UNIT – 1

❖ INTRODUCTION - Taxes are financial charges imposed by the government on

earnings, commodities, services, activities, or transactions. The term “tax”
comes from the Latin term “taxo.” Taxes are the government’s primary source of
income, and they are used to benefit the citizens of the nation through
government policies, regulations, and practices. The Indian tax system has
evolved throughout the decades to meet the government’s rising demand for
finances. The system is also designed to help the government accomplish its
socio-economic goals. Tax reform is a continual activity that should be carried
out regularly to assess the system for revamping and repairs.
India is now governed by the Income Tax Act of 1961 (IT Act). The current Income
Tax Act was passed in 1961 and went into effect on April 1, 1962. The Income Tax Act
was referred to the Law Commission by the government in 1956, and the report was
submitted in 1958. Shri Mahavir Tyagi was appointed as Chairman of the Direct Tax
Administration Enquiry Commission in 1958. The current Income Tax Act was created
based on the suggestions of both of these groups. The 1961 Act has been revised several
times since then.
✓ A brief overview of the Income Tax Act, 1961 = Sir James Wilson
implemented income tax in India for the first time in 1860 in order to compensate
for the damage suffered by the military mutiny in 1857. A distinct Income Tax
Act was created in 1886, and it remained in effect for a long period, subject to
different revisions from time to time. A new Income Tax Statute was enacted
in 1918, however, it was quickly repealed by a new act enacted in 1922. The Act
of 1922 grew extremely difficult as a result of several modifications. This statute
is still in effect for the fiscal year 1961-62. The Law Commission was referred
to by the Indian government in 1956 to clarify the law and combat tax cheating.
In September 1958, the Law Commission delivered its findings in collaboration with
the Ministry of Law. This legislation is now controlled by the Act of 1961, also known
as the Income Tax Act of 1961, which came into effect on April 1, 1962. It is applicable
across India, including the state of Jammu & Kashmir. Any legislation, in and of itself,
is insufficient until the loopholes are addressed. The Income Tax Act of 1961 governs
income tax legislation in India, along with the help of certain income tax rules,
notifications, circulars, and judicial pronouncements, including tribunal judgments.
✓ Elements of Indian Income Tax Law - The fundamental components of Indian
income tax legislation are as follows:
▪ The Income Tax Act of 1961 - The Act comprises the majority of Income Tax laws
in India.
▪ Income Tax Regulations, 1962 - The Central Board of Direct Taxes (CBDT) is
the authority in charge of Direct Tax administration. The CBDT has the authority
to enact regulations to carry out the purposes of this Act.
▪ Finance Act - Every year, the Finance Minister delivers the budget in
Parliament. When the financial bill is passed by the parliament and signed by the
President of India, it becomes an Act.
▪ Circulars and notifications - The terms of an act may require clarification at
times, and such clarification is normally in the form of circulars and notifications
 issued by the CBDT from time to time. It entails clearing up any confusion about
the scope and interpretation of the provisions.
❖ TYPE OF TAXES
✓ DIRECT TAX: Direct tax is a form of taxation that is imposed directly on
individuals or entities by the government. Unlike indirect taxes, which are levied
on transactions and goods, direct taxes are applied to the income, profits, or
wealth of the taxpayer. These taxes are a fundamental component of a country's
fiscal policy, serving as a means for governments to generate revenue and
redistribute wealth within society. The primary objective of direct taxes is to
ensure a fair and equitable distribution of the tax burden among citizens, with
the wealthier individuals or entities typically paying a higher proportion of their
income or assets.
✓ One of the key features of direct taxes is that they are progressive in nature,
meaning that the rate of taxation increases as the taxpayer's income or wealth
rises. This progressive structure aims to promote social justice by placing a
heavier burden on those who can afford to contribute more to the public coffers.
Common types of direct taxes include income tax, corporate tax, and wealth tax.
Income tax is perhaps the most widely recognized form of direct taxation, as it
is imposed on the earnings of individuals and businesses. The rates and brackets
for income tax vary among countries, and governments often use these
parameters to achieve specific economic and social objectives.
✓ Corporate tax, on the other hand, is levied on the profits of businesses. This tax
is crucial for funding public infrastructure, services, and programs, as it captures
a portion of the economic activity generated by companies. The rates for
corporate tax can vary significantly, and governments often compete to attract
businesses by offering favorable tax environments. Wealth tax, while less
common, targets the accumulated assets and net worth of individuals. This tax is
designed to address economic inequality by directly taxing the overall wealth of
the affluent. Wealth tax rates are typically lower than income tax rates, but they
apply to a broader base of assets, including real estate, investments, and other
valuable possessions.
✓ Types of Direct Taxes:-
▪ Income Tax: Levied on individuals and entities based on their income.
Progressive in nature, with higher rates for higher income brackets. Covers
salary, business profits, capital gains, and other sources of income.
▪ Corporate Tax: Imposed on the profits earned by companies and corporations.
Rates may vary for domestic and foreign companies. Affects the overall
profitability of businesses.
▪ Capital Gains Tax: Applicable on the profits gained from the sale of assets like
stocks, real estate, or other investments. Divided into short-term and long-term
categories with different tax rates.
▪ Property Tax: Imposed on the value of real estate and properties owned by
individuals or businesses. Rates determined by the local government and vary
based on property values.
▪ Inheritance Tax: Levied on the transfer of wealth and assets from one
generation to another. Exemptions often exist for smaller inheritances or specific
categories of assets.
▪ Gift Tax: Applied when assets are transferred from one person to another
without any monetary exchange. Exemptions may be granted for gifts below a
certain value or for specific relationships.
▪ Wealth Tax: Tax on the net wealth or assets owned by an individual or a
business. Calculated based on the total value of assets, including real estate,
investments, and personal belongings.
▪ Professional Tax: Imposed on individuals engaged in a profession or
occupation. Collected by state governments and rates vary across different states.
▪ Road Tax: Collected by state governments for vehicles to use public roads.
Amount may vary based on factors like vehicle type, age, and fuel type.
▪ Entertainment Tax: Imposed on services related to entertainment, such as
movie tickets, amusement parks, and cultural events. Collected by state
governments to generate revenue from recreational activities.
✓ INDIRECT TAX: Indirect taxes are imposed on the consumption of goods and
services, rather than directly on the income or wealth of individuals or
businesses. These taxes are usually embedded in the prices of goods and services
and are paid by consumers when they make purchases. Examples of indirect
taxes include sales tax, value-added tax (VAT), excise tax, and customs duty.
Businesses collect these taxes from consumers and then remit them to the
government, making the tax less visible to the end consumer. Indirect taxes are
often regressive, meaning that they have a proportionally greater impact on
lower-income individuals because everyone pays the same tax rate on a given
product or service.
✓ Indirect taxes represent a significant aspect of a country's fiscal system, serving
as a pivotal tool for revenue generation and economic regulation. Unlike direct
taxes, which are levied directly on individuals or entities, indirect taxes are
imposed on goods and services, ultimately shifting the burden to the end
consumer. This form of taxation encompasses a diverse range of mechanisms,
including value-added taxes (VAT), sales taxes, excise duties, and customs
duties, each playing a distinct role in shaping the economic landscape.
✓ One of the key characteristics of indirect taxes is their pervasive nature, affecting
a broad spectrum of economic activities. Governments utilize indirect taxes to
finance public expenditure, fund social programs, and address budgetary deficits.
This strategy allows for a more equitable distribution of the tax burden, as it is
dispersed across various levels of production and consumption. Indirect taxes are
inherently regressive, impacting lower-income individuals to a greater extent,
but they also have the potential to be tailored to address social and economic
disparities.
✓ Types of Indirect Taxes:-
▪ Value Added Tax (VAT): Applied at each stage of the production and
distribution chain. Businesses collect tax on the value they add to a product or
service. Encourages transparency and compliance.
 ▪ Excise Duty: Imposed on the production or sale of specific goods (e.g., alcohol,
tobacco, fuel). Affects manufacturers and importers, influencing the final price.
▪ Customs Duty: Levied on goods crossing international borders. Protects
domestic industries and generates revenue. Rates vary based on the type and
origin of the goods.
▪ Service Tax: Imposed on certain services provided by service providers. Covers
a broad range of services such as hospitality, consulting, and
telecommunications.
▪ Goods and Services Tax (GST): A comprehensive tax reform that replaced
several indirect taxes. Applied to the supply of goods and services at each stage
of the supply chain. Aims to eliminate cascading effects and promote a unified
tax structure.
▪ Stamp Duty: Imposed on legal documents and transactions, such as property
sales and agreements. Rates vary by state and type of transaction.
▪ Luxury Tax: Levied on the consumption of luxury goods and services.
Encourages equitable distribution of wealth.
▪ Sales Tax: Sales tax is a tax added to the sale of goods and services at the point
of purchase. It is typically collected by the seller and passed on to the
government.
BASIS DIRECT TAX INDIRECT TAX
Taxation Point Levied on income, assets, or Levied on goods, services, and
wealth. consumption.
Liability Paid by the individual or entity
generating income, owning Paid by consumers or businesses that
assets, or having wealth. purchase goods and services.
Impact Directly affects the taxpayer's
financial position and is Indirectly affects consumers and is
progressive (higher income, typically regressive (tax burden can be
higher tax). higher for lower-income individuals).
Administration Collected by businesses and
Taxpayers report and pay directly intermediaries and remitted to tax
to tax authorities authorities.
Visibility Tax liability is more visible to Tax is often included in the price of
taxpayers goods and services, making it less
visible to consumers
❖ PREVIOUS YEAR AND ASSESSMENT YEAR
▪ PREVIOUS YEAR - As per the Income Tax law, the Previous Year is the year
in which income is earned. In the layman’s language, the current Financial Year
is known as the Previous Year. The Financial Year starts from 1st April and ends
on 31st March of the next year. For Example, for the salary accrued in Financial
Year starting from 1st April to 31st March 2020, the Previous Year would be
2019-20. Income Tax law defines Previous Year, as defined in section 3 of
Income Tax Act, 1961 (hereinafter referred to as “IT Act”). The Previous Year is
the Financial Year immediately preceding the Assessment Year. In the case of
business or profession newly set up, or a source of income newly coming into
 existence, in the said Financial Year, the Previous Year shall be the period
beginning with the date of setting up of the business or profession or, as the case
may be, the date on which the source of income newly comes into existence and
ending with the said Financial Year.
✓ For Example: Previous Year, in relation to the Assessment Year, commencing
on the 1st day of April 2020, means the period which begins with the date
immediately following the last day of the Previous Year relevant to the
Assessment Year commencing on the 1st day of April 2019 and ends on the 31st
day of March, 2020. Previous Year in case of continuing business shall be the
Financial Year immediately preceding the relevant Assessment Year, whereas
Previous Year in the cases of newly set up a business or for a new source of
income shall be the period commencing from the date of new business set up or
source of income coming into existence to the forthcoming 31st March of that
Financial Year immediately preceding the relevant Assessment Year.
✓ There are instances when the income of the Previous Year is assessed in the same
year. These are shipping business of non-resident, the person leaving India,
permanently having no intention of coming back, an association of persons, the
body of individuals or any artificial juridical person established for a definite
objective, discontinued business, a person is likely to transfer, sell or dispose of
assets to avoid the payment of taxes.
✓ In situations where the assessee (a person by whom any tax or any other sum of
money is payable under IT Act, and includes deemed assessee) has adopted more
than one period as the Previous in relation to the Assessment Year commencing
on the 1st day of April, 2019 for different sources of his income, the Previous
Year in relation to the Assessment Year commencing on the 1st day of April,
2020 shall be reckoned separately in the manner aforesaid in respect of each such
source of income, and the longer or the longest of the periods so reckoned shall
be the Previous Year for the said Assessment Year.
✓ Income Accrual During the previous year, income is earned, accrued, or
received. It represents the financial period for which the income is generated.
▪ ASSESSMENT YEAR - It is assumed that Income cannot be taxed before it is
earned. Therefore, Assessment Year always appears after the Previous Year or
follows the Previous Year in which income is collected. Section 2 (9) of the IT
Act defines Assessment Year as the period of twelve months commencing on the
1st day of April every year. Assessment Year is Financial Year whereby the
income accrued by a person in Previous Year or in Year preceding this Financial
Year shall be Taxed or assessed. Calculation of tax requires assessment,
calculation and payment of taxes which shall be done in the 12 months period of
Assessment Year. It is the period during which an assessee is required to file the
return of income i.e. Income Tax Return (ITR) for the income earned in the
Previous Year and the Income Tax Officer (ITO) has to initiate assessment
proceedings for such returned income and tax thereon.
✓ Income tax forms have an Assessment Year because the income for any
Financial Year is evaluated and taxed in the following or next or subsequent year
i.e. the Assessment Year. Hence, it made it mandatory to select Assessment Year
while filing income Tax Returns. The selection of the correct Assessment Year
 is also very important because assessment may hamper by adverse situations that
can come up either in the beginning, middle or end of a Financial Year.
Therefore, to streamline the process of collection tax mentioning of correct
Assessment Year is important.
✓ Income Assessment During the assessment year, the taxpayer files their income
tax return and calculates their tax liability based on the income earned during the
previous year.

