sum tax in lieu of the
amount of tax payable under section 7 of this Act. Permission to pay lump sum
tax shall NOT be granted to a dealer who
(i) Is an importer/exporter
(ii) Does transaction of sale or purchase in the course of interstate trade or
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 126 of 182
commerce
(iii) Does the transaction of branch/ consignment transfer to/from outside
the state
(iv) was engaged in the previous year or engaged in the activity of
manufacturing (except notified by the Commissioner)
(v) has effected in previous year or effects the sales or purchases through a
commission agent
(vi) has effected in previous year or effects the sales falling under section
2(23)(b) or (d)
The current rate of lump sum payment of tax as notified by the state
government is 0.5%
The permission granted for lump sum payment of tax remains valid as long as
the total turnover of the registered dealer does not exceed rupees seventy five
lakhs or the registered dealer does not undertake any of the activities mentioned
in clauses (i) to (vi).
Section 14(3): A dealer who is permitted under section 14(1) to pay lump sum
tax shall not
(a) be entitled to claim tax credit in respect of tax paid by him on his
purchases,
(b) charge any tax under this Act in his sales bill or sales invoice in respect
of the sales on which lump sum tax is payable; and
(c) issue tax invoice to any dealer who has purchased goods from him.
A dealer who is permitted to pay lump sum tax under section 14(1) shall be
liable to pay, in addition to the lump sum tax under this section, purchase tax
leviable under subsections (1), (3),(4) and (6) of section 9;
2. Procedure for application and permission for lump sum payment of tax :
Dealers registered after 1 st April, 2006 have to file an application within 90
days from the date of registration.
From 1 st April, 2008, a dealer who is granted permission to pay tax in lump
sum need not file fresh application for renewal of permission every year.
The Commissioner shall communicate his decision regarding the permission or
rejection thereof to the applicant dealer within fifteen working days from the
date of receipt of application. And after making such inquiry as he thinks fit,
ensure compliance of the provisions of the Act and the rules, grant permission
under Section 14 (1) for lump sum payment of tax in Form 211.
If the registered dealer to whom such permission was granted contravenes the
provisions of the Act or the rules, such permission shall be liable to be cancelled
forthwith from the date of the event concerning such contravention.
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 127 of 182
If a registered dealer to whom such permission was granted chooses not to avail
it, he shall intimate accordingly to the authority with whom he files the returns
and the authority shall cancel the permission. He shall be liable to pay tax under
the Act from the month immediately succeeding the month during which
permission to pay lump sum has been cancelled on the basis of his application.
Composition Scheme :
Composition of Tax on Works Contract : Section 14A
Section 14A provides for a scheme of composition of tax on works contract. The
Commissioner may, in such circumstances and subject to such cconditions as
may be prescribed, permit every dealer who transfers property in goods
(whether as goods or in some other form) involved in the execution of a works
contract [section 2(10)(f)], to pay lump sum tax by way of composition at the
rate of 2% as notified by the state government in its official Gazette.
Procedure for application and permission for payment of tax under composition
scheme (Section 14A) :
Application in Form 214 is to be made within 30 days from the beginning of
the contract by a dealer who has under section 14 A (Works Contract) opted
to pay a lump sum tax by way of composition of tax. Permission is granted in
Form 215 within fifteen working days from the date of application. Such
permission is effective from the date of the beginning of the contract and is
valid till its conclusion
In case of On Going Works Contract as well as new works contract to be
executed during the year or for the remaining period of the year referred to in
Rule 28(8)(bb), application for paying lump sum tax is to be made in Form
214 A within 30 days before the commencement of the year and permission
shall be granted in Form 215 A within fifteen working days from the date of
application, and permission shall be effective from the beginning of the year.
Dealers who are granted permission to pay lump sum tax under section 14A
need not file a fresh application for renewal and permission granted to them
earlier shall continue subject to other provision of the Act and these rules.
Composition of Tax on Agricultural Produce : (Section 14B) :
The Commissioner may, in such circumstances and subject to such conditions as
may be prescribed, permit a commission agent engaged in the business of
agricultural produce to pay lump sum tax by way of composition at the rate of
0.05% as notified by state government in its official Gazette.
The permission to pay lump sum tax under section 14B(1) shall be granted by
the Commissioner to a commission agent who,-
(a) carries on a business exclusively of agricultural produce, and
(b) is licensed as general commission agent with a market committee
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 128 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 129 of 182
Go To Module-3 QUESTIONS
Go To Contents
Go To Module-3 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 130 of 182
Module-4 QUESTIONS :
General Notes : Central Sales Tax
Discuss in detail : Provisions relating to inter-state purchase and sales under central
sales tax act. (Nov-2014)
Write short note : Sale outside state (Central sales tax). (Nov-2012)
Explain : Interstate sales and purchase (Central Sales Tax Act). (Oct-2013)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
Write short note : Compulsory and voluntary registration (central sales tax). (Nov-
2012, Nov-2014)
Write short note : Registration of a dealer. (Nov-2011)
Write short note : Place of business (central sales tax). (Nov-2012)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
Write short note : Appropriate state (central sales tax). (Nov-2012)
Explain : Sales and dealer (Central sales tax). (Oct-2013)
Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
Explain : Sales Price (Central Sales Tax Act). (Oct-2013)
Define and explain the terms Sale and Sale Price under the Central Sales Tax Act
along with relevant cases. (Dec-2016)
Write short note : Declared goods (Central sales tax). (Nov-2011, Nov-2012, Oct-
2013, Mar-2014)
Explain (Central Sales Tax) : Sale-purchase in the course of export/ import. (Mar-
2014)
Explain (Central Sales Tax) : Discuss different rates of taxes under CST. (Mar-2014)
Discuss : Provisions relating to different types of offence and penalty and different
rates of taxes under CST act. (Nov-2014)
Discuss the provision of penalties and offenses under Central Sales Tax Act 1956.
(Nov-2011)
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 131 of 182
Explain : Discuss different types of offenses and provisions of penalty under Central
Sales Tax. (Mar-2014)
Write short note : Appellate authority. (Nov-2011)
Go To Contents
Module-4 ANSWERS :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 132 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 133 of 182
Go To Module-4 QUESTIONS
Go To Contents
Discuss in detail : Provisions relating to inter-state purchase and sales under central
sales tax act. (Nov-2014)
Write short note : Sale outside state (Central sales tax). (Nov-2012)
Explain : Interstate sales and purchase (Central Sales Tax Act). (Oct-2013)
Explain in detail the provisions relating to Place of Business as well as Sale outside
the state with case laws under the Central Sales Tax Act. (Dec-2016)
ANSWER :
Introduction :
Objectives stated in the text of the CENTRAL SALES TAX ACT is To formulate
principles for determining--
(a) When a sale or purchase takes place in the course of inter-state trade or
commerce.
