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PAPER - I

LAW OF DIRECT TAXATION

COURSE OUTLINE
Course Objectives:
1. To gain expert knowledge of the provisions of direct tax laws under the Income Tax Act.
2. To acquire the ability to apply the knowledge of the provisions of laws to various
situations in actual practice.
3. To introduce practical aspects of tax planning as an important managerial decision-
making process and to expose students to real life situations involving taxation and to
equip them with techniques for taking tax-sensitive decisions.

UNIT- I: Introduction, Constitutional Provisions & Basic concept of Income under Income
Tax Act 1961.

Ia. Constitutional Scheme of Taxation

General understanding of Income Tax Law, A glance at the early practices of taxation, Concept
of Tax, and Allocation of taxing powers to union and state, Distribution of Legislative Powers
with special reference to Taxing Powers, legislative competence for taxation, residuary powers
of the union, Benefits of direct taxation, scheme of taxation, Tax v Fee (difference in concepts),
application of quid pro quo theory.

Readings:

(i) Tax v Fee

● The Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt. (16.04.1954 - SC) : MANU/SC/0136/1954
● Sreenivasa General Traders and Ors. vs. State of Andhra Pradesh and Ors. (06.09.1983 -
SC) : MANU/SC/0278/1983
(ii) Pith and Substance v. Aspect Theory

● Federation of Hotel & Restaurant Association of India, etc., vs. Union of India (UOI) and
Ors. (02.05.1989 - SC) : MANU/SC/0180/1989
(iii) Constitutional Scheme

● Constitution of India, Part XII Chapter I of the Constitution of India : Article 264-291,
366, 246 and the seventh schedule.
● Jain, M.P, Indian Constitutional Law (extracts) pp 598-665.
● Singh, N., 1988. Fiscal federalism. In The Oxford Handbook of the Indian Constitution.
(iv) Additional Readings:

● The Ideology of Taxation: The fiscal stimulus in Palkhiwala, and We the People, 89 -100.
● Snape, J., 2017. The" sinews of the state": historical justifications for taxes and tax law.
● State of Himachal Pradesh and Ors. vs. Shivalik Agro Poly Products and Ors.
(14.09.2004 - SC) : MANU/SC/0751/2004 (For Tax v Fee)
● Singh, N., 2007. Fiscal federalism and decentralization in India.Sections 1.4, 1.5, 4.3.
● A. Venkata Subba Rao v. State of A.P. (For Tax v Fee)
● Arvind Datar, The Constitution, Federalism and GST, Available on youtube.

Ib. Income Tax Act, 1961- Basic Concepts

Definitions: Income, Total Income, Agriculture income, Assessee, Person, Assessment year,
Previous Year, Capital Asset, Tax, Charge of Income Tax (Section 4), agriculture income and its
tax treatment, persons who are entitled to claim exemption , rationale for exemption from tax etc.
( section 21(A) and 10(1), Provisions relating to concept and scope of total income (section 5),
residence in India in context of HUF, Individuals and Companies (section 6), concept of place of
effective management (POEM), its critical analysis and adverse implications, and concept of
notional income deemed to accrue or arise or received in India under provisions of Section 7, 8,
9.

Charge of Income Tax

● Section 4 , IT Act.
● Kanga and Palkhiwala 177- 179
Income, Agricultural Income and Total Income

● Section 2 (1A) , 2 (24), 2(43) ,IT Act.


● Kanga and Palkhiwala , 61-70, 127-131, 162,
● Navinchandra Mafatlal vs. The Commissioner of Income Tax, Bombay City (01.11.1954
- SC) : MANU/SC/0070/1954
● Queen’s Educational Society v CIT.
Other Concepts

● Section 6-10, IT Act.


● Kanga and Palkhiwala, 310, 474.
(This chapter would introduce the various important and relevant provisions of the Income Tax
Act 1961 which are frequently encountered in income tax and would also deal with various
articles under the Indian Constitution which enables the Central Government to enact income
tax laws and amendments made every year to income tax laws and their interpretations. Also
other basic concepts such as charging provisions, scope of total income and concept of residents
under income tax would be dealt in detail)

UNIT -II: Heads of Income.

I.Income from salary (Sections 15-17)

(a) Salaries – Chargeability.


(b) Meaning of Salary;
(c) Perquisites;
(This would include definition of salary which includes perquisites and profit in lieu of salary
and the corresponding deductions under this head of income.)

