Question 1: State the incomes which are wholly exempt

from Income Tax under sections 10 and 10 AA.

Ans: The following are the incomes or types of incomes of the previous year that are totally
exempt from tax under Section 10 of the Act. Income falling under the following clauses shall not
be included in computing the total income of an assesse:

1. Agricultural Income - Section 10 (1): The agricultural income of an assesse (individual; himdu
undivided family, association of persons, body of individuals, etc.) is to be aggregated for
determining the rate of tax on non agricultural income. Agricultural and non agricultural
income will be aggregated only if the assessed has taxable non-agricultural income exceeding
the exemption limit.

2. Receipts from H.U.F - Section 10 (2): Any sum received by a member of a Hindu undivided
family in his capacity as a member of the Hindu undivided family will not be included in the
total income of the assessed, where such sum had been paid out of the income of the estate
belonging to the family. But if such a member acquires separate property, income out of such
property would be his individual income.

3. Share of income from a partnership rm: - Section 10 (2A): If a person is a partner of a rm

which is separately assessed as such his share in the total income of the rm is exempt. His
share in the rm shall be computed by dividing the taxable pro ts of the rm in the ratio
mentioned in the Partnership deed.

4. Interest on Government Securities Bonds for Non-Residents - Section 10(4)(i): In case of non
residents, income from interest on Securities bonds speci ed by the Central Government, and
the premium on redemption of such bonds is exempt from tax.

5. Travel Concession or Assistance - Section 10 (5): Any leave travel concession or assistance
received by the employee and his family from the employer in connection with his proceeding
on leave or after retirement or termination of his service, shall be exempt from tax.

6. Remuneration as an Employee or a Foreign Enterprise - Section 10 (6) (vi): Any amount

received as remuneration as an employee of a foreign enterprise for services rendered by him
during his stay in India shall be exempt from Income tax. However, such person should not be
a Citizen of India and his stay should not exceed a period of 90 days. The foreign enterprise
should not conduct any business in India.

7. Section 10 (6C): Income by way of royalty or fees for Technical Service received by a foreign
company under an agreement with the Central Government in connection with projects of
Indian Security.

8. Commutation of Pension - Section 10 (10A): Any payment in commutation of pension, subject

to a limit not exceeding 1/3 of the commuted value of such pension in case where the
employee received a gratuity and in other case 1/2 of the commuted value of such pension.

9. Leave Encashment - Section 10(10AA): If any employee receives cash equivalent of the leave
salary in respect of the leave salary in respect of the period of earned leave, at the time of his
retirement, etc.

10. Compensation to Employee - Section 10(10 B): Any amount received by a workman as
compensation under Industrial Disputes Act or any other Act, at the time of his retrenchment
is to the extent exempt, Such Compensation is in accordance with Industrial Disputes Act or
Rs. 5,00,000 whichever is less.

11. Section 10(10C): Any payment received or receivable by an employee of public sector
company, at the time of his voluntary retirement to the extent of Rs: 5,00,000/- whichever is
less.
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 12. Section10 (10 CC): Any income in the form of a perquisite not covered by an employee who is
an individual, the tax on such income which the employer pays on behalf of such employee,
except the condition mentioned in Section 200 of the Companies Act, which deals with
prohibition of tax free payments.

13. Any payment under Provident Fund Act or Public Provident Fund Scheme, etc (Section
10(11)).

14. Section 10 (12): Any accumulated balance due and becoming payable to an employee from a
recognised provident fund is exempt from total income under prescribed conditions.

15. Section 10(13A): Any special allowance to an assessed by his employer to meet expenditure
incurred on payment of rent for residential accommodation.

16. Section 10 (14): ANy special allowance or bene t but not perquisites to meet expenses in
performance of duties to the extent to which they are actually incurred.

17. Section 10(15): Interest premium on redemption of other payment on noti ed Securities,
bonds, Annuity Certi cates, Savings Certi cates, etc.

18. Daily Allowances Constituency Allowance and other allowances - Section 10 (17): Received by
M.P or M.L.A or any person who is a member of parliament are fully exempted form tax.

19. Section 10 (17A): Award received in cash or kind by the State or Central Government.

20. Section 10(18): Pension received by any individual who has been in service of the Central or
State Government and awarded ‘Param Vir Chakra’ or ‘Mahar Vir Chakra’ or ‘Virk Chakara’ or
nay such gallantry award as the Central Government may specify by noti cation in the o cial
gazette, and family pension received by any member of the family of the above mentioned
individual fully exempted.

21. Family Pension - Section 10 (19): Received by the widow or children or nominated heirs of a
member of the armed forces and para-military forces of the Union, whose death has occurred
in the course of his operational duties.

22. Section 10 (23AA): Income received by any person on behalf of any Regimental Fund or non
Public Fund Established by the armed forces for welfare of the present and past members of
such forces.

23. Section 10 (23AAA): Income received by a person on behalf of a fund established for purposes
noti ed the board in the o cial agate for the welfare of the employees of their dependents.

24. Section 10 (23 AAB): Any income of a fund set up by the life Insurances Corporation of India
under a pension scheme daily approved by the Controller of Insurance/IRDA.

25. Section 10 (23D): Income of mutual fund set up by a public sector bank or a public nancial
institution subject to noti ed conditions.

26. Section 10 (24): Income from house property and income from other sources received by a
Registered Trade Union formed primarily by regulating relations between workman and
employers or between workman and workman and as association of registered trade unions.

27. Section 10(26BB): Any income or corporation established by the Central Government or any
State Government for promoting the interests of the member of a minority community.

28. Section 10(26BBB): Any income of a Corporation established by a Central, State or Provisional
Act for the welfare and economic upliftment of ex-servicemen being the citizens of India.
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 Question 2: Explain annual value of house property,
method to calculate income from house property and
deductions from house property income.

Ans: Introduction: The owner of the hose properties consisting of building and land appurtenant
thereto, is assessable for income tax chargeable to income from house property. But if the house
property is occupied by the assessed himself for the purpose of his own business or profession,
then the pro ts are assessable for taxation but not as income from house property.

The term ‘business’ means that the house property may be let out to the employee of the
business for residence to e ciently conduct the business. The rent collected from the employee
is assessed as income from business and not as income from house property. When the
immovable property consists of land with no building on it, the income from the landis assessed
as income from other sources.

Owner of House Property: The following persons are deemed to be owner of house property for
the purpose of charging income tax.

1. The individual in whose name the property is registered.

2. The transferee from the owner without full consideration like husband and wife, unmarried
daughter, minor, child, etc.
3. The holder of impartible estate which comprises of house properties.
4. A member of the housing society to whom a building built is allotted or leased by the society.
5. A person who acquires any right by virtue of any transaction shall be deemed to be owner of
the building.

Deductions in the Income of House Property Section 24: In the computation of income from
house property, the following deductions are allowed in the annual value of the house property.

1. 30% of the annual value is deducted.

2. In case where the property has been acquired constructed, repaired, renewed or
reconstructed with borrowed capital, the amount of interest payable on his capital borrowed.

3. In the case of a house or part of a house which is in the occupation of the owner for his own
residence business or profession at any other place, deduction should not exceed Rs.
30,000/-

4. If the property acquired or constructed with capital borrowed on or after 1st day of April 1999
and the construction or acquisition is completed within three years from the end of the
nancial year in which capital was borrowed, the amount of deduction should not exceed
3,00,000 for amount year 2015-2016. For claiming the deduction, the assessed must furnish
a Certi cate from the person to whom interest is payable.

5. Any interest chargeable under this Act, which is payable outside India on which tax has not
been paid or there is no person to treat as his agent in this respect, shall not be deducted in
computing the income from house property.

Allowance for irrecoverable rent (letout property): If any of the following conditions are satis ed,
allowances for irrecoverable rent may be permitted:

1. When the tenancy is bona de.

2. When the defaulting tenant has vacated the house property.

3. When the defaulting tenant is not in occupation of any other house of the assessee.
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4. When the assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent.

5. When the assessee satis es the Income Tax O cer that legal proceedings would be useless.

6. When the annual value of the house property includes the unpaid rent in the assessed Income
of the previous year, tax has been duly paid through the rent was due.

7. The deduction allowed should not be more than the income from ‘income form house
property’ included in the total income, as computed without making this deduction.

8. After deducting if the assessee realises the rent in a subsequent year, the realised amount will
be taxed as “Income from house property” in the year of receipt even if the assessee is not
owner of that property in that year.

9. In case where already a deduction for unrealised rent has been made before the Finance Act
2001, and subsequently during any previous year, the assessee has realised the rent, the
amount which was realised shall be income chargeable as “Income from house property” and
charged to income tax. The assessee need not be the owner of that property during the year
in which the rent is realised. Section 25A.

10. If an assessee cannot realise rent from a property let to a tenant, and subsequently, the
assessee has realised such rent, the amount shall be deemed to be “income from house
property. Section 25AA.

11. If the assessee is the owner of a property with buildings and land, which is let out to rent, and
he has received any arrears of rent which has not been charged to income tax in the previous
years, then the amount shall be deemed to be the income chargeable under the “income from
house property” after deduction of sum equal to 30% of the amount received (Section 25B).

Annual Value of House Property: Income tax is chargeable on the house property, not in respect of
any actual rent received, but in respect of the annual value of house property. The annual value of
any house property is the sum for which the property is reasonably expected to be let form year
to year. So the annual value of house property means its fair rental value. The annual value of
house property shall be calculated in the following manner:

1. Where the priority or any part of the priority is let and rent received by the owner is in excess
of the sum reasonably expected to let, the amount so received or receivable.

2. Vacancy allowed: Where the property or any part of the priority is let and was vacant during
the whole or any part of the previous year, and due to the vacancy, the actual rent received or
receivable is less than the sum reasonable expected, then the amount so received or
receivable is the annual value of the house property. Even here, the taxes levied by the local
authority like Corporation tax, Water tax, Sewage tax are deducted. The amount of rent which
is not included in the calculation of the annual value.

3. If the house property reserved by the owner for his own residence consisting of only one
residential house which is neither actually occupied by the owner, nor actually let to tenant,
and no other bene t is derived from the house by owner, then actual value of such house roe-
try is taken to be nil if the property was unoccupied during the whole of the previous year. If it
is occupied for a part of previous year, the annual value will be proportionate.

4. If the house property reserved by the owner for his own purposes is more than one such
house, the assessee may specify the annual value of the house or houses, other than the
house in respect of which the assessee has exercised an option as mentioned above.
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 Question 3: Discuss the provisions relating to Appeal
under the Income Tax Act, 1961.

Ans: Appeal to the Deputy Commissioner (Appeals) (Section 246): Right of appeal to an assessee
abasing the orders of Income Tax O cer. There is no inherent right of appeal. Section 246 gives
the assessee the right of appeal to the Deputy Commissioner against orders passed by the
Assessing o cer. There are 23 types or orders passed by the Assessing O cer against which
appeal can be brought to the deputy Commissioner. Right of appeal is available only to the
assessee and not to the Department. But the Commissioner can review an order of the Assessing
O cer which is prejudicial of the interests of revenue.

Fees for ling in Appeal:

a. In the case where the appeal lies from an assessee whose total income is Rs. 1,00,000/- the
fee is Rs.250/-
b. If the total income is more than Rs 1,00,000/- but less than Rs.2,00,000/- the fee is 500/-
c. If the total income is more than Rs 2,00,000/- the fee is Rs. 1000/-

An apple to the commissioner may admit an appeal after the expiry of the said 30 days, if he is
satis ed that appellant had su cient cause for not presenting it within that period. The appeal
must be lled in the prescribed form and veri ed in the prescribed manner. The ling of an appeal
does not operate to stay the Notice of demand. So, at the time of ling the appeal, the Assessee
must have either paid tax due. If a return has been led by the assessee or he should have paid
an amount equal to the amount of advance tax which was payable by him, if no return has been
led. In any, case, for su cient grounds to be recorded in writing the Commissioner many exempt
him form the above conditions.

After hearing the appeal, the Deputy has to pass an order. He may make necessary enquiries and
may direct the Deputy o cer to make further enquiries and to report the result of the same. The
Deputy Commissioner may also admit fresh grounds of appeal if he is satis ed.

The commissioner has the following powers in disposing of the appeal - Section 251:

1. He may con rm, reduce, enhance or annual the assessment.

2. He may set aside and refer the case back to the Income Tax O cer to make a fresh
assessment according to his directions and make such necessary enquiry.

3. He may con rm, cancel, exchange or reduce the penalty imposed.

4. In other cases, he may pass such orders in the appeal as he thinks t.

5. But before enchanting an assessment or penalty, or reducing the amount of refund, the
applicant must be given resin able opportunity of showing cause against such enhancement
or reduction.

The order of the Commissioner disposing of the appeal should be in writing and should state the
points for consideration, the decision and the reasons for such decision. A copy of the order
passed by him will be sent to the appellant and the Commissioner.

Appeal to the Appellate Tribunal - Section 252: An appeal to the Appellate Tribunal can be sought
under the following circumstances:

a. If an assessee is not satis ed with an order passed in appeal by the Commissioner regarding
Recti cation of mistake in the Assessment, Procedure in Appeal failure to furnish return,
comply with notice, concealment of income failure to keep or maintain books of accounts
penalty for failure to answer question etc.,
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 b. An assessee aggrieved by an order passed by an Assessing O cer regarding procedure for
block assessment search and seizure or books of Account required to be produced.

c. The Commissioner objecting to an order passed by the Deputy Commissioner or a

Commissioner directing the Assessing O cer to appeal to the Appellate Tribunal against the
order.