❖ DEFINITION CLAUSE
✓ ASSESSEE- SECTION 2(7) - An assessee is a person who is required to pay
taxes under any provision of the Act. The term ‘assessee’ refers to somebody
who has been evaluated for his income, another person’s income for which he is
assessable, or the profit and loss he has experienced. A person or an individual
under any provision of this Act is referred to as an assessee. They may also be
referred to as each and every person for whom:
▪ Any processes under the statute for the assessment of his income are now
underway;
▪ Income of another individual for which he is liable to be taxed;
▪ Any loss incurred by him or any other person, or
▪ A 2(31 who is eligible for a tax refund.
According to the Income Tax Act, they are grouped into the following categories:
▪ Normal assessee: A normal assessee is a person who is required to pay taxes on
income generated during the fiscal year. In addition, any individual who is
required to pay interest or penalties to the government or is entitled to a refund
under the act is termed a typical assessee.
▪ Assessee representative: A person who is obligated to pay taxes on income or
losses caused by a third party. It usually occurs when the individual obligated to
pay taxes is a non-resident, a juvenile, or a lunatic.
▪ Deemed assessee: A person who is legally obligated to pay taxes. It can be
anybody who is regarded to be an assessee under the Act or anyone for whom an
action has been brought under the Act to assess the income/loss of any other
person in respect of whom he is assessable or the amount of refund due to him
or such other person.
▪ Assessee-in-default: Individuals become assessees in default when they fail to
satisfy their statutory obligations of paying tax. For example, before paying his
employees, an employer should deduct tax from their pay. Furthermore, the
employer is required to pay deducted taxes to the government on time.
✓ INCOME – SECTION 2(24) In general, the term “income” refers to the
following:
▪ Any illicit money earned by the assessee;
▪ Any income earned at sporadic periods;
▪ Any taxable income obtained from a source outside of India;
▪ Any advantage that may be quantified in monetary terms;
▪ Any type of assistance, aid, or reimbursement;
 ▪ An individual or HUF makes a gift worth more than INR 50,000 without
any consideration.;
▪ Any kind of award;
▪ Causal earnings include winnings from lotteries and horse racing betting,
among other things.
❖ HEADS OF INCOME
a. INCOME FROM SALARY (SECTION 15-17): Section 15 of the act lays
down the conditions under which an income falls under the head of ‘salaries.’
▪ Any remuneration is due from the employer to any former employee(assessee)
for the due course of his employment in the previous year, whether paid or not.
▪ Salary paid to an employee by the employer or former employer in the previous
year even though it was not due to him.
▪ Salary paid to an employee by the employer or former employer in the previous
year which was not charged under income tax in any other previous years.
✓ Section 16 - Deductions from salaries.—The income chargeable under the head
“Salaries” shall be computed after making the following deductions, namely:—
I. a deduction of 6 [fifty thousand] rupees or the amount of the salary, whichever
is less;]
II. a deduction in respect of any allowance in the nature of an entertainment
allowance specifically granted by an employer to the assessee who is in receipt
of a salary from the Government, a sum equal to one-fifth of his salary (exclusive
of any allowance, benefit or other perquisite) or five thousand rupees, whichever
is less;] 7
III. a deduction of any sum paid by the assessee on account of a tax on employment
within the meaning of clause (2) of article 276 of the Constitution, leviable by or
under any law.]
✓ Section 17 of the Act has mentioned the term
1. ‘salary’, which included-
a. Wages;
b. Any annuity or pension;
c. Any gratuity;
d. Any charges, commissions, perquisites or benefits in lieu of or notwithstanding
any compensation or wages;
e. any advance of salary;
f. Any payment received by a worker in regard to any time of leave not benefited
by him;
g. The yearly accumulation to the balance at the employee partaking in a perceived
Provident Fund, to the degree to which it is chargeable to assess under Rule 6 of
Part A of the fourth schedule;
h. The total of all wholes that are included in the transferred parity as alluded to in
sub-rule 2 of Rule 11 of PartA of the Fourth schedule of an employee partaking
in a perceived Provident Fund, to the degree to which it is chargeable to assess
under sub-rule 4 thereof; and
i. The contribution made by the Central Government or any other employer in the
previous year, to the account of an employee under a pension scheme, referred
to in Section 80CCD
✓ PERQUISITES - It is commonly known as perks, are additional benefits or
advantages provided by employers to employees in addition to their regular
salary or wages. These benefits go beyond monetary compensation and are often
designed to enhance the overall well-being and work experience of employees.
The taxation of perquisites is governed by the Income Tax Act in India, and
understanding the various types of perquisites is crucial for both employers and
employees to ensure accurate tax compliance. The taxation of perquisites is
outlined under Section 17(2) of the Income Tax Act, and the value of these
perquisites is added to the employee's salary for the purpose of income tax
calculation.
▪ Accommodation: One of the common perquisites is the provision of
accommodation by the employer. The value of accommodation is determined
based on factors such as the city's population, the salary of the employee, and the
accommodation's nature (company-owned, leased, or rented). The perquisite
value includes rent-free accommodation or concessional rent provided by the
employer.
▪ Motor Car Facilities: If an employer provides a motor car to an employee for
personal and official use, it is considered a perquisite. The value of the perquisite
is determined based on factors like the cubic capacity of the car, whether the car
is owned or hired by the employer, and whether the expenses on the car are borne
by the employer or employee.
▪ Interest-Free or Concessional Loans: When an employer provides loans to
employees at interest rates lower than the prescribed rates set by the Income Tax
Act, the differential interest is treated as a perquisite. The perquisite value is
calculated based on the prescribed interest rate and the amount of the loan.
▪ Free or Concessional Education: If an employer provides free or concessional
education facilities to the employee's children at institutions owned or
maintained by the employer, the value of such educational facilities is considered
a perquisite.
▪ Free or Subsidized Food and Non-Alcoholic Beverages: The value of free or
subsidized food and non-alcoholic beverages provided by the employer to
employees is considered a perquisite. This includes meals provided in-office
cafeterias or at employer-sponsored events.
▪ Gifts and Coupons: Any gift or voucher given by the employer to an employee
is considered a perquisite. This includes gifts on occasions like festivals,
birthdays, or other special events. The value of such gifts is taxable.
▪ Club Memberships: If an employer provides club memberships to employees,
the value of such memberships is treated as a perquisite. This includes the use of
recreational facilities, health clubs, or similar amenities provided by the club.
▪ Insurance Premiums: If an employer pays the insurance premiums for policies
taken for the employee, the amount paid is considered a perquisite. This includes
life insurance, health insurance, or any other insurance policies.
✓ PROFITS IN LIEU OF SALARY - Section 17(3) gives a comprehensive
meaning of profits in lieu of salary. Any payment due or accrued to be paid to
the employee by the employer. Profit in lieu of salary refers to any payment or
benefit received by an employee from their employer that is not part of their
 regular salary but is instead a substitute for or in addition to it. This concept is
primarily governed by provisions outlined in the Income Tax Act in many
jurisdictions, including India. Section 17(3) of the Indian Income Tax Act, 1961,
specifically addresses profits in lieu of salary, encompassing a wide range of
monetary and non-monetary benefits that employees might receive beyond their
regular salary. Understanding the implications of profit in lieu of salary is crucial
for both employers and employees to ensure accurate tax compliance.
✓ Types of Payments Considered as Profit in Lieu of Salary:
▪ Monetary Compensation: Any monetary payment made by an employer to an
employee in lieu of their salary falls under this category. This includes bonuses,
incentives, and commissions not covered under regular salary components.
▪ Non-Monetary Benefits: Apart from direct monetary compensation, non-
monetary benefits provided to employees can also be categorized as profit in lieu
of salary. This may include goods, services, or assets provided at concessional
rates or free of charge.
▪ Perquisites: Certain fringe benefits, commonly known as perquisites or perks,
are also considered as profit in lieu of salary. This includes the personal use of
company assets, accommodation, or any other amenities provided by the
employer.
▪ Compensation for Termination: Payments received by an employee upon
termination, whether voluntary or involuntary, are treated as profit in lieu of
salary. This could involve severance pay, gratuity, or any compensation provided
for the loss of employment.
▪ Transfers of Assets: If an employer transfers any movable or immovable assets
to an employee, and the employee pays less than the fair market value for such
assets, the difference is treated as profit in lieu of salary.
✓ Exceptions to section 17(3) (exempted under section 10)
▪ Death cum retirement gratuity;
▪ House rent allowances;
▪ Commuted value of pension;
▪ Retrenchment pay received by an employee;
▪ Payment received from a statutory provident fund or recognized provident fund;
▪ Any payment from an approved superannuation fund;
▪ Payment from the recognized provident fund.
In conclusion, profit in lieu of salary encompasses a broad spectrum of payments and
benefits that go beyond an employee's regular salary. It is essential for both employers
and employees to understand the various types of payments and benefits that fall under
this category, as well as the associated tax implications. Accurate documentation,
compliance with tax regulations, and seeking professional advice are crucial aspects of
managing profit in lieu of salary effectively. As the nature of employment relationships
evolves, staying informed about changes in tax laws becomes even more critical for all
parties involved.
▪ COMPUTATION OF INCOME TAX ON SALARY - Let’s take an example
– An individual, let’s say, Mr. A, receives the following pay – Basic salary – Rs.
2,50,000 per annum; Dearness Allowance – Rs. 10,000 per annum;
 Entertainment Allowance – Rs. 3,000 per annum; Professional Tax – Rs. 1,500
per annum; then how much amount will be taxable from his salary?
Find out total gross salary = basic salary + Dearness Allowance + Entertainment
Allowance, i.e., 2,50,000 + 10,000 + 3,000 = 2,63,000.
As per deduction under section 16(iii) = 2,63,000 – 1500 = Rs. 2,61,500
Income tax rate on income Rs. 2,61,500 is 5%, which will be equal to Rs. 13,075 and
this much amount will be taxable.

✓ INCOME FROM HOUSE PROPERTY (SECTION 22-27): The total net

assessable estimation of property, comprising of any buildings/lands/flats
belonging to the assessee, when assessee is the owner apart from the property
which is under the use for any business or profession undertaken by him, the
proceeds of which are taxable under the income tax act, falls under the ambit of
income from house property. (section 22) The income from house property
includes lease-hold and deemed ownership.
▪ Deductions from Annual Value (U/S 24) :There are two deductions from
annual value. They are—
a. 30% of Net Annual Value [u/s 24(a)]: This is a flat deduction and is allowed
irrespective of the actual expenditure incurred. This deduction is NOT Available
in the following cases:
1. Self-occupied property 2
2. Property held as stock in trade.
3. Interest on borrowed capital [u/s 24(b)] : Interest payable on loans borrowed for
the purpose of acquisition, Construction, Repairs, renewal, or reconstruction can
be claimed as a deduction. Interest payable on fresh loans taken to repay the
original loan raised earlier for the aforesaid purposes is also allowed as a
deduction.

▪ Interest for pre-construction

period:- The pre-construction
period is the period prior to the
previous year in which property is
acquired or construction is
completed. Interest payable on
borrowed capital for the period
prior to the previous year in
which the property has been
acquired or constructed (Pre-
construction interest) as reduced
by any part thereof allowed as a
deduction under any other
provision of the Act, can be claimed as deduction over a period of 5 years in
equal annual installments commencing from the year of acquisition or
completion of construction. Interest for the year in which construction is
 completed/ property is acquired: Interest relating to the year of completion of
construction/ acquisition of property can be fully claimed in that year irrespective
of the date of completion/ acquisition

▪ Deemed ownership- Section 27 provides that certain persons are not legal
owners of a property but are still considered to be deemed owners under certain
conditions.
Condition 1 – Transfer of property to a child or spouse, without consideration.
Condition 2 – Holder of an impartible estate is deemed to be the owner of the entire
estate.
Condition 3 – Members of a co-operative society or company or association of person
Condition 4 – Person in possession of a property on lease for more than 12 years as per
Section 269UA(f).
▪ Co-owners of a property – Section 26 - If there are two or more owners of a
property and if the share of co-owners is determinate, the income generated from
such property is calculated as income from one property and it is divided
amongst co-owners. They are entitled to relief under section 23.
▪ INADMISSIBLE DEDUCTIONS (U/S 25): Interest chargeable under this Act
which is payable outside India shall not be deducted if –

a. the tax has not been paid or deducted from such interest and,
b. in respect of which there is no person in India who may be treated as an agent.

