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LAW OF TAXATION SCHEME FOR VALUATION EXAM :- NOVEMBER / DECEMBER 2020 Prepared by:- Veena T.N Assistant professor in Law Seshadripuram Law College, Bengaluru.

1.Explain the meaning and scope of doctrine of immunity(tax) of state instrumentalities. Ans:- Articles 285,287,288 and 289 This doctrine recognizes the sovereignty of the states as well as the federation of those states. No provision expressly preserves the power of either sovereign to tax the other. Federal tax immunity in order to safeguard federal operations from potentially destructive state taxation. Mechulloch vs Maryland- question of inter –governmental taxation for the first time Collector vs Day- immunities to state properties from central taxation This doctrine is applicable only to Government bodies and not to private bodies.

2.Define ‘Agricultural Income’. Explain the characteristics from the income tax point of view. Ans:- Section 2(1A) defines Agricultural income as 1. rent or revenue derived from land which is situated in India and is used for agricultural purpose. 2. Any income derived from such land byI. II.

agriculture or the performance by the cultivator or receiver of rent-in-kind of any Process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market: or III. The sale by the cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the name described in para (ii) of sub-clause 3. Any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land or occupied by the cultivator or the receiver of rent-in-kind of any land respect of which , or produce of which , any process mentioned in paragraph(ii) and (iii) of sub-clause(b) is carried on: Provided that:

i. The building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator or the receiver of rent, by reason of his connection with the land requires as a dwelling house or as a stone house or store house or other out building and ii. The land is either assessed to land revenue in India is subject to a local rate assessed and collected by officers of the government as such or where the land is not so assessed to land revenue or subject to the local rate, it is not situated a.

in any area which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less than ten thousand b. in any area within the distance, measured aerially, not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item(a) and which has a population of more than ten thousand but not exceeding one lakh; or  not being more than six kilometers ,from the local limits of any municipality or cantonment board referred to in item (a) and has a population of more then one lakh but not exceeding ten lakh; or iii. Not being more than eight kilometers, from the local limits of may municipality in cantonment board referred to in item (a) and which has a population of more than ten lakhs. Specified area Population of the Municipality or cantonment board according to last preceding census More than 10,000 up to 1 Lakh More than 1 lakh up to 10 lakhs More than 10 Lakhs

Distance from the limits of Municipality or Cantonment board(local limits/jurisdiction) 2 Kms 6 kms 8 kms

Agriculture: it does not include merely growing of food and grains for the consumption of persons and animals, but includes all products from the performance of basic and subsequent operations on land. Agricultural Income: 1. Income from growing flowers and creepers in cultivated gardens 2. Rent for agricultural land received from sub-tenants by mortgage in possession 3. Fees collected from owners of cattle normally used to gaze for agricultural purpose from allowing them to graze on forest lands.

4. Interest on capital received by a partner by a partner from the firm engaged in agricultural operations. 5. Where seedlings and saplings are grown in a nursery and income derived therefrom, such income is treated as 100% agricultural income. Non-Agricultural Income 1. Dairy farming 2. Fisheries(aquaculture) 3. Poultry farming 4. Income from sale of forest trees, fruits and flowers 5. Interest received by the money lender in the form of agricultural produce 6. Sugar factory 7. Income accrued by sale of silk cocoons 8. Sheep farm 9. Dividend declared by Private ltd Co., indulged in agricultural activities 10. Income derived from trading of seedlings and saplings.

3.Discuss the rules for determination of residential status of individual, HUF and Company as Assessee. Ans:- Residential status (section 6) Residential status of a person depends upon the territorial connections of the person with this country, i.e., for how many days he has physically stayed in India. The residential status of different types of persons is determined differently. Similarly, the residential status of the assessee is to be determined each year with reference to the “previous year”. The residential status of the assessee may change from year to year. What is essential is the status during the previous year and not in the assessment year. It is important to determine the residential status of a person since the taxability of income of a person depends on his residential status during that financial year. For example, a person resident in India is liable to pay tax in India on his global income. As per section 6 of the Income-tax Act, 1961, all the assessee are divided in the following categories for the purpose of determining their residential status: I. Individual, II. Hindu undivided family, III. Company, and IV. Every other person

