“PERSON UNDER THE INCOME TAX ACT, 1961: AN ANALYSIS”
A PROJECT SUBMITTED TO:
ARMY INSTITUTE OF LAW, MOHALI.
By:
JYOTI PANDEY (1875)
Under the Guidance of Dr. Puja Jaswal
LAW OF TAXATION
In Partial Fulfilment of The Requirements For The Award of Degree of
BA.LLB.
PUNJABI UNIVERSITY, PATIALA (PUNJAB)
Feb- July 2021.
ACKNOWLEDGEMENT
This project would not have been possible without the kind support and help of my teacher Dr.
Puja Jaswal. I would like to extend my sincere gratitude to her for giving me the opportunity to
do this topic which is not only enriching and interesting but also a means to increase my patience
and hard work. I am also highly indebted to Army institute of law and the library staff for their
guidance and constant supervision as well as for providing necessary information regarding the
project and also for their support in completing the project.
DECLARATION
It is certified that the project work presented in the report entitled “Person under the
Income Tax Act, 1961” embodies the result of original research work carried out by me.
All the ideas and references have been duly acknowledged.
Date: 7th March, 2021 Name: Jyoti
Pandey.
Place: Mohali. Roll no. - 1875.
INTRODUCTION
Income tax as a concept has been present in India for many years, but James Wilson who became
India’s first finance (British) member introduced the first modern Income Tax Act in 1860. “It
was only for the good of his subjects that he collected taxes from them, just as the Sun draws
moisture from the Earth to give it back a thousand fold,” wrote Kalidas in his epic poem
Raghuvansh.
WHAT IS INCOME TAX?
Income tax in India is a tax you pay to the government based on your income (and profit, in the
case of companies). The government uses this tax money for various purposes including public
services, infrastructure development, defence spending and subsidies among other options. If you
earn income beyond a certain limit, it is mandatory to pay income tax every year.
INCOME TAX ACT, 1961
The Income Tax Act is a comprehensive statute that focuses on the different rules and
regulations that govern taxation in the country. It provides for levying, administering, collecting
and recovering income tax for the Indian government. It was enacted in 1961.
The Income Tax Act contains a total of 23 chapters and 298 sections according to the official
website of the Income Tax Department of India.1 These different sections deal with various
aspects of taxation in India. The various heads for which you have to pay income tax include:
1. Salary
2. Income from house property
3. Capital gains
4. Profit and gains from business or profession
5. Income from other sources
Every year, the Indian government presents a finance budget during the month of February. The
budget brings in various amendments to the Income Tax Act. This includes changes in tax slabs
wherever applicable. For example, the Finance Minister announced that the tax rate for
individuals in the lowest tax bracket of Rs. 2.5 lakh to 5 lakh would be cut from 10% to 5% in
1 https://legislative.gov.in/sites/default/files/A1961-43.pdf, last visited on 16th March, 2021.
FY2017. Similarly, tax on Long Term Capital Gains (LTCG) was re-introduced during the
FY2018 budget. As a result, all gains greater than Rs. 1 lakh from shares and equity mutual
funds held longer than one year is now eligible for LTCG tax at 10%. The most recent budget
presented by the current Finance Minister Nirmala Sitharaman included the introduction of a
new optional system of taxation that comes with reduced income tax rates. These new rates shall
be available as an option from the financial year 2020-21.2
PERSON [SECTION 2 (31)] UNDER THE INCOME TAX ACT, 1961.
The term Person includes:-
1. an Individual;
2. a Hindu Undivided Family (HUF) ;
3. a Company;
4. a Firm
5. an association of persons or a body of individuals, whether incorporated or not;
6. a local authority; and
7. every artificial juridical person not falling within any of the preceding sub-clauses.
These are seven categories of persons chargeable to tax under the Act. The aforesaid definition is
inclusive and not exhaustive. Therefore any person not falling in the aforementioned categories
may still fall in the four corners of the term person and accordingly may be liable to tax under
Section 4 of the Act.
An individual- It means a natural born person (existence in the form of flesh or blood is
essential). It may be-
(a) male or female;
(b) major or minor;
(c) married or unmarried;
(d) Person of sound mind or person of unsound mind. (Shreedhar Uday Narayan v. CIT)3
It is also important to note that the trustee of a fund is also covered under the head of an
individual. Under the present Act, the word individual means only a natural person i.e, a human
2 https://pib.gov.in/PressReleasePage.aspx?PRID=1693907, last visited on 16th March, 2021.
3 Shreedhar Uday Narayan v. CIT, 1962 45 ITR 577.
being. Deities and statutory corporations are assessable as juridical person. It refers to a natural
human being whether male or female, minor or major, lunatic or otherwise.