(b) When a sale or purchase takes place outside a State.
Definition : Inter-Sate sale : Section 3 of the CST Act :
A sale or purchase of goods shall be deemed to take place in the course of inter-
state trade or commerce if the sale or purchase-
(a) occasions the movement of goods from one state to another ; or
(b) is effected by a transfer documents of title to the goods during their
movement from one State to another.
Explanation 1.Where goods are delivered to a carrier or other baileee for
transmission, the movement of the goods shall, for the purposes of clause (b),
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 134 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 135 of 182
(1) CST v.Lakhmi Ladha & Co. 77 STC 366(Bom) In this case Lakhmi Ladha & Co
was manufacturer of Tarpaulins at Bombay. They entered into contract with Gujrat
State Road Transport Corporation for supply of Tarpaulins to Ahemedabad. The
goods were first transferred to Branch at Surat and that branch delivered the goods
to the Transport Corporation. It was held to be inter-State transaction as the goods
had moved from Bombay to Surat under a contract of sale.
(2) State of Bihar v. Tata Engineering & Locomotive Company Ltd. 27 STC
127(S.C.) Tata Engineering & Locomotive Company Ltd. had agreement with the
dealers stipulating that delivery of the vehicles will be made in the State of Bihar
and the dealer had to remove the goods to place outside the State. TELCO
delivered the vehicles against payment to the dealers in Bihar and this was held by
Supreme Court as inter-State sale.
(3) CST Delhi v. Motorades 89 STC 542(Delhi) Dealer in Delhi sold auto part to
government departments of Himachal Pradesh and Haryana Governments. Vehicles
sent from those state to Delhi, parts were fitted therein by the dealer and vehicles
reached to purchasers and parts supplied approved orally. In this case Delhi High
Court held that there is implied term that parts will move from Delhi to H.P. or
Haryana and it was held as inter-State sale.
(4) Sahney Steel Press Works Ltd. v. Commercial Tax Officer (1985)60 STC 301
(S.C.) The customer placed an order with the local branch office and the branch
office communicated the terms and specifications of order to registered office.
While delivering this landmark judgment the apex court has observed that the
movement of goods from the registered office in Hyderabad was occasioned by the
order placed by the customer and movement was an incident of the contract and
therefore from the very beginning from Hyderabad all the way until delivery to the
customer it was an interstate movement.
(5) NCR Corporation India Pvt.Ltd. VS. Dy.Commssioner of Commercial Taxes,
Bangalore. The Karnataka High court decided if there is a conceivable link between
movement of goods and the buyers contract and such a nexus otherwise
inexplicable, then the sale of specific or ascertain goods ought to be deemed to
have taken place in the course of interstate trade or commerce irrespective of
presence of an intermediary such as the sellers own representative or branch
office.
(6) In the case of State of Tamilnadu Vs. Sun Paper Mill Ltd. (2009) 23 VST 191
(Mad) Madras High court decided that newsprints sold by seller in Tamilnadu to
buyer in Kerala during the movement the said goods were dispatched to the
place in Tamilnadu only for converting newsprints into news magazine and
thereafter sent to Kerala. Movement of goods contemplated under contract and no
sale thereof in Tamilnadu. Sale was interstate sale.
(7) In the case of DCM Ltd. Vs. Commissioner of Sales Tax Delhi (2009) 21 VST
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 136 of 182
417 (SC). The apex court laid down the principle that purchasing dealers took the
deliveries in the state of sale but were under obligation to take the delivered
material out of the state of sale (Delhi) and to sale in respective assigned
territories at the price fixed by the assessee , such sale to purchasing dealer is an
interstate sale only.
(8) In the case of state of A.P. Vs. Computer Graphics Pvt.Ltd. (2009) 21 VST 42
(A.P) The A.P. High court decided as the goods sold were ascertained goods in a
deliverable state, --->the property in those goods, sold by respondent, passed to
the buyer immediately on the delivery of the goods to the person authorized by the
principal outside state <--- even though such authorized person dispatched those
goods outside the state to the said principal the sale is decided as local sale.
Inter-State Sale by a transfer documents of title : section 3(b)
Sale under this sub-section is known as Sale In Transit or Sale effected by of
Documents of title to the goods.
Section 2(4) of the Sale of Goods Act, 1930 defines Document of the title of
Goods.
Ingredients of Sale in Transit u/s 6(2) read with sec. 3(b) :
A sale or purchase of goods shall be deemed to take place in the course of inter-
State trade, if the sale or purchase is effected by a transfer of documents of titles
to the goods during their movements from one State to another. If any sale is to
be treated as sale in transit, the following conditions are to be satisfied :
(i) Subsequent sale should be of the very goods which were sold under the first
Inter-State sale.
(ii) It is to the dealer, registered under C.S.T.
(iii) Goods sold are covered in Registration Certificate by description of goods
covered by Section 8(3) of the CST so far as subsequent purchaser is concerned.
(iv) Form E-I or E-II issued by dealer from whom the goods were purchased
were produced.
(v) Form-C issued by subsequent purchaser is produced.
(vi) If subsequent buyer is a Government Department, it has to issue Form-D.
W.e.f. 01.04.2007 Form D not allowed.
SEC.6(1A) : LIABILITY TO TAX ON INTER-STATE SALES :
A dealer shall be liable to pay tax under the CST Act on the sale of any goods
effected in the course of inter State trade though no tax is leviable under the local
sales tax Act of the appropriate State if such sale is Intra state sale.
Therefore exemption in the local sales tax law is irrelevant for the purpose of
Central Sales Tax Act. E.g.: In some states, take for e.g. Tamilnadu, no Local
sales tax is levied on sales upto prescribed limit (For e.g. it is 3 lakhs in
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 137 of 182
Tamilnadu). But these goods which escape tax under local sales tax cannot avoid
tax in CST ACT.
Suppose Mr.A's sales turnover under TNGST is less than Rs.3,00,000. No tax
under TNGST up to a turnover of Rs.3,00,000. However CST is payable on 3
lakhs also.
Sec.6(2) - Concept of subsequent sales in CST:
However exemption is available to the 2nd & subsequent inter state
sale provided such sale is effected by transfer of documents of title
during the movement from one State to another.
Conditions to be fulfilled for availing this exemption :
a. There must be an ISS by a registered dealer to another
registered dealer/Government.
b. During the movement of such goods from one state to another, a 2 nd inter
State sale by transfer of documents of title should take place.
c. Such transfer of documents should be either to the Government
or to a registered dealer other than Government.
d. The dealer who makes the first inter state sale should give Form E-I to the
purchasing registered dealer /Govt. and obtain Form C/D as the case may be,
from him.
e. The registered purchasing dealer, who made the subsequent sale by transfer
of documents of title, will issue Form E-II to the subsequent
registered purchasing dealer / Government and must obtain C/D form from
them.
f. Similar procedure will be followed for any subsequent sale which may take
place during the movement of such goods.
