Law-of-taxation - Law of taxation class notes PDF

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StuDocu is not sponsored or endorsed by any college or universityLAW OF TaxationLlb (Karnataka State Law University)StuDocu is not sponsored or endorsed by any college or universityLAW OF TaxationLlb (Karnataka State Law University)MODEL ANSWERSTAXATION Residential status of assessee under IT Act? I...

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LAW OF Taxation Llb (Karnataka State Law University)

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TAXATION

1.

Residential status of assessee under IT Act ?

Income tax is imposed on the basis of duration of residence of assessee in India. Citizenship is not precondition for liability to Income Tax. Subject of IT is person, depending on his residence in India and not citizens. The extension of resident is greater than the extension of citizen.All citizens are resident but all residents are not citizens.

Determination of residential status of an assessee is very important matter for the purpose of determining the total income of any previous year of assessee. Types of Taxable Entities  Individual  Hindu Undivided Family (HUF)  Firm, Association of Persons or body of individuals  Company  Every other person Types of Residential Status

 Resident and ordinarily resident  Resident and not ordinarily resident Non resident

From section 5 of he Act it is abundantly clear that when an assesee is resident of India then his total income includes income from whatever source derived which accrues or arise to him outside India during such year. Provided that in the case of a person “not ordinary resident” in india within the meaning of sec.6. the income which accrues or arises to him outside. India shall not be so included unless it is derived from a business controlled in or a profession set

up in india. For an assessee who is a non resident in India his total income under sec 5 of the said Act shall not include income that accrues or arises to him outside India during the previous year. Therefore it is very important for an Assessing Officer to decide wheather an assessee is a resident of India or non resident.

Section 6

Resident and ordinarily resident 



An individual is said to be resident of India if o He is in India in the previous year for a period of 182 days or more (60 days in the person is a member of the crew of an Indian ship) o He is in India for a period of 365 days or more within 4 years preceding the assessment year AND periods amounting to all to 60 days or more in that year The exception is given to member of the crew of an Indian ship because they work for moths together on duty on the seas

Case Law Vijay Mallya vs Assistant commissioner :Assessee was in india for 182 days and there after abroad for the remaining 193 days for the assessment year 1989-90.Relying on provision 6(1) a.the residential of the assessee was determined by the Asessing officer as non resident with in the meaning of sec 2(30).Notice dated 08.01 1996 issued under sec 154 with a view to retify the mistake apparent from the record challenged by the petitioner. Held: Dissmissing the challenge to notice issued under sec 154 Hon’ble judge held that assessee may be resident in india either under sec 6(1)(c) of the said Act. Is the duty bound to record his reason as to why he is not holding the assessee as resident either under sec6(1) (a),or(c)of Act. If assessing officer fails to record the reason why he is not holding the assesee as a resident of india either under section 6 (1)(a)(c) of the said Act such failure would be a mistake apparent from the record which would call for rectification. “Not Ordinarily Resident” in India sec 6(6) a person is not ordnerily resident in india in any previous year if such person is an individual who has been a non resident in India in nine out of ten previous years preceding that year been in India for a period of seven hundred and twenty nine days or less.

For determination of residential status of an assessee following principles should be considered. a. Place and purpose of stay in India is not of significance. b. Continuous stay is not essential. c. Stay on a boat in territorial water d. When a person is in India only for a part of a daythe calculation of physical presence in India in respect of such broken period shall be made on an hourly basis. Atotal of 24 hours of stay spread over a number of days is to counted as equivalent to stay of one day e. If statistics is not available to calculate the period of stay of an individual in India in terms of hours then the day on which he leaves India shall be taken into account. Residential status of hindu undivided family: A Hindu undivided family firm or other association of person is considered resident in India in any previous year except where the contrl and managmentof its affairs is situated wholly outside india. Under Section 6(1), an individual is said to be resident in India in any previous year if he satisfies any one of the following basic conditions: 

He is in India in the previous year for a period of at least 182 days or,



He is in India for a period of at least 60 days during the relevant previous year and at least 365 days during the four years preceding that previous year.