▪ PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT

RECEIVED SUBSEQUENTLY [U/S 25A]:

a. As per section 25A(1), the amount of rent received in arrears from a tenant or
the amount of unrealized rent realized subsequently from a tenant by an assessee
shall be deemed to be income from house property in the financial year in which
such rent is received or realized, and shall be included in the total income of the
assesses under the head “Income from house property”, whether the assessee is
the owner of the property or not in that financial year.
b. Section 25A(2) provides a deduction of 30% of arrears of rent or unrealized rent
realized subsequently by the assessee.
c. Taxable in the year of receipt/realization
d. Deduction@30% of rent received/realized
e. Taxable even if the assessee is not the owner of the property in the financial year
of receipt/realization.
▪ Set-off and carry forward of losses - Under Section 70 of the Income Tax Act,
if a person has incurred losses from house property, he is allowed to set them off
from the income of any other house property.
Section 71 of the Act lays down the provision of setting off the losses from house
property from any other heads of Incomes but not casual income (income which might
not arise again) The unadjusted losses are allowed to be carried forward for a maximum
period of 8 years starting from the year succeeding to the year in which loss has
occurred. In the subsequent years, the set-off is allowed only from the head ‘Income
from House Property’.
The amount of losses that can be set-off on the house property from other income heads
is restricted to Rs 2 lakh either house is a self-occupied or let out property.

✓ PROFITS AND GAINS OF BUSINESS OR PROFESSION (SECTION 28-

44DB): Income from business and profession is a crucial category under the
Income Tax Act in India, encompassing the earnings derived from commercial
activities, trade, manufacturing, or the provision of professional services. This
income is categorized under the head "Profits and Gains of Business or
Profession" (Section 28-44) and is subject to specific rules and provisions
outlined in the Income Tax Act. Understanding the nuances of this head is
essential for both businesses and professionals to ensure accurate tax
computation and compliance.
▪ Business Income (Section 28-37): Business income includes profits and
gains arising from any trade, commerce, manufacturing, or any adventure or
concern in the nature of trade or commerce. Section 28 outlines various items
that are deemed to be business income, such as rent, royalties, and gains from
the transfer of certain rights.
▪ Deductions allowed under Sections 30-37: Businesses are entitled to claim
deductions for various expenditures incurred in generating business income.
Deductions are allowed for various expenses incurred in the course of the
business or profession to arrive at the net income. These include:
a. Rent, Rates, Taxes, Repairs (Section 30): Deductions are allowed for expenses
related to the maintenance of business premises.
b. Insurance Premiums (Section 31): Premiums paid for insurance policies
covering business assets or liabilities are deductible.
c. Depreciation (Section 32): Depreciation on assets used for business purposes can
be claimed as a deduction.
d. Employee Salaries and Wages: Expenses related to employee salaries, wages,
and bonuses are deductible.
e. Interest on Borrowed Capital (Section 36): Interest paid on loans taken for
business purposes is deductible.
f. Bad Debts (Section 36(1)(vii)): Provisions for bad and doubtful debts are
allowed as a deduction.
▪ Deemed Profits (Section 41):deals with the concept of deemed profits. If a
taxpayer had claimed a deduction in a previous year for any loss, expenditure,
or trading liability, and subsequently, there is a recovery or remission of such
amounts, the recovered amount is treated as income in the year of recovery.
This prevents undue tax benefits from arising when a previously claimed loss
or expense is recovered.
▪ Special Provisions for Specified Businesses (Section 44AA-44DA):
a. Section 44AA mandates maintenance of books of account by certain
specified professionals and businesses. It also provides for the method of
accounting to be followed.
 b. Section 44AB requires tax audit for businesses and professions whose
turnover or gross receipts exceed the prescribed limit. Tax audit ensures that
the books of account and financial statements comply with the taxation laws.
c. Section 44AD offers a presumptive taxation scheme for certain businesses
with turnover or gross receipts up to a specified limit. The scheme allows
businesses to declare income at a prescribed rate without maintaining detailed
books of account.
d. Section 44ADA provides a presumptive taxation scheme for professionals
like doctors, engineers, accountants, and others. Similar to Section 44AD, it
allows professionals to declare income at a prescribed rate without detailed
bookkeeping.
▪ Transfer of Capital Assets (Section 45): When a capital asset is transferred
in the course of the business, the resulting gains are taxable under the head
"Capital Gains." Section 45 specifically addresses the taxation of such capital
gains arising from the transfer of capital assets in connection with a business
or profession.

✓ INCOME FROM CAPITAL GAINS (SECTION 45-55): Any profit or gain

emerging from the exchange of capital assets held as investments are chargeable
under the head capital gains. The gain can be because of short-and long term
gains. A capital gain emerges just when a capital asset is transferred. This implies
if the asset moved is certainly not a capital asset; it won’t fall under the head of
capital gains. Profits or gains emerging in the previous year in which the transfer
occurred will be considered as income of the previous year and chargeable to IT
under the head Capital Gains and indexation will apply, if applicable. To fall
under the ambit of income from capital gains, there must be –
▪ A capital asset
▪ Which is transferred by the assessee
▪ The transfer has taken place during the final year
▪ Gain or loss has arisen from it
Capital assets include all kinds of properties whether tangible or intangible, movable or
unmovable, which are owned by the assessee, may or may not be for business and
professional purposes. Capital assets do not include assets like stock in trade, goods of
used personal effects, agricultural land, etc.
a. Capital gains are of two types
▪ Short term capital assets – those assets held by an assessee for at most 36
months, immediately prior to its date of transfer. ITO v. Narayana K Shah
2000 74 ITD 419 Mum In this case Court held that where the assessee held
certain shares in a company by virtue of which a right of occupancy in a flat is
conferred on him, these shares cannot be treated as a ‘share’ mentioned in
proviso to section 2(42A) and as such where such shares are sold after being
held for a period of fewer than 36 months, gain arising therefrom is to be treated
as short-term capital gain.
▪ Long term capital assets – those assets held by an assessee for more than 36
months. Long-term capital gains are generally taxable at a lower rate. Tax on
long-term capital assets is 20 percent. There are some cases where long term
 capital assets do not require a term of 36 months, assets held for more than 12
months is valid for long term capital assets.
Exemptions under section 54 : Exemptions in regards to the transfer of a long-term
capital asset, only when the assessee is an individual or a Hindu Undivided Family. A
capital gain arises from the transfer of residential property, where the assessee has
purchased another house property within a period of one year before or two years after
the date of transfer or transfer took place within a period of three years after the date of
construction.The amount of exemption available will be whichever is lesser of capital
gains and the cost of the new house.
✓ Chargeability (Sec- 45) - Any profit or gain arising from the transfer of a capital
asset is chargeable to tax in the year in which transfer take place under the head
“Capital Gains”, if it is not eligible for exemption under sec- 54, 54B, 54D, 54E,
54EA, 54EB, 54F, 54G and 54H. In other words , capital gains tax liability arises
only when the following condition are satisfied –
▪ There should be a capital asset.
▪ The capital asset is transferred by the asseessee.
▪ Such transfer takes place during the previous year.
▪ Any profit or gain arises as a result of transfer.
▪ Such profit or gain is not exempt from tax under relevant sections.
✓ Transfer section 2(74):- Capital gain arises only on the transfer of a capital
asset. Transfer in the context of a capital asset includes –
▪ Sale of Property; or
▪ Exchange of property; or
▪ Relinquishment i.e., Voluntary giving up; of an asset; or
▪ Extinguishment of any right in the property; or
▪ Compulsory acquisition of an assets under any law; or
▪ Conversion of capital asset into stock in trade of his own business.
▪ Transaction allowing the possession of any immovable property to be taken
▪ or retained in part performance of a contract for transfer of such property.
▪ Any transaction by way of becoming a member or a shareholder of a
▪ cooperative society or a company or association or by say of any agreement
▪ or arrangement having effect of transferring enabling the enjoyment of any
▪ immovable property
✓ TYPES OF CAPITAL GAINS TAX - A capital gain occurs when you sell a
capital asset for more money than you paid for it at first. Stocks, bonds, precious
metals, jewellery, and real estate are examples of capital assets. Depending on
how long you had the asset before selling it, you will either pay tax on the capital
gain or not. Long-term and short-term capital gains are categorised and taxed
differently.
▪ Short-term capital gains tax - The sale of an asset that has been owned for less
than a year results in a short-term capital gain. Short-term gains do not benefit
from any special tax rates, despite the fact that long-term capital gains are often
taxed more favourably than salaries or wages. They are liable for ordinary
income taxes. Like regular income, short-term gains are taxable in accordance
with your marginal income tax bracket. Section 111A of the Income Tax Act,
1961, provides that short-term capital gains are subject to a 15% tax, excluding
 surcharge and cess. Short-term capital gains that are not covered by Section 111A
are subject to tax at a rate based on the individual’s total taxable income. Short-
term capital gains are simpler to compute; to find them, simply deduct the cost
of an asset’s acquisition from its sale price.
Short-term capital gains = sale cost of the asset – (expenditure incurred on the asset) –
(cost of acquisition/improvement).
✓ Application of Section 111A of the Income Tax Act, 1961 - When a Securities
Transaction Tax (STT) is due as a result of the transfer of equity shares, units of
equity-oriented mutual funds or units of business trusts through a recognised
stock exchange on or after January 10, 2004, Section 111A applies. A mutual
fund is considered equity oriented if it meets the requirements of Section
10(23D) of the Act of 1961 and invests at least 65% of its investible funds in the
equity shares of domestic companies. STCG is covered under Section 111A if
the requirements of that Section are met as stated above. Such a gain is subject
to tax at a rate of 15% (plus any applicable surcharge and cess). With effect from
Assessment Year 2017–18, even in cases where STT is not paid, the 15%
concessional tax rate will be accessible.
a. If the transaction is carried out on a recognised stock exchange housed in an
IFSC.
b. The consideration is received or payable in a foreign currency.
▪ Long-term capital gains tax - When compared to selling the identical asset and
realising the gain in less than a year, the tax on a long-term capital gain is
virtually always cheaper. You can reduce your capital gains tax by holding onto
assets for a year or more because long-term capital gains are often taxed at a
more favourable rate than short-term capital gains. 20% of long-term capital
gains are typically subject to tax, cess, and surcharge, excluding capital gains
tax. If certain qualifying requirements are met by taxpayers, this tax rate
decreases to 10% and is applied to assets listed on a reputable stock market,
UTI/mutual funds, and zero coupon bonds. Long-term capital gain is computed
using the indexed cost of acquisition/improvement and is calculated as follows:
(Cost of acquisition x cost inflation index of the year of transfer of a capital asset)/(Cost
inflation index of the year of acquisition)
Long-term capital gains = cost of selling a property – the indexed cost of acquisition.
a. Long-term capital gains arising from the sale of listed securities
b. Long-term capital gains arising from the transfer of specified asset

✓ INCOME FROM OTHER SOURCES (SECTION 56-58):

Section 57: Deductions Allowed from Income from Other Sources: Under this certain
deductions are allowed from the income computed under the head of IFOS. These
deductions are aimed at arriving at the net income, thereby ensuring that taxpayers are
taxed on their real income. The key deductions allowed are:
Standard Deduction Section 57(i) : A standard deduction of 30% is allowed on the net
income from any income chargeable under IFOS. This deduction is provided to cover
the general expenses incurred in earning such income.
 a. Deductions for Specific Expenses Section 57(iia) - (iib): Deductions are
allowed for specific expenses incurred in earning certain incomes. For example,
in the case of family pension, a deduction of one-third of the pension or ₹15,000,
whichever is less, is allowed.
Deduction for Interest on Securities Section 57(iii): Interest on certain securities held
by the taxpayer is allowed as a deduction. This includes interest on debentures, bonds,
or other securities.
Deduction for Income by Way of Royalties or Fees for Technical Services Section
57(iv): Deductions are allowed for any sum paid to the taxpayer as royalties or fees for
technical services after deducting tax at source.
b. Section 58: Amounts Not Deductible in Computing Income from Other Sources:
Section 58 of the Income Tax Act specifies certain amounts that are not
deductible while computing the income chargeable under the head of IFOS.
Understanding these provisions is crucial for accurate tax assessment. The key
aspects are:
Expenses Expressly Disallowed Section 58(1): The section explicitly disallows certain
expenses from being deducted. For example, any expenditure of a personal nature is not
considered for deduction.
Interest on Capital Section 58(4): Interest on capital, if any, is not deductible in
computing the income under the head of IFOS. This is in line with the principle that
interest on capital is a return on investment and not an expenditure.
Interest on Borrowed Capital Section 58(5): While interest on capital is not
deductible, interest paid on borrowed capital is allowed as a deduction. However, there
are specific conditions and restrictions regarding the deductibility of such interest.

