CorporateTaxPlanningBusineTaxProcdures PDF

PAGE
CONTENTS
PAGE
About the authors I-5
A few words from the authors I-7
BOOK 1
INCOME-TAX LAW IN BRIEF
1 LAW OF INCOME-TAX IN BRIEF
n Basic Concepts 3
n Residential Status 5
n Income that is exempt from tax 8
n Salary 14
n Profits and gains of business or profession 21
n Capital Gains 30
n Set off and carry forward of losses 38
n Permissible deductions from gross total income and tax liability 40
BOOK 2
CORPORATE TAX PLANNING
UNIT I
TAX PLANNING, TAX MANAGEMENT, TAX AVOIDANCE, TAX EVASION
2 TAX PLANNING, TAX MANAGEMENT, TAX AVOIDANCE AND TAX

EVASION
1. Introduction 59
2. Tax planning/avoidance/evasion - Concept in brief 59
3. What is tax planning 60
4. What is tax avoidance 60
5. What is tax evasion 60
6. Tax avoidance v. Tax evasion 61
7. Tax planning v. Tax management 61
I-9
CONTENTS I-10
PAGE
UNIT II
CORPORATE TAX IN INDIA
3 DEFINITIONS
16. Company [Sec. 2(17)] 65
17. Indian company [Sec. 2(26)] 65
18. Domestic company 65
18.1 Arrangement for declaration and payment of dividend - Meaning of 66
19. Foreign company 66
20. Industrial company 66
20.1 Other points 66
21. Company in which the public are substantially interested [Sec. 2(18)] 66
21.1 Onus to prove 67
22. Investment company 67
23. Widely-held company 67
24. Closely-held company 67
25. Case study 67
MULTIPLE CHOICE QUESTIONS 68
4 RESIDENTIAL STATUS AND TAX INCIDENCE
28. Residential status of a company [Sec. 6(3)] 69
28.1 Control and management 69
29. Incidence of tax [Sec. 5] 70
29.1 Indian income and foreign income 70
29.2 Incidence of tax 71
29.3 Conclusions 71
30. Receipt of income 71
30.1 Receipt vs. Remittance 71
30.2 Actual receipt vs. Deemed receipt 71
30.3 Cash v. Kind 71
30.4 Receipt v. Accrual 71
31. Accrual of income 71
5 TAXATION OF COMPANIES
40. Carry forward and set-off of losses in the cases of certain companies [Sec. 79] 73
40.1 Exceptions 73
41. Taxable income - How computed 75
42. Tax liability - How computed 75
43. Minimum alternate tax [Sec. 115JB] 76
43.1 When applicable 76

I-11 CONTENTS
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43.2 Book profit 76
43.3 Minimum income and tax 81
43.4 Report from a chartered accountant 81
43.5 Carry forward and set-off of tax credit 81
43.6 Hints for tax planning 83
44. Dividend tax 87
44.1 Basis of charge [Sec. 115-O(1)] 87
44.2 What is dividend 88
44.3 Nature of tax 88
44.4 Rate of dividend tax 88
44.5 Mitigating the cascading effect of dividend distribution tax 88
44.6 When the additional tax should be paid 89
44.7 Dividend tax is the final levy 89
44.8 Dividend tax is not deductible 89
44.9 Interest for non-payment of tax [Sec. 115P] 89
44.10 When company is deemed to be in default [Sec. 115Q] 90
44.11 Penalty under section 271C 90
44.12 Prosecution 90
44.13 Judicial rulings 90
45. Tax on income distributed to unitholders [Secs. 115R, 115S and 115T] 90
46. Tax on income received from venture capital companies and venture capital funds [Sec. 115U] 91
47. Case studies 91
UNIT III
TAX PLANNING WITH REFERENCE TO SPECIFIC BUSINESS DECISIONS
6 TAX PLANNING WITH REFERENCE TO NEW BUSINESS - LOCATION OF

A BUSINESS
57. Location of new business 113
7 TAX PLANNING WITH REFERENCE TO NEW BUSINESS - NATURE OF

BUSINESS
69. Nature of new business 115
70. Tea/coffee/rubber development account [Sec. 33AB] 115
70.1 Conditions 115
70.2 Amount of deduction 116
70.3 Amount can be withdrawn for the purpose of the scheme 116
70.4 Consequences in the case of closure of business 117
70.5 Withdrawal from the special account cannot be utilised for certain purposes 117
70.6 Consequences if the new asset is transferred within 8 years 117
70.7 Double deduction not permissible 118
71. Telecom licence fees [Sec. 35ABB] 118