In case an Indian citizen leaves India for employment abroad in any year for the purpose of employment (or where an individual, who is a citizen of India, leaves India as a member of the crew of an Indian ship), or where an Indian citizen or a person of Indian Origin, who has settled abroad, comes on a visit to India in the previous year, shall not attract clause (b) of the basic conditions Therefore, such individuals may stay in India upto 181 days in a given previous year without becoming resident in India for that previous year. An individual who does not satisfy either of the above basic conditions is non-resident for that previous year. A Hindu Undivided Family (HUF) is said to be resident in India if control and management of its affairs is wholly or partly situated in India during the relevant previous year. A resident individual or HUF assessee may further be classified into (i) resident and ordinarily resident (ROR) and (ii) resident but not ordinarily resident (RNOR). A resident individual or

HUF is treated as ROR in India in a given previous year, if he satisfies the following additional conditions:

He has been resident in India in at least 9 out of 10 previous years (according to basic conditions noted above) preceding the relevant previous year; and



He has been in India for a period of at least 730 days during 7 years preceding the relevant previous year.

An individual or HUF becomes ROR in India if the individual or Karta of HUF satisfies at least one of the basic conditions and both the additional conditions. An individual or Karta of HUF who is resident in India but does not satisfy both the additional conditions is RNOR for that previous year. Residential status of assessee other than an Individual & HUF In case of an assessee, other than an individual and HUF, the residential status depends upon the place from which its affairs are controlled and managed. As per Section 6(2), a partnership firm or an association of persons are said to be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are, however, treated as non-resident if control and management of their affairs are situated wholly outside India. As per Section 6(3), an Indian company is always resident in India. A foreign Company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India. Where part or whole of control and management of the affairs of a foreign company is situated outside India, it shall be treated as a non-resident company. As per Section 6(4), every other person is resident in India if control and management of his affairs is, wholly or partly, situated within India during the relevant previous year. On the other hand, every other person is non-resident in India if control and management of its affairs is wholly situated outside India.

Case. SubbayyChettiar Vs CIT : HUF shall be taken to be resident in India unless control and management of its affairs is situated wholly out side India..Official visit of kartha to India does not make HUF resident of India.

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2. Discuss in brief the provision regarding appeal under Income Tax Act 1961? Introduction: Appeal proceeding taken to rectify an erroneous decisions of a court right to appeal under IT law is a creation of statute not an inherent right. Income tax liability is determined at the level of assessing officer first. Sec.252 to 255 of Income Tax Act deals with Appeal provision. A tax payer aggrieved by various action of assessing officer can appeal before Commissioner of Income Tax. Further appeal can be preferred before the Income Tax Appellate Tribunal. On substantial question of law further appeal can file before the High Court and even to the Supreme Court with the ladder up approach appeal procedure.  Appeal before the Commissioner  Appeal before the High Court  Appeal before Supreme Court When appeal can be filed before the Commissioner When a tax payer is adverse by various income tax authorities appeal can be filed before the commissioner. Form of Appeal: Form No.35 Name and address of tax payer, permanent account number, assessment year details which appeal is filed, etc. are to be filed in Form No.35. It should be signed and verified by individual tax payer or person assigned. Payment of accepted tax liability must be paid before filing appeal. An appeal will be admitted by the Commissioner only if tax as per the returned income is filed. Fee:

Fee to be paid before filing appeal to commissioner depends upon the total income determine by the assessing officer. An appeal to be filed before the commissioner within 30 days of the date of service of notice of demand relating to assessment or penalty order or the date of service of order sought to be appealed. On receipt of form No.35 commissioner of income tax fixes date and place of hearing the appeal by issuing notice to the tax payer and assessing officer against whose order appeal is preferred. Filing of additional evidence : During appeal proceedings the tax payer is not entitled to produce any evidence whether oral or documentary other than what was already produced before the assessing officer. Decision: Hearing is concluded when commissioner passes order in writing disposing of appeal and stating the decision on each ground of appeal with reason.

When appeal can e filed before income tax appellate tribunal: Sec. 252 to 255 deals with it. Appeal can be filed before the Appellate Tribunal if order by Commissioner u/s.263 revising assessing officer’s order if considered prejudicial interest to revenue. Form No.36 to be filed in triplicate and is to be accompanied by two copies of order appealed against. A fee to be paid according total income as computed by assessing officer. Where the subject matter of appeal relates to another matter fee of Rs.500/- is to be paid. An application for stay of demand is to be accompanied by fee of Rs.500/-. The order appealed is communicated to tax payer or the Commissioner within 60 days. Normally appeals are heard by a bench comprising one judicial member and one accountant member. Appeals were total income computed by assessing officers does not exceed RS. 5 Lakhs may be disposed by single member bench. /bench normally pronounces its order in court. High Court:

Appeal against appellate tribunal order lies with the High Court, wherein it accepts the cases which involved the substantial question of law. Within 120 days the tax payer or chief commissioner should appeal before the High Court. High Court hears appeal only on question of law so formulated. Appeal filed before high court is heard by bench of not less than 2 judges and the decision by majority.