E.g.: X of Delhi places an order of 1000 bales of cotton with Y of Bombay. Y
dispatches the goods and sends railway receipt to X. X sells an
identical quantity of cotton to Z of Amritsar. He endorses the railway
receipt (sent by Y) in favour of Z and rerouted the goods to Amritsar.
In this case, if other conditions are satisfied, the sale of goods by X to Z is
exempt from the central sales tax. If, however, X takes delivery of cotton bales
at Delhi and then books these goods to Amritsar in pursuance to his sale to Z,
the sale from X to Z cannot be subsequent sale as it is not effected during the
movement of goods from one State to another (it is effected after the movement
of goods comes to an end).
The following declaration forms must be issued by the various dealers:
Original Inter State Sale [Section 3(a)] --- Buyer Issues From C --- Seller Issues
Form E-I
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 138 of 182
Next Inter State sale by transfer of documents of title to goods --- Buyer Issues
From C --- Seller Issues Form E-II
Subsequent sale u/s. 6(2) in Sec.3(b) mode --- Buyer Issues From C --- Seller
Issues Form E-II
Second subsequent sale during same transit --- Buyer Issues From C --- Seller
Issues Form E-II
Note :
a. Any number of subsequent Inter state sales effected in the course movement of
the goods from one state to another by transfer of documents of title by one
dealer to another shall be exempt provided the above conditions are
fulfilled and relevant forms are obtained and filed.
b. Inspite of the exemptions available for subsequent sale u\s. 6(2), multiple
taxation takes place in the following situations
Subsequent sale u\s. 6 (2) made by one registered dealer to an
unregistered dealer.
Subsequent sale made by the above said unregistered dealer to a
registered dealer and a subsequent sale by the latter to another registered
dealer and so on.
Go To Module-4 QUESTIONS
Go To Contents
Write short note : Compulsory and voluntary registration (central sales tax). (Nov-
2012, Nov-2014)
Write short note : Registration of a dealer. (Nov-2011)
ANSWER :
Registration of Dealers (SEC.7) : Sec-2(f) --- REGISTERED DEALER - Means a
dealer who is registered u/s.7.
According to Sec-2(b), DEALER means any person who carries on the business of
buying or selling or supplying or distributing goods, for cash or for credit or for
commission and includes:
a. A local authority, a company, any co operative society or other society, club,
firm, Hindu Undivided Family or other association of persons which carries on
such business.
b. A broker, commission agent, del credere agent by whatever name called, who
carries on business of buying, selling, supplying or distributing goods belonging
to any principal whether disclosed or not
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 139 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 140 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 141 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 142 of 182
registration is applied within 30 days of making the inter state sale. However,
voluntary, registration will be effective from the date of making the application for
registration.
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 143 of 182
A dealer can be have more than one places of business within one State or even
within one city.
If he has places of business in different States, he will have to register in each
such State.
There are certain rules which an individual participating in interstate trade is
expected to adhere to. Accordingly, the certificate of registration should be kept at
the principal place of business and copies of the registration should be displayed at
all other business locations.
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 144 of 182
The tax payable by a dealer depends on the rates applicable to the sale or
purchase of goods in the appropriate state.
Registration is carried out in the appropriate state.
The authority to assess, reassess, collect and enforce the payment is entrusted to
the officers of the appropriate state.
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 145 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 146 of 182
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 147 of 182
consideration.
Although the Act talks above cash discount as deduction it has been held by
various courts that the trade discount, additional discount, quantity discount,
etc., are also deductible from the consideration.
(ii) The cost of freight for delivery or the cost of installation in case where such
cost is separately charged. If the freight or delivery or installation charges are
already included in the selling price and not being separately charged, no
deduction of such freight etc., will be allowed in calculating the sale price.
The sale price includes Central Sales Tax whether it is shown separately or not.
The Andhra Pradesh High Court held in State of Andhra Pradesh v. T.V. Sundaram
Iyengar and Sons Ltd.(1987) 65 STC 41, that ordinarily any concession shown in
the price of goods for any commercial reason would be a trade discount which can
be legitimately claimed as a deduction from the turnover and the fact that the
discount was not allowed at the time of sale but on a later date, does not make it
any-the-less a trade discount.
Cash discount should be known at the time of sale : In C.T.O.v. Radiant Industries
of India (1994)95 STC 463, it was a contrary decision. The court held that if at the
time of effecting the sale or entering into the contract of sale no such stipulation is
made and subsequently a contract is entered into then it would not be reducing the
price of the sale which has already been concluded.
Go To Module-4 QUESTIONS
Go To Contents
Write short note : Declared goods (Central sales tax). (Nov-2011, Nov-2012, Oct-
2013, Mar-2014)
ANSWER :
What are goods ? Section 2 (d) of CST Act defines that goods includes all materials,
articles, commodities and all kinds of movable property, but does NOT include
newspapers, actionable claims, stocks, Shares and securities.
Goods must be movable. CST cannot be levied on immovable property.
Following are the instances of goods for C.S.T. Act : (a) Electricity; (b) Copy right;
(c) Patent; (d) Lottery ticket; (e) Ready made computer software; (f) Advance REP
license; (g) growing crops, grass, standing tress on the land, IF these have been
served from the land, they shall become goods; (h) Air or water, if there are made
available to customers or consumers at cost (i) Old Newspaper if sold as waste.
Following are the instances of NOT goods (since these items has been specially
excluded from the meaning of goods for CST Act) : (a) Share; (b) securities like
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 148 of 182
debentures; (c) Money; (d) Stocks; (e) Newspapers; (f) Actionable claims; (g)
Growing crops, grass, standing trees on the land.
Declared Goods : Definition :
Section 2(c) of CST Act defines Declared Goods as those declared under Section
14 of CST Act as goods of special importance in inter-state Trade or Commerce.
List of declared goods : Section 14 of CST Act gives a list of such goods which have
been declared as goods of special importance in inter state trade or commerce.
(1) Cereals i.e. paddy, rice, wheat, bajra, jowar, barley, maize, ragi, kolon, kutki
etc.
(2) Coals and coke in all forms (excluding charcoal)
(3) Cotton in un manufactured form but not cotton waste.
(4) Cotton fabrics, cotton yarn (excluding cotton yarn waste).
(5) Manmade fabrics : fabrics of manmade filament yarn i.e. artificial textile
material, polyester filament yarn, staple fibres, polyester staple fibre tyre card,
fabric, impregnated textile fabrics etc.
(6) Iron and steel
(7) Jute whether baled or otherwise
(8) Liquified Petroleum Gas for domestic use
(9) Oilseeds
(10) Sugar and Khandsari sugar
(11) Unmanufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc.