✓ SPECULATIVE BUSINESS
▪ Speculative transactions are defined under Section 43(5) of the Income Tax Act.
According to this section, a speculative transaction is a transaction in which a
contract for the purchase or sale of any commodity, including stocks and shares,
is periodically or ultimately settled otherwise than by the actual delivery or
transfer of the commodity.
▪ Tax Treatment (Section 73): The taxation of speculative business profits or
losses is covered under Section 73. If a taxpayer incurs a loss in a speculative
transaction, such loss can only be set off against profits arising from other
speculative transactions. However, if a taxpayer earns profits in speculative
transactions, such profits are added to the total income for the purpose of
taxation.
▪ Example: Suppose an investor engages in futures trading of stocks without taking
actual delivery of the stocks. Any profit or loss arising from such transactions
falls under the category of speculative business. If there's a loss, it can only be
set off against gains from other speculative transactions.
✓ SPECIFIED BUSINESS:
▪ Specified business, on the other hand, is a term primarily associated with capital
expenditure on certain specified business activities. Section 35AD lists down the
specific businesses for which capital expenditure is eligible for deduction.
 ▪ Tax Treatment (Section 35AD): Under Section 35AD, a taxpayer engaged in
specified businesses is eligible for a deduction in respect of capital expenditure
incurred for specified purposes. The deduction is allowed in the computation of
the total income. This provision is aimed at encouraging investment in specific
sectors deemed beneficial for economic development.
▪ Example: If a taxpayer invests in the construction and development of a new
hotel, the capital expenditure incurred for this specified business may be eligible
for a deduction under Section 35AD.
a. Key Differences:
▪ Nature of Transactions: In speculative business, the nature of transactions
involves contracts for the purchase or sale of commodities without actual
delivery or transfer. In specified business, the focus is on capital expenditure for
specific business activities, encouraging investment in designated sectors.
▪ Section Definitions: Speculative business is explicitly defined under Section
43(5). Specified business is primarily associated with capital expenditure and is
defined under Section 35AD.
▪ Tax Treatment - Losses: Speculative business losses can only be set off against
profits from other speculative transactions under Section 73. Specified business
losses are not the primary focus; instead, the emphasis is on allowing deductions
for capital expenditure under Section 35AD.
▪ Tax Treatment - Profits: Profits from speculative business are added to the total
income for taxation purposes. Specified business profits are generally not a
separate category but contribute to the overall income after deduction of eligible
capital expenditure.
▪ Encouragement of Investment: Speculative business is not aimed at
encouraging investment but rather defines the nature of certain transactions for
tax treatment. Specified business, under Section 35AD, actively encourages
investment in specified sectors by allowing a deduction for capital expenditure.
✓ CAPITAL ASSET - Section 2(14) defines a "capital asset" as any property held
by an assessee. A capital asset is a broad term used in the realm of finance and
taxation to describe any valuable property owned by an individual, business, or
other entity. These assets typically have a long-term utility and are considered
significant contributors to the entity's overall wealth. Capital assets can
encompass a diverse range of items, including real estate, stocks, bonds,
machinery, vehicles, and even intellectual property. One fundamental
characteristic of a capital asset is its capacity to generate appreciation or income
over an extended period. This stands in contrast to assets held for short-term sale
or consumption. Capital assets play a pivotal role in investment portfolios,
business operations, and personal financial planning due to their potential for
long-term value creation.
In the context of taxation, understanding capital assets is essential, as they are subject
to specific rules governing their acquisition, ownership, and disposal. The Income Tax
Act in many jurisdictions, including India, delineates the taxation aspects of capital
assets. However, certain types of properties are excluded from the definition:
▪ Stock-in-trade: Assets held for the purpose of a business or profession, like
inventory, are not considered capital assets.
 ▪ Personal Effects: Movable property used for personal purposes (e.g., personal
clothing and furniture) is excluded. However, certain specific items like jewelry,
archaeological collections, drawings, paintings, sculptures, and works of art are
not considered personal effects.
▪ Agricultural Land: Agricultural land in India is generally considered a capital
asset, except in specific cases. The exemption depends on the location of the
land. If it is situated in areas with a large population or within a specified distance
from urban areas (as per Central Government notifications), it is not considered
a capital asset.
✓ PERSON SECTION 2(31): The term ‘person’ includes –
▪ An individual.
▪ A Hindu Undivided Family.
▪ A Company.
▪ A Firm.
▪ An association of persons or body of individuals whether incorporated or not;
▪ A local authority; and
▪ Every artificial judicial; person not falling within any of the preceding
Explanation: For the purposes of this clause, 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 was formed
or established or incorporated with the object of deriving income, profits or gains.
Income-tax is to be paid by every person. The term ‘person’ as defined under the
Income-tax Act covers in its ambit natural as well as artificial persons. For the purpose
of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided
Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms,
LLPs, Companies, Local authority and any artificial juridical person not covered under
any of the above. Thus, from the definition of the term ‘person’ it can be observed that,
apart from a natural person, i.e., an individual, any sort of artificial entity will also be
liable to pay Income-tax.

✓ APPLICATION OF INCOME" AND "DIVERSION OF INCOME BY

OVERRIDING TITLE
a. APPLICATION OF INCOME
▪ The "Application of Income" principle refers to the legal concept that income is
taxed in the hands of the person who applies it or enjoys the benefit of that
income.
▪ In other words, if an individual or entity receives income and is free to apply or
utilize that income as they see fit, they are typically liable for the tax on that
income.
▪ This principle is crucial for determining the tax liability of income recipients and
helps establish the taxpayer's right to enjoy the economic benefits of the income.
▪ Illustration: Mr. Chatur Singh, a CEO of a multinational firm asks one of his
employees Buddhu Singh, to pay $2 million per month to another employee
Halagu Khan out of his (Chatur Singh’s) salary and disburse the remaining salary
back to him. This is a case of application of income by Chatur Singh because the
 salary is first generated in his name. Once he has earned it in his account, only
then Buddhu Singh can pay $2 million out of it to Halagu Khan. A mere
arrangement to make one employee pay the other won’t make it a case of
Diversion of Income.
b. DIVERSION OF INCOME BY OVERRIDING TITLE
▪ The "Diversion of Income by Overriding Title" is an exception to the
"Application of Income" principle and is a concept used in tax law to determine
the tax liability of income in specific circumstances.
▪ Under this concept, income is treated as diverted from the taxpayer who would
normally be taxed on it to another person or entity by an overriding title, such as
a legal obligation or arrangement.
▪ In such cases, even though the income is received by one person, it is considered
to be the income of another person because the recipient has no discretion or
control over the income. The tax liability may then be shifted to the person with
the overriding title.
▪ This concept is used to prevent tax avoidance through legal arrangements that
divert income to others in an attempt to reduce tax liability.
▪ Illustration II: M/s CBP is a partnership firm in which Chittu and his two sons
Bittu and Pintu are partners. The partnership deed provides that after Chittu’s
death, Bittu and Pintu shall continue the business of the firm subject to a
condition that 20% of the profit of the firm shall be given to Mrs. Battisi (wife
of Mr. Chittu and mother of Bittu and Pintu). Will it be an application or
diversion of income? M/s CBP i.e. it is deductible from its total income. This is
because the clause mentioned in the partnership deed has given an overriding
title of the 20% profit to Mrs. Battisi and such income is a precondition for the
firm to continue its business. In other words, this 20% profit reaches Mrs. Battisi
before it becomes the income of the firm and hence it is a case of diversion of
Income.
The "Application of Income" principle establishes that the person who can use and
enjoy income is generally the one who is taxed on that income. However, the "Diversion
of Income by Overriding Title" principle allows tax authorities to look beyond the
apparent recipient of income to determine the true taxpayer if there is evidence of
income being diverted by a legal obligation or overriding title. These principles are used
to ensure that tax laws are applied fairly and to prevent the abuse of legal arrangements
for tax avoidance.
CASE LAW
▪ MOTILAL CHHADMILAL - a landlord had two commercial buildings. He
created a college trust and became its trustee. Thereafter, he gave one of his two
commercial buildings to that college trust to operate from. He rented the second
building to a company. Later they entered into a tri-partite agreement whereby
10K out of 21K rent generated from the company would go to the college trust
and if it does not then the college would have the right to sue the company. It
was held to be an application because the rent was first generated in the name of
the landlord.
 ▪ BEJOY SINGH DUDHURIA V CIT - The decision of the Privy Council
in Bejoy Singh Dudhuria v Commissioner of Income Tax, 1933, is illustrative
of the principle of diversion of income by overriding title. In this case, under a
compromise decree of maintenance obtained by the stepmother of the assessee,
a charge was created on the properties in his hand. The Privy Council, reversing
the judgment of the Calcutta High Court, held that the amount of maintenance
recovered by the stepmother was not a case of application of the income of the
assessee.
▪ MURLIDHAR HIMATSINGKA V CIT - Similarly, in Murlidhar
Himatsingka v CIT 1966, the apex court held that if there are several persons
who are partners in a firm and one of them agrees to share the profits derived by
him with a stranger entity, this agreement does not make the stranger a partner
in the original firm.
CONCLUSION: In conclusion, the principles of "application of income" and
"diversion of income by overriding title" serve as pillars in the edifice of tax law. These
concepts embody the delicate balance between taxpayer autonomy and the need for tax
authorities to ensure a fair and equitable distribution of the tax burden. As taxpayers
navigate the intricate landscape of tax planning, they must carefully consider the legal
structures they employ, mindful of how these structures can either facilitate the
application of income towards advantageous purposes or result in the diversion of
income by overriding title. Legal precedents, judicial interpretations, and evolving
international tax norms continuously shape the interplay between these principles,
reinforcing the dynamic nature of tax law in adapting to the complexities of modern
economic transactions.