Readings:

Employer-Employee Relationship

● Hussainbhai v. Alath Factory Tozhilali Union


● CIT v. Govindaswaminthan
● Union of India v. Pratibha Bonerjea
● Justice Deoki Nandan Agarwala v. Union of India
Perquisites
● ITC v CIT, Delhi (SC)
● Arun Kumar v Union of India (SC)
II:Income from House Property (Sections 22 to 27) –

(a) Ingredients of section 22 -


(b) Annual Value how to be determined –
(c) Deductions under section 24 –
(d) Deemed owner
(This head deals with basis of charge, annual value, computation of net annual value, deduction
and loss from housing property)

Readings:

● Rayala Corporation Pvt. Ltd vs. ACIT (Supreme Court)


● National Storage (P.) Ltd
Deemed Owner:

● CIT v/s. Podar Cement (P) Ltd 226 ITR 625 (SC)
III:Profits and Gains of Business and Profession (Sections 28 to 44) –

(a) Applicability
(b) Deductions
(c) Business Expenditure – Allowability
(d) Tests of distinctions between Business expenditure and Capital expenditure [section
37(1)].
(Here the meaning of business or profession, deduction under this head of income vis-à-vis
capital expenditure and revenue expenditure would be dealt).

● CIT v. S. C. Kothari 82 ITR 794 (SC)


● CIT v Saurashtra Cement. (2010) (SC)
● Badridas Daga v. CIT 34 ITR 10 (SC)
● CIT v. Dhanrajgirji Raja 91 ITR 544 (SC
● CIT v. Piara Singh 124 ITR 40 (SC)
● CIT v. Woodward Governor India (P.) Ltd. 312 ITR 254 (SC)
IV: Capital gains (Sections 45-55)

(a) Definition of capital assets [section 2(14)];


(b) Short term capital assets [section 2(42A)];
(c) Short term capital gains [section 2(42B)];
(d) Long term capital assets and Long term capital gain [section 2(29A) and 2(29B)];
1. Meaning of ‘Transfer’[section 2(47)];
2. Computation (section 45);
3. Transactions not amounting to transfer (sections 46 and 47);
4. Mode of computation (section 48);
(Heads of income will be discussed in detail. Income pertaining to salary, income from house
property, income from profession, business income and income from other sources will be broad
topics of discussion. Allowable deduction from various heads of income and particularly concept
of revenue expenditure and capital expenditure in detail.

Concept of capital assets, what constitutes capital assets and their taxability, Difference between
long term and short term capital gains , what is excluded from capital assets, transfer of capital
asset and resultant tax liability would be broadly discussed.)

● K.P. Varghese vs The Income Tax


● Commissioner Of Income Tax, ... vs B. C. Srinivasa Setty, Etc.
V: Income from Other Sources

● Sumati Dayal v. CIT 214 ITR 801 (SC)


● CIT v. Smt. P. K. Noorjahan 237 ITR 570 (SC)

UNIT -III: Clubbing of income, Set Off, Carry forward and Set off of Losses.

Concept of clubbing of income, what are the circumstances under which income can be clubbed
for assessment so as to claim exemption, persons who are entitled for benefits, Tax exemption
for losses, how it is calculated and what exemptions are allowed (section 70-74A), Deductions to
be made in computing Total Income (Section 80A-80GGC).

TDS
● Japan Airlines v CIT. (SC) (2015)

UNIT- IV: Administration and Procedure & Withholding Tax (Tax Deduction at

Source)

(a) Best Judgment Assessment;


(b) Income Escaping Assessment.
This chapter will deal procedural aspects such as filing of returns of income (ROI), assessment
and reassessment, revisional powers of the commissioners, rectification of mistakes of orders,
appeals to Income Tax Appellate Tribunal (ITAT), High Court and Supreme Court Powers of
Income Tax Authorities. Provisions relating to search and seizure, powers of the revenue
officials and circumstances under which search and seizure can be done (Sections 132, 132A,
132B), tax deduction at source on various types of income like salaries, interest, dividends,
professional services, etc. would be discussed. Also, the consequences for failure to withhold
taxes would be briefly dealt.

