INCOMES WHICH NOT INCLUDES TOTAL INCOME: CASE ANALYSIS

TAX LAW

Submitted to:

Mr. VISHNU KUMAR

Submitted BY:

SHIVAM KUMAR

Roll No. 2013106

Semester VII

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM

1
 ACKNOWLEDEMENT

I owe a great many thanks to a great many people who helped and supported me during the
writing of this project. My deepest thanks to Vishnu Sir, the Guide of the project for guiding and
correcting various documents of mine with attention and care. He has taken pain to go through
the project and make necessary correction as and when needed.

My deep sense of gratitude to the Librarian, Damodaram Sanjivayya National Law University, for his support
and guidance. I would also thank my Institution and my faculty members without whom this
project would have been a distant reality. Thanks and appreciation to my helpful friends and classmates
for their support. I also extend my heartfelt thanks to my family and well wishers.

Thank you

- Shivam kumar

2
 Abstract:

As per section 10(4)(i), in the case of a non-resident any income by way of interest on certain notified
securities or bonds (including income by way of premium on the redemption of such bonds) is exempt
from tax. As per section 10(4)(ii), in the case of an individual, any income by way of interest on money
standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the
Foreign Exchange Management Act, 1999, and the rules made thereunder is exempt from tax.
Exemption under section 10(4)(ii) is available only if such individual is a person resident outside India
as defined in clause (q) of section 2 of the said Act or is a person who has been permitted by the Reserve
Bank of India to maintain the aforesaid Account. Sections 10 to 13A. Section 10 contains numerous
clauses subject to amendments, exempting various kinds of income from inclusion for purposes of tax.

3
Literature Review:
Taxation Policy has been a widely debated issue all over the world. A large number of studies
have been conducted covering different aspects of income tax structure such as personal income
tax, capital gains taxation, agricultural taxation, efficiency of income tax administration etc. over
the years. In this chapter, the available literature was studied to get an insight into the main
objectives of the study. The review of literature is confined to India only as income tax legal
frame work varies from country to country. Moreover, reports of important committees
constituted by Government of India have also been reviewed. A brief review of relevant studies
in this regard is given below. It carried out an in-depth study of the central taxes and their
administration. It recommended widening and deepening the tax structure both at the Centre and
the State level for the purpose of financing development outlay and reducing large inequalities of
income. It also recommended for providing tax incentives for production and investment and
periodic appraisal of same. Further, the commission also recommended the financing of small
research sections in selected research institutions by the government. Section 10 says that Any
income of any persons falling within any of the clauses of section 10 shall not be included in the
total income. Broadly, Section 10 provides exemptions to various categories of persons and to
various types of income.

4
List of Cases:
1. Director of Income Tax (Exemption) v. Framjee Cawasjee Institute
2. CIT v. Munisuvrat Jain
3. CIT v. Sitaldas Tirathdas
4. CIT v. Shaw Wallace & Co
5. S. N. A. S. A. Annamalai Chettiar vs Commissioner Of Income-Tax
6. The Commissioner Of Income Tax vs M/S Ibm India Ltd
7. Lachit Films Vs. CIT
8. CIT v. L.N Dalmia
9. C.I.T., Madras v. Brakes India Ltd
10. Agricultural Produce Market v. Commr.Of Income Tax & Anr
11. Madurai Distr. Central v. The Third Income-Tax Officer
12. State of Gujarat v. M/s. Kailash Engineering Co. (Pvt.) Ltd
13. Commissioner Of Income-Tax v. Indian Bank Ltd
14. Provident Investment Co. Ltd. v. C.I.T. Bombay
15. S.A.S.S. Chellappa Chettiar v. Commissioner Of Income Tax
16. Birla Vidhya Vihar Trust v. Commissioner Of Income-Tax
17. Orissa State Warehousing v. Commissioner Of Income Tax
18. U.P. Forest Corporation V. CIT
19. Matthews v. Chicory Marketing Board,
20. Smt. Sudha V Iyer v. ITO
21. CIT vs Institute Of Banking Personnel
22. M/S Oxford University Press v. Commissioner Of Income-Tax
23. S.Rm.M.Ct.M. Tiruppani Trust v. The Commissioner Of Income Tax
24. CIT v. Groz- Beckert Saboo Ltd
25. Padmaraje R. Kadambande Vs. CIT
26. Agricultural Produce Market v. Commr.Of Income Tax & Anr:
27. State of Gujarat v. M/s. Kailash Engineering Co. (Pvt.) Ltd

5
 28. Commissioner Of Income-Tax v. Indian Bank Ltd.
29. Provident Investment Co. Ltd. v. C.I.T. Bombay

Objectives
The objective of this project is to throw light on the concept of what incomes are not included in the
total.

Significance of the study

This project will be dealing exhaustively with the concept of income, total income, income which should
not be included in the total income like: Agricultural income, Receipts by a member from HUF, Share of
profit from partnership firm, Leave concession in India, gratuity etc.

Scope
The scope of this paper will be limited to income and its ancillary like: Agricultural income, Receipts by
a member from HUF, Share of profit from partnership firm, Leave concession in India, gratuity,
Compensation received at the time of voluntary retirement, Amount received under life insurance
policy, Payment received from provident fund, Payment received from an approved superannuation
fund, House rent allowance, Special Allowances, Interest on Securities, Educational Scholarships,
Income of a minor child, Dividends and interest on Units

Research methodology
Doctrinal Research Methodology shall be followed through the course of making this project.

Hypothesis
The income of a person cannot include each and every income which he is earning; there are certain
income which are not included in the total income in an assessment year. However, the statute is having
Strict Interpretation and describe what income is exempted from inclusion of total income but the object
or source of income is very much controversial and it shall be decided by the circimstances of case to
case.