Procedure of appeal to the Tribunal:

1. An appeal to the Appellate Tribunal may be sought by the assessee or the Assessing O cer
within 60 days from the date on which the order sought to be appealed against is
communicated to the assessee or Commissioner, as the case maybe. The appeal must be
led in the prescribed manner and veri ed in the prescribed manner. AN appeal may be led
after the expiry of 60 days for su cient cause.

2.
a. If The appeal made relates to a total income Rs.1,00,000/- or less, a fee of Rs. 500/- should
accompany it.

b. In case of total income between Rs. 1,00,000/- to Rs. 2,00,000/- the fee should be Rs.1500/-

c. In case of total income more than Rs. 2,00,000/- 1% of the assessed income upto a maximum
of Rs. 10,000/-. Fee is not charged in case of appeal by the Commissioner.

d. If the subject matter of an appeal relates to any matter other than those speci ed in a, b and
c, then the fee is Rs. 500/-

3. On receipt of notice that an appeal against the order of the Deputy Commissioner has been
preferred by the other party, the Assessing O cer or the Assessee may, within 30 days of the
receipt of the notice, le a memorandum of cross objections against any part of the orders of
the Deputy Commissioner. The memorandum may be led after the limitation period of 30
days for su cient cause.

4. No payment of fee is necessary for memorandum of cross objections.

5. The Tribunal passes such orders as it thinks t after giving both the parties an opportunity of
being heard.

6. If it nds any mistake in the order, within 4 years it may make an amendment in the order. If
the amendment enhances an assessment or reduces a refund, the Tribunal must give the
assessee an opportunity of being heard.

7. The Appellate Tribunal is the nal arbiter of facts. A nding by the Tribunal can be revised only
where there is no evidence to support it or where the nding is perverse.

8. The procedure of the Appellate Tribunal is determined by its own rules. Generally, two
members, a judicial and an accountant member constitute a bench. If they disagree on any
issue in appeal it has to be referred by President, for hearing by one or more members of the
Tribunal. The majority’s view is considered.

9. The President or any other member sitting singly may dispose of any case, where the total
income computed by the Assessing O cer does not exceed Rs. 5,00,000/- The President
may also constitute a ‘special bench’ consisting of three or more members (one judicial and
one accountant) for deciding any particular case.

10. The Appellate Tribunal has all the powers vested in the Income Tax Authorities in regarding
discovery, production of evidence, etc. The Appellate Tribunal is deemed to be a Civil Court
and any proceeding before the Tribunal deemed to be judicial proceeding.
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 Reference to Hight Court: Section 256

1. The Assessee or the Commissioner aggrieved by an order of the Tribunal may require to refer
any question of law arising out of the order of the Tribunal to the High Court.

2. The period of limitation for making an application to the Tribunal for this purpose is 60 days
from the date of service of the Appellate order of the Tribunal upon the assessee or the
commissioner. The application is to be made in the prescribed from and if it is sought by the
assessee, it must be accompanied by a fee of Rs. 200/-. For su cient cause delay after 60
days is allowed, by another 30 days further.

3. The Tribunal may sometimes refuse the case to the high Court if it feels that no question of law
arises. In such a cause, the applied may apply to the High Court within six months from the
date on which he is served with the notice of refusal, praying for a direction to the tribunal to
refer the case to the High Court.

4. The High Court may require the Appellate Tribunal to state the case and to refer it. If the
Appellate Tribunal refuses to state a case, then the fee of Rs.200/- paid by the assessee will
be refunded.

5. If there is a point on which there are con icting decisions of di erent High Courts on an
application made before 1-10-98 or a after the date the Appellate Tribunal may refer the
matter through its President direct to the Supreme Court.

6. The case referred to the High Court must be heard by a bench of not less than two judges or
of the majority of such judges. The case has to be heard n that point only by nee or more of
the other judges, and the point shall then be decided according to the opinion of the majority
of all the judges who hear the case including those who rst heard it. If the statement of the
case prepared by the Tribunal is no su cient to determine the question raised in the case,
then the High Court may refer the case back to the Tribunal for making the necessary
amendments. The cost of any reference, exclusive of the fee for making it shall be awarded at
the direction of the Court.

Appeals To High Court - Section 260-A:

1. An appeal from an order passed in appeal by the Appellate Tribunal shall like to the High Court
if it is satis ed that it involves a question of law.

2. The Chief Commissioner or the Commissioner or an assessee aggrieved by an order passed

by the Appellate Tribunal may le an appeal to the High Court.

3. Such appeal should be preferred within 120 days from the date of communication of the order
to the appellant.

4. The Memorandum of Appeal should specify the question of law involved.

5. The High Court shall formulate the question of law if it is satis ed that such question of law is
involved.

6. Appeal shall be heard on the question law formulated. The respondents may arise against this
issue.

7. The High Court shall hear the case, decide the question of law formulated and deliver
judgement and award costs if any.

8. The High Court may also decide any issue which the Appellate Tribunal has failed to
determine, or wrongly determined by the Appellate Tribunal.

9. Appeal shall be heard by a bench of not less than two Judges of the High Court and decided
according to the majority opinion of such Judges. If there is no majority on any point of law,
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 then such point shall be heard by one or more other Judges of the High Court, and decided
according to the majority opinion including the opinion of the Judges who rst heard it.

Appeal to the Supreme Court - Section 261: Any party aggrieved with the decision of the High
Court against an order made under reference Section 254 made to High Court from order under
reference can appeal to the Supreme Court if the High Court certi es the case to be t for such
appeal. The Supreme Court disposes of such appeal in the same manner as it disposes of appeal
from decree of High Courts.

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 Question 4: Explain the various Custom Tax Authorities
and their powers.

Ans: Authorities:

1. The Central Board of Direct Taxes: It is the highest Income tax authority. It controls
Government revenues form Income tax, Estate Duty, Wealth Tax and Gift Tax. It consists of a
few members appointed by the Central Government. It is constituted under the Central Board
of Revenue Act 1963.

Powers of the Board:

i. The Board may authorise an income tax authority to appoint such executive and ministerial
sta necessary to assist it in the execution of its functions.

ii. The Board may issue such orders, instructions and directions to other Income Tax authorities
for the proper administration of this Act and such authorities shall follow the directions of the
Board. Such orders should not be such as to require any income tax authority to make a
particular assessment or to dispose of a particular case in a particular manner, or to interfere
with the direction of the Commissioner (Appeals) in his appellate functions.

iii. If it is necessary, the Board may issue from time to time, general or special orders in respect of
any class of incomes or cases, giving directions or instructions regarding guidelines, principles
or procedures to be followed by other income tax authorities in the work relating to
assessment, collection or imposition of penalties and such orders may be published and
circulated for general information in the public interest.

iv. In order to avoid any di culty in any case or class of cases, the Board may authorise any
income tax authority (except a Commissioner (Appeals)) to admit an application or claim for
exemption, deduction, refund, etc. after the expiry period in accordance with law.

v. The Board may, if necessary, relax any requirement contained in any provision of the Chapter
relating to the computation of total income of na assessee and also deductions form certain
payments, where the assessee has failed to comply with the requirements speci ed in the
provision, but the default must be due to circumstances beyond the control of the assessee
and the assessee must have complied with the requirement before completion of assessment
relating to the previous year in which such deduction is claimed.

vi. The Central Government shall cause all the orders issued by the Board to be laid before each
House of Parliament.

vii. The Board issues directions for the exercise of powers and functions by income tax
authorities. The Board may also authorise any other income tax authority to issue orders in
writing for the exercise of the powers and functions by all or any of the income tax authorities
under it. In issuing orders or directions, the Board may consider the territorial area, persons or
classes of persons, incomes and classes of cases.

viii. The board may authorities any Director General or Director to perform functions of any other
income tax authority as assigned by the Board.

ix. The Board may empower the Director-General or Chief Commissioner or Commissioner to
issue orders that the powers and functions conferred on the Assessing o cer in respect of
any area, class of persons or incomes, etc., shall be exercised by a Joint Commissioner or a
Joint Director. If any order is made under this clause, references in any other provision or any
rule made to the Assessing O cer shall be deemed to be references to such Joint
Commissioner or Joint Director who shall exercise such powers and functions under such
order.
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 x. Two or more Assessing o cers may exercise the necessary powers and functions, and if the
assessing o cers of di erent classes perform concurrently, any authority lower in rank among
them shall exercise the powers and perform the functions as authorised by the higher
authority.

xi. The Board may specify the Income tax authority for exercising and performing the powers and
functions relating to furnishing of the return of income or any other act under this Act, by
noti cation in the o cial gazette.

2. Directors - General of Income Tax or Chief Commissioners of Income Tax: The Central
Government appointed Directors of inspection to perform the functions assigned to them by
the Central Government. They are subject to the control of the Board. The Income Tax o cers
are under the obligation to obey instruction of the Directors of Inspection.

3. Directors of Income Tax or Commissioners of Income Tax or Commissioners of Income - Tax:

He is the head of the Income Tax Department of State of other area entrusted to him and
appointed by the Central Government. He is the administrative head regarding the area under
his charge. he has appellate jurisdiction and powers to entertain income tax proceeding.

Powers of the Income Tax Authorities:

1. Powers Regarding Discovery, Production of Evidence, ETC - Section 131:

I. The Assessing O cer, Deputy commissioner (Appeals) Joint Commissioner. Commissioner of

Appeals and Chief Commissioner have the powers of a Court regarding discovery and
inspection, enforcing attendance of any person, compelling the production of books of
account and other documents and issuing Commissions, etc.

II. When any person who is served with summons to attend or give evidence or produce books
of account makes wilful default to be imposed with one to a certain limit.

III. The Director General or Direct or Joint Director or Assistant Director or Deputy Director or the
authorised o cer has reason to suspect that nay income has been concealed or is like to be
concealed, he can exercise the powers of compelling production of accounts, etc. He can
impound and retain any books of account or other documents produced before him fro any
number of days, as he thinks t. But the Assessing o cer or Assistant Director or Deputy
Director cannot do so for more than 15 days without the approval of the Chief Commissioner
or Director General or Commissioner.

2. Search and Seizure - Section 132: When the Director General or Director or the Chief
Commissioner or Commissioner or Joint Director or Joint Commissioner receives information
giving reasons to believe that:

I. Any person who is required to produce account books of account or other documents has
failed to comply with the demand.

II. Any person who is likely to be issued summons or notice to produce any books of account or
other relevant document.

III. Any person is possessing money, bullion, jewellery or other valuable article, which represents
property not disclosed or would not be disclosed, he may exercise his powers of search and
seizure.

3. Powers to Requisition books of Account ETC - Section 132-A: The Director General or
Director or the Chief Commissioner or Commissioner is empowered to authorise any Joint
Director or Joint Commissioner, Assistant Director or Deputy Director or Assistant
Commissioner or Deputy Commissioner or Income Tax O cer to require seizing O cers under
other laws to deliver books of accounts and assets seized by them to such Subordinate
O cers. Such a necessity shall occur under the following circumstances:
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I. If the Director General or Director or Chief Commissioner or Commissioner has reason to
believe that a person summoned or required to produce books of account of other documents
has failed to do so, and such books of account etc, are in the custody of any o cer under any
law.

II. Books of Account of documents has been seized by some other authority under any other law
and will not be produced by the person even after its return, or

III. Unaccounted assets have been seized by any other authority under any other law. On
receiving the requisition as mentioned above, the seizing o cer under any other laws has to
deliver the seized papers and assets to the requisitioning o cer.

4. Power to Call for information - Section 133: Assessing O cer the Deputy Commissioner of
(Appeals) the Joint Commissioner or the Commissioner (Appeals) are empowered to call for
informations from rm, Hindu Undivided Family trustee, guardians, agent, any assessee, any
dealer Banking Company, etc, reading information relating to names, addresses, ad other
details relevant to every assessee.

5. Power To Survey - Section 133A: The Income-Tax Authority Commissioner Joint Commission,
Director or Joint Director, Assistant Director or Deputy Director Assessing O cer may enter
any place of business or profession in his jurisdiction, during the hours when business is
conducted. Even where no business is run, if the concerned person states that any of his
books of account relating to his business, are kept there, the Income Tax authority can enter
only after sunrise and before sunset.

The income tax authority can require any Proprietor or employee of such facility to inspect
books of account or other documents available at such place, furnish any relevant material
necessary for any proceeding under the Act. But, he cannot remove any books of account or
other documents from the place he has entered. If the Income Tax Authority meets with any
refusal or evasion from the person at the time of his survey, he shall have all powers of
discover, summons, etc, under Section 131 (1) & (2) of the I.T Act.

6. Powers To Inspect Registers of Companies - Section 134: The Income Tax authorities can
inspect and make copies to be taken of any register of members, debenture holders or
mortgages of any company, or any entry in such register.

Proceedings before Income Tax Authorities: Any proceeding under the Income Tax Act before an
Income-Tax authority is a judicial proceeding. If any person appearing before an Income-tax
authority gives false evidence or fabricates false evidence, he will be able for 7 years
imprisonment and also ne. If the account of an assessee produces false books of account
knowing them to be false, he is liable to this punishment.