CONTENTS I-12
PAGE
71.1 Conditions 118
71.3 Profit or loss on sale of telecom licence 118
71.4 Consequences in the case of amalgamation or demerger 119
71.5 Depreciation under section 32 not available 119
72. Expenditure on specified business [Sec. 35AD] 120
72.1 Conditions 121
72.3 Consequences of claiming deduction under section 35AD 122
73. Computing business profits on presumptive basis [Sec. 44AD] 124
73.1 Consequences if the above conditions are satisfied 124
73.2 Is it possible to declare lower income 125
74. Transport operators [Sec. 44AE] 125
74.1 Who is covered by the scheme of section 44AE 125
74.2 Consequences if section 44AE is applicable 126
75. Employment of new workmen [Sec. 80JJAA] 127
75.1 Conditions 127
75.3 Points to be noted 128
76. Tonnage Tax Scheme [Secs. 115V to 115VZC] 131
76.1 Salient features 132
8 TAX PLANNING WITH REFERENCE TO NEW BUSINESS FORM OF

ORGANISATION
86. Form of organisation 135
87. Whether sole proprietorship is a better alternative 135
88. Firm v. Company 136
88.1 How to reduce tax incidence on companies 137
89. Limited liability partnership (LLP) 139
89.1 LLP is taxed like traditional partnership firm 139
89.2 Firm, LLP and company - A comparison of tax benefits 139
89.3 LLP v. Company 141
9 TAX PLANNING WITH REFERENCE TO FINANCIAL MANAGEMENT

DECISIONS
90. Capital structure decision 143
91. Dividend policy 146

I-13 CONTENTS
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92. Meaning of dividend [Sec. 2(22)] 146
92.1 Accumulated profits 147
92.2 Distribution of accumulated profits entailing release of companys assets
[Sec. 2(22)(a)] 147
92.3 Distribution of accumulated profits in the form of debentures, debenture stock
[Sec. 2(22)(b)] 147
92.4 Distribution of accumulated profits at the time of liquidation [Sec. 2(22)(c)] 147
92.5 Distribution of accumulated profits on the reduction of its capital [Sec. 2(22)(d)] 148
92.6 Distribution of accumulated profits by way of advance or loan [Sec. 2(22)(e)] 148
92.7 Tax treatment in the hands of shareholders 148
93. Bonus shares 149
93.1 Bonus shares to equity shareholders 149
93.2 Bonus shares to preference shareholders 150
10 TAX PLANNING WITH REFERENCE TO MANAGERIAL DECISIONS
100. Purchase of asset 152
101. Lease v. Purchase 153
102. Purchase by instalment v. Hire 155
103. Sale of assets used for scientific research 156
104. Make or buy 156
105. Repairs, replace, renewal or renovation 158
11 TAX PLANNING IN RESPECT OF EMPLOYEES REMUNERATION
109. Factors which require consideration 161
110. Deduction of remuneration in the hand of employer 161
111. Tax incidence in the hands of employees 161
112. Fringe benefit tax 161
113. Remuneration planning 161
113.1 Broad hints 161
114. Case studies 163
12 TAX PLANNING WITH REFERENCE TO SALE OF SCIENTIFIC RESEARCH

ASSETS
116. Sale of scientific research assets 170

CONTENTS I-14
PAGE
13 TAX PLANNING WITH REFERENCE TO RECEIPT OF INSURANCE

COMPENSATION
118. Insurance claim 172
119. When section 45(1A) is attracted 172
119.1 Consequences where section 45(1A) is applicable 172
120. When section 45(1A) is not applicable 172
120.1 When insurance compensation is a capital receipt 172
120.2 When insurance compensation is a revenue receipt 173
14 TAX PLANNING WITH REFERENCE TO DISTRIBUTION OF ASSETS BY