❖ ASSESSEE & ASSESSMENT

✓ ASSESSEE
▪ Definition: Refers to an individual, Hindu Undivided Family (HUF), company,
firm, association of persons (AOP), body of individuals (BOI), or any other
entity that is subject to taxation under the relevant tax laws. Represents the
taxpayer, i.e., the entity liable to pay taxes on its income.
▪ Entity vs. Process: Represents the taxpayer, the entity whose income is subject
to taxation. Can be an individual, a business entity, or any other legal entity
recognized by tax laws.
▪ Subject of Taxation: The entity or individual on whom the tax liability is levied.
The party responsible for complying with tax regulations and fulfilling
obligations such as filing tax returns.
▪ Filing Tax Returns: Required to file tax returns providing details of income,
deductions, and other relevant financial information. The accuracy of the
information provided by the assessee influences the assessment process.
▪ Types of Assessee: Can be categorized into various types, such as individual
assessee, corporate assessee, Hindu Undivided Family (HUF), etc. The type of
assessee determines the applicable tax rules and rates.
▪ Tax Liability: Bears the ultimate responsibility for the payment of taxes on its
income. The amount of tax liability is determined based on the applicable tax
rates and rules.
▪ Legal Entity vs. Legal Process: Represents the legal entity or individual
recognized by tax laws as liable for paying taxes. Exists as a legal entity subject
to the tax jurisdiction's rules and regulations.
▪ Time Frame: Exists as a taxpayer throughout the financial year. Responsible for
fulfilling tax obligations annually by filing returns within the stipulated time
frame.
✓ ASSESSMENT
▪ Definition: Refers to the process of determining the taxable income of an
assessee, computing the tax liability, and imposing the appropriate tax.
Encompasses various stages, including filing of returns, scrutiny by tax
authorities, and finalization of the tax liability.
▪ Entity vs. Process: Represents the entire process through which the tax
authorities evaluate and determine the taxable income of the assessee. Involves
the calculation of tax liability, verification of submitted documents, and the
issuance of an assessment order.
▪ Subject of Taxation: The evaluation and determination of the taxable income of
the assessee by tax authorities. Involves reviewing financial statements,
supporting documents, and other relevant information to ensure accurate
computation of tax liability.
▪ Filing Tax Returns: Begins with the submission of tax returns by the assessee.
Tax authorities use these returns as a basis for conducting assessments and
determining the tax liability.
▪ Types of Assessees: Involves different types of assessments, including regular
assessment, scrutiny assessment, and best judgment assessment. The nature of
assessment depends on factors such as the complexity of the assessee's financial
affairs and the level of scrutiny required.
▪ Tax Liability: Involves the calculation of the exact amount of tax liability owed
by the assessee. The assessment process ensures that the correct amount of tax is
levied based on the financial information provided by the assessee.
▪ Legal Entity vs. Legal Process: Represents a legal process carried out by tax
authorities to determine the correctness of the assessee's financial declarations
and calculate the tax liability. Encompasses legal procedures, documentation,
and communication between tax authorities and the assessee.
▪ Time Frame: Typically conducted after the end of the financial year when the
assessee has submitted their tax returns. The assessment process follows a
specific timeline outlined in tax laws.
❖ CAPITAL RECEIPT & REVENUE RECEIPT
✓ CAPITAL RECEIPT
▪ Capital receipts are those transactions that result in a change in the capital
structure of an entity, often involving the acquisition or disposal of capital assets.
They are non-recurring in nature and have a long-term impact on the financial
position of the entity.
▪ Capital receipts can include the sale of assets such as land, buildings, machinery,
or shares in a company, as well as capital contributions from shareholders or
borrowings for long-term investments.
▪ Capital receipts are typically not included in the computation of taxable income,
as they represent a change in the composition of assets and liabilities.
▪ The Income Tax Act, 1961, does not contain specific sections defining capital
receipts, but it provides provisions to tax capital gains arising from the transfer
of capital assets under Sections 45 to 55A.
▪ Capital receipts are reflected in the balance sheet as they contribute to changes
in the capital structure. They do not directly impact the income statement.
▪ Capital receipts often involve transactions with external entities, such as
shareholders, creditors, or financial institutions. They are instrumental in raising
funds for capital expenditures or restructuring.
▪ Types of Capital Receipts:
a. Share Capital: Funds raised by issuing shares.
b. Debentures: Receipts from the issuance of debentures or bonds.
c. Loans: Long-term loans obtained from financial institutions.
d. Sale of Assets: Proceeds from the sale of fixed assets like land, buildings, or
machinery.
▪ The effects of capital receipts are enduring and have a long-term impact on the
financial position of the entity. Examples include the sale of fixed assets,
issuance of shares, or receipt of long-term loans.
✓ REVENUE RECEIPT
▪ Revenue receipts, on the other hand, are regular and recurring receipts that result
from the day-to-day operations of a business or individual. They do not involve
a change in the capital structure and primarily relate to the ordinary income
earned.
▪ Examples of revenue receipts include sales revenue, interest income, rental
income, dividend income, and income from the provision of services.
▪ Revenue receipts are typically considered taxable as they form a part of the
income generated during a particular accounting period.
▪ Relevant Section: The Income Tax Act, 1961, does not have specific sections
defining revenue receipts. Instead, it outlines provisions for the taxation of
various types of revenue income under the relevant sections based on the nature
of the income (e.g., salary income, business income, house property income,
etc.).
▪ Revenue receipts are reflected in the income statement as they directly impact
the profitability of the entity. They contribute to the calculation of net income.
▪ Revenue receipts are often generated from the primary activities of the entity,
such as the sale of goods or services. They can also include receipts from non-
operating activities like interest and dividends.
▪ Types of Revenue Receipts:
a. Sales Revenue: Income from the sale of goods or services.
b. Interest Received: Revenue from interest on loans or investments.
c. Dividend Received: Income from dividends on investments in shares.
d. Rent Received: Revenue from renting out properties or assets.
▪ The impact of revenue receipts is short-term and doesn't alter the long-term
financial structure significantly. These receipts contribute to the entity's regular
income.
❖ AGRICULTURAL INCOME SECTION 2(1A): Agricultural income refers to
the income earned from agricultural activities, such as farming, cultivation, and
related practices. In many countries, including India, agricultural income is often
subject to special tax treatment or is completely exempt from income tax
✓ Explanation of Agricultural Income: Agricultural income is income derived
from land used for agricultural purposes. This can include income from the sale
of crops, livestock, agricultural produce, or rent received from agricultural land.
In many jurisdictions, agricultural income is either fully exempt from income tax
or subject to a preferential tax treatment because agriculture is considered a
crucial sector for a nation's food security and economic development.
✓ Exemptions under Section 10(1)
▪ Section 10(1): One of the distinctive features of agricultural income is its
exemption from income tax under Section 10(1) of the Income Tax Act.
According to this provision, agricultural income is not included in the total
income for the purpose of computing income tax. This exemption is rooted in
the historical context of taxation in India, recognizing the agrarian nature of the
economy.
▪ SCOPE OF EXEMPTION:
a. Entire Income Exempt: The entire amount of agricultural income is exempt
from income tax, regardless of the quantum.
b. Individual and HUF: The exemption applies to both individuals and Hindu
Undivided Families (HUFs).
▪ Joint Ownership: The exemption is provided individually to owners of
agricultural land, enabling joint owners to claim exemption on their respective
shares of agricultural income.
✓ OWNERSHIP AND CONTROL:
▪ Owner of Land: The exemption primarily applies to the owner of the
agricultural land. In cases where the land is leased, the exemption is still
available to the owner, not the lessee.
▪ Control over Agricultural Operations: The nature of agricultural income
hinges on the actual cultivation or agricultural operations carried out on the land.
Mere ownership of land without involvement in agricultural activities might not
qualify for the exemption.
✓ NON-AGRICULTURAL INCOME FROM AGRICULTURAL LAND:
▪ Section 2(1A): The Income Tax Act explicitly excludes certain income from the
definition of agricultural income. If income is generated from processes beyond
agricultural operations, it may not qualify for the exemption.
▪ Income from Processing: If the income is derived from processing agricultural
produce beyond the primary stage, such as converting sugarcane into sugar or
paddy into rice, it may be treated as non-agricultural income.
▪ Income from Sale of Produce: While the sale of agricultural produce is
considered agricultural income, the sale of processed goods may be treated as
non-agricultural income.
▪ Income from Agro-Processing Units: Income from agro-processing units, even
if situated on agricultural land, might be classified as non-agricultural income.
✓ COMPONENTS OF AGRICULTURAL INCOME:
▪ Income from Cultivation: Revenue generated from the cultivation of crops,
fruits, vegetables, or any other agricultural produce.
▪ Income from Agricultural Operations: This includes income from the sale of
seeds, livestock, and any agricultural product produced on the land.
▪ Rental Income: Income earned from renting out agricultural land is also
considered agricultural income.
✓ CASE LAW
▪ Raja Benoy Kumar Sahas Roy vs. The Commissioner of Income-Tax (AIR
1957 SC 768): In this landmark case, the Supreme Court of India clarified the
definition of agricultural income. The case involved the sale of sal trees from a
forest. The question was whether the income from the sale of these trees could
be classified as agricultural income. The court held that the income derived from
the sale of forest trees did not qualify as agricultural income because the trees
were not grown on land that was used for agricultural purposes. This case
established the principle that agricultural income is limited to income derived
from land used for agricultural activities.
▪ Commissioner of Income-Tax, Andhra Pradesh vs. Venkata Rama Rao (AIR
1963 SC 808): In this case, the Supreme Court of India considered the definition
of agricultural income and the exemption under Section 2(1A) of the Indian
Income Tax Act. The case revolved around income earned from the sale of
cashew nuts, which were grown on land used for agricultural purposes. The court
ruled that income from cashew nut cultivation qualified as agricultural income
and was therefore exempt from income tax. This case reaffirmed the principle
that income from activities directly related to agriculture is exempt from
taxation.
✓ Treatment of Agricultural Income: If the activity qualifies within the
definition of Agricultural Income, then the same is exempted in terms of
provisions of section 10(1) of the Income Tax Act. However, it is interesting to
note that the agricultural income is to be included while computing the total
income tax liability if the following two conditions are satisfied –
▪ Condition No. 1 – Agricultural Income exceeds INR 5,000; and
▪ Condition No. 2 – The total income (excluding the Agricultural Income) is more
than the basic exemption limit.
✓ CHALLENGES AND CONTROVERSIES:
▪ Income Characterization: Determining the nature of income generated from
agricultural activities can be challenging. The distinction between agricultural
and non-agricultural income, especially in cases involving agro-processing or
related activities, can lead to disputes.
▪ Lease Transactions: The tax treatment of lease transactions involving
agricultural land can be complex. While the exemption applies to the owner,
questions may arise when agricultural land is leased, particularly if the lessee is
engaged in non-agricultural activities.
▪ Non-Individual Entities: The application of the exemption to non-individual
entities, such as companies or partnerships, can be contentious. The intent of the
 exemption is often seen as aligning with the agrarian interests of individual
farmers and families.
▪ Land Use Change: Instances where agricultural land is converted for non-
agricultural purposes may raise questions about the continued eligibility for
exemption. If the land ceases to be used for agricultural purposes, the exemption
may not apply.
✓ RECENT DEVELOPMENTS AND AMENDMENTS:
▪ Union Budget 2021-22: The Union Budget 2021-22 introduced certain
amendments related to agricultural income. A new provision, Section 194P, was
proposed to be inserted, requiring specified persons engaged in the business of
banking to deduct tax on the income that is not chargeable to tax under the
Income Tax Act. However, this provision was subsequently withdrawn due to
concerns and objections.
▪ Agricultural Reforms: Ongoing agricultural reforms and policy changes may
have broader implications for the taxation of agricultural income. The evolving
landscape of agricultural practices, including contract farming and
diversification, necessitates a nuanced approach to tax regulations.
✓ FUTURE IMPLICATIONS AND CONSIDERATIONS:
▪ Policy Alignment: As India undergoes transformative changes in its agricultural
sector, future tax policies may need to align with these shifts. Policymakers may
need to reevaluate the scope and applicability of the agricultural income
exemption.
▪ Technology and Modernization: With technological advancements and
modernization in agriculture, the definition and taxation of agricultural income
may need to adapt to encompass new practices and revenue streams.
▪ Legal Clarity: Given the historical and cultural significance of agriculture in
India, any changes to the taxation of agricultural income would require careful
consideration, legal clarity, and potentially, stakeholder consultations.
❖ PROPORTIONAL AND PROGRESSIVE RATE OF TAXATION
Characteristic Proportional Tax Progressive Tax
A tax system in which the tax rate is A tax system in which the tax
Definition the same for all taxpayers, regardless rate increases as income
of income level. increases.
Tax Rate Structure Flat rate Marginal tax rate
Taxpayers are subject to
different tax rates on
One tax rate applies to all income different portions of their
levels. For example, a 10% tax rate income. For example, a
Calculation of Tax
applies to a person earning Rs. taxpayer may pay 10% on the
Rate
50,000 and to a person earning Rs. first Rs. 2,50,000 of income,
5,00,000. 20% on the next Rs.
2,50,000, and 30% on any
income above Rs. 5,00,000.
Higher percentage of income
The same percentage of income for for higher-income taxpayers,
Tax Burden
all taxpayers. and lower percentage for
lower-income taxpayers.
 Generally less burdensome
for lower-income taxpayers.
Can be regressive, meaning lower-
Progressive tax systems
Impact on Low- income taxpayers pay a higher
often include deductions,
Income percentage of their income in taxes
exemptions, and credits that
than higher-income taxpayers.
reduce the tax burden for
lower-income taxpayers.
More burden than
Less burden than progressive tax proportional tax systems, as
Impact on High- systems, as high-income taxpayers high-income taxpayers pay a
Income pay the same percentage of their higher percentage of their
income as low-income taxpayers. income in taxes than low-
income taxpayers.
UNIT – 2
❖ MEANING AND RULES FOR DTERMINING RESIDENTIAL STATUS
OF ASSESSE
RESIDENTIAL STATUS - Residential status of an assessee is important in
determining the scope of income on which income tax has to be paid in India. The
different types of Residential Status are:
✓ Resident (R)
▪ An individual or HUF assessee who is resident in India may be further classified
into
▪ resident and ordinarily resident (ROR) and
▪ resident but not ordinarily resident (NOR).
✓ Non Resident (NR) - To be determined in each previous year (1 April to 31
March next)
Importance of Residential Status:
▪ Resident – World income is taxable in India
▪ Non Resident – Only income arising or accruing in India is taxable in India
▪ Resident but Not Ordinarily Resident – Income accruing or arising outside India
may also be taxable in India
Section:6 “Resident”
An individual is said to be resident in India in any previous year, if he satisfies any of
the 2 basic conditions –
▪ Physical presence in India for 182 days or more in a previous year OR
▪ Physical presence in India for 60 days or more in the relevant previous year and
has been in India for 365 days or more during the 4 previous year immediately
preceding the relevant previous year.
✓ Individual - Resident but Not Ordinarily Resident Section 6(1)
▪ Such person has been a non-resident in India in at least 2 out of 10 previous years
preceding the relevant previous year;
▪ The person has been in India for a period of 730 days during 7 years preceding
the relevant previous year
✓ Hindu Undivided Family Section 6(2)
▪ Resident unless Control and Management of affairs wholly outside India
 ▪ R-NOR if Manager (Karta) is a non resident in India in 2 out of 10 preceding
previous years or is in India for 730 days in 7 preceding previous years
✓ Company - Resident in India 6(3)
▪ If an Indian Company – Section 2(26)
▪ If Control and Management of its affairs is situated wholly in India