If any person insults an Income-Tax O cer while he is hearing a case of assessment, he will be
punished with simple imprisonment for 6 months or with ne or both.
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 Question 4: Explain in detail the various types of Excise
Duty that can be imposed under Central Excise Act.

Ans: Assessable Value: As per Section 4, of the Central Excise Act 1944, excise duty is payable
on basis of ‘transaction value’, if the goods are sold at the factory gate to unrelated buyer when
price is the sole consideration. Section 4(1)(a) states that ‘assessable value’ is the transaction
value on each removal of goods, if the following contains are satis ed:

1. The goods should be sold at the time and place of removal.

2. The buyer and the assessee should not be related.
3. The price should be the sole consideration for the sale.

Assessable Value includes:

1. Primary packing or main packing or necessary packing.

2. Royalty Charges.
3. Commission to the sales agent.

Assessable Value Excludes:

1. Amount of excise duty, sales tax or other tax actually paid.

2. Secondary packing.
3. Returnable primary packing like cold drinks bottles, LPG cylinders.
4. Discount given at the time of sales.

Valuation of Goods:

1. Speci c Excise Duty: Speci ed excise duty is the duty on units like weight, length, volume,
etc. For eg., Duty levied on. Cigarettes on the length of cigarettes, Matches per 100 boxes,
Sugar per quintal, Marble slab size and tiles square meter, Colour TV Screen size in cm,
Cement per tonne, etc.,

2. Excise Duty on Tari Value: Tari Value is the value xed by government from time to time.
Government can x di erent tari value for di erent classes. Tari Value is xed for Pan
masala, Ready Made Garments.

3. Excise Duty on Maximum Retail Price: The Government can specify the goods on which
excise duty will be based on MRP. MRP is the maximum price at which excisable goods
should be sold to the nal consumers.

It includes taxes, freight and transport charges, commission to dealers etc. Excise duty on
MRP is applicable on products on which quoting of MRP is necessary under the Weights and
Measurements Act, for e.g, Chocolates, Biscuits, Wafers, Ice cReams, Camera, Refrigerators,
fans, Footwear, Toothpaste etc.

4. Compound Levy Scheme: In case of small manufactures, the Government allows them to pay
excise duty on the basis of speci ed factors like size of equipments employed, etc.,

5. Excise Duty on Assessable Value: Assessable Value is the value of transaction i.e, the value at
which transaction takes place, in other words it is the price actually paid or payable for the
goods on sales. It is also called transaction value. It includes freight and transportation
charges, commissions to dealer etc.

Changeability of Excise Duty - Section 4:

1. Excise duty is levied on production of goods, but the liability of excise duty arise only on
removal of goods from the place of storage, i.e., factory or warehouse.
2. Excise duty is levied, even if the duty was paid on the raw material used in production.
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 3. Excise duty is levied on government undertakings also, e.g, Railways, is liable to duty on the
goods manufactured by it.
4. Excise duty is an expense while calculating the pro ts in accounting.
5. Excise duty is levied if goods are marketable. Actual sale is not relevant.

Therefore, goods, which are given for free replacement during warranty period, are also liable for
excise duty.

Valuation of Excisable Goods With Retail Sale Price - Section 4A:

1. The Central Government may specify an excisable goods to declare the retail sale price on
their package.

2. If the goods are excisable goods and are chargeable to duty of excise with reference to value,
then such value is deemed to be the retail sale price declared on such goods less the allowed
amount of abatement from such retail sale price.

3. For the purpose of allowing any abatement, the Central Government takes into account the
amount of cut of excise, sales tax and other taxes payable on such goods.

4. If any goods are excisable goods and if the manufacturer -

a. Removes such goods from the place of manufacture, without declaring the retail sale price of
such good son the packages or declares a retail sale price which is not the retail sale price.

b. Tampers with, obliterates or alters the retail sale price declared on the package of such goods
after their removal form the place of manufacture.

Then, such goods are liable to con scation and the retail sale price of such goods is ascertained
in the prescribed manner and such price is deemed to be the retail sale price for excise duty
purposes. The term, ‘retail sale price’ means the maximum price at which the excisable goods in
packaged from may be sold to the ultimate consumer.

It includes all texts, freight, transport charges, commission payable to dealers, and all charges
towards advertisement, delivery, packing, forwarding and the like and the price is the sole
consideration for such sale:

However, the Act rules.etc., require to declare on the package, the retail sale price excluding any
taxes, and the retail sale price is construed accordingly.

Further:-

a. On the package of any excisable goods, if more than one retail sale price is declared, then the
maximum of such retail sale prices is deemed to be the retail sale price;

b. If the retail sale price, declared on the package of any excisable goods at the time of its
clearance form the place of manufacture, is alerted to increase the retail sale price such
altered retail sale price is deemed to be the retail sale price;

c. If di erent retail sale prices are declared on di erent packages for the sale of any excisable
goods in packaged from in di erent areas, each such retail sale price is the retail sale price for
the purposes of valuation of the excisable goods intended to be sold in the market.
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Question 6B: Explain the procedure for clearance of
imported goods from the port under Customs Act, 1962.

Ans: Chapter Not to apply to Baggage And Postal Article - Section 44: The provisions of this
Chapter do not apply to baggage and goods imported or to be exported by post.

Clearance of Imported Goods - Restrictions on Custody and Removal of Imported Goods:

Section 45:

1. All imported goods unloaded in a customs area should remain in the custody of approved
person till they are cleared (for home consumption) or warehoused or transhipped.

2. The person having custody of any imported goods in a customs area.

a. must keep a record of such goods and send its copy to the proper o cer,
b. must not permit such goods to be removed from the customs are without the permission of
the proper o cer.

3. If any imported goods are pilfered after their unloading in a customs area while in the custody
of a person, then that person is liable to pay duty on such goods at prevailing rate.

Entry of goods on Importation - Section 46:

1. The importer of any goods, other than goods intended for transit or transhipment, should
make entry by presenting to the proper o cer a bill of entry for home consumption or
warehousing. However, if the importer declares that he is unable to furnish all the particulars of
the goods for want of full information the proper o cer may permit him to examine the goods
in the presence of an o cer of customs, or to deposit the goods in a public warehouse.

2. A bill of entry must include all the goods mentioned in the big of landing or other receipt given
by the carrier to the consignor.

3. A bill of entry may be presented at any time after the delivery of the import manifest or import
report.

4. The importer while presenting a bill of entry should at its foot declare as to the truth of the
contents of such bull of entry and in support, produce to the proper o cer the invoice relating
to the imported goods.

5. If the interests of revenue are not prejudicially a ected and if there was no fraudulent intention,
then the proper o cer may permit substitution of a bill of entry for home consumption for a bill
of entry for warehousing or vice versa.

Clearance of Goods for Home Consumption - Section 47:

1. If any goods entered for home consumption are not prohibited goods and the importer has
paid the import duty, the proper o cer may make an order permitting clearance of the goods
for home consumption.

2. If the importer fails to pay the import duty within two days form the date on which the bill of
entry is returned to him for payment of duty, he should pay interest at not below ten percent
and not exceeding thirty percent per annum on such duty till the date of its payment.
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 Procedure in case of goods not cleared, warehoused or transhipped within their days after
unloading - Section 48:

If any goods brought into India form a place outside India are not cleared for home consumption
or warehoused or transhipped within thirty days or within the extended period from the date of
their unloading or if the title to any imported foods is relinquished, then after notice to the importer
and with the permission of he proper o cer, such goods, may be sold by the person having their
custody.

a. Animals, perishable goods hazardous goods, may, with the permission of the proper o cer,
be sold at anytime;
b. Arms and ammunition may be sold at such time and place and in such manner as the Central
Government may direct.

Storage of Imported Goods in Warehouse Pending Clearance - Section 49:

If any imported goods entered for home consumption cannot be cleared within a reasonable time,
then the Assistant/Deputy Commissioner of Customs, pending clearance, permit the importer to
store them in a public warehouse, or in a private warehouse and such goods are not deemed to
be warehoused goods.

Clearance of Export Goods: Entry of Goos for Exportation Section 50

1. The exporter of any goods should make entry by presenting to the proper o cer :-

a. In the case of goods to be exported in a vessel or aircraft - a shipping bill.

b. In the case goods to be exported by land - a bill of export.

2. The exporter of any goods should also declare as to the truth of its contents.

Clearance of goods for Exportation: Section 51

If any goods entered for export are not prohibited goods and the exporter has paid the duty, the
proper o cer may make an order permitting clearance and loading of the goods for exportation.
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 Question 8/17: What are the incomes chargeable under
income from salary? State deductions from salary

Ans: Introduction: Income under the head “Salaries” is dealt in Section 15, 16 and 17 of the
Income Tax Act. Salary consists of remuneration is any form paid for personal service under a
relationship of “Master and Servant” or “employer” and “employee”.
If there is no such relationship the income is chargeable under some other head and not as a
salary (as in the case of Advocates, Commission Agents, etc.) (Income from salaries is chargeable
to tax on due basis).

For a Government servant who is a citizen of India, posted abroad the salary paid to him for
service rendered outside India is deemed to accrue to arise in India. But foreign allowance and
perquisites granted to him are exempt form tax - Section 10(7). This concession is not available
for employees in private service posted abroad.

Income Assessable Under the Head ‘Salaries’ - Section 15: The following are the income
chargeable to tax under ‘Salaries’:

1. Any salary due form an employer or former employer in the previous year whether paid or
not.

2. Any salary paid or allowed to an assessee in the previous year, by or on behalf of an

employer
or a former employer though not due or before it become due to him.

e.g: Salary paid in advance - if it is included in the total income of the previous year, then it
will not be included again when it becomes due.

3. Any arrears of salary paid or allowed to him in a previous year, by or on behalf of an

employer or former employer, if not charged to tax for nay earlier previous year.

e.g: An amount paid on account of an increase in salary for an entire year.

De nition of Salary or Incomes Included Under the Head “Salaries”: Section 17(1): though the
term “salary” generally means periodically payment of service rendered, for the purpose of
Section 15, 16 and 17 of the Income Tax Act, it is de ned as inclusive of the following items:

1. Wages
2. Any Annuity or Pension - A pension is an arrangement to provide a person with an income
when he is no longer earring a regular income from employment.
3. Gratuity
4. Any fees, Commission, Perquisites or Pro ts in lieu of or in addition to any Salary or Wages.
5. Any advance of salary.
6. Payment received by an employee in respect of any period of leave not availed of by him.
7. Amount contributed by the employer towards the recognised provident fund in excess of
10% of salary and interest on baleen in RPF in excess of noticed rate of interest (at present
12%)
8. Transferred balance in a RPF to the extent it is taxable under the Income Tax Act.
9. Any contribution made by the Central Government or any other employer to the account
under a pension scheme referred in Section 80 CCD.

Arrears of Salary: Arrears of Salary is taxable in the year in which it is received, if it has not been
taxed in the earlier years.

Advance Salary: It is taxable in the year in which it is received, but not included in the income
when it is due. Loan taken from the employer is not taxable.
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Pension: As per Section 17(1)(ii) of the Income Tax Act, pension is included under the de nition of
the term “salaries” and it is chargeable to Income tax. According to Section 60 and Section 11 of
the Pension Act, Pension is a periodical allowance or stipend granted on account of past service,
particular merits, etc. Generally, pension means the payments - a person receives spin retirement,
under pre- determine legal and/or contractual terms.

Annuity: It is an annual income received by an employee form his employer. It may be paid by the
employer voluntarily or on account of contractual agreement.

Gratuity: Gratuity is a retirement bene t. According to the Gratuity Act, 1972m retirement bene t
should be paid to the workman who has rendered long and unblemished service to the employer.
Gratuity is a reward for long and meritorious service. In 1972, the government passed the
Payment of Gratuity Act making it mandatory for all employers with more than 10 employees to
pay gratuity.

Bonus: Bonus is taxable in the year of receipt. If it is received in arrears, the assessee can claim
relief. Contractual bonus is salary but gratuitous bonus is regarded as a requisite and taxable.

The following types of onus are regarded as Salary and taxable:

1. Bonus paid under the payment of Bonus Act 1965.

2. Bonus paid according to the decision of a Trade Association.
3. Bonus paid as an award by a Labour Tribunal
4. Under Service agreement between employer and employee.

Dearness Allowance: It is additional payment made by an employer to his employee to meet the
high cost of living and chargeable to tax.

Commission: Though Commission may be paid as part of salary or as a bene t by way of addition
to salary it is taxable as “Salary”. However, a commission paid to a director for his giving
guarantee for for repayment of loan, etc, is taxable under the head “Income from other sources”.
Allowances: A xed amount of money or any other substance regularly given to the employee in
addition to salary for meeting some particular requirement relating to service rendered by the
employee is called an “Allowance”. Though allowances are paid in addition to or in lieu of salary,
they are taxable on”due” or “receipt” basis.

Characteristics for Computing Salary Income:

1. Relationship of Employer and Employee must exist between payee and the receiver of the
salary.

2. Salary for one or more than one employer shall be taxable under this head.

3. Salary received or due from present, past or future employer is also taxable under this head.

4. The employer allows an employee to draw tax-free salary, e.g., the employer pays full salary to
the employee and also pays tax on this direct to the department.