6
Introduction

Chapter III of the Income-tax Act, 1961 deals with the Incomes which do not form part of total
income. This Chapter covers sections 10 to 13A. Section 10 contains numerous clauses subject to
amendments, exempting various kinds of income from inclusion for purposes of tax. These
exemptions stem from social, economic, political, international and other considerations and the
contents and scope of the exemptions change from time to time.

What is Exempted Income?

As per section 10-13A, certain incomes are either totally exempted from tax or exempt upto a
certain limit. Such incomes which do not form part of total income may also called incomes
exempt from tax.

Section 10: Any income of any persons falling within any of the clauses of section 10 shall not
be included in the total income. Broadly, Section 10 provides exemptions to various categories of
persons and to various types of income such as :
certain incomes of non-residents and non-citizens (Remuneration or fees, interest on notified
securities)
certain incomes of salaried employees (pension, gratuity, HRA, LTC, VRS etc.)
income from certain specific securities, bonds, certificates etc. (such as Govt. Relief Bonds,
PPF Interest)
Income of certain type of notified bodies, funds and institution
Subsidies to promote business
Certain income for social, political reasons (such as agricultural income)
Avoidence of Double Taxation (Share of profit from partnership firm & amt. received from
HUF)

7
 Exemptions and Exclusions under section 10:

Receipts by a member from HUF

Sum received by an individual, as a member of HUF, either out of the family or out of income of
estate belonging to the family, is exempted from tax, which means, any individual being a
member of HUF, his entire amount is exempted from tax.

Share of profit from partnership firm

In the case of a partner of a firm, who is separately assessed as such, his share in the total income
of the firm shall not be included. Share of profit received by partners from affirm is not taxable
in the hands of partners.

Leave concession in India, gratuity

The value of leave travel concession received or due to an individual is exempted to the extent it
is actually spent. Any income by way of interest on moneys in a Non-Resident (External)
Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46
of 1973), and the rules made thereunder, provided such individual accruing to a person resident
outside India as defined in clause (q) of section 282 of the said Act or is a person who has been
permitted by the Reserve Bank of India to maintain the aforesaid Account.

Compensation received at the time of voluntary retirement

Gratuity is paid for long and meritorious services rendered by an employee. With the enactment
of the payment of Gratuity Act, 1972, gratuity payment has become legally compulsory. Where
the payment of Gratuity Act, 1972 is inapplicable, an employee can claim gratuity under the
terms of contract of employment.

Tax treatment of Gratuity

1. For government employees: fully exempt from tax.
2. For Non-Government employee covered by payment of Gratuity Act 1972-
Least of the following three is exempt from tax:

8
 15 days salary ( 7 days salary in case of seasonal establishment ) based on salary last drawn
for each year of service.
Rs. 1000000 ( Rs 350000 upto 23rd may 2010).
Gratuity actually received.
3. Non-Government employs not covered by the payment of Gratuity Act 1972-
Least of the following three is exempt from tax
Rs 1000000.
Half months average salary for each completed year of service.
Gratuity actually received.

Compensation received at the time of voluntary retirement

Amount received (Compensation) at the time of voluntary retirement or separation is exempt
from tax if the following conditions are satisfied :
(a) Compensation is received at the time retirement or termination.
(b) Compensation is received by an employee of the specified undertakings.
(c) Compensation is received in accordance with the scheme of voluntary
retirement/separation which is framed in accordance with prescribed guidelines.
(d) Maximum amount of exemption is Rs. 5,00,000/-.
Amount received under Life Insurance Policy
Any sum received on life insurance policies (including bonus) is exempt.

Exclusions :

any sum received u/s. 80DD(3).

any sum received under a Keyman Insurance Policy.
any sum received under an insurance policy (issued after 31.03.2003) in respect of which the
premium paid in any year during the term of policy, exceeds 20% of the actual sum assured.

However, sum received under such policy on the death of a person shall continue to be exempt.
Actual sum assured does not include any premiums agreed to be returned or any benefits by way
of bonus

9
Agricultural income:

As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax.
Agricultural income is defined under section 2(1A) of the Income-tax Act. As per section 2(1A),
agricultural income generally means: (a) Any rent or revenue derived from land which is situated
in India and is used for agricultural purposes. (b) Any income derived from such land by
agriculture operations including processing of agricultural produce so as to render it fit for the
market or sale of such produce. (c) Any income attributable to a farm house subject to
satisfaction of certain conditions specified in this regard in section 2(1A). Any income derived
from saplings or seedlings grown in a nursery shall be deemed to be agricultural income1.

Payment received from Provident Fund

A payment from a provident fund to which the provident fund Act, 1925 applies or from any
other provident fund set up by Central Government and notified in the official gazette is totally
exempted from tax.

Payment received from an Approved Superannuation Fund u/s. 10(13)

Payment received from an approved superannuation fund is exempted from tax.

House Rent Allowance u/s. 10(13A).

The least of the following three is exempt from tax :

(a) An amount equal to 50% of salary where residential house is situated in Metro Cities and an
amount equal to 40% of salary where residential house is situated at any other places.
(b) HRA received by the employee in respect of the period during which rental accommodation
is occupied by the employee during the previous year.
(c) The excess of rent paid over 10% of salary.
Salary for calculation purpose
Basic Salary
Dearness allowance and grade pay
Does not include any allowance and perquisites

1
http://www.incometaxindia.gov.in/Tutorials/11.Tax%20free%20incomes%20final.pdf

10
Special Allowance u/s. 10(14)

Conveyance Allowance, Daily Allowance, Uniform Allowance, Helper Allowance, Research

Allowance. Allowances are exempted to the extent the amount is utilized for the specific purpose
for which allowance is received. Transport Allowance, Children Education Allowance, and
Childrens Hostel Expenditure Allowance.