COMPANIES IN LIQUIDATION
125. Liquidation of a company 177
125.1 Tax treatment in the hands of the company [Sec. 46(1)] 177
126. Tax treatment in the hands of shareholders [Sec. 46(2)] 177
127. Case study 177
UNIT IV
NON-RESIDENT
15 TAX PLANNING IN RESPECT OF NON-RESIDENT
142. Residential status 181
143. Income taxable in the hands of non-resident in India 181
144. Income deemed to accrue or arise in India [Sec. 9] 181
144.1 Income from business connection [Sec. 9(1)(i)] 181
144.2 Income through or from any property, asset or source of income in India
[Sec. 9(1)(i)] 183
144.3 Transfer of capital asset situated in India [Sec 9(1)(i)] 183
144.4 Income under the head Salaries [Sec. 9(1)(ii)] 184
144.5 Salary payable abroad [Sec. 9(1)(iii)] 184
144.6 Dividend paid by an Indian company [Sec. 9(1)(iv)] 184
144.7 Income by way of interest [Sec. 9(1)(v)] 184
144.8 Income by way of royalty [Sec. 9(1)(vi)] 185
144.9 Income by way of fees for technical services [Sec. 9(1)(vii)] 185
145. Hints for tax planning in respect of residential status 186
146. Interest to non-residents [Sec. 10(4), (4B)] 186
147. Salaries of foreign citizens 187
147.1 Salary of diplomatic personnel [Sec. 10(6)(ii)] 187
147.2 Salary of foreign employees [Sec. 10(6)(vi)] 187
147.3 Salary received by a ships crew [Sec. 10(6)(viii)] 187
147.4 Remuneration of a foreign trainee [Sec. 10(6)(xi)] 187

I-15 CONTENTS
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148. Exemption from tax paid on behalf of foreign companies in respect of certain income
[Sec. 10(6A)] 187
149. Tax paid on behalf of non-resident [Sec. 10(6B)] 188
150. Technical fees received by a notified foreign company [Sec. 10(6C)] 188
151. Foreign Government employee under co-operative programmes [Sec. 10(8)] 188
152. Non-resident consultants 188
152.1 Under section 10(8A) 188
152.2 Under section 10(8B) 189
153. Income of family members [Sec. 10(9)] 189
154. Aircraft lease rent payable to foreign Government [Sec. 10(15A)] 189
155. Shipping [Sec. 44B] 189
155.1 Conditions 189
156. Exploration of mineral oils [Sec. 44BB] 191
157. Computation of income in respect of foreign airlines [Sec. 44BBA] 192
158. Computation of profits and gains of foreign companies engaged in the business of civil
construction [Sec. 44BBB] 193
159. Head office expenditure in the case of non-resident [Sec. 44C] 193
159.1 Meaning of adjusted total income 193
159.2 Average adjusted total income 194
159.3 Head office expenditure 194
159.4 Section 44C - When not applicable 194
160. Royalties and technical fees in the case of foreign companies [Sec. 44D] 194
160.1 Agreement made before April 1, 1976 194
160.2 Agreement made on or after April 1, 1976 not being covered by section 44DA
[Sec. 115A] 195
160.3 Section 44DA 195
160.4 Conclusions 196
161. Computation of income and tax 198
162. Computation of capital gain in the case of non-resident [First proviso to Sec. 48] 200
162.1 Special provisions in the case of a non-resident Indian [Sec. 115F] 202
163. Special provisions 203
163.1 Who can claim the benefit of special provisions 203
163.2 Incomes which are qualified for special treatment 203
163.3 Special rate of tax 204
163.4 Return of income not to be filed in certain cases 204
163.5 Benefit available even after the assessee becomes resident 204
163.6 Special provisions not to apply if the assessee so chooses [Sec. 115-I] 204

CONTENTS I-16
PAGE
16 DOUBLE TAXATION RELIEF
170. Relief for double taxation [Secs. 90, 90A and 91] 209
171. ADT agreements [Sec. 90] 209
171.1 Modes of granting relief under ADT agreements 209
172. Unilateral relief [Sec. 91] 209
173. Double taxation relief in case of specified associations [Sec. 90A] 210
17 TRANSFER PRICING
177. International transaction [Secs. 92 to 92F] 216
177.1 Conditions for applicability of arms length price in the international transaction 216
178. Computation of the arms length price (ALP) 217
179. Computation of ALP [Sec. 92C] 218
179.1 Method of computing arms length price 218
179.2 Comparability of transaction 220
179.3 Most appropriate method 220
179.4 Determination of arms length price by Assessing Officer in certain cases
[Sec. 92C(3)] 220
180. Reference to Transfer Pricing Officer [Sec. 92CA] 220
180.1 Computation of income by Assessing Officer 221
180.2 Mistakes apparent from record 221
180.3 Powers under section 131 or 133 221
181. Maintenance of books of account [Sec. 92D] 221
181.1 Support by authentic documentation 221
181.2 Continuity for more than a year 221
181.3 Period 221
181.4 Furnishing information about international transaction 221
182. Report from accountant [Sec. 92E] 222
183. Specified domestic transactions 222
184. Advance pricing agreement (APA) [Section 92CC and 92CCD] 222
18 ADVANCE RULING FOR NON-RESIDENTS
186. Advance ruling 225
186.1 Authority for advance ruling [Sec. 245-O] 225
186.2 Meaning of applicant and advance ruling [Sec. 245N(a) and (b)] 225
186.3 Non-resident in which year 225
187. Procedure for filing application 225
187.1 Application form number 226
187.2 Fees 226
187.3 Who should sign the application 226
187.4 Withdrawal of application 226