Types of Residential Status(Section 6): An assessee can be categorized into following residential status during the previous year: A) Resident in India B) Non-Resident in India A resident individual and HUF are further sub-categorized in to following status: A) Resident and Ordinarily Resident B) Resident but Not-ordinarily Resident Residential Status of An Individual [Section 6(1) And 6(6)] Resident and Non-Resident In order to be a ‘RESIDENT’ in India, an individual must satisfy the following conditions: 1. He is in India for a period of 182 days or more during the Previous Year [Section 6(1)(a)], or 2.

He is in India a) For a period of 60 days or more during the Previous Year, and b) For 365 days or more during 4 years immediately preceding the relevant previous year [Section 6(1)(c)]. An individual shall be declared as a ‘NON-RESIDENT’ if he does not satisfy both the above-mentioned conditions. Ordinarily Resident and Not Ordinarily Resident [Section 6(6)] A resident individual shall be treated as ORDINARILY RESIDENT in India if he satisfied both the following conditions [Section 6(6)] 1. He has been RESIDENT in India for at least 2 years out of 10 previous years immediately preceding the relevant previous year, and 2. He has been in India for 730 days or more, during 7 previous years immediately preceding the relevant previous year. A resident individual shall be treated as NOT ORDINARILY RESIDENT in India if he does not satisfy any or both the above-mentioned conditions. How to count the number of days? It may also happen that the time of arrival and departure are not known or not clearly known. There is no such information about them. In that case, the day of arrival and the day of departure both will be included at the time of determination of residential status.

On the other hand, if there is information about the time of arrival and departure then both shall be considered. In this case, 24 hours or more shall be treated as one day.

Residential Status Of A HUF [Section 6(2)]  

A HUF shall be treated as RESIDENT in India if its business is controlled and managed WHOLLY or PARTLY in India. On the other hand, a HUF shall be treated as NON-RESIDENT if its business is controlled and managed WHOLLY outside India.

Ordinarily Resident and Not Ordinarily Resident of HUF If the KARTA of HUF satisfied the conditions mentioned in Section 6(6), the HUF shall be an ORDINARILY RESIDENT in India. If the KARTA does not satisfy any one or both the conditions mentioned in Section 6(6), the HUF shall be treated as NOT ORDINARILY RESIDENT in India. Importance of KARTA’s Residential Status In case the HUF is a resident or not, the residential status of Karta is not considered. However, for the purpose of determination of Ordinarily/Not Ordinarily Resident of HUF, the status of Karta for the preceding years is important. It may happen that the Karta is a Resident but the status of HUF is Non-resident and viceversa. Residential Status Of A Company [Section 6(3)] A Company is a RESIDENT in India in any previous year, if Such Company is an INDIAN COMPANY, Or Its Place of Effective Management (POEM), in that year, is in India. Here, POEM means a place where key management and commercial decisions that are necessary for the conduct of the business of any entity as a whole are, in substance made.

4.What is Capital gain? Explain capital assets and its transfers. Ans:- Section 45 to 55- Any profits or gains’ arising from transfer of a capital asset is chargeable to tax under this head. Hence the 3 elements i.e,. Capital asset, transfer and computation of capital gains is necessary under this head. CAPITAL ASSET Sec 2 (14)