Relevant Cases

S. N. A. S. A. Annamalai Chettiar vs. Commissioner Of Income-Tax2

Fcats:

The assessee is a Nattukottai Chettiar and before the Japanese occupation of the Malay
Peninsula he carried on a money-lending business at Penang. While engaged in business there he
became the owner of a number of house from which he received rent. In the year 1941-42 he was
assessed to tax under the Indian Income-tax Act in respect of the income derived from the houses
during the previous year. The tax was levied on the basis of Section 9 of the Act. The assessee
contended that Section 9 did not apply, but that Section 10 did. The contention was rejected by
the Income-tax authorities and by the Income-tax Appellate Tribunal, Calcutta Bench, on appeal
from the order of the Additional Appellate Assistant Commissioner. At the request of the
assessee the Tribunal has referred the following question for the opinion of this Court

Issue:
"Whether in the circumstances of the case, the provision of Section 9 of the Income-tax Act
were rightly applied for assessment of the income from house properties situated outside
British India ?"
Held:
In this Court it has been suggested that, if Section 10 does not apply, Section12 does
apply.Section 12 refers to income from "other sources", that is, income from sources not
specifically dealt with in the earlier sections of the Act. If Section 10 cannot be applied, as
court hold it cannot,Section 12 is even more inappropriate. The court consider thatthe

2
1944 ITR 254 Mad

11
 decision of the Tribunal upholding the assessment in accordance with Section 9 of the Act
was right and upheld the judgment of tribunal.

Director of Income Tax (Exemption) vs. Framjee Cawasjee Institute3

In that case, the facts were as follows: The assessee was the Trust. It derived its income from
depreciable assets. The assessee took into account depreciation on those assets in computing the
income of the Trust. The Income Tax Officer held that depreciation could not be taken into
account because, full capital expenditure had been allowed in the year of acquisition of the
assets. The assessee went in appeal before the Assistant Appellate Commissioner. The appeal
was rejected. The Tribunal, however, took the view that when the Income Tax Officer stated that
full expenditure had been allowed in the year of acquisition of the assets, what he really meant
was that the amount spent on acquiring those assets had been treated as 'application of income' of
the Trust in the year in which the income was spent in acquiring those assets. This did not mean
that in computing income from those assets in subsequent years, depreciation in respect of those
assets cannot be taken into account. This view of the Tribunal has been confirmed by, the
Bombay High Court in the above judgment.

CIT vs. Munisuvrat Jain4

In this case The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It
was also registered with the Commissioner, Pune. The assessee derived income from the temple
property which was a Trust property. During the course of assessment proceedings for
assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value
of the building at the rate of 2.5 per cent and they also claimed depreciation on furniture at the
rate of 5 per cent. The question which arose before the court for determination was: whether
depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been
treated as application of income in the year of acquisition? It was held by the Bombay High
Court that section 11 of the Income Tax Act makes provision in respect of computation of
income of the Trust from the properly held for charitable or religious purposes and it also
provides for application and accumulation of income.

3
(1993) 109 CTR 463 (Bom).
4
1994 Tax Law Reporter, 1084

12
CIT vs. Sitaldas Tirathdas5

The assessee, Sitaldas Tirathdas of Bombay, has many sources of income, chief among them
being property, stocks and shares, bank deposits and share in a firm known as Messrs.
Sitaldas Tirathdas. He follows the financial year as his accounting year. For the assessment
years 1953-54 and 1954- 55, his total income was respectively computed at Rs. 50,375 and
Rs. 55,160.
This computation was not disputed by him, but he sought to deduct there from a sum of Rs.
1,350 in the first assessment year and a sum of Rs. 18,000 in the second assessment year on
the ground that under a decree he was required to pay these sums as maintenance to his wife,
Bai Deviben and his children. This contention of the assesses was disallowed by the Income-
tax Officer, whose decision was affirmed on appeal by the Appellate Assistant
Commissioner. On further appeal, the Tribunal observed:
"This is a case, pure and simple, where a assessee is compelled to apply a portion of his
income for the maintenance of persons whom he is under a personal and legal obligation to
maintain. The Income-tax Act does not permit of any deduction from the total income in such
circumstances."
The Tribunal mentioned in the statement of the case that counsel for the assessee put his
contention in the following words:
I claim a deduction of this amount from my total income because my real total income is
whatever that is computed, which I do not dispute, less the maintenance amount paid under
the decree.The Tribunal, however, referred to The High Court held in favour of assesseed
the above question for the opinion of the High Court. The Commissioner of Income-tax
questions the correctness of this decision. In our opinion, the true test is whether the amount
sought to be deducted, in truth, never reaches the assessee as his income. Obligations, no
doubt, there are in every case, but it is the nature of the obligation which is the decisive fact.
There is a difference between an amount which a person is obliged to apply out of his income
and an amount which by the nature of the obligation cannot be said to be a part of the income
of the assessee. Where by the obligation income is diverted before it reaches the assessee, it

5
[1961] 41 ITR 367 (SC).

13
 is deductible but where the income is required to be applied to discharge an obligation after
such income reaches the assessee, the same consequence, in law, does not follow. It is the
first kind of payment which can truly be excused and not the second. The second payment is
merely an obligation to pay another a portion of one's own income, which has been received
and is since applied. The first is a case in which the income never reaches the assessee, who
even if he were to collect it, does so, not as part of his income, but for and on behalf of the
person to whom it is payable. In our opinion, the present case is one in which the wife and
children of the assessee who continued to be members of the family received a portion of the
income of the assessee, after the assessee had received the income as his own. The case is
and not a case in which by an overriding charge the assessee became only a collector of
another's income. The matter in the present case would have been different, if such an
overriding charge had existed either upon the property or upon its income, which is not the
case one of application of a portion of the income to discharge an obligation Precedent
followed - P. C. Mullick v. Commissioner of Income-tax, Bengal6
For these reasons, we hold that the question referred to the High Court ought to have been
answered in the negative. We, accordingly, discharge the answer given by the High Court, -
and the question will be answered in the negative. The appeal is thus allowed with costs here
and in the High Court.