5. Salary received by a member of Parliament is not taxable under the head ‘Salaries’. It is
taxable as income from other sources. (C.I.T Vs Shiv Mathur 2008)

6. Receipts from Persons other than Employer would be taxed not under the head ‘Salaries’ but
under the head ‘Income from other sources.’

Permissible Deductions from Salary - Section 16: The following are the deductions permitted from
Income from Salaries:

1. Entertainment Allowances - Section 16(ii): Entertainment Allowance to Government Employees

some employees are required to incur expenditure on the entertainment of customers, clients.
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 Who come to meet them in connection with their o cial or business work. In case employee
is given a xes amount every month to meet this type of expenditure then it is fully added in
salary and out of gross total Salary, a deduction under Section 16(u) shall be allowed only to
govt.employees. This implies that inc are this allowance is given to employees woken in
private sector, it is fully taxable.

But in case any amount is reimbursed against any expenditure incurred by employee, it shall
be full exempted. Deduction under Section 16(i) admissible to government employees shall be
an amount equal to least of the following:

i. Statutory Limit of 5,000(Maximum)

ii. 1/5th of Basic Salary
iii. Actual amount of entertainment allowance received during the previous year.

Allowances which are exempt in case of Certain Persons:

1. Allowances to citizen of India, who is a Government employee, rendering services outside

India (Section 10(7))
2. Allowances of High Court Judges under Section 22A(2) of the High Court Judges (Conditions
of Service) Act 1954.
3. Sumptuary Allowance given to High Court and Supreme Court Judges.
4. Allowance received by an employee of UNO from his employer.
5. Noti ed allowances paid to both serving and retired chairman and members of the Union
Public Service Commission.
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Question 9: Explain various types of assessment under
ITA, 1962

Ans: The de nition of assessment is not provided in the IT Act. The term ‘Assessment’ means and
implies an investigation and ascertainment of the correctness of the returns and accounts led by
the Assessee. It is the determination of the quantum of taxable turnover and also the quantum of
taxable amount payable by the tax payer. This assessment is made on the basis of returns and
accounts furnished by an Assessee in support of the tax returns.

The term ‘assessment made’ does not mean that the assessment has been correctly or properly
made but it signi es all assessment made or purported to have been made under the Income Tax
Act. Basically, the term ‘assessment’ is the estimation for an assessed while paying Income Tax. It
is a compulsory contribution for the nancial support of a Government to perform its functions.
The assessment function maybe performed either by the tax payer or by the Income Tax Authority
depending on the context. The term ‘assessment’ also includes all amendments to assessment.

Types of Assessment

1. Self Assessment - Section 140A: If any tax is payable on the basis of any return required to
be furnished under Section 139 or 142 or Section 148 or Section 153A, after taking into
account the amount of tax already paid, the assessee shall be liable to pay such tax before
furnishing the return and the receipt of the same should be attached to the return.

After a regular assessment is made under Section 148 or 144 tax paid on self assessment
shall be deemed to have been paid towards such regular assessment. Failure by the assessee
to pay tax will result in a penalty at 2% of such tax or part thereof, which would be recovered
from him by way of penalty for every month during which the default continues. Reasonable
opportunity of being heard must be given to eh assessee before leaving penalty.

2. Inquiry Before Assessment - Section 142: Under Section 142, for making an assessment, the
Assessing O cer may serve any person who has made a return Section 139 (1) or upon whom
a notice under Section 139 (2) has been served, a notice to produce such accounts and
document, to furnish in writing such information as required by the Assessing O cer.

Accounts relating to a period more than three year prior to the previous year cannot be
required for production by the Assessing O cer. But this restriction is applicable only to
books of account and not to documents. If the assessed fails to produce the accounts,
documents and any other information the Assessing O cer can enforce their production.

By Section 131(1) such accounts and documents once produced, may be impounded and
retained by the Assessing O cer. The Assessing O cer may make such enquiry as he
considers necessary for obtaining full information in respect of the income or loss of any
person. Except in cases where a best judgment assessment is made on the assessee, he
must be given a reasonable opportunity of being heard.

Section 142 A: For the purpose of assessment or reassessment, of an estimate of the value of
any investment or any bullion, jewellery or other valuable is required to be made, the
Assessing o cer may require the Valuation O cer to make such value and report the same to
him.

3. Regular Assessment - Section 143(1): Assessment made under 143 and 144 is known as the
Regular or Final Assessment.

i. Summary Assessment: When an assessee submits a voluntary return under Section 139 he
may make a straight away assessment if he is satis ed that the return is correct and complete.
If he is not so satis ed, he may make enquiries, require evidences, etc, before completing the
assessment. Assessment made without requiring the presence or the assessee or the
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 production of any evidence is known as summary assessment (Section 143 (1)). In so doing,
he makes the following adjustments to the return if necessary:

1. Recti cation of any arithmetical errors in the return, accounts and documents accompanying
the return.

2. He has to give e ect to the allowances, losses etc. This is the rst regular assessment under
Section 143 (3).

• If necessary the Assessing O cer may reexamine the summary assessment, and verify the
correctness and completeness of the return by requiring the presence of the assessee or
production of evidence.

• If the assessee makes an application to the Assessing O cer within one month from the date of
service of the notice of demand objecting to the assessment.

• If the Assessing O cer considers that the summary assessment is incorrect and if he obtains
the prior approval of the Deputy Commissioner, for re-opening a summary assessment, the
Assessing O cer will serve a note upon the assessee, requiring him to attend the o ce of the
Income Tax O cer to produce any evidence on which the assessee may rely in support of the
return.

• One the day speci ed in the above notice, the Assessing O ce, after hearing such evidence as
the assessee may produce and such other evidence as the Assessing O cer may require,
taking into account all relevant material, may make a fresh assessment of the total income and
determine the sum payable by him or refundable to him

ii. Assessment on the basis of Evidence Produced - Section 143(2): When an assessee has led
a return under Section 139 or in response to a notice under Section 142(1), if the Assessing
O cer has reason to believe that the exemption, loss, deduction, allowance or relief which is
claimed in the return is inadmissible, he may serve a Notice on the assessee, to attend at the
Assessing O cer’s o ce, or to produce any evidence on which the assessee may rely in
support of the return. On the speci ed date, the Assessing O cer, after hearing such
necessary evidence produced by the assessee may determine the tax payable by him on the
basis of such assessment.

iii. Best Judgement Assessment - Section 144: The Assessing O cer makes a best judgement
assessment in any of the following three cases:

1. When the assessee fails to make the return required by any Notice given under Section 139(1)
and has not made a belated return or a revised return.

2. When an assessee fails to comply with all the terms of a notice issued to him under Section
142 (1) or fails to comply with are requirement of audit under Section 142(2A).

3. When a person who had made a return fails to comply with all the terms of a Notice issued to
him under Section 143(2) (Assessment on the basis of evidence produced). Here, Assessing
O cer takes all relevant material he has gathered and makes the assessment of the total
Income or loss to the best of his judgement. He determines the sum payable by the assessee
or refundable to him on the basis of such assessment. The assessee a ected by the
judgement may apply to the Assessing O cer for cancellation of the assessment.

Consequences of best judgement assessment made under Section 144:

1. Assessee is liable to a penalty.

2. He is liable to prosecution if the default was failure to le his return required by a notice under
Section 142(1)
3. If the assessee is a rm, registration is refused or may be cancelled if it is already registered.
4. It the assessee is a company in which the public are not substantially interested, it would lose
its opportunity for distribution of further dividend in order to escape the additional income tax.
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5. In an appeal against the quantum of assessment, the assessee cannot bring on record any
new facts before the appellate authorities.

Remedies open to the Assessee:

1. The assessee may apply to the Assessing O cer for the cancellation of the assessment.
2. He may also appeal to the Joint Commissioner against the assessment.
3. If his application for cancellation is dismissed by the Assessing O cer, he may go on appeal
to the Joint Commissioner against such order also.
4. The assessee can le an appeal to the Appellate Tribunal against the Joint Commissioner’s
orders.
5. If any question of law arises out of the Tribunal’s order, reference to the High Court and appeal
to the Supreme Court will also lie.
6. The assessee may seek relief at the hands of the Commissioner of Income Tax. But this
remedy will not be available if appeal is led to the Tribunal.
7. So, a remedy form a Commissioner be availed of either after expiry of the time limit for ling
appeals to the Joint Commissioner or where appeal to the Joint Commissioner or where
appeal to the Joint Commissioner has been led, after the appeal is disposed of by the
Appellate Assistant Commissioner.

Time limit for completion of assessments and reassessments: An order of assessment under
Section 143 or Section 144 shall not be made after expiry of two years from the end of the
assessment year in which the income was rst assessable or one year form the end of the nical
year in which a return or a revised return relating to the assessment year commencing on the 1st
day of April 1988, or any earlier assessment are is led, whichever is later.

No order of assessment, reassessment, or recompilation shall be made after the expiry of one
year from the end of the nancial year in which the notice under Section 148 was served.
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 Question 10: Explain provisions regarding set o and
carry forward of losses

Ans: Set o Rules or Carry Forward And Set o as follows: The business losses are carried
forward and set o

1. If the income is from two or more sources except “capital gains”, but under the same head of
income like profession or business if the net result of one source is loss, then such loss is set
o from another source under the same head. (Section 70)

2. Except “Capital gains”, even after setting o the losses, if the net result is still a loss, then loss
is set o against the income under other heads of income. For e.g., loss in business can be
set o against income from profession or house property. However, it should not be a loss in
speculation business. Set o is also allowed against short term capital gains if the loss is short
term capital loss. Thereby long term capital loss can be set o against the long term capital
gain. (Section 71)

If the net result of the computation under the head Pro ts and gains of business or profession
is a loss and the assessee has income from salaries, the loss cannot be set o against the
income.

3. If the net result of income from house property is a loss, and if it is not set o against any
other head of income, it can be carried forward to the next assessment year and the loss
which has not been wholly set o can be carried forward to 8a assessment years immediately
succeeding the assessment year in which it rst completed. (Section 71B)

4. It, in any actual year, there is loss in business or profession and if such loss cannot be set o
list any other head of income, then such loss is carried to subsequent actual year and is set
o . The carry forward rule is limited only to 8 years. (Section 72)

If at anytime, the business is discontinued and within 3 years if it is re-established,

reconstructed or revived, then business loss can be carried forward to the year in which it is
re-established and if it is not wholly set o , the amount of loss can be brought forward to the
following assessment year and for 7 succeeding assessment years.

5. If there has been an amalgamation or demerger of a company owing an industrial undertaking

or a ship or a hotel or an amalgamation of a banking company with any other bank, under
certain conditions beings ful lled the accumulated loss and the unabsorbed depreciation
allowance shall be deemed to be that of the amalgamated company for the previous year in
which it was e ected and the rules regarding carry forward and set o shall be the same.
(Section 72A)

6. The loss in a speculation business can beset o only against pro ts of another speculation
business. There by a new speculation business loss can also be set o against pro ts of
speculation business. Losses in lotteries races, gambling etc, can be set o against the
income from the same source. Generally, no carry forward rule is applied regarding these
losses except for course race which is for 4 years. (Section 73)

If for any actual year any loss computed regarding a speculative business is not set o
abasing pro ts of another speculative business such loss is carried forward and is set o only
against the pro ts of any speculative business carried on by the assessee. It is limited only to
8 actual years.

7. If the net result of the computation of capital gains is a loss to the assessee, the loss shall be
carried forward to the assessment year, and if it relates to a short term capital asset, it shall be
set o against income under “capital gains” in respect of any other capital asset.

If such loss relates to a long term capital asset, it shall be set o against income under long
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 term capital gains. Any loss which is not wholly set o shall be carried forward to the limit of
four assessment years immediately succeeding the assessment year for which the loss was
rst computed. (Section 74-A)

8. If there is loss to the owner of horse maintained for running races, the amount of loss incurred
by the assessee in the activity of owning and maintaining race horses in any assessment year
shall not be set o against income for any other source except the activity of owning and
maintaining race horses in that year.

It shall be carried forward to the following assessment year and set o against the income
from the same head for that assessment year.. Any loss which cannot be wholly set o shall
be carried forward to the limit of four assessment years immediately succeeding the
assessment year for which the loss was rst computed. (Section 74-A)

9. In the case of an assessed being a rm, nay loss in relation to the assessment year
commencing on or before 1.4.92, which could not be set o against any other income of the
rm and apportioned to a partner, but could not be set o by such partner prior to the
assessment year commencing on 1.4.93. Such loss shall be set o against the income of the
rm provided the partner continues in the same rm and can be carried forward for set o .
(Section 75)

10. If any charge has taken place in the constitution of a rm, the rm is not entitled to carry
forward and set o against its own pro ts of a subsequent year. Thereby, the partners are also
not entitled to carry forward and set o against their own share of pro ts. (Section 78)

11. In the case of companies in which the public are not substantially interested the loss incurred
in the business in the previous year, cannot be carried forward and set o against the income
of a previous year. However, if 51% of the voting power is bene cially held by the same
persons who had incurred the loss then such carry forward and set o are allowed. If there is
any change in the share holding and there is no intention to avoid tax liability, then carry
forward and set o are allowed regarding the previous years pro ts and provisions year’s
losses. (Section 79)
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Question 11A: What is dual GST model? Explain its
feature

Ans: GST (Goods and Services Tax) is the biggest indirect tax reform of India. GST is a single tax
on the supply go goods and services. It is a destination based tax. GST has subsumed taxes like
Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi, etc. GST is one the biggest indirect
tax reforms in the country. GST is expected to bring together state economies and improve overall
economic growth of the nation.

GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well
as services at the national level. It will replace all indirect taxes levied on goods and services by
states and Central. Businesses are required to obtain a GST identi cation number in every state
they are registered. GST has been implemented in India from July 1, 2017 and it has adopted the
Dual GST model in which both States and Central levies tax on Goods or Services or both.

1. SGST: State Goods and Service Tax or SGST represents the tax levied by the State
Government on the transaction of goods and services within a state. SGST is charged along
with CGST and is levied by all states and two union territories of Puducherry and Delhi as they
have their own legislative assembly and council. The tax revenue under SGST is transferred to
the State Government or the eligible Union Territory, where the transaction takes place.

2. CGST: Central Goods and Service Tax or CGST refers to the tax levied by the Central
Government on the transaction of goods and services. The tax collected under the head
“CGST” is payable to the centre. The CGST is charged to compensate the centre for the
earlier taxes. The CGST is charged along with SGST or UTGST, as per the Dual GST regime.
The applicable GST rate for goods or services is divided equally over CGST and SGST/
UTGST.

3. IGST: There needs to be a uniform taxation for inter-state supply of goods and services. The
IGST model monitors the inter-state trade of goods and services and ensures that the SGST
component accrues to the consuming State. It would maintain the integrity of Input Tax Credit
chain in inter-State supplies. The IGST rate would broadly be equal to the CGST rate plus
SGST rate. The Central Government levies IGST on all inter-State transactions of taxable
goods or services.

4. UTGST: Union Territory Goods and Service Tax or UTGST is similar to SGST, however, here
the tax collected goes to the administration of the union territory. Thus, like SGST, UTGST is
charged in addition to the CGST.

So to bring it all together, under GST tree are four types of taxes levied. If the sale of goods or
service is within the same state or union territory, CGST and SGST, or CGST and UTST will apply
as applicable. If it is an interstate supply then IGST will apply.

Salient Features of GST: The salient features of GST are under

1. GST is applicable on ‘supply’ of goods or services as against the present concept on the
manufacture of goods or on sale of goods or on provision of services.

2. GST is based on the prickle of destination based consumption taxation as abasing the past
principe of origin-based taxation.

3. It is a dual GST with the Centre and the States simultaneously levying tax on a common base.
GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by
the States would be called State GST (SGST)

4. An Integrated GST (IGST) would be levied an inter-state supply (including stock transfers) of
goods or services. This shall be levied and collected by the Government of India and such tax
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 shall be apportioned between the Union and the States in the manner as may be provided by
Parliament by Law on the recommendation of the GST council.

5. Import of goods or services would be treated as inter-state supplies and would be subjected
to IGST in addition to the applicable customs duties.

6. CGST, SGST & IGST would be levied at rates to be mutually agreed upon by the Centre and
the States. The rates would be noti ed on the recommendation of the GST Council. IN a
recent meeting, the GST Council has decided that GST would be levied at four rates viz. 5%,
12%, 16% and 28%. The schedule or list of items that would fall under each of these slabs
has been worked out. In addition to these rates, a cess would be imposed on “demerit” goods
to raise resources for providing compensation to States as States may lose revenue owing to
the implementation of GST.

7. GST would apply on all goods and services except Alcohol for human consumption.

8. GST on ve speci ed petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) would by
applicable from a date to be recommended by the GSTC.

9. Tobacco and tobacco products would be subject to GST. In addition, the Centre would have
the power to levy Central Excise duty on these products.

10. A common threshold exemption would apply to both CGST and SGST. Tax payers with an
annual turnover not exceeding Rs.20 Lakh (Rs.10 Lakh for Special category States) would be
exempt form GST. For small taxpayers with an aggregate turnover in a nancial year upto 50
lakhs, a composition scheme is available. Under the scheme a taxpayer shall pay tax as a
percentage of his turnover in a State during the year without bene t of Input Tax Credit. This
scheme will be optional.

11. The list of exempted goods and services would be kept to a minimum and it would be
harmonised for the Centre and the Sets as well as across States as far as possible.

12. Exports would be zero-rates supplies. Thus, goods or services that are exported would not
su er input taxes or taxes on nish products.

13. Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit
of paying SGST. Input Tax Credit (ITC) of CGST cannot be used for payment of SGST and vice
versa. In other words, the two streams of Input Tax Credit (ITC) cannot be cross-utilised,
except in speci ed circumstances of inter-state supplies for payment of IGST. The credit
would be permitted to be utilised in the following manner :-

• ITC of CGST allowed for payment of CGST & IGST in that order.
• ITC of SGST allowed for payment of SGST & IGST in that order.
• ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

14. Accounts would be settled periodically between the Centre and the States to ensure that the
credit of SGST used for payment of IGST is transferred by Exporting States to the Centre.
Similarly, IGST used for payment of SGST would be transferred by the Centre to the Importing
State. Further, the SGST portion of IGST collected on B2C supplies would be transferred by
the Centre to the Importing State. Further, the SGST portion of IGST collected on B2C
supplies would also be transferred by the Centre to the destination State. The transfer of
funds would be carried out on the basis of information contained in the returns led by the
taxpayers.

15. The laws, regulations and procedures for levy and collection of CGST and SGST would be
harmonised to the extent possible.

The whole GST system will be backed by a robust IT system. In this regard, Goods and Services
Tax Network (GSTN) has been set up by the Government. It will provide front end services and will
also develop back nd IT modules for States who opted for the same.
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 Question 11B: Registration under GST
Ans: Goods and Services Tax Act 2017

Section 22 - Persons Liable for registration: Every supplier shall be liable to be registered under
this Act in the State or Union Territory, other than special category States, from where he makes a
taxable supply of goods or services or both, if his aggregate turnover in a nancial year exceeds
twenty lakh rupees:

1. Provided that where such person makes taxable supplies of goods or services or both from
any of the special category States, he shall be liable to be registered if his aggregate turnover
in a nancial year exceeds then lakh rupees.

2. Every person who, on the day immediately preceding the appointed day, is registered or holds
a licence under an existing law, shall be liable to be registered under the Act with e ect from
the appointed day.

3. Where a business carried on by a taxable person registered under this Act is transferred,
whether on account of succession or otherwise, to another person as a going concern, the
transferee or the successor, as the case may be call be liable to be registered with e ect from
the date of such transfer or succession.

4. Notwithstanding anything contained in sub-sections 1 and 3, in a case of transfer pursuant to

sanction of a scheme or an arrangement for amalgamation or, as the case maybe demerger of
two or more companies pursuant to an order of a High Court, Tribunal or otherwise, the
transferee shall be liable to be resisted, with e ect from the date on which the Registrar of
Companies issues a certi cate of incorporation giving e ect to such order of the High Court or
Tribunal.

Section 23 - Persons not liable for registration:

1. The following persons shall not be liable to registration, namely:

a. Any person engaged exclusively in the business of supplying goods or services or both tat are
not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and
Services tax Act;

b. An agriculturist, to the extent of supply of produce out of cultivation of land.

2. The Government may, on the recommendations of the Council, by noti cation, specify the
category persons who may be exempted form obtaining registration under this Act.

Section 24 - Procedure for registration: Notwithstanding anything contained in sub-section 1 of

Section 22, the following categories of persons shall be required to be registered under this Act:

i. Persons making any inter-state taxable supply;

ii. Causal taxable persons making taxable supply;
iii. Persons who are required to pay tax under reverse charge;
iv. Person who are required to pay tax under sub-section 5 of Section 9;
v. Persons who make taxable supply of goods or services or both on behalf of other taxable
persons whether as an agent or otherwise.
vi. Input Service Distributor, whether or no separately registered under this Act;
vii. Every electronic commerce operation (who is required to collect tax at source under Section
52)
viii. Such other person or class of persons as my be noti ed by the Government on the
recommendations of the Council .
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 Section 25 - Procedure for Registration:

1. Every person who is liable to be registered under section 22 or section 24 shall apply for
registration in every such State or Union territory in which he is to liable within their days from
the date on which he becomes liable to registration, in such manner and subject to such
conditions as may be prescribed: Provided that a casual taxable person or a non-resident
taxable person shall apply for registration at least ve days prior to the commencement of
business.

2. A person seeking registration under this Act shall be granted a single registration in a State or
Union Territory.

3. A person, thou not liable to be resisted under Section 22 or section 24 may get himself
registered voluntarily, Randall provisions of this Act, as are applicable to a registered person,
shall apply to such person.

4. A person who has obtained or is required to obtain more than one registration, whether in one
State or Union territory or more than one State or Union territory shall, in respect of each such
registration, be treated as distinct persons for the purposes of this Act.

5. Every person shall have a Permanent Account Number issued under the Income tax Act, 1961
in order to be eligible for grant of registration: Provided hat a person required to deduct tax
under section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and
collection Account Number issued under the said Act in order to be eligible for grant of
registration.

6. The registration or the Unique Identity Number shall be granted or rejected after due
veri cation in such manner and within such period as may be prescribed.

7. A certi cate of registration shall be used in such form and with e ect from such date as
maybe prescribed.

8. A registration or a Unique Identity Number shall be deemed to have been granted after the
expiry of the period prescribed under sub-section(10), if no de ciency has been
communicated to the applicant within that period.
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Question 12: Explain the importance of place of supply
under CGST and SGST.
Ans: Importance of Place of Supply in GST: GST is all set to oat its wings across India, and it is a
high time that we start adapting to its rules and provisions. Under GST, special attention is given
to the reporting structure of all transactions, irrespective of the fact that it is of goods or for
services. There are three types of taxes under GST, CGST, SGST and IGST. All these taxes are
leviable whenever there is a movement of goods or services.

Movement of goods and services can be of 2 types:

1. Within the State i.e. Intra-State

2. Between Two States i.e. Inter-State

Intra-State movement attracts CGST and SGST whereas Inter-State movement attracts IGST.
In order to determine the levy of taxes based on Place of Supply, following two things are
considered:

Location of Supplier: It is the registered place of business of the supplier

Place Of Supply: It is the registered place of business of the recipient

In this article, we’ll cover the importance of place of supply, time of supply and value of supply.
We’ll dig deeper into place of supply rules and various aspects around it.

Understanding Place of Supply in GST:To determine the actual nature of the movement of goods
and services, it is imperative to understand the “place of supply” of such goods or services. It
plays a pivotal role in identifying whether CGST & SGST or IGST will be levied on any transaction.
Place of supply of goods and services have been given separate provisions. The location of the
supplier and the place of supply together de ne the nature of the transaction. The registered
place of business of the supplier is the location of the supplier, and the registered place of the
recipient is the place of supply.

Place of supply rules for Goods

1. Where the supply involves a movement of goods, the place of supply shall be determined by
the location of the goods at the time of nal delivery.

For e.g. A manufacturer in Kolkata, West Bengal, has an order from a customer in Surat,
Gujarat. The manufacturer directs his branch in Mumbai, Maharashtra to ship the goods to
Surat. In this case, place of supply shall be Surat, Gujarat and thus entails an inter-state
movement of goods and will attract levy of IGST.

2. Where the supply involves a movement of goods, on the direction of a third party, whether as
an agent or otherwise, the place of supply shall be the principle place of business of such
third party, irrespective of the place of delivery of goods.

For e.g. A dealer in Mumbai, Maharashtra sells products to a customer in Delhi. Delhi-based
customer directs the Mumbai seller to send the materials to Kolkata-based customer.
Although the place of delivery is Kolkata, since Delhi-based seller had directed such
movement, then the place of supply shall be the principle place of business, i.e. Delhi and
thus, charge IGST on such movement.

3. Where the supply does not involve any movement of goods, then place of supply shall be the
location of such goods at the time of nal delivery.

For e.g. A Ltd has its registered o ce in Hyderabad, Telangana, opens a branch in Bengaluru,
Karnataka, and purchases workstations from B Ltd. Whose o ce is in Bengaluru, Karnataka.
Even though the same is, a supply of goods but there is no movement of goods. Since the
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 movement is intra-state, it will attract CGST and SGST.

4. Where the supply includes installation of goods at site, then place of supply shall be the place
of such installation.

For e.g. Installation of telephone towers or lift in an o ce building.

5. Where the goods are being supplied on board a vehicle, vessel, aircraft, or a train, i.e. on
board a conveyance, then place of supply shall be the rst location at which the goods are
boarded.

For e.g. Howrah to New Delhi Rajdhani starts its journey from Howrah, West Bengal and
passes through many states before ending its journey in New Delhi. The food served on board
the train shall be considered as supply of goods. Thus, place of supply shall be Howrah since
it is the rst location of the goods.

6) Any other cases not covered above will be determined further as per recommendations from
the GST council (yet to be nalised)
The above rules are de ned for goods. The place of supply of services is separate and speci c in
nature. They go as follows.

Place of supply rules for Services:

• For an immovable property: Where such immovable property is located or supposed to be

located.

