PROF CA S P DESAI IMPORTANT DEFINITIONS Section 2 of the Income-tax Act gives definitions of the various terms and expressions

used in the Act. Assessee [Section 2(7)] Assessee means a person by whom any tax or any other sum of money is payable under this Act and includes. (a) (i) Every person in respect of whom any proceedings under this Act have been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or such person. (ii) Every person in respect of whom any proceeding under the Act has been taken for assessment of Fringe benefits. (b) Every person who is deemed to be an assessee under any provision of this Act. (c) Every person who is deemed to be an assessee in default under any provision of this Act. Thus the above definition includes the following assessee: (a) Ordinary assessee it includes (i) Any person against whom some proceedings under this Act are going on. (ii) Any person who has sustained loss and has filed return or loss u/s 139(3). (iii) Any person by whom some amount of interest, tax or penalty is payable under this Act, or (iv) Any person who is entitled to refund of tax under this Act. (b) Representative assessee or deemed assessee: A person may not only be liable for his own income or loss but also on the income or loss of other persons e.g.: guardian of minor or lunatic, agent of a non-resident etc. (c) Assessee-in default: A person is deemed to be an assesseein default if he fails to fulfill his obligations under the Act. E.g.
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employer paying salary fails to deduct tax at source or deducts tax but does not deposit it in the treasury. Assessment [Section 2(8)] Under the Income-tax law, assessment means computation of taxable income and levy of tax there on for a particular assessment year . There is no separate definition of the work assessment in the Act except an inclusive definition under section 2(8) which says that assessment includes reassessment. Assessment year [Section 2(9)] Assessment year means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act. For instance, 2005-06 which will commence on April, 2005 will end on March 31, 2006. Previous Year [Section 3] Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year. From the assessment year 1989-90 onwards, all assesses are required to follow financial year (i.e. April 1 to March 31) as previous year. This uniform previous year has to be followed for all sources of income. In case of newly set up business or profession or a source of income newly coming into existence, the first previous year will be the period commencing from the date of setting up of business / profession or as the case may be, the date on which the source of income newly comes into existence and ending on the immediately falling March 31. Thus, where Mr. A sets up a business on 10.10.2004, his previous year will be the period commencing on 10.10.2004 and ending on 31.3.2005 and assessment year will be 2005-06. There are however, several exceptions to the rule which are as follows:(a) Income of non-resident shipping companies where they do not have any representative in India [Sec.172] (b) Income of persons leaving India either permanently or for a long period [Sec.174]
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(c) Income of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose [Sec.174A] (d) Income of person trying to alienate his assets with a view to avoid tax [Sec.175] and (e) Income of discontinued business [Sec.176] In the above cases, income of previous year may be taxed in that previous year itself, at the rates applicable to that previous year.