CIT vs. Shaw Wallace & Co. 7

Sir George Lowndes defined income as follows:

Income connotes a periodical monetary return coming in with some sort of regularity, or
expected regularity from definite sources. The source is not necessarily one which is
expected to be continuously productive, but it must be one whose object is the production of
a definite return, excluding anything in the nature of a mere windfall

The Commissioner Of Income Tax vs. M/S Ibm India Ltd8

Facts:

6
(1938) 6 I.T.R. 206 1938 Indlaw PC 1
7
[1932] 6 ITC 178 (PC)
8
2013 ITR 543

14
The assessee is a limited company engaged in the business of sale of Computer Hardware and
Software. The products sold by them carry warranty for a specified period. The assessee on the
basis of past experience and certain fair and best estimated basis has provided for such warranty
liability in respect of sales made during the year. The assessee claim amounts spent towards
amount as revenue expenditure. It also sought relief in respect of provision made for doubtful
debts under Section 115JA of the Income Tax Act, 1951 (for short, the 'Act'). Further the
assessee contended, in the absence of any liability under Section 115JA, there is no liability to
pay advance tax and consequently, no interest is payable under Section 234(b) of the Act. The
Assessing Authority over- ruling all those contentions framed an assessment order. Aggrieved by
the same, the assessee preferred an appeal. The Appellate Authority /Commissioner of Income-
Tax (Appeals), dismissed the appeal. Aggrieved by the same, the assessee preferred an appeal
before the Tribunal which granted relief on all those grounds. Aggrieved by the same, the
Revenue has preferred this appeal.

Issue:
Whether being a provision made for warranty liability in respect of products sold is not a
contingent liability but should be allowed as a revenue expense?
Held:
The court held that the income comes under the perview of sec 10 and expense is the revenue
expenses.

Lachit Films vs. CIT9

In this case the court said "In section 2(24) of the Income-tax Act, 1961, it is declared that
"income' includes" such and such which are enumerated therein. In section 2(24), grant-in-aid
has not been included as an income or revenue receipt. Therefore, considering the use of the
word "include" in section 2(24), the word "income" shall be construed as comprehending not
only those which section 2(24) declares that they shall include but also such a thing as it
signifies according to its natural import. Sincesection 2(24) has not declared that grants-in-aid
shall include, the word ''revenue'' it shall be construed as comprehending what it signifies
according to its natural import. In relation to a business undertaking, the word ''revenue''

9
1995 ITR 402

15
connotes incomings of the undertaking which are products of the normal working of the
undertaking. The giving of financial aid or subsidy is at the discretion of the Government.

C.I.T vs. L.N Dalmia10

hon'ble high court found that the assessee generated a paper loss which is capable of carried
forward and set off against the future profit and thus would provide a cushion against the future
gain. The Hon'ble High Court found that though the loss is a paper loss but it had a far reaching
effect on the tax liability in future years of the therefore and therefore held that the loss was a
capital loss.

C.I.T., Madras vs Brakes India Ltd11

Facts:

During the accounting order relevant to assessment year 1965-66, the Respondent-assessee paid
to its foreign technical director a total remuneration of Rs. 66,000 including a sum of Rs.
28,576 paid by way of perquisites. The Income-tax Officer allowed only a sum of Rs. 13,200 by
way of perquisites and disallowed the balance of Rs.15,376 in view of Section 40(c)(iii) of the
Income-tax Act, 1961. On an appeal by the assesse, the Appellate Assistant Commissioner held
that since the salary of the foreign technical director was exempt under S.10(6)(vii), the
provision contained in Sec.40(c)(iii) was not applicable. Revenue preferred an appeal and the
Tribunal held that S.40(c)(iii) was applicable. At the instance of the Assesse, Tribunal referred
the question to the High Court.

Issue:

Whether on the facts of the circumstances of the case the Tribunal was justified in holding that
the provisions of Section 40(c)(iii) were rightly invoked for the assessment year 1965- 66 in
relation to the remuneration of the Technical Director of the assessee company."

Held:

10
1988 207 ITR 89
11
1993 SCR 983

16
The court said that Under section 10(6)(vii) of the Income-tax Act, 1961the remuneration dueto
any technician, who was not aresident in any of the four financial years immediately
preceding the financial year in which he arrived in India, chargeable under the head 'salaries',
for services rendered as a technician, was exempt. Thus in the instant case, the salary paid to the
foreign technical director was admittedly exempt under Section 10(6)(vii) of the Income-tax Act,
1961. Thus High Court answered the question in favour of the assessee, Revenue preferred the
present appeal. And hence the court Dismisse the appeal.

Birla Vidhya Vihar Trust vs. Commissioner Of Income-Tax12

Facts:

The assessee is a trust which had been recognised as such under Section 11 for the purpose of
exemption by the ITO. We shall presently refer to the relevant provisions of the trust deed. In
Part IV of the return, the assessee had claimed exemption under Section 10(22) in respect of the
income from Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar. The ITO
rejected this claim on the ground that the section applied only to educational institutions.

Issues:

"Whether, on the facts and in the circumstances of the case, and on the correct legal scope
ofSection 10(22) of the Income-tax Act, 1961, the Tribunal was justified in holding that the
assessee was not entitled to exemption under Section 10(22) in respect of the income from
Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar.

Held:

Exemption from tax of the income of hospitals and other medical institutions. At present,
universities and other educational institutions existing solely for educational purposes and not for
purposes of profit enjoy complete exemption from tax on their incomes. The provision requires
that the institution should exist solely for educational purposes and not for purposes of profit. We
have already reproduced the clauses in the memorandum describing the objects of the society. In
effect, there are only two clauses, viz., Clauses (a) and (b), which are material for this purpose.
Clause (a) provided for establishment, running or management of colleges or assistance to
12
1982 ITR 445

17
colleges. Clause (b) contemplates the same being done for schools and other educational
organisation. Thus, the sole purpose for which the assessee has come into existence is education
at the levels of college and school."