❖ CHARGE OF INCOME TAX & SCOPE OF TOTAL INCOME

CHARGING Section 4 of the Income-Tax Act, 1961.Accordingly, the section
provides that :
▪ The rates are prescribed under the finance act of every assessment year. Income
tax for the previous year is to be charged according to the given rates.
▪ The taxable income is that of the previous year not the assessment year
▪ The total income, computed according to the provisions of the act, is leviable
▪ Tds or advance tax wherever applicable is to be charged
The charge of income tax is the legal authority or basis for levying and collecting
income tax from individuals and entities. In India, the charge of income tax is primarily
defined under the Income Tax Act, 1961. This section serves as the foundational
provision that determines the scope and applicability of income tax on various
categories of income earned by individuals, Hindu Undivided Families (HUFs),
companies, and other entities. Key Points for Understanding Section 4:
▪ Residential Status: The applicability of income tax depends on the residential
status of an assessee. As discussed earlier, individuals can be classified as
Resident and Ordinary Resident (ROR), Resident but Not Ordinary Resident
(RNOR), or Non-Resident (NR). Different tax rules apply to these categories.
▪ Scope of Total Income: Total income includes income from various sources,
such as salary, business profits, capital gains, house property, and other sources.
▪ Assessment Year: Income tax is charged for a particular assessment year, which
is the year immediately following the financial year in which the income is
earned.
❖ SCOPE OF TOTAL INCOME SECTION 5 OF THE INCOME TAX ACT,
1961: The scope of "Total Income" in Indian income tax law refers to the extent
of an individual or entity's income that is subject to taxation. It defines the
categories of income and the principles for including or excluding specific
receipts from the calculation of taxable income. Section 5 of the Income Tax Act,
1961, plays a pivotal role in establishing the scope of total income.
Here are the key aspects to consider:
▪ Residential Status Section 5(1) - The first determination in computing total
income is the residential status of the taxpayer. As per Section 5(1), the scope of
total income varies based on whether an individual is a Resident and Ordinary
Resident (ROR), Resident but Not Ordinary Resident (RNOR), or Non-Resident
(NR). Different categories of income may be taxed or exempted based on the
residential status.
▪ Income Earned or Received in India Section 5(2) - Specifies that income is
considered taxable in India if it is earned or received within the territorial
 jurisdiction of India. This includes income that accrues or arises in India, as well
as income received or deemed to be received in India.
The scope of Total Income depends on the Residential Status of the tax payer. The
incidence of tax under different circumstances is given in the following table:
ROR RNOR NR
✓ Income received in India Yes Yes Yes
✓ Income deemed to be received in India Yes Yes Yes
✓ Income accruing or arising in India Yes Yes Yes
✓ Income deemed to accrue or arise in India Yes Yes Yes
✓ Income received/ accrued outside India
from a business in India Yes Yes No
✓ Income received/ accrued
outside India from a business controlled
outside India Yes No No

✓ INCOME DEEMED TO ACCRUE OR ARISE IN INDIA (SEC 9)

Following income shall be deemed to accrue or arise in India:
▪ Income from any property, asset or source of income in India
▪ Income from the transfer of any capital asset situated in India
▪ Any income from salary if it is payable for services rendered in India
▪ Salary (not allowances) payable by the government of India to an Indian citizen
for services rendered outside India
▪ Interest payable by
a. Government or
b. Resident in India if money is used by the borrower for the purpose of business
or profession or earning any income from any source in India or
c. Non-resident in India if money is used by the borrower for the purpose of
business or profession in India
▪ Royalty payable by
a. Government or
b. Resident in India if services are utilized for the purpose of business or profession
or earning any income from any source in India or
c. Non-resident in India if services are utilized for the purpose of business or
profession or earning any income from any source in India
▪ Fees for technical services payable by
a. Government or
b. Resident in India it services are utilized for the purpose of business or profession
or earning any income from any source in India or
c. Non-resident in India it services are utilized for the purpose of business or
profession or earning any income from any source in India
▪ Income from a business connection in India Any income which arises, directly
or indirectly, from any activity or a business connection in India is deemed to be
earned in India. Examples of business connection includes
a. branch office in India,
b. Subsidiary in India
c. maintaining stocks etc

❖ INCOME EXEMPTED FROM TAX AND DEDUCTIONS UNDER

INCOME TAX LAW: Income exempted from tax and deductions under the
Income Tax law play pivotal roles in shaping the taxable income of individuals
and entities, providing a framework to ensure fairness, equity, and incentivizing
specific behaviors. Exemptions refer to certain types of income that are excluded
from the purview of taxation, contributing to a more nuanced and targeted
approach to tax assessment.
✓ INCOME EXEMPTED FROM TAX:
▪ Agricultural Income Section 10(1):Agricultural income, as defined in Section
2(1A), is exempt from income tax. This exemption recognizes the agrarian nature
of certain income and aligns with the socio-economic importance of agriculture
in India.
▪ Gifts and Inheritance (Section 56):Gifts received by an individual or Hindu
Undivided Family (HUF) from specified relatives are exempt from tax.
Additionally, gifts received on occasions such as marriage or under a will are
also exempt. However, gifts exceeding specified limits may be subject to tax
under certain conditions.
▪ Income of Charitable Institutions (Section 11):Income derived by charitable
institutions and trusts, as specified in Section 11, is exempt from tax. This
exemption is contingent upon the fulfillment of certain conditions and adherence
to prescribed procedures.
▪ Dividends from Indian Companies Section 10(34):Dividends received from
Indian companies are exempt in the hands of the shareholders under Section
10(34). However, the company is required to pay Dividend Distribution Tax
(DDT) before distributing dividends.
▪ Long-Term Capital Gains on Equity Section 10(38):Long-term capital gains
arising from the sale of equity shares or units of equity-oriented mutual funds on
recognized stock exchanges are exempt from tax under Section 10(38). However,
specific conditions and holding periods apply.
▪ Interest on Certain Bonds Section 10(15):Interest earned on specified bonds,
such as National Savings Certificates (NSC) and Public Provident Fund (PPF),
is exempt from tax under Section 10(15). The exemption is subject to certain
limits and conditions.
▪ Gratuity Section 10(10):Gratuity received by an employee on retirement or
termination is exempt from tax, subject to the conditions stipulated in Section
10(10).
▪ Commuted Pension Section 10(10A):Amount received on commutation of
pension is exempt from tax under Section 10(10A), subject to specified limits.

✓ DEDUCTIONS UNDER INCOME TAX LAW:

▪ Standard Deduction for Salary Income (Section 16):Salary income is eligible
for a standard deduction under Section 16. The Finance Act specifies the amount
of the standard deduction, providing relief to salaried individuals.
▪ Deductions under Chapter VI-A: Chapter VI-A of the Income Tax Act outlines
various deductions that can be claimed by individuals and Hindu Undivided
Families (HUFs). Key deductions include:
a. Section 80C: Deductions for investments in specified instruments such as
Provident Fund, Public Provident Fund, National Savings Certificates, and
Equity-Linked Saving Schemes.
b. Section 80D: Deductions for premiums paid on health insurance policies.
c. Section 80G: Deductions for donations made to specified charitable institutions.
d. Section 80E: Deductions for interest on loans taken for higher education.
e. Section 80GGA: Deductions for donations for scientific research or rural
development.
▪ Home Loan Interest (Section 24):Interest paid on home loans is eligible for
deduction under Section 24. The deduction is available for both self-occupied
and let-out properties.
▪ HRA Exemption Section 10(13A):House Rent Allowance (HRA) received by
an employee is partially exempt from tax under Section 10(13A), subject to
certain conditions.
▪ Leave Travel Allowance (Section 10(5):Leave Travel Allowance (LTA)
received by an employee for travel within India is exempt from tax under Section
10(5), subject to specific conditions.
▪ Special Allowances for UN Officials Section 10(7):Special allowances
received by United Nations (UN) officials are exempt from tax under Section
10(7).
▪ Income from Professional Services (Section 44ADA):Professionals such as
doctors, engineers, and accountants can opt for presumptive taxation under
Section 44ADA, allowing them to claim a deduction of 50% of their gross
receipts.