Person [Sec. 2(31)] Income-tax is charged in respect of the total income of the previous year of every person, the term person includes (i) An Individual: a natural human being, i.e., male, female, minor or a person of sound or unsound mind. (ii) A Hindu undivided family: it consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. (iii) A Company: (a) any Indian company, or (b) any body corporate incorporated by or under the laws of a country outside India, or (c) any institution, association or body whether Indian or non-Indian, which is declared by general or social order of the Board to be a company, or (d) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income- tax Act, 1992 or which is or was assessable or was assessed under this Act (Income-tax Act, 1961) as a company on or before the 1 st day of April,1970. (iv) A Firm: it is a partnership firm. (v) An Association of Persons or a Body of Individuals whether incorporated or not: The difference between Association of person and body of individuals is that where as association implies a voluntary getting together for a definite purpose a body of
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individuals would be just a body without an intention to get-together. Moreover, the members of body of individuals can be individuals only whereas the members of an association of persons can be two or more firms or Hindu undivided families etc. (vi) A Local Authority: it means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the Government with the control and management of a Municipal or local fund. (vii) Every Artificial Juridical Person, not falling within any of the above categories: This is a residuary clause. If the assessee does not fall in any of the first six categories, he is assessed under this clause .Generally, a statutory corporation, deity or charitable institution or an endowment for charitable or religious purposes falls under artificial juridical person. There are seven categories of persons chargeable to tax under the Act. The aforesaid definition is inclusive, and not exclusive. Therefore, any person, not falling in the above mentioned categories, may still fall in the four corners of the term person and accordingly may be liable to tax under Sec. 4 INCOME-[SEC.2 (24)] The definition of the term income in Sec. 2(24) is inclusive and not exclusive. The term income not only indicates those things which are included in Sec. 2(24), but also includes such thing which the term signifies according to its general and natural meaning. The definition of income in Sec. 2(24) of the Income-tax Act includes (1) Profits and gains: (2) Dividend; (3) Voluntary contributions received by religious or charitable trust or institution; (4) Perquisite or profit in lieu of salary taxable under Sec. 17(2) and (3); (5) Special allowance or benefit, other than perquisite specially granted to as in assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; (6) Allowance granted to assessee to meet his personal expenses at the place where the duties of his office or employment of profit are or ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;
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(7) The value of any benefit or perquisite obtained from the company by a director or by a person having substantial interest in the company or by a relative of the Director of such person; (8) Any sum paid by a company in respect of any obligation which, but such payment would have been payable by the director or the person having substantial interest; (9) Value of any benefit or perquisite obtained by a representative assessee mentioned in Sec. 160(1) (iii) or (iv) or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee and any sum for such payment, would have been payable by the beneficiary; (10) Any compensation or other sum due to or received by any person referred to in Sec. 28 (ii) or income derived by a trade, professional or similar association from specific services performed for its members as referred to in sec. 28(iii) or any amount obtained by way of remission or cessation of liability previously allowed as deduction or balancing charge or the excess of the amount of deduction in respect of expenditure on scientific research or amount of bad debt subsequently recovered. (11) Business income includes (i) (ii) Compensation money [Sec.289ii)] Income derived by a trade, professional or similar association for specific services performed for its members [Sec. 28(iii)] (iii) Export incentives [Sec. 28(iiia), (iiib), (iiic)] (iv) Value of any benefit or perquisite arising from business or the exercising profession [Sec. 28(iv)] (v) Any interest, salary, bonus, commission or remuneration received by a partner of a firm from such firm [Sec. 28(v)] (vi) Deemed business income [Sec 41] and deemed income chargeable under the head other sources [Sec. 59] (12) Any capital gains chargeable u/s. 45; (13) Profits and gains of any insurance carried on by a mutual insurance company or by a co-operative society; (14) Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort; (15) Sum received by the assessee from his employees as contributions to any provident fund or superannuation fund set up under the provisions of the Employees state Insurance Act, 1948 or any other fund for the welfare of such employees; and
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(16) Any sum received under a key-men Insurance policy including the sum allocation by way of bonus on such policy. The above list given in Sec. 2 (24) of the income-tax act is inclusive and not exhaustive. INCIDENCE OF TAX (U/S 5) Incidence of tax for a person depends upon his residential status and place of accrual and receipt of income. Types of Income (a) Indian Income (i) Income accrued (earned) or deemed to have accrued in India and received or deemed to have received in India. (ii) Income accrued (earned) or deemed to have accrued in India but received or deemed to have received outside India (iii) Income accrued (earned) or deemed to have accrued outside India but received or deemed to have received in India. In short an Income is said to be an Indian Income if either accrued or received or both is in India. (b) Foreign Income An Income which is not an Indian income is a foreign income i.e. an income accrued or deemed to have accrued outside India and received or deemed to have received outside India is a foreign income. Incidence of tax for different residential status:
Types of Income Ordinary Resident Not OrdinaryNon Resident (OR) Resident(NOR) (NR) Tax Tax No Tax No Tax No Tax Tax No Tax No Tax No Tax No Tax

1. Indian Income Tax 2. Foreign Income (a) From business or profession wholly or partly Tax controlled from outside India. (c) (b) From business or profession wholly controlled Tax (d) from outside India. (e) (c) From any other source other than business Tax (f) or profession, (includes salary, house property, No Tax (g) capital gains and other source) where

place of (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) during control doesnt matter. No Tax 3. Past untaxed profits brought into India previous year. Tax No Tax Tax No Tax Tax