(12) Hides and skins (Raw or cleaned)
(13) Crude oil i.e. crude petroleum oil and crude oil obtained from bituminous
minerals
(14) Pulses i.e. gram, tur, masur, moong, urad, arhar, moth, khesari etc.
(15) Woven fabrics of wool.
(16) Aviation Turbine fuel sold to a Turbo Prop Aircraft.
Restrictions and conditions in regard to tax on sale purchase of declared goods within
a State : Section 15 of CST Act : Every sales tax law of a State shall, insofar as it
impose or authorize the imposition of a tax on the sale or purchase of of declared
goods, be subject to the following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of any sale or purchase of such goods
inside the State shall not exceed [five] per cent of the sale or purchase price
thereof,
(b) where a tax has been levied under the law in respect of the sale or purchase
inside the State of any declared goods and such goods are sold in the course of
inter-State trade or commerce, and tax has been paid under this Act in respect of
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 149 of 182
the sales of such goods in the course of inter-State trade or commerce the tax
levied under such law shall be reimbursed to the person making such sale in the
course of inter-State trade or commerce in such manner and subject or such
conditions a smay be provided in any law in that State;
(c) where a tax has been levied under that law in respect o the sale or purchase
inside State of any paddy referred to in sub-clause (i) of clause (i) of Section 14,
the tax leviable on rice procured out of such paddy shall be reduced by the amount
of tax levied on such paddy;
(ca) where a tax on sale or purchase of paddy referred to in sub-clause (i) of
clause (i) of Section 14 is leviable under that law and the rice procured out of such
paddy is exported out of India, then, for the treated as a single commodity;
(d) each of the pulses referred to in clause (vi-a) of Section 14, whether whole or
separated, and whether with or without husk, shall be treated as a single
commodity for the purposes of levy of tax under that law.
Thus,
Tax shall not be levied at more than one stage in case of declared goods.
The dealer shall be entitled to refund of tax, if the following conditions are satisfied.
(a) Tax on declared goods has been paid at the time of sale or purchase to a
state government
(b) Afterwards, all above goods are sold in the course of interstate trade or
commerce.
(c) Tax has been paid on such goods under CST Act.
(d) The dealer is fulfilling the conditions with regard to refund in the State Act.
(e) The refund shall be granted to the dealer who sells the goods in the course of
Inter-State trade commerce.
Go To Module-4 QUESTIONS
Go To Contents
Explain (Central Sales Tax) : Sale-purchase in the course of export/ import. (Mar-
2014)
ANSWER :
Refer :
http://cacareer.weebly.com/uploads/2/0/4/0/2040831/central_sales_tax_act.doc
EXPORT OR IMPORT SALE - SEC.5
Export : Movement of goods from a place in India to a place outside India.
A of Delhi enters into a contract of sale with G of Germany and sends the goods
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 150 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 151 of 182
The place Mark "A" is the harbour gate and going in / out through the gate is
crossing the Customs frontiers of India.
Important --->
In the customs law crossing is reckoned at the 12th nautical mile in the sea
However, for the purpose of CST the crossing is reckoned on the main land at
the harbor gate (in the above example it is represented by A)
Thus, going inside by crossing A into customs area for exporting
some goods and coming outside from the customs area with imported
goods after paying the import duty will be called as crossing of customs
frontier of India.
This definition is useful for the purpose of Sec. 5. As per which sales made by
transfer of documents of title (Bill of Lading) before crossing the customs
frontier are import sales and sales made after the crossing are export sales.
PRE EXPORT SALE OR PENULTIMATE SALE OR SALE FOR EXPORT SEC.5(3) :
Back ground: Export is a specialised business and many small units are unable to
export directly. Export is often affected through specialised agencies like export
Houses etc. Such indirect exports also need exemption from taxes (like
LST, CST) to make the products competitive. Hence, such penultimate
sale before export is also deemed to be in the course of export under
Sec.5(3). To remove this hardship Sec.5(3) was incorporated.)
Section 5(3) : Exemption to penultimate sale is available subject to the conditions
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 152 of 182
that the penultimate sale (i.e., last but one sale before export sale) is :
a. For the purpose of complying with export order in relation to export.
b. Such penultimate sale is made after the export order in relation to export.
c. The same goods which are purchased in penultimate sale must be sold as
exports, and
d. The dealer claiming the benefit of Sec.5(3) should obtain Form H declaration
from the exporter. The details in form H prove prima facie that conditions of
section 5(3) have been fulfilled.
E.g.: A of Delhi receives an order for export of certain goods from G of Germany.
To execute this order, he buys the goods from B of Ludhiana. The sale by B to A,
which is the last sale before actual export sale, shall also be deemed to have taken
place in the course of export, although B has sold the goods to A in India. This sale
shall therefore, not be taxable under State Sales tax law or Central Sales tax law.
What is the benefit of Sec.5(3) ?: Sec 5(3) = 5(1) =Zero tax
Illustration :
X, the exporter, first procures goods from Y, the local dealer. Thereafter he finds a
foreign buyer Z and makes export sale.
Here Y will NOT be eligible for5 (3) benefit because his sale to X was prior to the
receipt of the export order by X from Z.
X of USA placed an export order for sandalwood oil with Y of India. Y obtained
sandalwood from Z, extracted oil and sold it to X.
Here, Z will NOT get Sec.5(3) concession because while the export order was for
sandalwood oil, Z sold sandalwood after the receipt of the order from X. Further
the rule called the same goods must be exported has not been complied.
The banians were exported, packed in the polythyne bags.
It was held that EVEN purchase of polythyne bags is eligible for Sec.5(3).
Go To Module-4 QUESTIONS
Go To Contents
Explain (Central Sales Tax) : Discuss different rates of taxes under CST. (Mar-2014)
ANSWER :
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 153 of 182
Discuss : Provisions relating to different types of offence and penalty and different
rates of taxes under CST act. (Nov-2014)
Discuss the provision of penalties and offenses under Central Sales Tax Act 1956.