A. Capital asset means property of any kind held by the assessee whether or not connected with his business or profession . B. Any securities held by Foreign Institutional Investor (FII) which has invested in such securities in accordance of SEBI regulations. But Capital Asset does not include: 1. Stock in trade, raw materials, and consumables held for a purpose of business (other than securities stated in point B above). 2. Personal effects of moveable nature like furniture, utensils,vehicles held for personal purpose. However as an exception jewellery, archeological collection, drawings, painting, sculptors work of art is an capital asset.( gold , silver included as capital asset). 3. Agricultural land in India, which is not situated in specified area as discussed u/s 2(1A). 4. Gold bonds, special bearer bonds etc., issued by Government of India. TRANSFER SEC 2(47) Transfer in relation to capital asset includes: 1. Sale, exchange or relinquishment of capital asset . 2. Extinguishment of any right. 3. Compulsory acquisition under any law. 4. Conversion of capital asset into stock trade (assessment year 1985- 86 onwards). 5. Part performance contract u/s 53A of transfer of property act. 6. Transaction having the effect of transfer weather by acquiring shares or becoming member of a company or society. Transaction not regarded as transfer (section 46 & 47) 1. Distribution of assets by company for shareholders on liquidation. 2. Transfer of capital assets in total or partial partition of HUF. 3. Transfer of capital asset by way of gift, will or irrevocable trust. 4. Transfer of capital asset by holding company to subsidiary company or vice versa, provided it a wholly owned subsidiary and the transferee is an Indian company. 5. Transfer in a scheme of amalgamation, provided the amalgamated company is an Indian company.

6. Transfer of capital asset being work or art, scientific or archeological collection, books, manuscripts, painting, drawing etc provided the transfer is to Government, notified museums, art galleries, institutions etc. 7. Conversion of bonds or debentures into shares. 8. Transfer under a scheme approved under sick industries companies. 9. Conversion of partnership firm into a company or proprietary concerns into company provided the prescribed conditions are satisfied. 10. Conversion of Private Company or unlisted public company into limited liability partnership provided prescribed conditions are satisfied. 11. Transfer of units in a consolidating plan of a mutual fund scheme by a unit holder in consideration for units in the consolidated plan of that scheme of the mutual fund.

5.what is Income Tax Returns? Explain different kinds of Income tax Returns Ans:- Section 139-consolidated statement of income and expenses of an assessee and tax payable for the financial year Kinds of Income Tax Returns Form No. : ITR-1 SAHAJ For individuals being a resident (other than not ordinarily resident) having total income upto Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc), and agricultural income upto Rs. 5000 Form No. : ITR-2 For Individuals and HUFs not having income from profits and gains of business or profession Form No. : ITR-3 For individuals and HUFs having income from profits and gains of business or profession Form No. : ITR-4 Sugam For Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh and having income from business and profession. Form No. : ITR-5

For persons other than- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7 Form No. : ITR-6 For Companies other than companies claiming exemption under section 11 Form No. : ITR-7 For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only Form No. : ITR-V Where the data of the Return of Income in Form ITR-1 (SAHAJ), ITR-2, ITR-3, ITR4(SUGAM), ITR-5, ITR-7 filed but NOT verified electronically. Other kinds Belated returns, Returns by trusts, Universities, Political Parties, Revised returns, Scientific research Association returns, Defective returns.

6.Explain the provisons relating to registration of dealer under GST Act. Ans:- Section 22 to 30 - Every person liable to be registered if aggregate turnover in FY exceeds 20Lakhs in special category states(Sec 22(1)-Manipur, Mizoram etc) Section 23:- persons exempt from registration a. Persons exclusively making supply of non-taxable or wholly exempted goods or services. Ex:- silk waste, fresh vegetables and fruits, cereals, Edible vegetables, Coffee beans not roasted etc., b. Agriculturists Section 24:- Compulsory Registration       

Persons making any inter-state taxable supply Casual taxable persons Persons who are required to Pay under Reverse Charge Mechanism E-commerce operator Non-resident taxable persons Agents Input service providers

Section 25:- Procedure 

Application

     

Single registration based on nature Voluntary registration PAN mandatory Person having more than 1 registration treated as distinct person Unique Identification Number Registration certificate

7.Discuss the provisions relating to clearance of goods for warehouses. Ans:-Section 59,67 and 68 Warehouse means a place of storage of goods for future use. Customs warehouse is an entry point of imported goods and exit point of goods meant for export under customs provisions. Special procedure of home consumption for specified goods(petroleum products) and provisions duty payment- Execution of bond, B/E’s , report, Deposit of proportionate duty. Section 59:- warehousing bond  Execute a bond binding himself in a sum equal to twice the amount of the duty assessed.  To observe all the rules and regulations  Discharge all penalties incurred for violation of the provisions of the Act  Rent and charges  A bond executed by a importer shall continue inforce notwithstanding the transfer of goods to any other person or the removal of goods to another warehouse. Section 67:- removal of goods from one warehouse to another Subject to conditions as may be prescribed for the due arrival of the warehoused goods at the warehouse to which removal is permitted. Section 68:- clearance of warehoused goods from home consumption    