I-17 CONTENTS
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188. Procedure on receipt of application [Sec. 245R] 226
188.1 When the application can be rejected 226
188.2 Pronouncement of advance ruling 226
188.3 Continuation of proceedings after the death, etc., of the applicant 227
188.4 Hearing of application ex parte 227
188.5 Modification of order 227
188.6 Rectification 227
188.7 Appellate authority not to proceed in certain cases 227
189. Applicability of advance ruling [Sec. 245S] 227
190. Advance ruling to be void in certain circumstances [Sec. 245T] 227
191. Powers of authority [Sec. 245U] 227
UNIT V
BUSINESS RESTRUCTURING
19 RESTRUCTURING BUSINESS
195. Restructuring business 231
20 AMALGAMATION
196. Amalgamation 232
197. Meaning of amalgamation under the Income-tax Act [Sec. 2(1B)] 232
197.2 Transactions not treated as amalgamation 233
198. Actual cost and written down value when assets are transferred in a scheme of
amalgamation 233
198.1 When a capital asset (other a block of assets) is transferred 233
198.2 When a block of asset is transferred 233
199. Assets in amalgamation not treated as transfer 234
199.1 Transfer of capital assets to amalgamated Indian company [Sec. 47(vi)] 234
199.2 Transfer of shares in an Indian company held by a foreign company to
another foreign company [Sec. 47(via)] 235
199.3 Allotment of shares in amalgamated company to the shareholders of
amalgamating company [Secs. 47(vii) and 49(2)] 235
200. Carry forward and set-off of loss and depreciation - When permissible in the hands of
amalgamated company [Sec. 72A] 235
201. Set-off of losses of a banking company against the profit of a banking institution under
a scheme of amalgamation [Sec. 72AA] 236
203. Expenditure on amalgamation/demerger [Sec. 35DD] 239
204. Consequences of amalgamation 240
204.1 Date of amalgamation 240

CONTENTS I-18
PAGE
21 DEMERGER
205. Meaning of demerger [Sec. 2(19AA)] 243
205.1 Condition one - Entities involved should be companies 243
205.2 Condition two - Sections 391 to 394 243
205.3 Condition three - It involves transfer of an undertaking 243
205.4 Condition four - All property of the undertaking should be transferred to the
resulting company 243
205.5 Condition five - The resulting company should take over all liabilities of the
undertaking 244
205.6 Condition six - Liabilities/properties are to be transferred at book value 244
205.7 Condition seven - Shares in resulting company to shareholders of demerged
company 244
205.8 Condition eight - Person holding 75 per cent shares in the demerged company
to become shareholders in the resulting company 244
205.9 Condition nine - Transfer as ongoing concern 245
205.10 Condition ten - Section 72A(5) conditions 245
206. Actual cost and WDV 246
206.1 When a capital asset (other than forming part of a block of asset) is transferred 246
206.2 When an asset forming part of block of assets is transferred [Explns. 2A and
2B to sec. 43(6)] 246
206.3 Computation of depreciation 246
207. Demerger and capital gains 247
207.1 When it is not treated as transfer 247
207.2 Cost of acquisition of shares in resulting company and demerged company
[Sec. 49(2C)/(2D)] 248
208. Expenditure on demerger 248
209. Carry forward and set-off of losses/depreciation - When permissible in the hands of
resulting company [Sec. 72A] 248
210. Case study 248
211. Consequences of demerger 252
212. Amalgamation vis-a-vis Demerger 252
213. Amalgamation or demerger of co-operative banks 252
213.1 When not treated as transfer 252
213.2 Carry forward and set-off of loss and depreciation - When permissible in the
hands of amalgamated/resulting co-operative bank [Sec. 72AB] 252
213.3 Special provision for computing deductions 253
22 CONVERSION OF SOLE PROPRIETARY BUSINESS OR FIRM INTO