Orissa State Warehousing vs. Commissioner Of Income Tax13

Facts:

the Orissa State Warehousing Corporation being the assessee herein received a sum of Rs.
1,74,383/- as interest on fixed deposits for the assessment year 1983-84 and since during the
relevant period the assessee has had to pay the total interest of Rs.1,08,063/- to the banks, a sum
of Rs.66,320/- was added to the income of the assessee as the Income-tax Officer was of the
view that question of resultant difference of income being Rs. 66,320/- cannot be said to be an
`income exempt' within the meaning of Section 10(29) of the Act. The Commissioner of Income
Tax (Appeals), Orissa in the appeal by the assessee upheld the order of the Income-tax Officer
but the Tribunal on a further appeal however, came to a different conclusion to the effect that the
income in question was exempt under Section 10(29). Subsequently, however, at the instance of
the Revenue, the following two questions were referred to the High Court for opinion
under Section 256(1) of the Act :

Issue:

1. "Whether on the facts and in the circumstances of the case, the Tribunal was justified in
holding that the interest received by the assessee from the banks on fixed deposits was
exempt u/s 10(29) of the I.T.Act, 1961?
2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in
holding that the interest received from the banks on fixed deposits was incidental to or
consequential to the activities of the business of the assessee and was not taxable under
the head `income from other sources' and, thus exempt under section 10(29) of the
I.T.Act, 1961?"

Held:

13
199 ITR 957

18
 The High Court in its turn, however, answered the first question in the negative and against
the assessee and thereby affirmed the view of the Income-tax Officer and hence the appeal.
Incidentally, the High Court did not deem it necessary to answer the second question by
reason. In that view of the matter, there is no merit in the appeals, the appeals therefore fail
and are dismissed.

U.P. Forest Corporation vs. CIT14

The trust should apply for registration with the Commissioner of Income-tax and such trust is
registered under section 12AA. Unless and until an institution is registered under section
12A, it cannot claim the benefit of Section 11.

Matthews vs. Chicory Marketing Board, 15

A tax is a compulsory exaction of money by public authority for public purpose enforceable
by law and is not for payment of service rendered.

Smt. Sudha V. Iyer vs. ITO16

Facts:

The assessee is an individual. She filed a return of income for A.Y 2006-07 on 18/9/06
declaring total income of Rs.1,41,369/-. The return was accepted under section 143(1) of the
Act on 20/4/2007. The case was later selected for scrutiny assessment. In the course of such
assessment proceedings the AO noticed that in the capital account of the assessee for 2006-
07 a sum of Rs. 19,99,996/- had been credited. The query was raised by the AO in this regard
by his notice under section 143(2) of the Act. In the absence of any order under section
171 of the Act, the AO was of the view that the claim of the assessee that there was a
partition of the HUF on which the assessee got aforesaid sum cannot be accepted. Before the
AO the assessee had furnished evidence of having filed an application for recognizing
partition of the HUF. According to the AO this application had been made only and,

14
[1962] 6 ITC 187 (All.)
15
60 C.L.R. 263
16
234 ITAT-Mum [2011]

19
 therefore, as on the last date of the financial year 2005-06, relevant to A.Y 2006-07 there
could not have been a partition of the HUF. The AO thereafter noticed that the HUF namely
M. Venkateshwaran HUF originally consisted of Mr. H.Venkatshwaran as the Kartha. The
assessee was also a co-parcener in the said HUF. Mr.H. Venkatshwaran died on 8/5/1993..

Issue:

whether there has been a total or partial partition of the joint family property, and, if there has
been such a partition, the date on which it has taken place.

Held:

The sum received by a member as and towards his share as coparcener of HUF, on its
partition cannot be brought to tax as income.17 The gift was also exempt u/s 10(2) because
the two conditions required to be satisfied for relief that the assessee is a member of the HUF
and (2) that he receives the sum out of the income of such HUF (may be of an earlier Year)
were satisfied. The held that the sum received by the Assessee as and towards her share as
coparcener of the HUF, from the HUF, on partition of the HUF cannot be brought to tax as
income and the addition made by the AO in this regard is directed to be deleted. The appeal
of the Assessee is allowed.

CIT vs. Institute Of Banking Personnel18

Facts:

The assessee is a Charitable Trust. For Accounting year ending 31-12-1984 (assessment
years 1984-85), a return of income was filed on 28-6-1985 by the assessee declaring a deficit
of Rs. 74.97 lakhs. In the revised return filed by the assessee on 3-4-1986, the deficit was
increased to Rs. 89.18 lakhs. This revision of accounts was authorised by the Bombay Public
Trust Registration Office. The assessee is a Charitable Trust registered under the Bombay
Public Trust Act. It is also registered under section 12A of the Income Tax Act. The assessee
Institute is governed by a Board consisting of Executive Officers of RBI, Central

17
cms.gcg11.ac.in/attachments/article/101/Income-tax-authorities.pdf/last retrieved on 30th July, 2016, 09.45 p.m.
18
2003 Taxman 386

20
 Recruitment Board, Banking Services Recruitment Board, etc. The object of the assessee is
charitable in nature. The income of the assessee is exempt under section11 of
the Income Tax Act. The assessee had claimed depreciation which was rejected by the
assessing officer on the ground that capital expenditure incurred during the accounting year
was allowed as a deduction from the income of the assessee and, therefore, the claim of the
assessee for depreciation on buildings was disallowed.

Issue:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in
directing the assessing officer to allow depreciation on the assets the cost of which has been
fully allowed as application of income under section 11 in the past years.

Held:

It was held that income of a Charitable Trust derived from building, plant and machinery and
furniture was liable to be computed in normal commercial manner although the Trust may not be
carrying on any business and the assets in respect whereof depreciation is claimed may not be
business assets.