(Nov-2011)
Explain : Discuss different types of offenses and provisions of penalty under Central
Sales Tax. (Mar-2014)
ANSWER :
Refer :
Go To Module-4 QUESTIONS
Go To Contents
Go To Module-4 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 154 of 182
Module-5 QUESTIONS :
Explain : Provisions of submitting return of wealth under wealth act. (Mar-2014)
Write short note : Time limit for filing wealth tax returns. (Nov-2012)
Explain : Assessment date. (Nov-2014)
Explain under the wealth tax act : valuation date. (Nov-2011, Nov-2012, Oct-2013)
Explain under the wealth tax act : deemed assets. (Nov-2011)
Explain under the wealth tax act : exempted assets. (Nov-2011, Nov-2012, Oct-2013)
Write short notes : Exempted property from Wealth tax. (Oct-2013)
Explain : Exempted income under wealth tax. (Nov-2014)
Explain under the wealth tax act : net assets. (Nov-2011)
Write short note : Net wealth. (Nov-2012, Oct-2013, Mar-2014)
Write short notes : Assessment of tax on jewelery. (Oct-2013)
Explain : Taxable income under wealth tax. (Nov-2014)
Explain under the wealth tax act : penalty provision. (Nov-2011)
Write short note : Power of search and seizure. (Nov-2012, Oct-2013, Mar-2014)
Explain : Provision of investigation and seizure under wealth tax. (Nov-2014)
Write short note : Assessment procedure and seizure. (Nov-2012)
Explain : PAN. (Nov-2014)
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 155 of 182
Go To Contents
Module-5 ANSWERS :
Explain : Provisions of submitting return of wealth under wealth act. (Mar-2014)
ANSWER :
Refer :
https://en.wikipedia.org/wiki/Wealth_Tax_Act,_1957
https://www.scribd.com/document/24201577/Wealth-Tax-33
https://www.scribd.com/document/125865592/Wealth-Tax
http://www.mondaq.com/india/x/309916/property+taxes/Wealth+Tax+In+India+
An+Insight
Summary :
Please note that the Wealth tax has been abolished in the union budget
presented by Hon. finance minister Mr. Arun Jately on 28-Feb-2015. The wealth-
Tax has been replaced with additional surcharge of 2 per cent on super rich with a
taxable income of over Rs 1 crore annually.
The Wealth Tax Act, 1957 is an Act of the Parliament of India which provides for
levying of wealth tax on an individual, Hindu Undivided Family (HUF) or company is
in possession of, on the corresponding Valuation Date. The Act applies to the whole
of India including the state of Jammu and Kashmir and the Union Territories. The
application of the Act will be discontinued from 1 April 2016.
Wealth Tax in India is a form of Direct Tax and is levied under the provisions of
Wealth-Tax Act, 1957 ["W.T. Act" for short]. Wealth Tax is levied on every
Individual, Hindu Undivided Family (HUF) and Company on the value of their net
wealth which exceeds the sum of INR 30,00,000/- (Rupees Thirty Lakhs). Wealth
Tax is levied every year.
Wealth tax is not a very important or high revenue tax in view of various
exemptions. Wealth tax is a socialistic tax. It is not on income but payable only
because a person is wealthy.
Wealth tax is payable on net wealth on valuation date. As per Section 2(q),
valuation date is 31st March every year.
It is payable by every individual, HUF and company.
Tax rate is 1% on amount by which net wealth exceeds Rs 30 lakhs.
No surcharge or education cess is payable.
No wealth-tax is chargeable in respect of net wealth of any company registered
under section 25 of the Companies Act, 1956; any co-operative society; any social
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 156 of 182
club; any political party; and a Mutual fund specified under section 10(23D) of the
Income-tax Act [section 45]
Some of the important terms under W.T. Act are as follows :
Net Wealth -
Sec-2(m) : Net Wealth =
The amount by which the aggregate value of all the assets, wherever located,
belonging to the assessee on the valuation date,
is in excess of the aggregate value of all the debts owed by the assessee on
the valuation date which have been incurred in relation to the said assets.
Formula ----> Net wealth = Value of assets [sec 2(ea)] + deemed assets [sec
4] - exempted assets [sec 5] - debt owed [sec 2(m)]
In brief net wealth is the value of the excess of assets over liabilities.
Sec-2(d) Assessment year means the period of twelve months commencing on
the 1st day of April, every year falling immediately after the valuation date.
Assets : Sec-2(ea) of WT Act :
The assets liable to wealth tax are as under :
(1) Any building or land appurtenant thereto which shall include :
commercial buildings;
residential buildings;
any guest house;
a farm house situated within 25 kilometres from the local limits of any
municipality (whether known as Municipality, Municipal Corporation or by
any other name) or a Cantonment Board.
However, the following buildings will not be included to assets:
a house meant for residential purposes which is allotted by a company to
an employee or an officer or a director who is in whole time employment,
having a gross annual salary of less than Rs. 5,00,000/-.
any house for residential or commercial purposes which forms part of
stock-in-trade;
any house which the assessee may occupy for the purposes of any
business of profession carried on by him.
The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000 :
any residential property that has been let out for a minimum period of
300 days in the previous year.
any property in the nature of commercial establishments or complexes.
(2) Motor Cars (excluding those used by the assessee in the business of
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 157 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 158 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 159 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 160 of 182
The interest of the assessee in the coparcenary property of any Hindu Undivided
Family of which he is a member ;
Any one building in the occupation of a Ruler, being a building which immediately
before the commencement of the Constitution (Twenty-sixth Amendment) Act,
1971, was his official residence;
Jewellery in the possession of any Ruler, not being his personal property, which has
been recognised before the commencement W.T. Act, by the Central Government
as his heirloom (valuable object that has belonged to a family for several
generations) or, where no such recognition exists, which the Board may, subject to
any rules that may be made by the Central Government in this behalf, recognise as
his heirloom at the time of his first assessment to wealth-tax under the W.T. Act;
In the case of an assessee, being a person of Indian origin or a citizen of India who
was ordinarily residing in a foreign country and who, on leaving such country, has
returned to India with the intention of permanently residing therein, moneys and
the value of assets brought by him into India and the value of the assets acquired
by him out of such moneys within one year immediately preceding the date of his
return and at any time thereafter. The exemption would be given for a period of 7
successive years commencing with the assessment year next following the date on
which such person returned to India;
one house or part of a house or a plot of land belonging to an individual or a Hindu
undivided family, provided that the plot of land should be comprising an area of
five hundred square meters or less.
Net wealth to exclude assets and debts outside India : in computing the net
wealth of an individual who is not a citizen of india or of an individual or a hindu
undivided family not resident in india or resident but not ordinarily resident in india,
or of a company not resident in india during the year ending on the valuation date
the value of the assets and debts located outside India; and
the value of the assets in India represented by any loans or debts owing to the
assessee in any case where the interest, if any, payable on such loans or debts
is not to be included in the total income of the assessee under section 10 of the
I.T. Act;
shall not be taken into account.
PERSON WHO ARE EXEMPTED FROM THE APPLICABILITY OF WEALTH TAX : Wealth
Tax is not applicable to,
Trusts
Artificial Judicial Persons
any Section 25 Company under Companies Act, 1956,
any co-operative society;
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 161 of 182
Go To Module-5 QUESTIONS
Go To Contents
Write short note : Time limit for filing wealth tax returns. (Nov-2012)
ANSWER :
The Wealth Tax return for Individuals, Hindu Undivided Families and Companies is
to be filed in Form BA.