• Where both service provider and recipient are required to be physically present: Location of the
service provided.

• In case of an event: The location where such event was held or amusement park is located.

• Ancillary activities to the events: If the person is registered, then his location or if the person is
unregistered, then the place where the event was held.

Note: Where the event is to be held across many States, then place of supply shall be treated as
all the States in which such services are being provided on a proportionate basis as per the terms
of the contract. Where no such contract exists, then on a reasonable basis or as may further be
prescribed.

• Transportation of goods: If the recipient is registered, then his location and if unregistered, then
location of the goods from where they started for being delivered
• Passenger Transportation: If the recipient is registered, then his location and if unregistered,
then location from where the passenger embarks on his journey
• Supply of services on board a conveyance, vehicle, vessel, train or aircraft: The rst point of
departure for that journey

Telecommunication Services :-

• Fixed leased line, Internet leased line, cable or dish antenna: Place of installation
• Postpaid Mobile or Internet Connection: Billing Address of the recipient of service
• Prepaid Mobile or Internet Connection: Location where such pre-payment was made or
vouchers are sold.

Note: When such a recharge is made through Internet Banking or E-Wallets, then the place of
supply of service shall be the address of the recipient as on the record with the service provider.

• Banking or Financial Institutions to account holders: Location of the recipient of the services as
per record of the provider.
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 • Banking or Financial Institutions to non-account holders: Location of the supplier of service.

• Insurance: If the person is registered, then his location or if the person is unregistered, then the
location of the recipient as per records of the service provider.

• Restaurant, catering, personal grooming, beauty treatment, tness and health services,
cosmetic or plastic surgery: Location where the service is provided

In all the above cases, where the location of the recipient cannot be identi ed, which is generally
the xed establishment or registered o ce of the recipient, then the usual place of residence of
the recipient shall be treated as the location of receipt.

Understanding the Importance of Bill To-Ship To w.r.t. above provisions:

When there are 3 parties involved in a transaction, then the place of supply plays a crucial part in
determining which of the parties will pay tax. This is similar to point 2 above, where goods are
moved from one place to the other on the direction of a third party, then the place of supply shall
be the principle place of business of that third party.

Wherever the third party exists, accordingly, the inter-state and intra-state sale can be adjudged
and taxed.

Time of Supply:

Once you have determined what to tax, whether CGST, SGST or IGST, then it is time to identify
the “when to tax.” It is another critical point in payment of taxes and regularizing the returns.
Di erent rules and provisions have been created for notifying the time at which tax becomes due.
For determining the time of supply in case of goods and services:

1. The date of issuance of invoice or,

2. Date of receipt of payment

Whichever is earlier:

Further, for item (b) above, the date of receipt of payment shall be,

1. The date of credit in bank account or,

2. Date at which the receiver actually entered the payment in his books of accounts

Whichever is earlier.

Where the amount received is in excess of the invoice, and then time of supply shall be treated
from the date of issuance of invoice for that extra amount.

For e.g. Maruti Enterprises issued invoice to Telga Informatics on 30th May 2017. Telga made a
payment to Maruti on 2nd June 2017 and further, Maruti credited the entry in their books on 3rd
June 2017. In the above example, time of supply shall be 30th May 2017.

Further, in case of reverse charge, things are a little bit di erent for goods and services. The time
of supply shall be earlier of the following:

1. Date of payment or
2. Date of receipt of goods or
3. Date immediately 30 days from the date of issue of invoice in case of goods (60 days in case
of services)

If is still not possible to determine the correct date from the above options, then time of supply
shall be the date at which recipient makes an entry in his books of accounts.
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Similarly, to determine the time of supply in case of receipt vouchers, it shall be,

1. The date on which the voucher is issued or

2. If the above cannot be ascertained, then the date on which the voucher is redeemed.

In all other cases, where it is not possible to determine the time of supply with the help of above
provisions, then the time of supply shall be either date of ling periodical returns or payment of
CGST/SGST as the case may be.
Value of Supply:

After determining what and when of GST, it is time to determine “How much” of GST is to be paid.
The value of supply has been de ned as the “transaction value” of the goods and services
transacted between un-related parties. The value of supply shall include the following:

• Basic consideration for the goods and services

• Any taxes, cess, duties, fees and charges under any Act
• Any amount payable by the supplier for the recipient
• All ancillary or incidental expenses like packing, commission, etc.
• Subsidies, not Central or State Government subsidies
• Interest, penalty or late fee charged for delayed payment
• Any discounts that are given for the supply of goods and services, which were not known earlier.

Other discounts, which are linked to speci c invoices or were agreed upon at the time of entering
into a contract, shall be allowed as a deduction from transaction value.

Thus, after ravaging through all the above provisions, it is clear for a taxpayer to identify when to
pay tax, how much tax is to be paid and who will nally bear the tax burden. As such, place of
supply, time of supply and the value of supply, knit together, determine the total tax liability that
needs to be cleared as per schedule.
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 Question 6A/13 : Explain the powers and functions of
various authorities under the Customs Act. Explain
provisions under the customs act relating to dutiable
goods and valuation of goods.
Ans: Dutiable Goods - Section 12&13:

1. Duties of customs is levied at speci ed rates under the Customs Tari Act, 1975, or any
other law on goods imported into or exported form India.

2. The provisions of the Act apply in respect of all goods belonging to government as they
apply to goods not belonging to Government.

Duty of Pilfered Goods - Section 13: If any imported goods are pilfered after the unloading and
before the proper o cer has madden order for clearance for home consumption or deposit in a
warehouse, the importer is not liable to pay the duty leviable on such goods, but if such goods are
restored to the importer after pilferage, then duty is leviable.

Valuation Of Goods For Assessment - Section 14:

1. If a duty of customs is chargeable on any goods by reference to their value, the value of
such goods is deemed to be the price at which such or like goods are ordinarily sold for
delivery at the time and place of importation or exportation in the course of international
trade. The seller and the buyer must not have nay interest in the business of each other and
the price must be the sole consideration for the sale. Further, such price must be calculated
with reference to the rate of exchange as in force on the date on which a bill of entry is
presented or a shipping bill or bill of export is presented.

2. If it is necessary, the Central Government xes tari values for any class of imported foods
or export goods, having regard to the trend of value of such like goods, and when any such
tari values are xed, the duty is chargeable with reference to such tari value.

3. ‘Rate of exchange’ means the rate of exchange:

• Determined by the Central Government, or

• Ascertained in prescribed manner by the Central Government, for the conversation of Indian
Currency into foreign currency or foreign currency into Indian currency.
Data For Determination of Rate of Duty and Tari Valuation - Section 15 & 16: Imported
GoodsL Section 15:

1. The rate of duty and tari valuation applicable to any imported goods, is the rate and
valuation in force:

• In the case of ‘goods entered for home consumption’ on the date on which a bill of entry is
presented,

• In the case of ‘goods cleared form a warehouse’, on the date on which the goods are
actually removed from the warehouse;

• In the case of ‘any other goods’; on the date of payment of duty.

2. The provisions of this section shall not apply to baggage and goods imported by post.
Export Goods: Section 16:

1. The are of duty and tari valuation applicable to any export goods, is the rate and
valuation in force:
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 • In the case of goods entered for export, the date on which the proper o cer makes an
order permitting clearance and loading of the goods for exportation.

• In the case of any other goods, on the date of payment of duty.

2. The above provisions do not apply to baggage and goods exported by post. Assessment
of Duty Section 17 to 23:

1. After an importer has entered any imported goods, or an exporter has entered any export
goods, the imported goods or the export goods are, without undue delay, examined and
tested by the proper o cer.

2. After such examination and testing, the duty leviable on such goods is assessed.

3. For the purpose of assessing duty, the proper o cer may require the importer, exporter or
any other person to produce any contract, broker’s note, policy insurance, catalogue or
other document whereby the duty lei bale on the imported goods or export goods can be
ascertained, and to furnish any information required for such ascertainment which it is in his
port to produce or furnish. Thereupon the importer, exporter or such other person must
produce such document and furnish such information.

4. Prior to the examination or testing, the imported goods or export goods may be permitted
by the proper o cer to be assessed to duty on the basis of the statements made in the
entry and the documents produced and the information furnished. But if it is found
subsequently on examination or testing of the goods that any statement un such entry or
document or any information so furnished is not true in respect of the assessment, the
goods may be re- assessed to duty.

Provisional Assessment of Duty - Section 18:

1. a. If the proper o cer is satis ed that an importer or exporter is unable to produce any
document or furnish any information necessary for the assessment of duty on the imported
goods or the export goods, or

b. If the proper o cer deems it necessary to subject any imported goods or export goods
to any chemical or other test for the purpose of assessment of duty thereon; or

c. If the importer or the exporter has produced all the necessary documents and furnished
full information for the assessment of duty, but the proper o cer deems it necessary to
make further enquiry for assessing the duty, the proper o cer may direct that the duty
leviable on such goods may, pending the production of such documents or nishing of such
information or completion of such test or enquiry, be assessed provisionally if the importer
or the exporter nishes r security for the payment of the de ciency between the guy nally
assessed and the day provisionally assessed.

2. When the duty leviable on such goods is assessed nally then:

a. In the case of goods cleared for home consumption or exportation, the amount paid is
adjusted against the duty nally assessed and if the amount so paid falls short of, or is in
excess of the duty nally assessed, the importer or the exporter of the goods must pay the
de ciency or be entitled to a refund.

b. In the case of warehoused goods, if the duty nally assessed is in excess of the duty
provisionally assessed, then the proper o cer may require the importer to execute a bond,
binding himself equal to twice the amount of the excess duty.
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Duty For Article Liable to Di erent Rates of Duty section 19: If goods consist of a set of articles,
duty is calculated as follows:
1. Articles to duty with reference to quantity is chargeable to that duty;

2. Articles liable to duty with reference to value, if they are liable to buy at the same rate, are
chargeable to duty at that rate, and if they are liable to duty at di erent rates, be
chargeable to duty at the highest of such rates;

However,

1. The accessories and spare parts or maintenance and repairing implements for any article
are chargeable at the same rate of duty as that article;

2. If the importer produces evidence regarding the value of any of the articles liable to di erent
rates of duty, then such article are chargeable to duty separately at the rate applicable to it.

Duty for Re-importation fo Goods - Section 20: If goods are imported into India after exportation
from India, such goods are liable to duty and all the conditions and restrictions of the like kind
goods and their value on importation.

Duty for Goods Derelict, Wreck, ETC - Section 21: All goods, derelict, jetsam, otsam, and wreck
brought into India are dealt with as if they were imported into India, unless entitled to be admitted
duty-free.

Abatement of Duty - Section 22:

1. a. If any imported goods had been damaged deteriorated before or during the unlading of
the goods in India,

b. If any imported goods, other than warehoused goods, had been damaged after the
unlading in India but before their examination, on account of any accident not due to any
wilful act, negligence or default of the importer, his employee or agent; or

c. If any warehoused goods had been damaged before clearance for him consumption on
account of any accident not due to any wilful act, negligence or default of the owner, his
employee or agent, then such goods value after damage/deterioration bear the proportion
to the duty chargeable on the goods before the damage or deterioration.

2. The value of damaged or deteriorated foods may be ascertained by either of the following
methods at the option of the owner:-

• The value of such goods may be ascertained by the proper o cer, or

• Such goods may be sold by the proper o cer by public action or by tender, or with the
consent of the owner in any other manner, and the gross sale proceeds are deemed to be
the value of such goods.

Remission of Duty - Section 23:

1. If any imported goods have been lost, or destroyed, at any time before clearance fro him
consumption, then Assistant Commissioner or Deputy Commissioner of Customs remit the
duty on such goods.

2. The owner of any imported goods may at any time before an order for clearance of the
goods for home consumption or an order for permitting the deposit of goods in a
warehouse, relinquish his title to the goods an thereupon he is not liable to pay the duty
thereon,
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 Question 14: Provisions regulating tax incidence of
capital gains.

Ans: Introduction: Any pro t or gain arising from the transfer of a capital asset e ected in the
previous year is taxable under the head “Capita; Gains” and are deemed to be income of the
previous year. Transfer includes Sale, Exchange, Relinquishment of the assets or the
extinguishments of any right therein or the compulsory acquisition thereof under any law
treatment or conversion, etc.

Capital asset means property of any kind held by an assessee whether or not connected with his
business or profession.

Changeability to Tax - Section 45:

1. Pro ts or gains arising from the transfer of a Capital asset e ected in the previous year is
chargeable to Income tax as “Capital Gains”. Capital Gains is chargeable on accrual basis.

2. If any person receives during any previous year, money or other assets under an insurance
from an insurer, on account of damage or destruction of any capital asset, as a result of ood,
typhoon, hurricane, cyclone, earthquake or other natural causes, etc.

3. The pro ts or gains arising from transfer by conversion of Capital asset by the owner into stick
in trade of a business carried by him shall be chargeable to tax.

4. Pro ts and gains arising from the transfer of a Capital asset by a person to a rm or other
association of persons or body of individuals in which he is a member or partner shall be
charged to tax.

5. Pro ts and gains arising from the transfer of a Capital asset by distribution of Capital asset on
dissolution of a rm or association of persons or body of individuals shall be chargeable to
tax.