M/S Oxford University Press vs. Commissioner Of Income-Tax19

Facts:

The assessee is a branch of the Oxford University Press, which, as the question itself notes, is a
part of the University of Oxford in the United Kingdom. The assessee publishes books and
carries on similar business in India. It was treated as a non resident company under the terms of a
Notification issued by the Central Board of Revenue on 31st July, 1954 at its request from the
Assessment Year 1952-53 onwards. For the Assessment Year 1976-77 the assessee returned an
income of Rs. 19.94 lakhs, but, in the course of the assessment proceedings before the Income-
tax Officer, it claimed that, as it was a branch of the University of Oxford, the same was exempt
from the payment of income tax by virtue of the provisions of Section 10, clause (22) of
theIncome Tax Act, 1961. The Income- tax Officer rejected the contention and brought the
income to tax. The Commissioner (Appeals), in the appeal filed by the assessee, overturned the
19
2001 ITR 533

21
assessment by the Income-tax Officer. Aggrieved by the order of the Commissioner (Appeals),
the Revenue approached the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal.
Arising out of the judgment and order of the Tribunal, the question aforestated was referred to
the High Court.

Issues:

Whether on the facts and in the circumstances of the case the Tribunal was justified in holding
that Oxford University Press, Bombay, which is part of Oxford University, is exempt
undersection 10(22) of the Income Tax Act, 1961.

Held:

It should be noticed that clause (22A), which also gives an exemption without any limitation as
to location, was introduced into Section 10 in 1970. It cannot be that Parliament yet again failed
to express its true intendment. If Parliament had meant to provide an exemption with a locational
limitation in clause (22A) it would have made it clear, and it would have amended clause (22).
The judgment and order under challenge cannot stand, and the question quoted above must be
answered in the affirmative and in favour of the assessee. The appeals is allowed accordingly.

S.Rm.M.Ct.M. Tiruppani Trust vs. The Commissioner Of Income Tax20

Facts:

The assessee has claimed that the amount received are gifts received from the said four
concerns. It is claimed that the amounts have been received directly from Reliance Industries
Ltd. on account of the dividend receivable by the said four concern against their shareholding in
Reliance Industries Ltd. It is on the directions of the four concerns that their dividend were
directly credited to the bank account of the assessee. The assessee also claimed that all the four
concerns have passed resolutions in the meeting of Board of Directors for making the said gifts
and similarly the assessee company has also passed a resolution by the board of directors for
receiving the gifts. It is also claimed that all the four donor concerns are also authorized by
Memorandum and Articles of Association for making such gifts and the assessee company is
authorized for receiving such gifts. Accordingly, the assessee claimed that all the four donor
20
1998 AIR 214

22
concerns are also authorized by Memorandum and Articles of Association for making such gifts
and the assessee company is also authorized for receiving such gifts. Accordingly, the assessee
claimed that the identity of the donor companies, their source of funds for gifts and the nature of
transaction are clearly established. Therefore, assessee has claimed that these receipts are not
taxable because these are capital receipts and any such gift is not taxable in case of companies,
whereas, the A.O. held that these receipts cannot be categorized as gifts or transactions which are
specifically exempt from taxation and further held that these cannot be categorized as dividend
income in the hands of the assessee. Hence, these receipts are taxable as income from other
sources in the hands of the assesse, Claiming that these are genuine gifts and the amounts
received are capital receipts which are not taxable

Issue:

Whether the Ld. CIT (A) was justified in deleting the addition of Rs. 161,86,77,034/ -, without
appreciating the fact that the same was covered under the ambit and scope of 'income from other
sources' u/s 56(1) i.e income from other sourses of the I.T Act."

Held:

The court held that the amount of gift so received is neither taxable as income from other sources
u/s. 56 nor as capital gain nor as income u/s.2(22)(e) nor u/s.115JB of the I.T.Act. hence the said
income is fall under section 10 of IT Act 1961 and the appeal of the revenue is dismissed.

CIT vs. Groz- Beckert Saboo Ltd21

Hon'ble Supreme Court has an occasion to consider the gift of raw material being stock in trade
received by a company and its taxability under the Act. The Hon'ble Supreme Court has held that
the gift of stock in trade received constituted a capital receipt in the hands of an assessee and on
its conversion to stock in trade the market value as on the date of receipt of gift has to be allowed
as deduction against the computation of taxable profit. The Supreme Court thus held the gift
received being capital in nature and hence not chargeable to tax on the contrary the market value
of gift received was allowed as deductible expense while computing the total taxable income. In
view of judicial pronouncements discussed above the gift of Rs.161,86,77,034/- received by the

21
1998 116 ITR 125

23
assessee from corporate bodies are in the nature of capital receipt not liable to tax under the
provisions of the Income Tax Act.

Padmaraje R. Kadambande vs. CIT22

Facts:

The appellant applied for a grant for maintenance allowance nor the periodicity was conclusive.
Regard had to be had only to the nature and quality of the payment. proviso (d) to section 15(1)
of the Bombay Act enabled to appellant to seek payment was far from saying that it was a
source, It could not afford any foundation for such a source.

Issue:

whether amounts received by the appellant during the financial years in question were capital
receipts and, therefore, not income within the meaning of section 2(24) of the income tax Act,
1961.

Held:

"Held that the reversing the decision of the High Court, that the payment under proviso (d) to
section 15(J) of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955,
was a purely discretionary payment. There was no compulsion on the part of the Government to
make the payment: nor was the Government obliged to make the payment.