Hindu Undivided Family- The term HUF is not defined under this Act so we take the meaning
of HUF as per the Family Law. A Hindu undivided family consists of all persons lineally
descended from a common ancestor and includes their wives and unmarried daughters. Profits
made by a Joint Hindu Family are chargeable to tax as income of the Hindu Undivided family as
a distinct entity or unit of assessment. Once a family is assessed as a Hindu Undivided Family, it
will continue to be assessed as such till a finding of partition is given by the Assessing Officer
under Section 171. It is a relationship created due to operation of Hindu Law. The manager of
HUF is called “Karta” and its members are called ‘Coparceners’.
Company: The definition of a company is given under Section 2 (17) 4 of the Income Tax Act,
1961. It is an artificial person registered under Indian Companies Act 1956 5 or any other law. It
contains:
● An Indian company, or corporation under the law of a country outside India, or
● Any institution or body assessed as a company under the Income-tax Act, 1922 for any
assessment year commencing on or before 1st April 1970, or
● Any institution (incorporated or not / Indian or non-Indian) which by general or special
order of the Central Board of Direct Taxes, to be a company.
A company is a juristic person who is independent and is a separate legal entity from its
shareholders. So, the income of a company is assessed by the company itself. It has to pay tax at
a flat rate.
Firm: It is an entity which comes into existence as a result of partnership agreement between
persons to share profits of the business carried on by all or any one of them. Though, a
partnership firm does not have a separate legal entity, yet it has been regarded as a separate entity
under Income Tax Act. Under Income Tax Act, 1961, a partnership firm can be of the following
two types:
● A firm which fulfils the conditions prescribed u/s 184.
4 Section 2 (17), Income Tax Act, 1961.
5 Companies Act, 1956.
● A firm which does not fulfill the conditions prescribed u/s 184.
It is important to note that for Income Tax purposes, a limited liability partnership (LLP)
constituted under the LLP Act, 2008 is also treated as a firm.
Association of Persons or Body of Individuals: Co-operative societies, MARKFED, NAFED
etc. are the examples of such persons. When persons combine together to carry on a joint
enterprise and they do not constitute partnership under the ambit of law, they are assessable as an
association of persons. Receiving income jointly is not the only feature of an association of
persons. There must be common purpose, and common action to achieve common purpose i.e. to
earn income. An AOP can have firms, companies, associations and individuals as its members.
A body of individuals (BOl) cannot have non-individuals as its members. Only natural human
beings can be members of a body of individuals. Whether a particular group is an AOP or a BOl
is a question of fact to be decided in each case separately.
Local Authority- Local authority is a separate unit of assessment. As per Section 3 (31) of the
General Clauses Act, 1897, a local authority 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.
The definition was examined by the Apex Court in the case of Union of India v. RC Jain6,
wherein certain tests were laid down and the major tests which can be carved out of above
decision and the subsequent decisions are essentially that
(i) The authorities must have separate legal existence as corporate bodies and autonomous status,
(ii) It must function in a defined area, and must ordinarily, wholly or partly, directly or indirectly
be elected by the inhabitants of the area
(iii) It performs Governmental functions such as running markets, providing civic amenities etc.,
(iv) must have power to raise funds for the furtherance of its activities and fulfillment of its
projects by levying taxes/ fees- this may be in addition to money provided by the Government
and management and creation of the fund must vest with the authority.
6 Union of India v. RC Jain, AIR 1981 SC 951.
Artificial Juridical Person- A public corporation established under special Act of legislature and
a body having juristic personality of its own is known to be Artificial Juridical Persons.
Universities are an important example of this category. It covers not only deities (Jogendra
Nath Naskar v. CIT, 1969 74 ITR 33 SC) but also all artificial person with a juridical
personality such as a Bar Council. (Bar Council of Uttar Pradesh v. CIT 1983 143 ITR 584
(All.)
CONCLUSION: PROFIT MOTIVE IS NOT ESSENTIAL
An association of persons or a body of individuals or a local authority or an artificial juridical
person shall be deemed to be a person whether or not such person or body or authority or
juridical person, is formed or established or incorporated with the object of deriving income,
profits or gains.7 The Income Tax Act is a comprehensive statute that focuses on the different
rules and regulations that govern taxation in the country. It provides for levying, administering,
collecting and recovering income tax for the Indian government.
All assesses are persons but all persons are not assesses under the Income Tax Act. According to
the definition of an assessee, every person who is liable to pay tax or any other amount under this
Act is an assessee. Therefore, out of the above mentioned categories of persons any one may be
an assessee depending upon his liability to pay. However, it may be possible that a person may
not be covered in the definition of assessee.
BIBLIOGRAPHY
1 Income Tax Act, 1961
7 Taxation Laws, Dr. Jyoti Rattan, 12th ed.
2 Taxation Laws, Dr. Jyoti Rattan, 12th ed.
3 Company Law, Avtar Singh, 17th ed.
4 www.scconline.com
5 https://legislative.gov.in/sites/default/files/A1961-43.pdf, last visited on 16th March, 2021.