4. Gift received from a relative maximum limit) 5. Gift received from a non relative exceeding Rs. 50,000 (The whole shall be taxed and not the difference)

sum

(7) Notes: 1. The words received and remitted are not same. To classify an income as Indian or foreign income, accrued and received are considered and not the word remitted. 2. Agricultural income is exempt from tax U/S 10(1) if it is from a land situated in India. 3. Dividend received from a domestic co including Indian co is exempt from tax U/S 10(34). However dividends received from Non-domestic co are taxable (foreign co). 4. If the place of accrual is given as India and if the place of receipt is not given, it is assumed to be the same as place of accrual i.e. India. EXEMPTED INCOMES (U/S 10) (Applicable to Individual assessee only) Exempted incomes are those incomes on which income tax shall not be chargeable. (1) Agricultural income is exempt from tax U/S 10(1). The above income shall be from agricultural purpose and the land shall be situated in India
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(2) Any sum of money received by an individual as a member of Hindu Undivided Family (HUF) shall be exempt from tax U/S 10(2) since HUF is a separate taxable entity. (3) Share of profits received by a partner from a partnership firm is exempt U/S 10(2A) since partnership firm is a separate taxable entity. (4) Any income of a non resident by way of interest on notified government securities or interest on NRI external account in India notified by FERA, or interest on notified savings certificates is exempt U/S 10(4). (5) Remuneration received from foreign state under co-operative technical assistance program is fully exempt U/S 10(8). (6) Remuneration as consultant out of funds made available to international agencies under technical assistance program approved by government is fully exempt U/S 10(8A). (7) Income from notified bonds/deposits and securities is fully exempt U/S 10(15) (8) Scholarship received to meet cost of education is fully exempt U/S 10(16) (9) Daily allowance, constituency allowance and other allowance to MLAs and MPs is fully exempt U/S 10(17). However the above allowances shall not exceed Rs. 2000 pm. (10) Reward or award either in cash or in kind instituted and approved by government in public interest is fully exempt U/S 10(17A). (11) Family pension received by the widow or children of member of armed force is completely exempt from tax U/S 10(19). However death of such person shall had occurred while on duty. (12) Annual value of any one palace of an Ex-Ruler of Indian States shall be fully exempt U/S 10(19A). However no part of the palace shall be let out.
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(13) Income of a SC/ST by way of interest or dividend on specified securities is fully exempt U/S 10(26). (14) Subsidy received by an assessee engaged in growing and manufacturing of tea by the tea board for the purpose of replacement is fully exempt U/S 10(30). (15) Subsidy received by an assessee engaged in growing and manufacturing of Rubber, Coffee, Cardamom or other notified commodities by the relevant board is fully exempt U/S 10(31).

RESIDENTIAL STATUS [SEC. 6] The test of Basic conditions and additional determine the residential status of an Individual. BASIC CONDITIONS [U/S 6(1)] (a) One should be in India during the relevant previous year for a period of 182 days or more. OR (b) One should be in India for a period of 60 days or more during the relevant previous year AND 365 days or more during 4 years immediately preceding the relevant previous year. Note: The word AND in basic condition (b) Signifies that assessee has to satisfy both parts i.e. 60 days or more during the relevant previous year and 365 days or more during 4 years immediately preceding the relevant previous year. ADDITIONAL CONITIONS [U/S 6(6)] (i) A person should be a resident in India for at least 2 years out of 10 years immediately preceding the relevant previous year. Note: A person is said to be a resident in India if he satisfies atleast any one of the above mentioned basic conditions U/S 6(1)
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(ii)

He should have stayed in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

Different Residential Status (i) Resident: An individual is said to be a resident in India if he satisfies at least any one of the above mentioned two basic conditions U/S 6(1) (a) Ordinary Resident: A Resident is said to be an ordinary Resident if he satisfies both the additional conditions given above U/S 6(6) (b) Not Ordinary Resident: A Resident is said to be a Not Ordinary Resident if he satisfies one or none of the additional conditions given above U/S 6(6) (ii) Non- Resident: An Individual is said to be a nonresident if he satisfies none of the basic conditions and additional conditions being irrelevant.

EXCEPTIONS TO THE RULE OF RESIDENTIAL STATUS: The period of 60 days mentioned in basic condition (b) U/S 6(1) shall be extended to 182 days in the following situations: (i) An Indian citizen who leaves India during the previous year for the purpose of employment outside India. (ii) An Indian citizen who leaves India during the previous year as a member of crew of Indian ship. (iii) An Indian citizen or a person of Indian origin who comes to India on a visit during the previous year.

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