Agricultural Produce Market vs Commr.Of Income Tax & Anr23

Facts:

The Appellant-Committee is established under the Delhi Agricultural Produce Marketing

(Regulation) Act, 1998 ("1998 Act", for short). The provisions of the said 1998 Act enjoin upon
the appellant to provide the facilities for marketing of agricultural produce in Narela, Delhi. For
the assessment year 2003-04, the appellant- Committee claimed exemption from payment of tax
under income earned by it on the ground that it was a "local authority" within the meaning

22
195 ITR 877
23
2008 AIR 785

24
of Section 10(20) of the said 1961 Act. It relied upon the definition of "local authority"
in Section 2(l) of the said 1998 Act. The A.O. rejected the appellant's claim for exemption
relying upon Circular No.8/2002 dated 27.8.02 issued by CBDT. The view taken was that the
amended provisions of Section 10(20) of the 1961 Act were not attracted to "Agricultural
Produce Marketing Societies" or "Agricultural Market Boards" even when they may be local
authorities under Central or State Legislations.

Aggrieved by the said order, appellant filed an appeal before CIT(A) who
upheld the view taken by the A.O. and declined the exemption claimed by the appellant. A
further appeal by the appellant, before the Tribunal, also failed. The appellant moved to the high
court.

Issue:

whether Agricultural Market Committee ("AMC", for short) is a "local authority" under
the Explanation toSection 10(20) of the Income-tax Act, 1961 ("1961 Act", for short).

Held:

The court held that AMC(s) is, therefore, not entitled to exemption under Section 10(20) of the
1961 Act. Since we are of the view that AMC(s) is neither a Municipal Committee nor a District
Board under the said Explanation to Section 10(20) of the 1961 Act, we refrain from going into
the question : whether the AMC(s) is legally entitled to the control of the local fund, namely,
Market Fund, under the said 1998 Ac.

Madurai Distr. Central vs. The Third Income-Tax Officer24

Facts:

The appellant is a Cooperative Society engaged in the business of banking Accordingto section
8 (i) (a) of the Income 'Tax Act 1961, a Cooperative Society engaged in the business of banking
is not liable to pay income tax on its business income. The assessment order passed by the
Income Tax officer levying the tax as aforesaid was challenged by the appellant in the High

24
1957 AIR 2016

25
Court by a Writ Petition. The main grievance of the appellant before the High Court was that
whereas its taxable income was only Rs. 51,763, a tax of Rs. 76,674 was imposed on it.

Issue:

That the imposed additional surcharge on income which was exempt from tax under the
provisions of the Income Tax Act the additional surcharge was intended as additional levy on the
income tax and had no independent existence apart from

Held:

Income which is exempt from taxation is income which is assessable to tax and therefore liable
to tax but tax is not imposed on account of the exemption This exemption can by subsequent
legislation be wholly or partially withdrawn both as regards items of income and levies imposed
for the purpose of taxation. Income-tax and surcharge on income-tax are two different levies
though the computation of the latter is based upon a percentage of the former. These are
inclusive for the purpose of imposing tax but they are not one lev only.

State of Gujarat vs. M/s. Kailash Engineering Co. (Pvt.) Ltd25, the issue was whether the
construction of third class sleeper coaches by the respondent-assessee on certain conditions
amounted to a works contract or it was a sale under the said State enactment. This Court, taking
into account all the terms of the contract and treating the same as one entire and indivisible
contract for carrying out the works specified in full details in the agreement, and considering that
it did not envisage either the sale of materials by the respondent to the Railway, or of the coach
bodies as such, treated it as a works contract.

Commissioner Of Income-Tax vs. Indian Bank Ltd..26

Facts:
The respon- dent, the Indian Bank Ltd., Madras, hereinafter referred to as the assessee, carried on
the business of banking. In the normal course of its business, it received deposits from

25
2003 ITR 187
26
1965 AIR 1473

26
constituents and paid interest to them. It invested a large sum in securities both of the Central and
State Governments (including Mysore Government). The interest on Mysore Government
securities was exempt from income tax and super tax under the provisions of a notification
issued under s. 60 of the Act. It bought and sold these securities, and the profits and losses on the
purchase and sale of such securi- ties were duly taken into account in computing the income of
the assessee, under the head 'Business'. For the assessment year 1951-52 (accounting year
Calendar Year 1950) it claimed a deduction of Rs. 25,91,565 as interest paid to various
depositors, under S. 10(2) (iii) of the Act. The Income Tax officer. the Appellate Assistant
Commissioner and the Income Tax Appellate Tribunal disallowed interest amounting to Rs.
2,80,194. This amount was arrived at by calculating the Proportionate interest which would be
payable on money borrowed for the purchase of Mysore securities for Rs. 2,49,93,511.
Issue:
on the facts and circumstances of the case the Bank was entitled to claim the deduction of the
entire interest paid by it on fixed deposits, either under s. 10(2) (iii) or 10(2) (xv)?
Held:
In the instant case, the court dismissed the appeal. However, it was controverted that the profit
and losses accruing from the sale and purchase of the securities in question had been included
in the assessment. It followed that the said securities were capable of producing taxable income
and the appeal by the Revenue, could be dismissed on this ground alone There is nothing in
the language of s. 10 of the Indian Income-tax Act, 1922 from which it can be fairly implied
that an expenditure or allowance falling within the section must fulfill some other condition
before it can be allowed. Sub-section (1) of s. 10 directs that an assessee must be taxed in
respect of the profits and gains of business carried on by him.

Provident Investment Co. Ltd. v. C.I.T. Bombay27,

The assessee, an Indian Finance Company, borrowed some money in India and purchased
sterling securities out of it and retained them in India. The Bombay High Court held that interest
on the borrowed money could not be deducted because "qua the capital which it (the company) is
using outside British India and retaining for that length of time outside British India, is not
carrying on business in respect of which profits assessable to Indian Income, tax can be earned

27
195 ITR 713

27
so that allowance can be claimed for interest on capital borrowed within the meaning of S.
10(2) (iii). It appears to us that the Bombay High Court divided the business in two separate
businesses. But the business of the present assessee cannot be divided into two separate
businesses.