UNIT – 4
❖ SET-OFF AND CARRY-FORWARD - Set-off of losses, as the name suggests,
can be understood as adjusting the losses incurred by a person against his profit
or income in a particular assessment year. If it so happens that it is not possible
to set-off the losses in the same assessment year, either because the assessee has
not gained required profit or because the income generated is also less than the
amount is carried forward to the next year. The process of setting off of losses
and their subsequent carry-forward maybe are covered under the following steps-
a. An inter-source adjustment under the same source of income.
b. Inter-head adjustment in the same assessment in the same year. (This is applied
only if a loss cannot be set-off under step-1)
c. Carry-forward of a loss. (This is applicable only when 1 and 2 are not)
✓ Set-off of losses - As mentioned earlier set-off can either be inter-source or intra-
head.
▪ INTER-HEAD ADJUSTMENT – SEC. 70 - The general rule under the
provision of Section 70 states that- if the net result for any assessment year, in
respect of any source under any head of income, has incurred a loss, the assessee
 is entitled to have the amount of such loss set-off against his income from any
other source under the same head of income for the same assessment year.
▪ Illustration - A has two businesses- business A and B. While the returns from
business A is Rs. 5 lakh, business B has incurred a loss of Rs. 2 lakh. In this case,
the loss of Rs. 2 lakh from business B can be set-off against income of Rs. 5 lakh
from business A. It must be noted that A does not have any option to set-off or
to not set-off the loss of business B.
▪ General exceptions
a. Loss from speculation business– The loss incurred in a speculation business
can only be set-off by a profit earned in the speculation business.
b. Loss from a specified business- Any loss computed in respect of any specified
business referred to in Section. 35AD, shall not be set-off against profits and
gains, if any, of any other specified business.
c. Long-term capital loss– Long term capital loss can only be set-off against long
term capital gain.
d. Loss from the activity of owning and maintaining race horses– A loss
incurred in the business of owning and maintaining race horses cannot be set-off
against, if any, from any other source except income from such business.
e. Loss cannot be set-off against winning lotteries, crossword puzzles etc.- It is
by virtue of Section. 58(4), a loss cannot be set-off against winnings from
lotteries and other forms of gambling.
f. Loss from sale of securities.
▪ Other key points
Barring the aforementioned cases, any other loss can be set-off against any other income
within the same head of income. For example-
a. Loss from house property can be set-off against income from any other house
property.
b. Loss from a non-speculation business can be set-off against income from
speculation or non-speculation business.
c. Loss from a non-speculative business can be set-off against income from
business specified under Section 35AD.
d. A short-term capital loss can be set-off against any capital gain (whether short-
term or long-term).
e. Under the head of ‘other sources’ loss from an activity can be set-off against
income but other than winning from lotteries, crosswords etc.
If income from a particular source is exempted from tax, e.g. income exempt from tax
under section 10, loss from such source cannot be set-off against income chargeable to
tax. If there is income from one source and loss from another source within the same
head of income, one has to set-off the loss against the income. Barring the cases of
exceptions, in all other cases, a loss has to be first set-off against income within the
same head of income. No other option is available. For example, a long-term capital
loss can be set-off against only long-term capital gains. However, a short-term capital
loss can be set-off against any capital gains.
▪ INTER-HEAD ADJUSTMENT – SEC. 71 - The general rule under the
provision of Section 71 states that- where the net result of the computation made
 for any assessment year in respect of any head of income is a loss, the same can
be set-off against the income from other heads too.
▪ Illustration - A has two speculative businesses B and C. Besides his business,
he has income from house property. The result from the three sources of income
is given below-
Business income Property income
Business B (-)2,90,000
Business C 5,10,000
Income from 70,000
house property
(-)2,90,000 5,10,000
In this case, a business loan of Rs. 2,20,000 can be adjusted against the property income
of Rs. 5,10,000. Consequently, property income is reduced to Rs. 2,90,000. It may be
noted that A does not have any option to set-off the business loss against property
income.
▪ Exceptions
a. Loss in a speculative business- it cannot be set-off against any other income.
b. Loss in a business specified under section 35AD- loss, computed in respect of
any specified business referred to in section 35 AD cannot be set off against any
other income.
c. Loss under the head capital gains– loss under this head can only be set-off by
under the head of capital gains.
d. Loss from the activity of owning and maintaining horses- cannot be set off
against any other income head.
e. Business loss cannot be set-off against salary income.
f. Any house property loss exceeding Rs. 2,00,000- cannot be set-off against
income under other heads of income.
g. Loss cannot be set-off against winnings from lotteries etc- by virtue of
Section 58(4) a loss cannot be set-off against winning from lotteries.
h. Loss from the purchase of securities.
▪ Example - A taxpayer has the following income/loss-
Current year Next year
Business income (-) 1,00,000 8,00,000
Long-term capital 2,30,000 3,00,000
Long term capital gain is taxable at a lower rate. Even then, the assessee cannot avoid
set-off of business loss in the current year under section 71 against the capital gain and
carry forward the business loss to the next year. In other words, the business loss has to
be set-off against capital gain. There is no other alternative option available. After
adjusting the business loan of Rs. 1,00,000 on remaining long-term capital gain of Rs.
1,30,000, he will have to pay tax during the current year.
▪ CARRY-FORWARD OF LOSS - In cases where the loss cannot be set-off
either under the same head or under any other head of income, because of
absence or inadequacy of income in the same year, then that loss is carried
forward and set off against the income of the subsequent year. According to the
provisions of the Act, the following loses can be carried forward-
a. Loss under the head ‘income from house-property’ (Sec. 71B).
 b. Loss under the head “profits and gains of business or profession” (Sec. 72 and
73).
c. Loss under the head ‘capital gains’.
d. A loss incurred from the activity of owning and maintaining horses (Sec. 74).
▪ Restrictions - The right of carry-forward and set off of loss arising in a business
is subject to the following restrictions-
a. Loss can be set-off only against business income.
b. Loss can be carried forward by the person who incurred the loss.
c. Loss can be carried forward for 8-years.
d. Return of loss should be submitted in time.
e. Continuity of business is not necessary.
▪ Conditions in brief related to carry forward and set-off of losses :-
a. Past year losses can be set-off against income from that respective head of
income (Inter head adjustment is not possible) (e. g. Unadjusted loss of HP for
the year 2004-05 c/f Rs. 20,000. This loss can be set-off only against HP income
of the year 2007-08 and not under any other head)
b. The above rule (1) is not applicable to unabsorbed depreciation, which can be
set-off against any other head
c. All losses (Except loss due to owning and maintaining of race horses) can be
carried forward and set-off for 8 subsequent financial years following the
Previous Year in which such loss arose.
d. Unadjusted loss due to owning and maintaining of race horses can be carried
forward and set-off for 4 subsequent financial years following the Previous Year
in which such loss arose.
e. Unabsorbed depreciation can be carried forward for an unlimited period.
▪ ORDER OF SET-OFF OF LOSSES
In case where profits are insufficient to absorb brought forward losses, current
depreciation and current business losses, the same should be deducted in the following
order
a. Current scientific research expenditure [Sec. 35(1)].
b. Current depreciation [Sec. 32(1)].
c. Brought forward business losses [Sec. 72(1)].
d. Unabsorbed family planning promotion expenditure [Sec. 36(1)(ix)].
e. Unabsorbed depreciation [Sec. 32(2)].
f. Unabsorbed scientific research capital expenditure [Sec. 35(4)].
g. Unabsorbed development allowance [Sec. 33A (2) (ii)].
h. Unabsorbed investment allowance [Sec. 32 A (3) (ii)].

❖ DEDUCTIONS, REFUND AND TAX AUTHORITIES

✓ Deduction - Tax deductions refer to reductions in the taxable income of a
taxpayer which leads to a lower tax liability. Taxable income is that income on
which the tax is to be levied or imposed. Deductions are a kind of benefit which
helps people to save tax. Deductions have been mentioned in Chapter VI A of
the Income Tax Act, 1961.
✓ Types of Deductions
 ▪ Investing in LIC or Mutual Funds: Investments which are made in Life Insurance
Policies, Mutual Funds, PPF (Public Provident Funds), Sukanya Samriddhi
Accounts and even in pension funds can help to get deductions up to maximum
limit of 1.5 lakhs under Section 80C and 80CCC of the Income Tax Act.
▪ National Pension Scheme (NPS): NPS is a government sponsored pension
scheme for the citizens of the country. Contributions made to the National
Pension Scheme can also help to provide deductions under Section 80CCD (1),
80CCD (1B) and 80CCD (2).
▪ Deductions available on Medical Expenditure: Persons filing Income Tax
Returns can also get deductions in case of Medical Insurance Premiums and
preventive health checkups under Section 80D of the Act. [4] Apart from this
deduction of maximum 1.25 lakhs is also available if the assessee has incurred
expenditure on the medical treatment of a dependent with disability under
Section 80DD of the Income Tax Act.
▪ Deductions for Interest paid on Loans: An income tax assessee can claim
deduction on the interest which he/she has paid on loan taken for Higher
education and for purchase of residential property under Section 80E and 80EE
respectively.
▪ Deductions available for donations: Donations to any charitable institution can
be used to claim deduction under Section 80G of the Income Tax act. Apart from
this, donation towards scientific research, rural development and even donation
to political parties can be used for claiming deductions.
▪ Deductions for Royalty: Any author who receives Royalty income can claim
deduction under Section QQB of the Act. Royalty on patents can also be used
for claiming deductions under Section RRB.
▪ Deductions to disabled persons: A person with disability can claim a deduction
of up to Rs 75,000. In case of severe disability, a deduction of up to 1.25 lakhs
can also be claimed. This is a fixed deduction provided under Section 80U of the
Income Tax Act, 1961.
✓ Benefits of Deductions
▪ Saving Tax: One of the major benefits of Tax deduction is that it helps to reduce
the total taxable income and thus saves the tax amount to be paid by an assessee.
▪ Promotes Investment: Less tax helps the taxpayers to save their income and
hence leads to greater investment in the economy, promoting GDP growth.
✓ REFUND - When an assessee pays excess tax as compared to their actual tax
liability, then he/she can get reimbursement for the extra tax paid, which is
referred to as Income Tax Refund. Section 237 of the Income Tax Act deals with
the refund of excess tax paid by the taxpayer. Refund of tax is usually obtained
in the case where the assessee has paid the advanced tax or TDS (Tax Deducted
at Source).
Example - Let’s say the person who paid you your income already deducted 15,000
Rupees from the income as tax and paid it to the government on your behalf. Now, at
the time of filing your Income Tax Return, the actual tax you have to pay comes out to
be 10,000 Rupees only. So, the remaining 5,000 would be considered the excess tax
paid by you and will be refunded to you by the Income Tax Department.
✓ How to claim income tax refund?
As per the Finance (No. 2) Act, 2019 a refund can be claimed only by filing the income
tax return within the time limit which has been prescribed. In order to claim a refund,
there is a need to fulfill the following requirements:
a. It is necessary to file an income tax return for the relevant assessment year.
b. It is essential to have the details of the tax payments made by you during the
assessment year.
c. It is important to have a proof of TDS or advance tax payments that have been
made by you.
✓ TAX AUTHORITIES - It is imperative to understand the functions, roles and
powers of Income Tax Authorities for the effective financial management of the
country. Income Tax Authorities are organizations that are mainly concerned
with collection and administration of taxes and make sure that people do not
violate the rules of taxation. It is necessary for the tax authorities to fulfill their
obligations so as to prevent tax evasion and harassment of assesses and at the
same time ensure that there is no discrimination in the collection of taxes.
✓ Various tax authorities and their roles - For the effective implementation of
the Income Tax Act, 1961 the government has established various tax authorities
a. Central Board of Direct Taxes (CBDT): It is a government body which is
responsible for the administration and enforcement of direct tax legislation in
India. It was established in 1963 and it comes under the Ministry of Finance,
Government of India. It consists of a Chairman and 6 other members. The roles
of CBDT are mentioned below:
▪ It controls all the Income Tax Authorities to ensure their effective functioning.
▪ It lays down all the policies and planning related to direct tax matters in the
country.
▪ It also reviews the working of Income Tax Department.
b. Director General of Income Tax: The Director General of Income Tax is
appointed by the Central government and has the following powers:
▪ Power to Search and Seizure
▪ Power to discover and produce evidence
▪ Power to make an inquiry
▪ To survey
▪ To give instructions to income tax officers
▪ To take possession of book of accounts
c. Income Tax Commissioners: Income Tax Commissioners usually administer
a specified area and enjoy wide range of powers:
▪ Power to transfer a case from one assessing officer to another officer
▪ Power to grant approval to an order which has been issued
▪ Power to revise an order which has been passed by assessing officers
▪ To foresee the functioning of direct taxes in a specified area.
d. Joint Commissioners: One of the major functions of a Joint Commissioner is to
issue directions to Assessing Officers to make sure that there is effective
enforcement of all rules and regulations. The directions which are issued by Joint
Commissioner to Assessing Officer are binding in nature.
e. Income Tax Officers: Some of the major powers of Income Tax Officers
include:
 ▪ Power of Search and Seizure
▪ Power of Survey
▪ Power of assessment
▪ Power to call for any individual to provide information
f. Income Tax Inspectors: Inspectors of the Income Tax work in accordance to the
task which is given to them by their seniors.
The appointments, jurisdiction, powers, roles and functions of Income Tax Authorities
are given under Chapter XIII of the Income Tax Act, 1961.
✓ New tax regime vs. Old tax regime - A lot of chaos and confusion has been
caused among the taxpayers by the Budget of 2023. Assesses are confused
whether they should opt for new tax regime or continue with the old one. Let us
try to understand the key differences between the old and new tax regime so that
it becomes easy for the taxpayers to make their own choice.
▪ Change in the Tax Slabs: In Old tax regime, the number of slab rates are 4.
However, in the case of New Regime there are 6 slab rates, that are, 0%, 5%,
10%, 15%, 20%, 30%. In the case of Old Regime, if the taxable income is less
than Rs 5 Lakh, then an individual need not pay any tax. This limit has been
increased to Rs 7 Lakh in the New Regime. This means that if an individual has
taxable income of less than Rs 7 Lakh, then he/she does not need to pay any tax.
▪ Deductions and exemptions: A major difference in the New and Old Tax Regime
is of the deductions and exemptions available. The deductions and exemptions
available under the old tax regime would not be applicable in the case of New
Regime. So, those who opt for new regime cannot claim several deductions like
80C, 80D, HRA (House Rent Allowance), LTA (Leave Travel Allowance) etc.
This is considered as a major disadvantage of the new tax regime. For Example:
Deduction of up to Rs 1.5 Lakh which is available under Section 80C of the
Income Tax Act, 1961 would not be available to those who opt for the New Tax
Regime.