● U.P Pollution Control Board v. Kanoria Ind. Ltd. 259 ITR 321 (SC)
● Kishanchand Chellaram v. CIT 125 ITR 713 (SC)
● Navnitlal C. Javeri v. K.K.Sen, Appellate Assistant 56 ITR 198 (SC)
● Das-Gupta, A., Ghosh, S. and Mookherjee, D., 2004. Tax administration reform and
taxpayer compliance in India. International Tax and Public Finance, 11(5), pp.575-600.
● Gaur, K.D., 1979. Civil and Criminal Sanctions Under the Indian Income Tax Act.
Journal of the Indian Law Institute, 21(4), pp.464-511.
● Singh, V., 2015. DIRECT TAX CODE: THE METAMORPHOSIS (With special
reference to the Income Tax Statute). Humanities & Social Sciences Reviews, 2(1),
pp.102-107.
● Acharya, S., 2005. Thirty years of tax reform in India. Economic and Political Weekly,
pp.2061-2070. (Excerpts)

UNIT- V: Taxation of international transactions:

(a) Nonresident and foreign companies.


(Provisions relating to taxation of foreign companies will be broad topic of discussion.
Double taxation, Tax Residency Certificate, Judicial Anti Avoidance Rules, Transfer
Pricing and other issues related to taxation of Trans National Companies operating in
India will be discussed. Issues related to tax evasion by MNC’s and Indian Legal
response, recent and global trends).

● McDowells
● Azadi Bachao
● Vodafone. (BHC +SC)
● Chakraborty, A., 2014. Double Taxation Avoidance Agreements In India.
● Levey, M.M., Brodersen, C., Gerdes, I. and MacLachlan, J., 2012. Vodafone: An
analysis under internationally-recognized tax principles. Intertax, 40, p.477.
(b) GAAR (General Anti Avoidance Rules, scope and implication of GAAR, the pros and
cons of introducing GAAR, Is India prepared for GAAR and whether control check is
required on the tax administration)
● Mukhopadhyay, S., 2012. General Anti-Avoidance Rule in Income Tax Law.
Economic and Political Weekly.
(c) Introduction to Transfer Pricing.
(Here the basic concepts of transfer pricing including the meaning of associated
enterprise, international transaction, arm length price etc. would be discussed).

● Gupta, S., 2009. ‘Transfer Pricing’-An International Taxation Issue Concerning


the Balance of Interest Between the Tax Payer and Tax Administrator.
● PWC, International Transfer Pricing, Introduction and territory summary of
India.

Suggested Miscellaneous Readings:

1. Taxmann’s Direct Taxes Law Lexicon


2. ShomeParathasarathi, Taxation Principles and Applications A Compendium, Lexis
Nexis.
3. Manoharan T.N., Direct Tax Laws, Snowwhite Publications (P) Ltd.
4. Chathurvedi K. and Pithisaria SM., Income-tax Law, Wadhwa& Co Nagpur

5. Singhnia VK &Singhania K, Direct Taxes – Laws and Practices, Taxmann


6. Gupta Ravi & Ahuja Girish, Fundamentals of Taxation, Bharat Publication
7. VinodSinghnia -Direct Taxes – Law and Practice
8. Gour V.P and Narang D.B – Income Tax Law & Practice

Scheme of Evaluation for the Course

Save as otherwise provided in the TNNLS Rules or elsewhere, ‘Law of Direct Taxation’ course
at TNNLS shall carry a total of 100 marks.

1. 20 marks to Mid-Semester Examination (MSE)


2. 50 Marks for End-Semester Examination (ESE)
3. 25 marks (20+5) for internal assessment ( which will consist of a written submission
evaluated for 15 marks, 5 marks for in-class quizzes and 5 marks for viva-voce)
4. 5 marks for attendance

Guidelines for project Evaluation:

1. An Abstract/synopsis of the project (not exceeding 1000 words) should be submitted


first which should have specific, concrete and quantifiable objectives and literature
review and it must be approved by the course-faculty.
2. The written submission must not exceed 4000-5000 words and should be adequately
formatted in font 12, Times New Roman with spacing of 1.5.
3. Every source used for the submission and authority used for reference must be
properly cited uniformly using any one citation mode.
4. A literature review or Bibliography regarding use of primary and secondary sources
must be attached with the submission.
5. Abstract Submission and final project submission deadline must be strictly followed
or else attracts penalty.
Student Learning Outcomes:

1. On the successful completion of this course the student will be able to interpret
and analyze personal income tax and understand direct tax laws as prescribed under
different provisions of the Income-tax Act, 1961.
2. A study of this paper will be helpful in taking different financial/managerial
decisions after evaluating and reviewing the impact of direct tax laws.
3. Students of the course will be able to explain different types of incomes and their
taxability and expenses and their deductibility.
4. Students who complete this course will be able to learn various kinds of direct
taxes and their implication in practical situations. Students of the course will able to state
the use of various deductions to reduce the taxable income.

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