S.A.S.S. Chellappa Chettiar vs Commissioner Of Income Tax28

Facts:

The assessee is the manager of a Hindu undivided family carrying on money-lending business in
India, Burma and the federated Malay States with borrowed capital. The findings of fact are not
very clear but before us the argument has proceeded on the following basis : Owing to certain
clients in Burma being unable to meet their obligations, the assessee was compelled to receive in
repayment of loans made by him, agricultural lands in Burma. The money which had been lent
had originally been borrowed by the assessee for the purpose of his money lending business, that
is to say, that he borrowed and in his turn lent the some money no doubt at a higher rate of
interest. the assessee under Section 10(2)(iii) of the Income Tax Act as representing the capital
borrowed by him for the purpose of his business which capital was now represented by
agricultural lands. The Income Tax Officer held that four-fifths of the money borrowed was so
represented but he disallowed the claim on the ground that as the money was invested in
agricultural lands the income from which is exempt from income tax under Sec. 4(3)(viii) of the
Act the assessee was not entitled to the allowance mentioned in Sec. 10(2)(iii). He accordingly
disallowed the claim for interest as regards four-fifths of the money borrowed which he
considered was the amount of the capital .

Issue:

Whether the petitioner is not entitled to a deduction in respect of the establishment and other
charges for managing and cultivating the lands on the ground that they are expenses incurred for
agricultural purposes and the amount spent for obtaining conveyances on the ground that it is an
expense of a capital nature ?

28
1937 ITR 97

28
Held:

The court held that in the absence of any express provision in the Act, the assessee is not to be
deprived of the advantages conferred by exemptions such as Sec. 10(2)(iii) because the capital
benefiting therefrom by means of permissible exemption happens to produce a non-taxable
income.

Conclusion and Outcome

A person earns income under various heads but he becomes assesses only for certain amount of
income which is covered under the income tax Act as has been proved from the above cases.
Hence, we can conclude that not each and every head under income can be included in the total
income in an assessment year. As per section 10-13A, certain incomes are either totally
exempted from tax or exempt upto a certain limit. Such incomes which do not form part of total
income may also called incomes exempt from tax. Any income of any persons falling within any
of the clauses of section 10 shall not be included in the total income. Broadly, Section 10
provides exemptions to various categories of persons and to various types of income. Most of the
income which falls under the category of exempted is controversial. Although the interpretation
of tax law is strict or literal interpretation but in most of the case as we see in the above
mentioned case laws prima facie the income is under the exempted income but the assesse are
held liable to pay tax. As per section 10(1), agricultural income earned by the taxpayer in India is
exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act. As
per section 2(1A), agricultural income generally means: (a) Any rent or revenue derived from
land which is situated in India and is used for agricultural purposes. (b) Any income derived
from such land by agriculture operations including processing of agricultural produce so as to
render it fit for the market or sale of such produce. (c) Any income attributable to a farm house
subject to satisfaction of certain conditions specified in this regard in section 2(1A).

29
 Bibliography

1. Dr. Girish Ahuja ; Dr. Ravi Gupta, Systematic Approach to Taxation Containing Income
Tax & Indirect Taxes : As Applicable for Assessment Year 2015 - 2016 (English) 33rd
Edition, 2014, Bharat Law House Pvt. Ltd.
2. Ready Reckoner, Taxmann Direct Taxes Ready Reckoner, 5th Ed., 2014, Taxmann
Publications.
3. Balachandran, V. and Thothadri S., Taxation Law and Practice (Volume - 1), 3rd Ed, PHI
Learning.

4. Kaushal Kumar Agarwal, Direct tax Planning and Management, Atlantic Publishers and
Distributers, New Delhi, 17th Ed.(2015), pg. 100-130.
5. B.B. Lal, Income Tax, Pearson Publications, Delhi, 12th Ed. (2014), pg. 119- 139.
6. Vinod K Singhania , Kapil Singhania, Direct Taxes, Laws and Practice, Taxmann
Publications, New Delhi , 56thEd. (2016), pg. 1382-1390.
7. N. Hariharan, Income Tax Law& Practice, Tata Mc Graw Hill Publishing Co. Ltd. New
Delhi4th Ed.(2014),pg. 190- 260.

WEB SOURCES

cms.gcg11.ac.in/attachments/article/101/Income-tax-authorities.pdf/last retrieved on
30th July, 2016, 09.45 p.m.

.http://www.indiastudychannel.com/resources/136396-Income-Tax-Authorities-India-their-
Powers.aspx/last retrieved on 30th July, 2016, 09.47 p.m.

http://incometaxmanagement.com/Pages/Tax-Management-Procedure/1-1-Various-Income-
Tax-Authorities.html/last retrieved on 30th July, 2016, 09. 50 p.m.

http://www.incometaxindia.gov.in/acts/in/.html/last retrieved on 30th July, 2016, 10.00 p.m.

http://www.gandhiandjohn.com/detail/1730.aspx/last retrieved on 2nd August, 2016, 07.33

a.m.

www.aaptaxlaw.com/income-tax.section-116-117-income-tax-act-income-tax-
authorities/last retrieved on 3rd August, 2016, 07.00 p.m.

30
 http://taxlawsonline.com/news/DTC/chap12/chapxa/dtc130.asp/last retrieved on 4th August,
2016, 07.30 p.m.

http://www.taxdose.com/jurisdiction-of-income-tax-authorities-income-tax/last retrieved on
5th August, 2016, 07. 30 p.m.

http://shodhganga.inflibnet.ac.in/bitstream/10603/7789/9/09_chapter%202.pdf/last retrieved
on 15thOctober, 2016. 07.33 p.m.

http://taxguru.in/income-tax/authorisation-incometax-authorities-jurisdiction-notification-
502014.html/last retrieved in 15th October, 2016, 06. 30 a.m.

31