6. Capital gain arising from the transfer of a Capital asset, being a transfer by way of compulsory
acquisition under any law shall be chargeable on the year of receipt.

7. The di erence between the Investment made under Equity Linked Savings Scheme and the
Capital value of such units shall be charged as Capital gains in the previous year in whixchsuh
repurchase take place.

Transactions Not Regarded As Transfer of Capital Assets - Section 47: The following transactions
are not regarded as transfer and no tax is leviable on capital gains resulting therefrom:

1. Capital asset being distributed on the partition of a Hindu Undivided family.

2. Transfer of capital assets under a gift, or will or irrevocable trust.

3. Any transfer of a capital asset by a compost to its Indian Subsidiary company.

4. Any transfer of capital assets by wholly owned subsidiary company to its Indian holding
company.

5. Any transfer of a capital asset in a scheme of amalgamation by the amalgamated company to

the alaldamamted company which is an Indian company.

6. Any transfer of shares in a scheme of amalgamation held by a share holder in an Indian

company by the amalgamating foreign company to the amalgamated foreign company, under
certain prescribed conditions.
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7. Any transfer of a capital asset in a demerger by the demurred company to the resulting
company, if the resulting company is an Indian company.

8. Any transfer in a demerger of a capital asset, being a share or shares held in an Indian
company, by the demurred foreign company to the resulting foreign company under
prescribed conditions.

Types of Capital Gaines *Short Term Capital Gain And Long Term Capital Gain): Short term capital
gain is one which arises on the transfer of a Short term capital asset, i.e., an asset held by the
assessee for not more than 36 months. But the following assists shall be treated as long term
capital asset after 12 months:

1. Listed equity and preference shares.

2. Listed debentures
3. Listed bonds
4. Listed Government Securities
5. Zero coupon bonds
6. Units of equity oriented mutual fund
7. Units of unit

Thus, a transfer of Short term capital asset gives rise to “short term capital gains” and transfer of
Long term capital asset gives rise to “long term capital gains”. The Income Tax Act prescribes the
rate of tax to be paid for Short term and Long term capital gains.

Computation of Short and Long term capital gains:

1. The full value of consideration should be taken into account.

2. The following should be deducted form the avocet amount:
i. Expenses wholly and exclusively incurred in connection with such transfer.
ii.Cost of acquisition
iii.
Cost of improvement
3. The exemption under the Income Tax Act, for short term: Section 54B, 54D and 54G should
be deducted. Long term: Section 54, 54B,54D, 54EC, 54ED, 54F and 54G should be
deducted.
4. The balance amount is the Short term/Long term capital gain.

Section 54B: Exemption of capital gains on transfer of agricultural land.

Section 54D: Exemption of capital gains on compulsory acquisition of lands and buildings.
Section 54G: Exemption of capital gains on transfer of assets in case of shifting of industrial
undertaking from urban area.
Section 54: Pro t on sale of property used for residence.
Section 54F: Capital gains on transfer of certain capital assets not to be charged in case of
investment in residential house.

Cost of Acquisition: It is the amount for which the asset was originally purchased by the assessee.
However, when the asset was not originally purchased by him, but passed on to him under
circumstances like distribution of assets, on partition of H.U.F gift, dissolution of rm, trust, etc,
then, the cot of acquisition shall be the cost for which the previous owner acquired it and the cost
of improvement incurred by the previous owner or the assessee.

Cost of Improvement: The cost of improvement means all expenditure of a capital nature incurred
in making additions or alternations to the capital asset. However, any expenditure which is
deductible in computing the income under the heads income from House Property, Pro ts and
Gains formBusiness or Profession or Income from other sources (Interest on Securities) would not
be taken as cost of improvement.

Cost of transfer: This includes brokerage paid, legal expenses incurred for preparing documents,
cost of giving advertisements in newspapers for sale of the asset and commission paid. The
expenditure should have been incurred wholly and exclusively in connection with the transfer.
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Permissible Deductions form Long Term capital Gins:

1. Long Term Capital Gains arising due to sale of a residential unit and investment is made in a
new residential unit (Section 54): If an individual or HUF gets Long Term Capital Gains form
transfer of a residential house makes investment to purchase or construct a residential house
the mount invested in the new residential houses allowed as a deduction form the LTCG. The
new residential house can be constructed within 3 years from the date of transfer or can be
purchased on year before or two years after the date of transfer.

2. Long term Capital Gains arising due to sale of an agricultural land and investment is made in a
new agricultural land (Section 54B): Long term capital gains arising from transfer of land which
is being used by the assessee or his parent for agricultural purposes for at least 2 years prior
to the date o transfer, can be invested by the assessee in purchasing any other land for being
used for the purpose of agriculture within 2 years form the date of transfer of the original
agricultural land and the amount invested by him for purchase of anew agricultural land would
be allowed as deduction form the long term capital gains.

3. Long term capital gains arising on compulsory acquisition of lands and buildings of an
industrial undertaking and investment made for purchase of land or building to shit or re-
establish the industrial undertaking (Section 54D): This deduction is available to all categories
of tax payers. The conditions for claiming this deductions are under:

If any asset is transferred by way of compulsory acquisition under any law and it was used for
the purpose of business of such undertaking at least for two years immediately before the
date of compulsory acquisition, deduction is available.

The deduction is available if within 3 years of the day of compulsory acquisition, the taxpayer,
for the purposes of shifting or re-establishing the old industrial undertakings or setting up
anew industrial undertaking purchases any other land, building or any right in any other land
or building, or constructs any other building. Deduction form the long term capital gains is
given to the extent of above investment.
 Question 15: The incidence of income tax depends upon
the residential status of an Assessee. Explain.

Ans: Residential Status of Assessee: The extent of tax liability of a person is determined with
reference to his residence in the previous year. For this purpose, the assesses are divided into the
following tow categories

1. Resident - Section 6(1): An individual is a resident in India in the previous year, under the
following conditions:

i. If he is in India in that previous year for 182 days more.

ii. If he has been in India for at least 365 days in 4 years preceding the previous yeas, and he is
in India for 60 days or more in that previous year (182 days in case of an Indian citizen or a
person of Indian origin coming on a visit to India and in case of an Indian citizen going abroad
as a member of the crew of an Indian ship or for employment during the previous year). The
stay in India may be intermittent.

E.g: Mr. Prakash was in India for more then 365 days during the years 2002-2003 to
2006-2007 i.e 4 years preceding the year 2006-2007 and came to India on a visit on
1-10-2007 and left India on 2-11-2007. In this case, Mr.Prakash is a non resident, and even
though he has been in India 365 days in the 4 years previous to 06-07, he was in India for less
than 60 days in the previous year 06-07.

a. Ordinary Resident: AN individual (assessee) becomes an “Ordinarily Resident” only after

ful lling the following conditions:

• He should’ve been resident in India in 9 out of 10 previous years preceding the previous year in
which he is resident and

• He should have been in India for 730 days (i.e 2 years) or more, during the 7 years preceding
that previous year.

b. Not ordinarily resident: If the individual does not ful l any on of the above two conditions, he
will be considered as Not Ordinarily Resident.

E.g: Mr Arjun was continuously living abroad since 1-6-1999, came to India on 1-7-2011. He
returned abroad on 10-02-2012 after 2224 days. He will be seated as Resident but not
ordinarily resident in India, as he was not resident in India continuously, 9 out of the preceding
10 previous years.

Non Resident: Any person who does not ful l the conditions laid down for “resident” is termed as
“Non-Resident”

2. Residential Status of H.U.F., or Firm and Association of Persons:

a. Resident: A Hindu Undivided Family, rm or Association is resident in India, if any portion of

the control (de facto control) and management of its a airs is situated in India.

b. Not Ordinarily Resident: A H.U.F is “not ordinarily resident” in India, if

i. It’s Manager has not been resident in India in 9 out of 10 previous years, preceding that year,
or
ii. It’s Manager has not been in India for a period of 730 days or more during the 7 previous
years preceding that year. Firm and other Association of persons cannot be “not ordinarily
resident”.
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c. Non - Resident: A H.U.F, rm or other Association of persons is non-resident in India only
when the control and management of its a airs is situated wholly outside India.

3. Residential Status of Company:

a. Resident: A company is resident in India in any previous year, if he satis es any of the
following conditions:

• It is an Indian Company, or
• The control and management of its a airs is situated wholly in India during that year.

A company can never be not ordinarily resident. But, if the Company, does not ful l the
conditions of residence, then, it is “Non-resident” Company.

Tax Liability of Assesses Or Scope of Total Income Liable to Tax - Section 5: The scope of the
total income of a person is determined with reference to his residential status in India in the
previous year.

1. Resident and Ordinarily resident: For a resident and ordinarily resident person, tax liability is:

i. All incomes deemed to be received, accrued or arisen in India.

ii. All incomes which accrue or arise outside India.

2. Not Ordinarily Resident:

i. Incomes received, accrued, arisen or deemed to be received, accrued or arisen in India

ii. Income which accrues or arises to them outside India is not includible their income unless it is
derived from a business controlled in or a profession set up in India.

3. Non-Residents:

i. All incomes from whatever source derived, which is received or deemed to be received in
India, by or on behalf of such person.

ii. They are not liable for income accruing or arising outside India, even if it is remitted in India in
the previous year.

Illustrations: Residential Status and assess ability of Income:

Mr. X has the following comes during the assessment year 2011-2012

a. Dividends on shares in Indian Companies credited to his account outside India = Rs. 10, 000
b. Interest on bank accounts in India = Rs. 10,000
c. Royalty form books published in India = Rs. 30,000
d. Share in pro ts of rm outside India but controlled in India = Rs. 30,000
e. Remuneration for his technical services rendered outside India paid by Indian Company =
Rs.40,000
f. Interest on bank deposits outside India = Rs.15,000

Total Income of Mr: X If he is a resident in India (All Incomes) = Rs. 1,35,000/-

Total income of Mr. X if he is not ordinarily resident: The gross total income = a+b+c+d = Rs.
80,000/-

The income (e) and (f) are not deemed to accrue in India. If he is a Non-Resident: Gross total
Income = a+b+c (10,000+10,000+30,000 = Rs. 50,000/-) Foreign incomes are not included in case
of Non-Residents.
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Incomes Deemed to Accrue or Arise In India - Section 9:

1. Income through or from business connection in India.

2. Income through or from any property, asset or source of income in India, e.g, Royalty, for
patents or copy rights or secret process used in India.
3. Transfer of Capital asset in India.
4. Income by Salaries for services rendered in India.
5. Salaries paid by Government to Indian citizens for citizens outside India.
6. Dividends paid by an Indian Company outside India.
7. Income by means of interest.
8. Income by way of Royalty.
9. Fees for technical services.

Any pension payable outside India to a person permanently residing outside India is not deemed
to accrue or arise in India.
 Question 16: What is tax evasion and tax avoidance ?
Discuss their e ects and methods of prevention.

Ans: Introduction: Every individual or assessee in a country dreams about to nd a way in which
he can avoid tax. He wants to use any means for the purpose of not paying or evading from tax.
Tax Avoidance and Tax Evasion are two terms that serves a common purpose i.e ‘To reduce the
amount of tax from person, rm or any legal entity’s earnings” but one di erence which can be
drawn from these two concepts is that one aims to do it in a legitimate manner and other strives
for an illegitimate manner. Tax Evasion and Tax Avoidance are two techniques which are used and
applied by many people for the purpose of reducing their tax liability.

These actions are performed only after consulting an expert in the eld of tax. Tax avoidance is a
completely legal procedure while Tax Evasion is considered to be crime in the whole world. Tax
Avoidance is de ned as a practice of using all the legal means to pay the least amount of tax
possible.The core di erence which can be ascertained from these two concepts of taxes is that
Tax evasion is a criminal o ence and whereas Tax avoidance is perfectly legal thing.

Tax Avoidance: Any person who is able to avoid taxes is considered to be a wise guy. It is
believed Tax Avoidance is a term which signi es a situation in which a taxpayer reduces his tax
liabilities by taking advantage of the loop holes and ambiguities in the legal provisions. Since it is
not illegal, tax avoidance is some sort of a legally allowable way to reduce the tax burden. It is not
completely de ned under Income Tax Act 1961.

Characteristics of Tax Avoidance: Tax Avoidance is a way of reducing the taxes through the
medium provided by government but before moving towards those ways, it is important to
analyze tax avoidance from depth. Here are the following features for tax avoidance:

1. Tax Avoidance involves the legal exploitation of tax laws to one’s own advantages.

2. Every attempt by legal means to prevent or reduce tax liability which would otherwise be
incurred, by taking advantage of some provisions or lack of provisions in the statutes of the
country.

3. An arrangement entered into solely by or primarily for the purpose of obtaining a tax
advantages.

Perception of Court’s on Tax Avoidance: Role of judiciary on the concept of Tax Avoidance can be
traced back on the judgment which was pronounced by Justice Chinnapa Reddy’s in the
Mcdowell’s Case. This case de nes the distinction between the term tax avoidance and tax
evasion in a crisp manner, it de nes Tax Avoidance as “the art of dodging tax without breaking the
law”. The inception of Tax Avoidance can be traced back from England as in the case of IRC v.
Duke of Westminster, Lord Tomlin said “Every Man is entitled, if he can, to order his a airs, so that
the tax attaching under the appropriate Acts, is less than it otherwise would be. If he succeeds in
ordering them so as to secure this result, then, however unappreciative the commissioners of
Inland Revenue or his fellow tax gatherers may be of his ingenuity, He cannot be compelled to pay
an increased amount of tax.”