Value of assets for an assessment year is to be declared as on the relevant
Valuation Date i.e. 31st March of each year. Thus, for the assessment year 2013-
14, the valuation date will be 31.3.2013.
The due date for filing the Wealth-tax return shall be the same due date
applicable to an assessee for filing the Income-tax return under section 139(1) of
the Income-tax Act. [sec.14(1)] (i.e. if the assessee is liable to audit, the due date
will be 30th September and in other cases the due date will be 31st July.
Value of an asset, other than cash, is to be determined on the basis of the rules of
Schedule III. The details of calculation of the value of each asset under the
relevant rule of this schedule should be attached with the return. Also, Wherever
any rule of this schedule prescribes that a particular document in support of the
valuation is to be attached with the return, the same must be attached.
Return by whom to be signed : The provision of sec. 15A are similar to that of the
provision of sec. 140 of the Income-tax Act. [sec. 15A]. The assessee must sign all
attached documents.
If a person files a return of net wealth below exemption limit, he shall be deemed
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 162 of 182
never to have been furnished. However, a return furnished u/s. 17 shall be a valid
return even if the net wealth disclosed therein in not exceeding the basic
exemption limit. [sec. 14(2)]
Belated and Revised return : The provisions relating to filing of belated/revised
return are similar to that of the provision of sec. 139(4)/139(5) of the Income-tax
Act. [s. 15]
Go To Module-5 QUESTIONS
Go To Contents
Go To Module-5 QUESTIONS
Go To Contents
Explain under the wealth tax act : valuation date. (Nov-2011, Nov-2012, Oct-2013)
ANSWER :
The valuation date is an important component in the calculation of Wealth Tax. The
Net Wealth that an assessee possesses on the valuation date determines,
the amount of tax,
the residential status of the assessee,
value of an asset, and
exact amount of wealth at the end of the date.
Valuation Date, in relation to any year means the last day of the previous year.
The valuation date is considered the day of 31 March immediately preceding the
Assessment Year. E.g., When the Assessment Year is 1 April 2012 to 31 March
2013, the valuation date will be 31 March 2012.
Go To Module-5 QUESTIONS
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 163 of 182
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 164 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 165 of 182
Go To Module-5 QUESTIONS
Go To Contents
Explain under the wealth tax act : exempted assets. (Nov-2011, Nov-2012, Oct-2013)
Write short notes : Exempted property from Wealth tax. (Oct-2013)
Explain : Exempted income under wealth tax. (Nov-2014)
ANSWER :
Refer :
http://taxmasala.in/wealth-tax-exemption/
Wealth tax is direct tax which is collected on properties held. There are taxable assets
and Similarly wealth tax exemption is also available for many assets. In this article, I
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 166 of 182
have given list of taxable assets under wealth tax act in India and exemption
available under wealth tax act.
Whom to charge wealth tax? Wealth tax is charged to following persons who are
residents of India :
Individual
HUF
company
Wealth tax is charged on all assets (located in India and outside India ) of Resident
person of India.
Wealth tax exemption to following person : Wealth tax is not chargeable to following
persons :
Company registered u/s 25 of companies act, 1956
cooperative society
social club
mutual fund
political party
RBI
Rate of wealth tax :
Wealth tax rate is 1%.
Basic wealth tax exemption limit :
Basic exemption limit for wealth tax liability is Rs. 30 lakh. So for up to wealth
(assets) of Rs. 30 lakh, you have to no need to pay tax.
Computation of wealth tax liability : Steps for calculation of wealth tax liability :
Compute value of total assets on the date of 31/3 of previous year. The asset
should be included in the definition of asset.
Reduce amount of debt taken for that asset which is still pending for payment
on 31/3.
Minus exemption available.
Minus basic exemption limit of Rs. 30,00,000
Calculate net amount and charge 1% tax on it.
So the basic step to compute and pay wealth tax is get knowledge of taxable
assets under wealth tax act.After that we will shift to wealth tax exemption and
valuation of various assets. Final step will be online return filling of wealth tax.
ASSETS EXEMPT FROM WEALTH-TAX [Sec. 5] : Wealth-tax shall not be payable by an
assessee in respect of the following assets and such assets shall not be included in
the net wealth of the assessee :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 167 of 182
1. Property held under trust any property held by assessee under trust or other
legal obligation wholly for public purpose of a charitable/ religious nature. [sec.
5(i)]
Case Law : For purpose of exemption u/s 5(i), the situs (situs means the place
to which for purposes of legal jurisdiction or taxation a property belongs) of the
property is irrelevant; what is relevant is that public purpose of charitable/
religious nature should be in India Trustees of H.E.H. The Nizams Pilgrimage
Money Trust v. CIT - 111 Taxman 228 / 243 ITR 676.
2. Interest on coparcenary property the interest on an assessee in coparcenary
property of a HUF of which he is a member as the family itself is liable to Wealth-
tax. [sec. 5(ii)]
3. Official residence of Indian Ruler any one building in the occupation of a Ruler
of an erstwhile Indian State where it is declared as his official residence by the
Central Government . [sec. 5(iii)]
Case Law : Buildings, forming part of palace declared as official residence of
Ruler under Merged States (Taxation Concessions) Order, 1949, which were let
out on rent, could not said to be in occupation of Ruler within meaning of section
5(1)(iii) and, hence, value thereof was includible in his net wealth Mohammad
Ali Khan v. CWT - 92 Taxman 52 / 224 ITR 672
4. Jewellery of Ruler provided it is in the possession of the Ruler but is not his
personal property and that it has been recognised by the Central Government as
his heirloom. [sec.5(iv)]
5. Value of Assets brought by persons of Indian origin In the case of an
assessee, being a person of Indian origin or a citizen of India (hereafter in this
clause referred to as such person) who was ordinarily residing in a foreign country
and who, on leaving such country, has returned to India with the intention of
permanently residing therein, moneys and the value of assets brought by him into
India and the value of the assets acquired by him out of such moneys. Such
exemption is available for 7 successive assessment years from the date of his
arrival in India. [sec. 5(v)]
6. One residential house In case of an individual or a HUF (a) one house or part
of a house; (b) a plot of land comprises of an area upto 500 sq. metres. [sec.
5(vi)]
Case Law : For the purpose of section 5(iv) [clause (vi) from 01-04-1993], a
person who has come into possession of property on payment of the full
consideration, is entitled to exemption even though in the relevant years such
property had not been conveyed to him under a registered document CWT v.
P. Babul Reddy 85 Taxman 627 / 28 ITR 625
7. Exemption in case of non-residents In case of an individual who is not a
citizen of India, or of an individual or a HUF not resident in India, or resident but
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 168 of 182
not ordinarily resident in India, or of a company not resident in India during the
year ending on the valuation date
(i) the value of assets and debts located outside India is totally exempt.