COMPANY
215. Conversion of sole proprietary concern 257
215.1 Taking back the exemption 257
215.2 Set-off and carry forward loss of sole proprietary by company 257
I-19 CONTENTS
PAGE
216. Conversion of firm into company 257
216.1 Exemption under section 47(xiii) 257
216.2 Exemption under section 47(xi) 259
216.3 Is it possible to set-off and carry forward loss of firm by company [Sec. 72A(6)] 259
23 SLUMP SALE
220. Definition of slump sale [Section 2(42C)] 262
220.1 Taxpayer owns an undertaking 262
220.2 Transfer by way of sale 262
220.3 Transfer takes place for a lump sum consideration 262
221. How to find out written down value in the hands of transferor in the case of slump
sale [Sec. 43(6)] 263
222. Capital gains in the case of slump sale [Sec. 50B] 263
223. Other points 264
225. Amalgamation/Demerger vis-a-vis slump sale 266
24 TRANSFER OF ASSETS BETWEEN HOLDING AND SUBSIDIARY

COMPANIES
230. When a capital asset (other than block of asset) is transferred 268
231. When a block of asset is transferred [Expln. 2 to sec. 43(6)] 268
232. Exemption under section 47 268
233. Withdrawal of exemption 268
233.1 Cases when exemption is taken back 268
233.2 Consequences 269
234. Case study 270
25 CONVERSION OF COMPANY INTO LIMITED LIABILITY PARTNERSHIP
238. Conversion 273
239. Capital gain exemption in 273
239.1 Conditions for claiming exemption 273
239.2 When exemption will be taken back 274
240. Carry forward of loss/depreciation [Sec. 72A(6A)] 274

CONTENTS I-20
PAGE
BOOK 3
BUSINESS TAX PROCEDURE AND MANAGEMENT
UNIT I
ADVANCE TAX, TDS AND INTEREST
26 ADVANCE PAYMENT OF TAX
251. Income liable for advance tax 281
251.1 Liability to advance tax - When arises 281
251.2 Due dates of payment of advance tax 281
252. Different situations 281
252.1 Payment of advance tax by the assessee of his own account [Sec. 210] 282
252.2 Payment of advance tax in pursuance of order of Assessing Officer [Sec. 210] 282
252.3 Payment of advance tax in pursuance of revised order of Assessing Officer 282
253. Interest 283
254. Case study 283
27 DEDUCTION/COLLECTION OF TAX AT SOURCE AND E-TDS RETURN
269. What is the scheme of tax deduction at source 285
269.1 Tax credit 285
269.2 Payments covered by TDS scheme 286
269.3 TDS rates during the financial year 2012-13 286
270. When and how tax is to be deducted at source from salary [Sec. 192] 286
270.1 How to compute taxable salary and tax thereon 286
270.2 Special cases 287
270.3 Particulars of perquisite and profit in lieu of salary 289
270.4 Salary with lower TDS 289
271. When and how tax is to be deducted at source from interest on securities [Sec. 193] 290
271.1 Securities interest which is not subject to tax deduction 290
271.2 Time of tax deduction 290
271.3 When tax is not deductible at regular rates 290
272. When and how tax is to be deducted at source from dividends [Sec. 194] 291
272.1 When tax is not deductible at regular rates 291
273. When and how tax is to be deducted at source from interest other than interest on
securities [Sec. 194A] 291
273.1 When interest is not subject to tax deduction or subject to lower tax deduction 292
273.2 Adjustment in the case of short deduction 293
273.3 Payment under a hire purchase agreement 293