Supreme Court: Under Article 136of the Constitution of India against the order of High Court the tax payer or the commissioner can appeal before the Supreme Court.

3.

Authorities under IT Act ? Powers and function ?

The Income Tax Department, also referred to as IT Department, is a government agency in charge of monitoring the income tax collection by the Government of India. It functions under the Department of Revenue of the Ministry of Finance. 1.

INCOME TAX AUTHORITIES SECTION 116 • Central Board of Direct Taxes

( CBDT) • Directors- General of Income tax or Chief commissioner of income tax • Additional directors of income tax or additional commissioner of income tax • Joint directors or joint commissioner of income tax • Deputy director or deputy commissioner of income tax Assistant directors or assistant commissioner of income tax • Income tax officers • Tax recovery officers • Inspectors of income tax 2.

CBDT • The Central Board of Direct Taxes (CBDT) is a part of Department of Revenue

in the Ministry of Finance. The CBDT provides inputs for policy and planning of direct taxes in India, and is also responsible for administration of direct tax laws through the IT Department. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963. The officials of the Board in their ex officio capacity also function as a division of the Ministry dealing with matters relating to levy and collection of direct taxes. The CBDT is headed by Chairman and also comprises six members, all of whom are ex officio Special Secretary to the Government of India. 5 The Chairman and members of the CBDT are selected from the Indian Revenue Service (IRS), whose members constitute the top management of the IT Department. The Chairman and every

member of CBDT are responsible for exercising supervisory control over definite areas of field offices of IT Department, known as Zones. Various functions and responsibilities of the CBDT are distributed amongst Chairman and six members, with only fundamental issues reserved for collective decision by the CBDT. The areas for collective decision by the CBDT include policy regarding discharge of statutory functions of the CBDT and of the Union Government under the various direct tax laws. They also include general policy relating to: Set up and structure of Income Tax Department; • Methods and procedures of work of the CBDT; • Measures for disposal of assessments, collection of taxes, prevention and detection of tax evasion and tax avoidance; • Recruitment, training and all other matters relating to service conditions and career prospects of all personnel of the Income-tax Department; • Laying down of targets and fixing of priorities for disposal of assessments and collection of taxes and other related matters; • Write off of tax demand exceeding Rs.25 lakhs in each case; • Policy regarding grant of rewards and appreciation certificates. • Any other matter, which the Chairman or any Member of the Board, with the approval of the Chairman, may refer for joint consideration of the Board 3.

APPOINTMENT OF INCOME TAX AUTHORITIES SECTION 117 The Central

Government may appoint such persons as it thinks fit to be income-tax authorities. Without prejudice and subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, the Central Government may authorise the Board, or a Director-General, a Chief Commissioner or a Director or a Commissioner to appoint income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner. Subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, an income- tax authority authorised in this behalf by the Board may appoint such executive or ministerial staff as may be necessary to assist it in the execution of its functions. 4.

CONTROL OF INCOME TAX AUTHORITIES SECTION 118 • The Board may, by

notification in the Official Gazette, direct that any income-tax authority or authorities specified in the notification shall be subordinate to such other income-tax authority or authorities as may be specified in such notification. 5.

INSTRUCTIONS TO SUBORDINATE AUTHORITIES SECTION 119 • 1) The Board

may, from time to time, issue such orders, instructions and directions to other income-tax

authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: • Provided that no such orders, instructions or directions shall be issued • (a) so as to require any income-tax authority to make a particular assess-ment or to dispose of a particular case in a particular manner; or • (b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. • (2) Without prejudice to the generality of the foregoing power, • (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time general or special orders in respect of any class of incomes or fringe benefits or class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information; 6.

(b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine

hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law; • (c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order for reasons to be specified therein, relax any requirement where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely: • (i) the default in complying with such requirement was due to circumstances beyond the control of the assessee; and • (ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed : • Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament. 7.

JURISDICTION OF INCOME TAX AUTHORITIES SECTION 120 • 1) Income-tax

authorities shall exercise all or any of the powers and perform all or any of the functions

conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities. • Explanation. For the removal of doubts, it is hereby declared that any income-tax authority, being an authority higher in rank, may, if so directed by the Board, exercise the powers and perform the functions of the incometax authority lower in rank and any such direction issued by the Board shall be deemed to be a direction issued under sub-section (1). • (2) The directions of the Board may authorise any other income-tax authority to issue orders in writing for the exercise of the power...