(ii) the value of any assets in India, the income from which is exempt u/s. 10 of
the Income-tax Act, is fully exempt. [sec. 6]
Go To Module-5 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 169 of 182
employment, having a gross annual salary of less than ten lakh rupees;
any house for residential or commercial purposes which forms part of stock-
in-trade;
any house which the assessee may occupy for the purposes of any business or
profession carried on by him;
any residential property that has been let-out for a minimum period of three
hundred (300) days in the previous year;
any property in the nature of commercial establishments or complexes;
(ii) Motor Car :
All motor cars whether Indian or Foreign (other than those used by the assessee
in the business of running them on hire or as stock-in-trade);
(iii) Jewellery :
(1) Jewellery includes any jewellery, bullion, furniture, utensils or any other
article made wholly or partly of gold, silver, platinum or any other precious metal
or any alloy containing one or more of such precious metals (other than those
held by the assessee as stock-in-trade);
(2) It also includes - (i) ornaments made of gold, silver, platinum or any other
precious metal or any alloy containing one or more of such precious metals,
whether or not containing any precious or semi-precious stones, and whether or
not worked or sewn into any wearing apparel; (ii) precious or semi-precious
stones, whether or not set in any furniture, utensils or other article or worked or
sewn into any wearing apparel;
(3) And does not include: The Gold Deposit Bonds issued under the Gold Deposit
Scheme, 1999 notified by the Central Government.
(iv) Yachts, boats and aircrafts (other than those used by the assessee for
commercial purposes);
(v) Urban land :
1. The urban land means land situated in any area which is comprised within the
jurisdiction of a municipality (whether known as a municipality, municipal
corporation, notified area committee, town area committee, town committee, or
by any other name) or a cantonment board And
which has a population of not less than ten thousand according to the last
preceding census of which the relevant figures have been published before the
valuation date or not being 2 km from the local limits of any municipality and
which has a population of more than 10,000 and upto 1 lakh or not more than
6 km, from the local limits of any muncipality
which has a population of more than 1 lakh or upto 10 lakh or not being more
than 8 km, from the local limits of any muncipality
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 170 of 182
Go To Module-5 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 171 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 172 of 182
held in this case that the only relevant thing for the purposes of the Wealth-tax
Act was that the assessee should be the owner of the assets in question on the
relevant valuation date. Since the balance sheet showed the service connections
in question as assets, value thereof was not deductible in determining the net
value of assets. Mere possibility of confiscation does not impair ownership of
the assessee in the articles seized. Hence, the value of the assets seized on the
valuation date shall be included in the net-wealth. [Jayantilal Amritlal v. CWT
(1982) 135 ITR 742 (Guj.)].
This is subject of course to the condition that the asset in question is one of the six
specific assets mentioned in the exhaustive definition of assets given in Section
2(ea).
Go To Module-5 QUESTIONS
Go To Contents
Go To Module-5 QUESTIONS
Go To Contents
Go To Module-5 QUESTIONS
Go To Contents
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 173 of 182
similar to the provisions of Sec. 273A of the Income-tax Act. [sec. 18B]
Prosecutions : Section 35A to 35N deal with prosecutions for offences under the
Wealth-tax Act. The nature of the offences and the quantum of penalty or other
punishment prescribed are briefly indicated below in a tabular form :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 174 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 175 of 182
Case Law :
CWT v. H.S.Chauhan 113 Taxman 630 / 245 ITR 704 - No penalties could be
levied under section 18(1)(a) on legal heir after death of assessee
Appeals, Revision & References [Secs. 23 to 29] Settlement Commission [Sec. 22A
to 22L]
The provisions regarding appeals, revision, references and Settlement
Commission under the Wealth-tax Act are analogous to the provisions contained
in the Income-tax Act
[Sec. 42D] : Where any books of account or other documents, articles or things
including money are found in the possession or control of any person in the course
of a search under section 37A, it may, in any proceeding under this Act, be
presumed that
(i) such books of account or other documents, articles or things including money
belong to such person;
(ii) the contents of such books of account or other documents are true; and
(iii) the signature and every other part of such books of account or other
documents which purport to be in the handwriting of any particular person or
which may reasonably be assumed to have been signed by, or to be in the
handwriting of, any particular person, are in that persons handwriting, and in
the case of a document stamped, executed or attested, that it was duly stamped
and executed or attested by the person by whom it purports to have been so
executed or attested.
Go To Module-5 QUESTIONS
Go To Contents
Write short note : Power of search and seizure. (Nov-2012, Oct-2013, Mar-2014)
Explain : Provision of investigation and seizure under wealth tax. (Nov-2014)
Write short note : Assessment procedure and search and seizure. (Nov-2012)
ANSWER :
Refer :
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 176 of 182
http://www.taxdose.com/search-seizure-provisions-procedures-a-brief-overview/
Assessment Procedure :
[sec.14(1)] : The due date for filing the Wealth-tax return shall be the same due
date applicable to an assessee for filing the Income-tax return under section
139(1) of the Income-tax Act.
Sec-14 : Return of Wealth : If a person files a return of net wealth below
exemption limit, such return shall be deemed never to have been furnished.
However, a return furnished in responce to notice u/s 17 shall be a valid return
even if the net wealth disclosed therein in not exceeding the basic exemption
limit. [sec. 14(2)]
Belated and Revised return : The provisions relating to filing of belated/ revised
return are similar to that of the provision of sec. 139(4)/139(5) of the Income-tax
Act. [s. 15]
Return by whom to be signed : Sec. 15A : The return made under section 14 or
section 15 shall be signed and verified
(a) in the case of an individual,
(i) by the individual himself;
(ii) where he is absent from India, by the individual himself or by some person
duly authorised by him in this behalf;
(iii) where he is a mentally incapacitated from attending to his affairs, by his
guardian or any other person competent to act on his behalf; and
(iv) where for any other reason, it is not possible for the individual to sign the
return, by any person duly authorised by him in this behalf:
Provided that in a case referred to in sub-clause (ii) or sub-clause (iv), the
person signing the return holds a valid power of attorney from the
individual to do so, which shall be attached to the return;
(b) in the case of a Hindu undivided family, by the karta, and, where the karta is
absent from India or is mentally incapacitated from attending to his affairs, by
any other adult member of such family; and
(c) in the case of a company, by the managing director thereof, or where for any
unavoidable reason such managing director is not able to sign and verify the
return or where there is no managing director, by any director thereof
Provided that where the company is not resident in India, the return may be
signed and verified by a person who holds a valid power of attorney from such
company to do so, which shall be attached to the return
Sec 15B : Self assessment :
(1) Where any tax is payable on the basis of any return furnished under section
14 or section 15 or section 16 or section 17,
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 177 of 182
after taking into account the amount of tax, if any, already paid, the assessee
shall be liable to pay such tax, together with interest payable for any delay in
furnishing the return, and
the return shall be accompanied by proof of payment of such tax and interest.