I-21 CONTENTS
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274. When and how tax is to be deducted at source from winnings from lotteries or
crossword puzzles [Sec. 194B] 293
274.1 Prize given partly in cash and partly in kind 293
275. When and how tax is to be deducted at source from winnings from horse races [Sec. 194BB] 293
276. Tax deductible from payments to contractors or sub-contractors [Sec. 194C] 294
276.1 Who is deductor 294
276.2 Who is recipient 294
276.3 Payments subject to tax deduction under section 194C 295
276.4 When tax has to be deducted at source 295
276.5 Rate of TDS 295
276.6 When tax is not deductible 296
277. When and how tax is to be deducted at source from insurance commission [Sec. 194D] 296
277.1 Adjustment not possible 296
277.2 When tax is not deductible or deductible at lower rate 296
277.3 Reinsurance not covered by section 194D 296
278. When and how tax is deductible at source from payment to non-resident sportsmen
or sports associations [Sec. 194E] 297
279. When and how tax is deductible from payments in respect of National Savings Scheme
[Sec. 194EE] 297
279.1 When tax is not deductible 298
280. When and how tax is deductible on payments on account of repurchase of units of
Mutual Funds or UTI [Sec. 194F] 298
281. When tax is deductible from commission, etc., on sale of lottery tickets [Sec. 194G] 298
282. When and how to deduct tax at source from commission or brokerage [Sec. 194H] 298
282.1 When tax has to be deducted 299
282.2 Meaning of commission or brokerage 299
282.3 No TDS in the case of amount payable by BSNL/MTNL to PCOs 299
283. When and how tax is deductible from rent [Sec. 194-I] 299
283.1 TDS rates 300
283.2 When tax has to be deducted 300
283.3 No tax deduction if payee is Government/local authorities 300
283.4 When tax is deducted at lower rate 300
283.5 Payment to cold store 300
284. When tax is deductible at source on fees for professional or technical services [Sec. 194J] 301
284.1 When tax is deductible at lower rate 301
284.2 Meaning of professional/technical services 301
284A. When and how to deduct tax at source from payment of compensation on acquisition
of certain immovable property [Sec. 194LA] 301
284B. When and how tax is to be deducted at source from Interest payable on Infrastructure
debt fund [Sec. 194LB] 302
284C. When and how tax is to be deducted by an Indian Company from Interest to a non-resident/
foreign citizen [Sec. 194LC] 302
285. When and how tax is to be deducted at source from other sums [Sec. 195] 302
286. TDS from units or long-term capital gain under section 196B 303
287. TDS from income or long-term capital gain from foreign currency bonds/Global
Depository Receipts [Sec. 196C] 303
288. When tax is deductible at source from income of Foreign Institutional Investors from
securities [Sec. 196D] 303

CONTENTS I-22
PAGE
289. What are other points for consideration 304
289.1 Amount payable to Government/RBI/certain corporations not subject to tax deduction 304
289.2 Tax deducted - To be treated as income of deductee and available for tax credit
[Secs. 198 and 199] 304
289.3 Time of deposit of tax deducted at source (TDS) or collected at source (TCS) 304
289.4 Quarterly statement of tax deduction/collection 305
289.5 Certificate of tax deduction/collection at source 306
289.6 Tax deduction and collection account number [Sec. 203A] 306
289.7 Obtaining a certificate of lower rate from the Assessing Officer [Sec. 197] 306
289.8 Provisions of section 197A 307
289.9 Furnishing of quarterly returns regarding the details of non-deduction of tax by
certain persons [Sec. 206A] 308
289.10 Processing of statements of tax deducted at source [Sec. 200A] 308
290. Tax collection at source [Sec. 206C] 308
290.1 In which case tax has to be collected at source 309
290.2 Tax collection at lower rate 310
290.3 Deposit of tax 310
290.4 Issue of certificate 310
290.5 Quarterly returns to Government 310
290.6 Tax collection account number 310
28 INTEREST PAYABLE BY ASSESSEE/GOVERNMENT
296. When interest becomes payable by assessee 313
296.1 For defaults in furnishing return of income [Sec. 234A] 313
296.2 For failure to deduct or collect and pay tax at source [Sec. 201(1A) or 206C(7)] 315
296.3 For default in payment of advance tax [Sec. 234B] 316
296.4 For deferment of advance tax 317
296.5 Interest on excess refund [Sec. 234D] 323
296.6 For making late payment of income-tax [Sec. 220(2)] 324
296.7 Fees for defaults in furnishing quarterly returns [Sec. 234E] 324
297. Interest payable to assessee [Sec. 244A] 324
297.1 How to compute interest 325
298. Procedure to be followed in calculation of interest [Rule 119A] 325
299. Is it possible to reduce/waive interest 325
299.2 Period 326
299.3 Extent of interest to be reduced or waived 326
299.4 Discretion should be exercised in judicial manner 326
300. Is it possible for Chief Commissioner/Director General (Investigation) to reduce penal
interest in certain cases 326