Tax Evasion: Tax evasion is a crime in which an individual or a business entity intentionally
underpays or hide their certain amount of income in order to save more amount of taxes. This
method is certainly illegal in all the countries. Tax Evasion is basically non-payment of taxes by
means of not reporting all taxable income, or by taking not allowed deductions. It originated in
England between 1920 -1925.

Activities Relating to Tax Evasion:

1. Under Reporting income

2. In ating deductions and exceptions
3. Hiding Money
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 4. Hiding interest o shore accounts

Perception of Judiciary on Tax Evasion: There are several cases relating to evasion of taxes. Some
of the evasion of tax are like in the case of Union of India v. Playworld Electronics Pvt. Ltd. &
endash the court declared that “It is the obligation of every citizen to pay the taxes honestly
without resorting to subterfuges”. In the case of Calcutta Chromotype Ltd. V. Collector of C. Ex.,
Calcutta & endash, the Hon’ble SC observed “Colourable devices, however, cannot be part of tax
planning. Dubious methods resorting to arti ce or subterfuge to avoid payment of taxes on what
really is income can today no longer be applauded and legitimated as a splendid work by a wise
man but has to be condemned and punished with severest of penalties.”

Di erence between Tax Avoidance and Tax Evasion:

Sl.No Tax Avoidance Tax Evasion

1 Payment of tax is avoided though by Payment of tax is avoided through illegal means
complying with the provisions of law but or fraud.
defeating the intention of law.
2 It is taking undertaken by taking advantage of It is undertaken by employing unfair means
loop holes in law

3 It is not performed through mala de intention It is performed through unlawful way of paying
but by complying through the provision of law taxes and defaulter may get punished.

Conclusion: It is concluded from the above discussion that Tax Avoidance and Tax Evasion are
those concepts which enables a person to avoid liability on his income tax charged. One concept
is completely legal as provided under Income Tax Act 1961 and another is a complete illegal. For
the purpose of Tax Avoidance, Government has provided various ways in which a person can
legally restrain tax on his income whereas on the other hand Government has given various
penalties on the concept of Tax Evasion.
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 Question 18: Explain the circumstances under which
incomes of other person are included in the total
income of assessee.

Ans:

1. Transfer of income without transfer of assets - Section 60: Income arising to any person by
means of transfer (whether revocable or not), shall be chargeable to income tax as the income
of the transferor and shall be included in his total income, where there is no transfer of the
assets from which the income arises.

2. Revocable transfer of Assets - (Section 61): Income from revocable transfer of assets shall be
chargeable to income tax as the income of the transferor and included in his total income.

Transfer irrevocable for a speci ed period - (Section 62): Section 61 shall not be applicable
under the following circumstances:

a. Income arising to any person by virtue of a transfer by way of trust which is not revocable
during the life time of the bene ciary and in the case of any other transfer which is not
revocable during the life time of the transferee.

b. Such income shall be chargeable to income tax as the income of the transferor as and when
the power to revoke the transfer raises, and shall be included in his total income.

3. Income of spouse, minor child, etc to be included under the individual’s income - (Section 65):
In computing the total income of an individual, the following shall be included:

a. All such income which arises directly or indirectly to the spouse of such individual by way of
salary, commission, fees or other form of remuneration in cash or kind form a concern in
which such individual has a substantial interest. However, it will not be included if the spouse
possesses technical or professional quali cations and the income is solely attributable to the
application of his/her technical or professional knowledge and experience.

b. Income arising directly or indirectly to the spouse of such individual from assets transferred
directly or indirectly to the spouse by such individual otherwise than for adequate
consideration or in connection with an agreement to live apart.

c. Income arising directly or indirectly to the son’s wife of such individual, from assets transferred
directly or indirectly on or after 1-06-1973 to the son’s wife by such individual otherwise than
for adequate consideration.

d. Income arising directly or indirectly to any person or association of person from assets
transferred directly or indirectly otherwise than for adequate consideration to the extent to
which the neon from such assets is for the immediate or deferred bene t of his son’s wife.

e. The spouse in whose total income the income is to be included shall be the husband or wide
whose total income is greater. If such income is included in the total income of either spouses,
it will not be included in the total income of the other spouse unless the Assessing O cer is
satis ed that it is necessary to do so, after giving that pose an opportunity of being heard.

f. The income arising or accruing to the minor child of an individual is included in computing the
total income of the individual. This does not include income which accuses or arises to minor
child due to manual work done by him or activity involving his personal skill, talent or special
knowledge and experience. The income of the minor child shall be included with the income
of the parent whose total income is greater, in the case where the marriage subsists.
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g. If the marriage of the parents does not subsist, the income of the minor child is included with
the income of the parent who maintains the child in the previous year.

h. If the income of a minor is included in the total income of one parent, it will not be included in
the total income of the other parent, unless the Assessing o cer feels that it is necessary to
do so, after giving that parent, an opportunity of being heard.

4. In the case of an individual being a member of a H.U.G if his individual property has been
converted into family property after 31.12.1969, otherwise than for adequate consideration,
then for computation of the total income of the individual:

i. The individual shall be deemed to have transferred the converted property through the family
to the members of the family for being held by them jointly.

ii. and the income derived from the converted property or any part there of shall be deemed to
arise to the individual and not the family.

iii. If the converted property is subject to partition (whether partial or total) among the members
of the family the income derived form such converted property as is received by the spouse of
the individual on partition shall be deemed to arise to the spouse form assets transferred
indirectly by the individual to the spouse.

Liability of person whose income is included in the assessee’s income: If the income from any
asset or from membership in a rm of a person other than the assessee is included in the total
income of the assessee, the person in whose name such assets stands shall be liable to pay that
portion of the tax levied on the assessee.If the asset is held jointly by more than one person, they
shall be jointly and severally liable to pay the tax which has to be paid for the assets that are
included.
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Question 19: What is depreciation ? What are the
expenses and payments disallowed while computing
income from business and profession ? Explain.

Ans: Introduction:

1. Depreciation means diminution in the value of an asset principally by reason of weaker and
tear. It is the inherent decline in the value of an asset.

2. Block of assets means a group of assets falling within a class of assets on which deduction of
depreciation is allowed.

E.g: Buildings, machinery, plant or furniture of the assessee which are tangible assets and
intangible assets like know how, patents copyrights, trade marks, licences, franchises or any
other similar rights owned wholly or partly by the assessee and which are used for his
business or profession in computing taxable pro ts of a business of profession.

• In the cost of buildings, depreciation is not allowed on the cost of the land on which a building,
is erected but only allowed on the cost of the super structure.

• If the asset is not exclusively used for business or profession, then only a proportionate count
determined by the Income Tax O cer is allowed a depreciation.

• If the asset is na undertaken generating or generating and distributing power, depreciation is

allowed at percentage as prescribed by the I.T Act, on the actual cost.

Conditions to be ful lled for claiming Depreciation:

1. Depreciation is to be claimed only in respect of building, machinery, plant or furniture. Plant

means vehicles, books, scienti c apparatus and surgical equipment.

2. The asset must be the property of the assessee. If the building in which the assessee carries
on business or profession is not owned by him, but he holds a lease or right of occupancy and
any capital expenditure is incurred by him for business or profession, he can claim
depreciation as if the site building is owned by the assessee.

3. The asset must be used at least partly or fully in the previous year for his business or
profession and such pro ts must be charged to tax. Even if an asset is not used for business
or profession, it is let on hire i.e., on hire depreciation is allowed. But if the asset is sold,
discarded, demolished or destroyed, deprecation cannot be claimed.

4. Particulars about the asset must be duly furnished to the Income Tax O cer, by the assessee.

5. Depreciation value made year after year must not exceed the original value of the asset to the
assessee.

6. If the asset belongs to a company and used by a Director for his own bene t, the depreciation
allowance is determined by the Income Tax O cer.

7. When any asset is acquired by the assessee during the previous years and used for business
or profession for less than 180 days in that previous year, depreciation is allowed for 50%of
such amount. If the asset is acquired during the previous year relevant to the assessment year
commencing on 1.10.2007 but before 1.04.2008 and used for business or profession before
1.04.2008, deduction is restricted to such percentage on the written down value of the assets
as prescribed.
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8. Depreciation all not be allowed for depreciation in respect of motor car manufactured outside
India acquired after 28-2-75. It is allowed if the car is used by running it on hire for tourists.

Actual Cost and Written Down value of an asset:

1. Actual Cost: The actual cost of an asset means its cost tot he assessee as reduced by any
amount which has been entered directly or indirectly by any other person, subject to the
following quali cations.

a. Where the actual cost of a motor car acquired by the assessee exceeds Rs.25,000/- its actual
cost is taken as Rs.25,000/-

b. If an asset is used after being used for scienti c research relating to that business, the actual
cost is reduced by the amount of deduction allowed in respect of it.

c. If an asset which belongs to the assessee once, and was used for his business or profession,
ceased to belong to him due to transfer, etc, and it is re-acquire by him, the actual cost of the
assessee is the lowest of he following two amounts:

i. Actual cost to him when he rst acquired it, as reduced by the amount of all depreciation
actually allowed to him in respect of any previous year relevant to the assessment year
commencing before 1.4.2007 and the amount fo depreciation allowable foe any assessment
year commencing year on 1.4.2007 as is the asset was the only asset on the revenant block of
assets or

ii. The actual price for which the asset is reacquired.

2. Written Down Value:

• For an asset acquired in the previous year, its actual cost to the assessee.

• For an asset acquired before the previous yeas, written down value is its actual cost to the
assessee less all depreciation actually allowed to hm. Allowance for unabsorbed depreciation is
deemed to be depreciation actually allowed.

• In a scheme of amalgamation if any capital asset is transferred by the amalgamating company

to the amalgamated company which is an Indian Company, the written down value of the
transferred asset to the amalgamated company will be taken as the amount in the case of
amalgamating company, had in continued to hold the capital asset for his own business.

Investment Allowance or Depreciation on Investment - Section 32A: Deprecation is allowed in

respect of a ship or aircraft or new plant and machinery owned by the assessee, under certain
prescribed conditions. But, such new machinery must be installed after March 31st 1990, but
before April 1st 1995.

Such a depreciation is allowed in the previous year in which the machinery or plant is installed or
if the machinery or plant is rst put into use in the succeeding previous year, then in such
succeeding previous year. Investment depreciation is equal to 35% of tea actual cost of the ship,
aircraft, plant or machinery, etc.

Balancing Charge: If any building, plant or machinery owned by the assessee, and used for the
purpose of his business or profession, is sold, discarded, demolished or destroyed, and the
moneys payable in respect of such assets together with the amount of any scrap value exceed
the written down value, so much of the excess as in equal to the amount of depreciation will be
deemed to be the pro t of the year in which the moneys payable fall due. Such deemed pro t is
called “Balancing Charge”.

Unabsorbed Depreciation: Due to insu cient of chargeable pro ts of any business or profession,
if the full or parrot of the normal and initial depreciation allowance cannot be given, the balance of
the depreciation not so given is called “unabsorbed depreciation”. But if the depreciation can’t be
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allowed for any other reason then it can’t be included under the term “unabsorbed depreciation”.
Terminal depreciation cannot be included in unabsorbed depreciation and it is treated as a loss for
that year.

Development Rebate - Section 33: The object of granting the Development Rebate is to provide
an incentive for the development of industrial enterprise. It is not a part of the depreciation
allowance. It is granted over and above the full recoupment of the total cost of ships, machinery
and plant by way of depreciation allowance.

It is available only in respect of a new ship acquire or new machinery or plant installed which is
owned by assessee and is used wholly for the purposes of his business carried on by him. The
Development Rebate is allowed as a deduction in the computation of business income in the year
in which the ship is acquired or the machinery or plant is installed, provided the set is used for
business in that year. But if the asset is used in the succeeding year, the rebate should be allowed
in such succeeding year.

Development Rebate is not given if the asset is rst put to use later than the year immediately
succeeding the year of acquisition if installed in any o ce premises or any resident
accommodation such as air conditioners, room heaters, etc.

Development Rebate is also given in respect of a second hand ship acquired by an assessee from
a person not resident in India or import second had machinery or plant form a country outside
India.

Development Allowance - Section 33A: An assessed carrying on the business of growing and
manufacturing tea in India can get a deduction in the computation of pro ts.Such deduction is
called Development Allowance.

1. For tea bushes planted after 31-3-1965 on any land which had previously been abandoned or
which had not at any time been planted with the tea bushes - 50% of the cost of such
planting.

2. For tea bushes at any time during the period from 1-4-1065 to 31-3-1970 in replacement of
bushes 30% of the cost of such planting.

Rehabilitation Allowance - Section 33B: If such business is established, or revived, by the

assessee within a period of three years from the end of the previous year in which it was
discontinued, then the assessee will be entitled to a deduction by way of rehabilitation allowance
in the computation of his pro ts for the previous year in which the business is so reestablished,
reconstructed or revived.

Such Rehabilitation Allowance is equal to 60% of the Terminal Depreciation admissible to the
assessee for the building, machinery or plant.
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