(2) After the regular assessment under section 16 has been made, any amount
paid under sub section (1) shall be deemed to have been paid towards such
regular assessment.
(3) If any assessee fails to pay the whole or any part of such tax or interest or
both in accordance with the provisions of sub-section (1), he shall, without
prejudice to any other consequences which he may incur, be deemed to be an
assessee in default and all the provisions of this Act shall apply accordingly.
Sec-16 : Assessment : Scrutiny and best judgement assessment [Sec. 16(1),
16(3), 16(5) are similar to that of Income-tax Act subject to certain modifications.
sec. 16A : Reference to Valuation Officer : The assessing officer may refer the
valuation of any asset to a Valuation Officer only if the following requirements are
fulfilled.
1. The valuation is necessary for the purpose of making an assessment. The
market value of the asset is required to be adopted while making such
assessment.
The Assessing officer may refer valuation of any asset to a valuation officer
under the following circumstances :-
(a) In a case where the value of the asset is returned (adopted) on the
basis of the estimate by a registered valuer which in the opinion of the
Assessing officer is than the fair market value (FMV).
(b) In any other case, if the Assessing officer is of the opinion :
that the fair market value of the asset exceeds by 33-1/3% or Rs.
50,000 over the value of such asset as adopted by the assessee ; or
that having regard to the nature of the asset and the other relevant
circum stances, it is necessary to make a reference.
2. The Valuation Officer, after hearing the assessee and the evidence furnished
by him in support of his objections, if any shall pass an order in writing,
determining the value of the asset and forward a copy to the Assessing officer
and the assessee.
3. On receipt of the report from the Valuation Officer, The Assessing officer shall
adopt the value determined by the Valuation Officer while making the
assessment.
Search & seizure-meaning :
Search, according to normal dictionary meaning, means to look out, to seek or to
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 178 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 179 of 182
that :
a. The person to be searched is likely not to produce or suppress any books of
account,
b. Found to be in possession of any money, bullion or jewellery which may be
his undisclosed income or property,
c. Not likely to honor any notice or summons.
Reasons to believe is a sine qua non for conduct of search proceedings as per the
provisions of law and various judicial pronouncements also supports this view.
Every authorizing offcer must record in writing the fact that he has suficient
reasons to believe that search operation should be mounted on a person.
Whether the person searched in entitled to get copy of reasons recorded :
The answer is loud and clear- NO.
The person searched is not entitled to get a copy of reasons recorded by the
department as it is a privileged document and cannot be shared with the person
searched.
It has been held in the case of Dr. PRATAP SINGH v DIRECTOR OF ENFORCEMENT
(1985) 155 ITR 166 (SC) that Only the High Courts and the Supreme Court have
the jurisdiction to call for and look into the reasons recorded to decide whether the
issue of the search warrant was called for.
The search procedure at a glance :
a. Authorization of search by issuing search warrant in form 45 of IT Rules.
b. Entering into the premises to be searched by producing search warrant.
Conducting search in presence of at least two witnesses.
c. Preparing Panchnamas for each premise and person.
d. Preparing inventories of cash/valuables/loose papers /jewellery found and
seized.
e. Recording statements.
What is a panchnama :
A panchnama is a vital document evidencing the conduct of search at a premise on
the day of search in the presence of at least two witnesses whose signatures are
taken on the panchnaama. The panchnama contains the name and address of the
person searched in whose respect search warrant has been issued. It is
accompanied by annexures prepared by the department as inventories of books of
account, cash and other valuables found and seized by the department. The person
searched is entitled to obtain a copy of the Panchnama.
Recording of statements :
Statements may be recorded during and after search u/s 132(4). They have strong
evidentiary value and are binding on the person searched unless retracted on valid
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 180 of 182
grounds.
Retraction of statements is permissible only if made within a reasonable period of
time and burden of proof lies on the retractor to prove that the statements were
recorded under duress or undue influence.
Rights of person searched :
a. To check identity of each of the member of search party
b. To have authorized representative
c. To have witnesses
d. To search every person of search party when they leave the place
e. To call doctor for the ill person
f. To send kids to school after verification of their school bags
g. Female to be searched by female only
h. To have inventory of items found and seized
i. To use phones
j. To have copy of statements recorded
k. To have copy of books and documents seized
Duties of person searched :
a. To allow search party enter the premises without obstacles
b. To sign search warrant
c. To give explanation when asked
d. To restrict entry of any unauthorized persons
e. Not to move any items without permission of search party
f. To co-operate with search party
Items which can be seized :
During the course of search, the income tax oficers conducting the search are
empowered to seized books of account, cash, jewellery and other valuables such as
FDs/RDs, shares certificates, NSCs, hundies, promissory notes, title deeds of
immovable properties.
Items which cannot be seized :
a. Immovable assets
b. Stock held in business
c. Items disclosed in Income Tax and Wealth tax returns
d. Items appearing in books of accounts
e. Cash for which explanation can be given
f. Jewellery mentioned in wealth tax return
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 181 of 182
g. Gold up to 500 Gm per married woman, 250Gm per unmarried woman and
100Gm per male member of the family
h. Jewellery as per the status of the family if so appear to investigating oficer
Assessment of a person other than the person searched :
Section 153C is a unique provision in itself in as much as it empowers the IT
authorities to conduct assessment proceedings even in case of a person who was
not searched as if a search has been conducted in his case also.
This happens when during search at a premise, some documents or valuables were
found in respect of which there was apprehension that they may belong to some
other person. In such a case section 153C may be invoked against that person by
the IT authorities after recording reasons for satisfaction and all the provisions of
section 153A shall apply as they apply in case of a person searched.
Go To Module-5 QUESTIONS
Go To Contents
Go To Module-5 QUESTIONS
Go To Contents
Suggested Reading :
Ramesh Sharma, Supreme Court on Direct Taxes, Bharath Law House, New Delhi.
Sampath Lyengar, Law of Income Tax, Bharath Law House, New Delhi
Diwan B. K. and Sanjay Mehttani, Formation, Taxation, and Assessment Charitable and
Religious Trusts, Bharath law House, New Delhi.
Kanga and Palkiwala. The Law and Practice of Income Tax, Wadha, Nagpur .
K. Parameswaran, Power of Taxation under the Constitution, Eastern Lucknow
V. Ramachandran & T.A. Ramakrishnan (eds) A. N. Aiyars Indian Tax Laws, Company
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/
https://www.facebook.com/groups/Dharmo.Rakshati.Rakshitah/ Page- 182 of 182
https://www.facebook.com/groups/LLB.GujUni/ http://duralex.bhatt.net.in/