I-23 CONTENTS
PAGE
301. Can Central Board of Direct Taxes make relaxation 326
302. Writ petition - Is it maintainable against levy of interest 327
29 REFUND OF EXCESS PAYMENTS
305. Right to claim refund - When arises [Sec. 237] 328
306. Who can claim refund [Sec. 238] 328
307. How to claim refund 328
307.1 Claim after the statutory time limit 328
308.1 Refund on appeal [Sec. 240] 329
308.2 Power to withhold refund 329
308.3 Interest on delayed refunds 329
308.4 Set-off of refunds against tax remaining payable [Sec. 245] 329
UNIT II
RETURN, ASSESSMENT, PENALTIES, SETTLEMENT
COMMISSION AND SEARCH
30 RETURN/ASSESSMENT OF INCOME
314. When return is to be filed as statutory obligation [Sec. 139(1), (4A), (4B), (4C), (4D)] 333
314.1 Exemption provided by the Government when taxable income of an individual is
up to Rs. 5,00,000 334
314.2 Forms - New return Forms 334
314.3 Time for filing return of income [Sec. 139(1)] 336
315. When return of loss should be filed [Sec. 139(3)] 336
316. Belated return [Sec. 139(4)] 336
317. Revised return [Sec. 139(5)] 337
318. What is a defective or incomplete return [Sec. 139(9)] 338
318.1 When a return is defective 338
318.2 Clarification from the Board 339
319. What is Permanent Account Number (PAN) [Sec. 139A] 339
319.1 Where the PAN should be quoted or to whom PAN should be intimated 339
320. Scheme to facilitate submission of returns through Tax Return Preparers [Sec. 139B] 340
320A. Power of Board to dispense with Furnishing of document 340
320B. Filing of return in electronic form [Sec. 139D] 341
321. Return by whom to be signed [Sec. 140] 341

CONTENTS I-24
PAGE
322. What is self-assessment [Sec. 140A] 341
323. What is inquiry before assessment under section 142 or 142A 343
323.1 Giving notice to the assessee [Sec. 142(1)] 343
323.2 Making inquiry [Sec. 142(2), (3)] 343
323.3 Giving direction for audit [Sec. 142(2A) to (2D)] 343
323.4 Estimate by Valuation Officer in certain cases [Sec. 142A, inserted from
November 15, 1972] 345
324. Summary assessment 345
324.1 Intimation - Provisions applicable from April 1, 2008 345
324.2 Summary assessment not necessary in some cases 346
324.3 Time-limit for intimation under section 143(1)(i) 346
325. Scrutiny assessment 346
325.1 Scrutiny under section 143(3)(ii) 346
325.2 Special procedure for assessment in the case of scientific research association,
news agency, notified trust, etc. [Proviso to sec. 143(3)] 347
326. What is best judgment assessment [Sec. 144] 348
326.1 Time limit completion 348
326A. Reference to Dispute Resolution Panel [Sec. 144C] 348
327. What is income escaping assessment [Sec. 147] 349
327.1 Two conditions 350
327.2 Cases of income escaping assessment 350
328. Notice for reassessment 350
328.1 Time-limit and other conditions for issue of notice [Secs. 149 and 151] 350
329. When can mistakes be rectified 351
329.1 Which order can be rectified [Sec. 154(1)] 351
330. What is the time-limit for completion of assessments/reassessments [Sec. 153] 351
330.1 Assessment under section 143 or 144 [Sec. 153(1)] 351
330.2 Assessment or reassessment under section 147 [Sec. 153(2)] 352
330.3 Fresh assessment [Sec. 153(2A)] 352
330.4 Assessment/reassessment to give effect to a direction [Sec. 153(3)] 352
330.5 When reference is made Transfer Pricing Officer (TPO) 352
330.6 Computation of period of limitation [Explanation 1 to sec. 153] 352
330.7 Time-limit applies to passing of order and not on its communication to the
assessee 353
331. Case study 353
332. Annual information return 354
332.1 Transactions covered 354
332.2 Return to whom 355
332.3 Form 355
332.4 Time-limit 355
332.5 Defective return 355
332.6 Notice for submission of return 355