Bill of entry Import duty leviable and penalties Other charges payable Order of clearance

8.What is Tax Evasion and Tax Avoidance? Explain its effects and methods of prevention. Ans:-Tax Evasion:- False claims to reduce his total income or by not providing any proper information regarding his total income

Ex:- By not recording sale made, claiming bad debts or losses which never occurred, not showing gains, claiming false donation etc. Tax Avoidance:- reducing the tax liability without breaking any law. In this individual looks for loopholes in the law and make use of if to reduce tax by claiming permissible deductions. Effects       

Fiscal pressure and tax excessive burdens Civic education lacking Major cause is inaccuracies, ambiguities, contradictions etc Results in loss of government revenues Ignorance or misuse of tax legislations Vagueness, Imprecision and lack of unity.

Methods of prevention  Unification of tax legislation  Implementing the system to provide a data necessary to identify , analyze and combating tac evasion  Reorganization of territorial structure of finance Ministry  Internal and regular training to all staff of Ministry of finance with responsibilities in identifying and combating  Due-diligence  Monitoring, develop criteria and screening process to check assessee tax compliance status.

9.Define the term ‘Salary’. State the items under the head of salary. Ans:- Section 15 to 17 Basic criteria of salary is “EMPLOYER-EMPLOYEE RELATIONSHIP” Salary is taxable either on due basis or on receipt basis, whichever is earlier. SALARY U/S SECTION 17 (1):- Salary includes 1. Any Wages, 2. Any annuity or pension , 3. Any gratuity, 4. Any fees, commission, perquisites, Profits in lieu of or in addition to any salary or wages

5. Any advance of salary, 6. Leave encashment, 7. The Annual accretion to a recognized provident fund to the extent of the following: Employers contribution in excess of 12% salary,  Interest credited to the recognized provident fund in excess of 9.5% PA 8. The accumulated balance from an unrecognized provident fund account to recognized provident fund to the extent taxable. 9. Contribution made by central government or any other employer in the previous year to the account of employee under a pension scheme referred under Section 80CCD. PROFITS IN LIEU OF SALARY [SECTION 17(3)]:Profits in lieu of salary include, 1.

Any amount of compensation employer in connection with,

or due to an assessee from his employer or former

 Termination of employment (OR)  Modifications of terms and conditions of the employment. 2. Any payment received or due to assessee from his employer or former employer or from provident fund or any other fund or sum received under keyman insurance policy, including bonus on such policy. 3.

Any amount received or due to assessee in lump sum from any person before joining employment or after cessation/termination of employment.

DEDUCTIONS UNDER SECTION 16:1. ENTERTAINMENT ALLOWANCE [SECTION 16 (ii)]:Entertainment Allowance shall be first included in the computation of gross salary and then the deduction u/s 16 (ii) shall be given. Deduction is allowed for the LEAST of the following Rs. 5,000/ 1/5 of the salary  Actual Entertainment Allowance received

a. PROFESSIONAL TAX [SECTION16 (iii)]:- Actual amount paid by the employee is allowed as deduction. However, the amount of Profession Tax shall be deducted from the salary and remitted by the employer. If any amount is borne and paid by the employer, then such amount shall be added to gross salary as perquisite and deduction shall be given u/s 16 (iii). Commuted pensions, advance salary, Personal loans, Leave without allowances, leave travel concessions are other deductions to salary.

10.a. Best Judgement Assessment(Section 144) Ans:- the Assessing Officer after considering all relevant material which he has gathered , is under obligation to make an assessment of total income or loss to the best of his judgement in the following cases: When the assesse fails to make return required by any notice given under Sec 139(1)  When the as...