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Section 2 of the Income-tax Act gives definitions of the various terms and expressions used in the Act.
PROF CA S P DESAI
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 9i.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 exception 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] (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.
(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 individuals would be just a body without an intention to gettogether. 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.
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(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 thing 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; (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. 3
(11) Business income includes (i) Compensation money [Sec.289ii)] (ii) 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)]
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(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 be 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 (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 in inclusive and not exhaustive.
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.
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Incidence of tax for different residential status: Types of Income Ordinary Resident Resident (NOR) (OR) 1. Indian Income Tax 2. Foreign Income (a) From business or profession wholly or partly Tax controlled from outside India. (c) From business or profession wholly controlled from (d) outside India. Tax (e) (c) From any other source other than business (f) or profession, (includes salary House property, (g) Capital gains and other source)where place of Tax (h) control doesnt matter. (i) 3. Past untaxed profits brought into India during No Tax (j) previous year. (k) (l) 4. Gift received from a relative(No maximum No Tax (m) limit) (n) (o) 5. Gift received from a non relative inTax India (p) (q) exceeding Rs. 50,000 (The whole of the sum (r) shall be taxed and not the difference) (s) (7) Not Ordinary Resident (NR) Tax Tax No Tax No Tax No Tax No Tax Tax Non Tax No Tax No Tax No Tax No Tax No Tax Tax
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. 5
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) (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 atleast 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 non-resident if he satisfies none of the basic conditions and additional conditions being irrelevant.
(iii)
An Indian citizen or a person of Indian origin who comes to India on a visit during the previous year.