❖ PENALTY AND PROSECUTION FOR TAX EVASION

✓ Penalties for Tax Evasion: Under the Income Tax Act, 1961, there are different
penalties that can be forced on citizens for tax evasion. These penalties can be
forced by the assessing official, who is liable for assessing the income tax returns
recorded by citizens. Some of the penalties that can be forced for tax evasion are:
a. Penalty under section 271(1)(c): In the event that a citizen has disguised pay or
outfitted mistaken specifics of pay, a punishment of 100% to 300% of the
expense dodged can be forced. Punishment for under-detailing pay: If a citizen
under-report his/her pay or neglects to report any pay, the expense specialists can
exact a punishment of half of the duty payable on the under-revealed pay.
Moreover, premium at the pace of 1% each month is likewise charged on the
under-revealed pay.
b. Penalty under section 270A: If citizen under-reports pay, a penalty of half of the
expense payable on the under-revealed pay can be forced. Punishment for non-
installment or short installment of expense: In the event that a citizen neglects to
pay or short-pays his/her duty risk, a punishment of 1% each month on the
neglected sum is imposed until the tax is paid.
c. Penalty under section 271AAB: On the off tax that a citizen proclaims
undisclosed pay under the Pay Statement Plan, 2016, a punishment of 10% of
the pronounced pay can be forced. Punishment for late recording of government
forms: In the event that a citizen neglects to document his/her government form
inside the due date, a punishment of Rs. 5,000 is exacted.
d. Penalty under section 271AAC: On the off tax that a citizen proclaims
undisclosed pay under the Pradhan Mantri Garib Kalyan Yojana, 2016, a
punishment of 10% of the pronounced pay can be forced. Punishment for non-
support of books of records: In the event that a citizen neglects to keep up with
legitimate books of records, a punishment of Rs. 25,000 can be collected.
✓ Prosecution for Tax Evasion: Aside from penalties, the Income Tax Act, 1961,
likewise accommodates arraignment of citizens who commit tax avoidance.
Indictment can be started against citizens who have unshakably endeavored to
dodge charges. A portion of the arrangements for indictment under the Income
Tax Act, 1961, are:
a. Section 276C: In the event that a citizen stubbornly endeavors to sidestep tax,
he/she can be rebuffed with detainment for a term going from a half year to seven
years, alongside a fine.
b. Section 277: In the event that a citizen offers a bogus expression having sworn
to tell the truth, he/she can be rebuffed with detainment for a term going from 90
days to two years, alongside a fine.
c. Section 276CC: In the event that a citizen neglects to pay the expense due, he/she
can be rebuffed with detainment for a term going from 90 days to two years,
alongside a fine.
✓ What are the defaults which may invite levy of penalty?
a. When the assessee is in default or is considered to be in default in making
installment of duty. counting the duty deducted at source, advance expense and
the self-appraisal charge. [Section 221 read with Sec.201(1)]
b. Inability to pay the development charge as coordinated by the Assessing Official
or as assessed by the assessee. [Section 273(1)]
c. Inability to conform to a notification gave under section 142(1) or 143(2) or
inability to consent to the course given under section 142(2A) to get the records
evaluated. [Section 271(1)(b)]
d. Covering of points of interest of pay or outfitting of incorrect specifics of pay.
[Section 271(1)(c)]
e. Inability to keep up with books of records and archives by people carrying on
calling or business as recommended under section 44AA. [Section 271A]
f. Inability to get the records evaluated in recommended conditions or inability to
acquire the endorsed review report inside endorsed time span of inability to outfit
the review report alongside the return, as expected under section 44AB. [Section
271B]
g. Inability to buy into the qualified issue of capital [Section 271BB]
h. Penalty for inability to deduct charge at source. [Section 271C]
i. Tolerating of any credit or store or reimbursement of store of Rs.20,000 or more
in any case than by account payee check or record payee draft, in negation of the
provisions of section 269SS. [Section 271D]
 j. Reimbursement of credit in contradiction of the circumstances forced in section
269T. [Section 271E]
k. A Disappointment of document the arrival of pay as expected under section 239
(1), will involve burden of punishment. [Section 271F]
l. Refusal to reply in contradiction of legitimate commitment. [Section 272A(1)(a)]
m. Refusal to sign any explanation made over annual duty procedures. [Section
272A(1)(b)]
n. Inability to join in or give proof or produce books of records and archives in
consistence with the prerequisites of request under segment 131(1). [Section
272A(1)(c)]
o. Inability to follow the arrangements of section 139A managing the application
for and allocation of Long-lasting Record Number or General File Register
Number. [Section 272A(1)(d)]
p. Inability to outfit data with respect to protections. [Section 272A(2)(a)]
q. Inability to pull out of discontinuance of business or calling. [Section
272A(2)(b)]
r. Inability to furnish in due time information sought under section 133 of Income-
tax Act. [Section 272A(2](c)]
s. Inability to furnish sooner or later recommended returns/articulations. [Section
272A(2][c)]
t. Failure to permit examination or take duplicates of registers of registers of
organizations. [Section 272A(2](d)]
u. Inability to outfit eventually the arrival of pay by altruistic or strict foundations.
[Section 272A(2)(e)]
v. Inability to convey sooner or later a duplicate of statement of non-derivation of
duty at source u/s.197A. [Section 272A(2)(f)]
w. Inability to outfit a testament of duty deducted at source to the individual for
whose benefit charge has been deducted or gathered as expected by Section203
or Section206C [Section 272A(2)(g)]
x. Inability to deduct and pay charge from compensation payable to a worker as
coordinated by the Surveying Official or the Duty Recuperation Official as
expected by Section 226(2). [Section272A(2)(h)]
y. Inability to permit an Income-tax Authority to gather any data valuable or
pertinent to the motivations behind Income-tax Act u/s.133B. [Section 272AA)]
z. Inability to comply with the provisions of section 203a dealing with tax
Deduction Account Number [Section 272BB]
✓ Is the levy of penalty automatic?
No penalty under the Income-tax Act is imposed unless the person concerned has been
given reasonable opportunity of being heard.
✓ What is the minimum and maximum penalty leviable?
The quantum of any penalty assessed or imposable, if specified conditions are gratified.
The assessee should freely and by good faith make full and true exposure of profit
previous to the discovery of hermitage by the laying Bobby.
✓ Can the penalty be reduced or waived?
The Commissioner of Income-tax may reduce or waive the amount of any penalty
imposed or imposable, if prescribed conditions are satisfied. The assessee should
voluntarily and in good faith make full and true disclosure of income prior to the
detection of concealment by the Assessing Officer.
✓ Some Case Laws
a. Addl. Commissioner of Income-Tax vs Dargapandarinath Tuljayya & Co. on 10
December, 1975. (Bench: C Reddy, J Reddy) Andhra High Court
b. Taiyabji Lukmanji vs Commissioner of Income-Tax, on 16 April, 1981. (Bench:
R Mankad, Thakkar) Gujarat High Court
c. Ram Gulam Shah and Sons and Ors. vs Commissioner of Income-Tax And on 8
July, 1999. (Bench: N Roy) Patna High Court
d. Woodcrafts Enterprises vs Sales Tax Officer and Ors. on 2 March, 1970.
✓ Challenges in Enforcing Penalty and Prosecution Provisions: In spite of the
punishment and arraignment arrangements for tax evasion under the Indian tax
collection regulation, there are a few difficulties in implementing these
arrangements really. A portion of the significant difficulties are:
a. Lack of Adequate Resources: The expense experts in India frequently face a lack
of assets, including labor supply, innovation, and foundation, which makes it
challenging for them to recognize and indict tax evaders. This absence of assets
additionally hampers their capacity to lead reviews and examinations, which are
vital in distinguishing tax evasion.
b. Complex Tax Laws: The Indian tax collection framework is perplexing, and the
expense regulations are frequently challenging to decipher and execute. This
intricacy can make it provoking for charge specialists to recognize cases of tax
avoidance and indict the wrongdoers.
c. Lengthy Legal Processes: The lawful interaction for arraigning charge dodgers
in India can be tedious and extensive, which can prompt defers in settling cases.
This can be a hindrance for charge specialists to make a move against tax
evaders.
d. Lack of Public Awareness: Numerous citizens in India are not completely
mindful of their assessment commitments and the outcomes of tax evasion. This
absence of mindfulness can prompt unintentional nonconsistency, while
deliberate expense dodgers can take advantage of this obliviousness to stay away
from penalties and prosecution.
✓ Possible Solutions: To address the difficulties in implementing penalty and
prosecution provisions for tax evasion under the Indian taxation law, a few
measures can be taken. A portion of the solutions are:
a. Strengthening of Resources: The government ought to give satisfactory assets to
the tax specialists, including labor, innovation, and framework, to assist them
with actually recognizing and arraign tax evaders.
b. Simplification of Tax Laws: The government can work on tax laws and make
them easier to understand. This will assist citizens with grasping their
commitments and diminish occurrences of accidental resistance.
c. Streamlining Legal Processes: The government can smooth out the lawful cycles
for arraigning charge dodgers, making them more proficient and less tedious.
d. Increasing Public Awareness: The government can send off open mindfulness
missions to instruct citizens about their expense commitments and the outcomes
 of tax avoidance. This will assist with making a culture of duty consistence in
the country.

❖ SEARCH AND SEIZURE

Authority who can issue Order for Search and Seizure U/s 132: Search and seizure can
be authorised by—
▪ the Principal Director General of Income Tax/Director General of Income Tax,
or
▪ the Principal Director of Income Tax/Director of Income Tax, or
▪ the Principal Chief Commissioner of Income Tax/Chief Commissioner of
Income Tax, or
▪ the Principal Commissioner of Income Tax/Commissioner of Income Tax, or
▪ the Additional Director or Additional Commissioner, or
▪ the Joint Director or Joint Commissioner of Income-tax.
a. The Principal Director General / Director General or Principal Director / Director
or the Principal Chief Commissioner / Chief Commissioner or Principal
Commissioner / Commissioner may authorise any officer subordinate to him but
not below the rank of Income-tax Officer to conduct such Search. Similarly,
Additional Commissioner, Joint Commissioner or Additional Director / Joint
Director can authorise any officer subordinate to him but not below the rank of
Income-tax Officer to do so.
b. however, no authorization shall be issued by the Additional Director or
Additional Commissioner or Joint Director or Joint Commissioner, unless he has
been empowered by the Board to do so. The Officer so authorised is referred as
Authorised Officer. The authorisation is done by issuing a search warrant in
Form 45.
✓ Basis for Search and Seizure [Section 132(1)(a), (b) and (c)]: Authorisation
for search and seizure can take place if the above authority, in consequence of
information in his possession, has reason to believe that:
▪ any person to whom:
a. summons under section 131(1) or
b. notice under section 142(1), was issued to produce or cause to be produced any
books of account, or other documents has willfully omitted or failed to produce
or caused to produce such books of account or other documents as required by
such summons or notice;
▪ any person to whom summons or notice, as aforesaid, has been or might be
issued, will not or would not produce any books of account or other documents
which will be useful or relevant to any proceeding undertaken under the Income-
tax Act;
▪ any person is in possession of any money, bullion or jewellery, or other valuable
article or things and these assets represent either wholly or partly the income or
properly which has not been or would not be disclosed by the person concerned
for the purposes of this Act.
✓ Persons to be searched: From the above it is clear that the persons to be
searched are persons:
▪ who have books of account or documents which have not been produced or are
not likely to be produced in response to notices or/summons, or
▪ persons who are likely to be in possession of undisclosed income or property.
✓ Search can be Authorised by a Principal CCIT/CCIT or Principal CIT/CIT
other than jurisdictional Principal CCIT/CCIT or Principal CIT/CIT:
▪ The Principal Chief Commissioner / Chief Commissioner or Principal
Commissioner/ Commissioner of Income-tax has the power to authorise a search
of any building, place, vessel, vehicle or aircraft of a person which is under his
jurisdiction and also in cases where such building, place, vessel, vehicle or
aircraft is in his area jurisdiction but he has no jurisdiction over the persons
concerned, if he has reason to believe that any delay in obtaining authorisation
from the Principal CCIT/CCIT or Principal Commissioner / Commissioner
having jurisdiction over the person would be prejudicial to the interests of
revenue. Such authorization shall be given in Form 45A. [First proviso to section
132(1)]
▪ Where a search for any books of account or other documents or assets has been
authorised by any authority who is competent to do so, and some other Chief
Commissioner/Commissioner in consequence of information in his possession
has reason to suspect that such books of account or other documents and asset,
etc. of the assessee are kept in any building, place, vessel, vehicle or aircraft not
specified in the search warrant issued by such authority, he may authorise the
Authorised Officer to search such other building, place, vessel, vehicle or
aircraft. [Section 132(1A)] Such authorization shall be given in Form 45B.
✓ Power of Officer to whom Authority is given for Search and Seizure:
▪ enter and search any building, place, vessel, vehicle or aircraft where he has
reason to suspect that such books of account, other documents, money, bullion,
jewellery or other valuable article or thing are kept,
▪ break open the lock of any door, box, locker, safe, almirah or other receptacle for
exercising the powers conferred by clause (I) above where the keys thereof are
not available;
▪ search any person who (a) has got out of, or (b) is about to get into, or (c) is in
the building. place, vessel, vehicle or aircraft, if the authorised officer has reason
to suspect that such person has secreted about his person any such books of
account, other documents, money, bullion, jewellery or other valuable article or
thing:
▪ require any person who is found to be in possession or control of any books of
account or other documents maintained in the form of electronic records, to
afford the necessary facility to the authorised officer to inspect all such books of
account or other documents;
▪ seize any such books of account, other documents, money, bullion, jewellery or
other valuable article or thing found as a result of such search. However, the
authorised officer shall have no power to seize any bullion, jewellery or other
valuable article or thing being stock-in-trade of the business found as a result of
search. lie shall make a note or inventory of such stock-in-trade of the business.
▪ place marks of identification on any books of account or other documents or
make or cause to be made extracts or copies therefrom;