I-25 CONTENTS
PAGE
31 APPEALS, REVISIONS, REFERENCES
342. What is appeal 357
343. Who are appellate authorities 357
344. When and against what orders appeal lies to Commissioner (Appeals) [Sec. 246A] 358
344.1 Appeal by a person denying liability to deduct tax [Sec. 248] 359
344.2 Procedure for filing appeal 359
344.3 Payment of tax before filing appeal [Sec. 249(4)] 359
344.4 Power of Commissioner (Appeals) under section 251 360
345. Revision by Commissioner 360
345.1 Revision of orders prejudicial to revenue [Sec. 263] 360
345.2 Revision in favour of assessee [Sec. 264] 361
346. Appeal to Tribunal 362
346.1 Appealable orders 362
346.2 Procedure for filing appeal 363
346.3 Order of the Tribunal 364
347. Appeal to High Court 364
347.1 What is a substantial question of law 364
347.2 Memorandum of appeal 364
347.3 Fees 364
347.4 Time-limit 364
347.5 Formulation of question of law 364
347.6 Issue which may be determined by High Court 364
347.7 Case to be heard by not less than two Judges 365
347.8 Stay of recovery proceeding where appeal is pending in High Court 365
347.9 Decision of High Court 365
348. When appeal lies to Supreme Court 365
349. What are the provisions for avoiding repetitive appeals [Sec. 158A] 365
32 PENALTIES AND PROSECUTIONS
373. Penalties for defaults in brief 367
373.1 Penalty cannot be imposed if there was a reasonable cause 369
373.2 Penalty under section 271(1)(c) 369
373.3 Penalty under section 271B for failure to get books of account audited 369
373.4 Penalty for failure to deduct tax at source under section 271C 369
373.5 Penalty for violation of provisions of sections 269SS and 269T 369
373.6 Penalty for failure to answer questions, submit TDS returns under section 272A 369
373.7 Penalty for failure to furnish quarterly TDS/TCS return [Sec. 271H] 369
374. Penalty under section 271(1)(c) 370
374.1 Explanations to section 271(1) 370
374.2 Concealment penalty in search cases 374

CONTENTS I-26
PAGE
375. Power of the Commissioner 377
375.1 Power to reduce or waive penalty under section 271(1)(c) [Sec. 273A(1)] 377
375.2 Power to reduce or waive any penalty [Sec. 273A(4)] 378
375.4 Power of Commissioner to grant immunity from penalty [Sec. 273AA] 378
376. Procedure 379
376.1 Opportunity of being heard 379
376.2 Previous approval of Joint Commissioner 379
376.3 Copy of order 379
377. Time-limit for completion of penalty proceedings 379
377.1 Time-limit for passing penalty order under sec. 275(1A) 380
377.2 Exclusion of certain period 380
378. Offences and prosecutions 381
378.1 Amendment made by the Finance Act, 2012 to expedite prosecution proceedings
under the Act 382
378.3 Immunity 383
379. Onus of proof 383
379.1 Sections 273B and 278AA 383
379.2 Section 278E 383
33 SETTLEMENT OF CASES
388. Introduction 386
389. Meaning of case [Sec. 245A(b)] 386
389.1 A pending proceeding is a case 386
389.2 When a proceeding is not taken as pending proceeding 386
389.3 When a proceeding is taken as pending proceeding 387
390. Settlement Commission [Sec. 245B] 387
391. Application for settlement of cases [Sec. 245C] 387
391.1 Additional tax - How computed 388
391.2 Meaning of related for the purpose of case 2 mentioned in para 391 388
392. Procedure on receipt of application 389
392.1 Application 389
392.2 Notice to the applicant 389
392.3 Settlement Commission can allow the application to proceed or outrightly
reject it [Sec. 245D(1)] 390
392.4 Report from the Commissioner of Income-tax [Sec. 245D(2B)/(2C)] 390
392.5 A second report from the Commissioner of Income-tax [Sec. 245D(3)] 390
392.6 Order of Settlement Commission 390
392.7 Consequences if settlement order is obtained by fraud or misrepresentation 391
392.8 Section 153 time-limit not to apply 391
392.9 Power of the Settlement Commission to rectify its orders [Sec. 245D(6B)] 391
393. Power to order provisional attachment to protect revenue [Sec. 245DD] 391
I-27 CONTENTS
PAGE
394. Power to reopen completed proceedings [Sec. 245E] 392
394.1 Power can be exercised only with the concurrence of applicant 392
394.2 Time-limit of 9 years 392
394.3 Power to reopen is limited for which concurrence is given by applicant 392
395. Powers and procedure of Settlement Commission [Sec. 245F] 392
396. Inspection, etc., of reports [Sec. 245G] 393
397. Powers of Settlement Commission to grant immunity from prosecution, etc. [Sec. 245H] 393
398. Abatement of proceeding before Settlement Commission [Sec. 245HA] 393
398.1 Consequence of abatement of proceedings before Settlement Commission 394
399. Order of settlement to be conclusive [Sec. 245-I] 394
400.1 Recovery of sums due under order of Settlement Commission [Sec. 245J] 394
400.2 Bar on subsequent application for settlement in certain cases [Sec. 245K] 395
34 SEARCH, SEIZURE AND BLOCK ASSESSMENT
412. Powers regarding discovery, production of evidence, etc. [Sec. 131] 396
412.1 Powers of Civil Court [Sec. 131(1)] 396
412.2 When power can be exercised in respect of concluded proceedings [Sec. 131(1A)] 396
412.3 Impounding of books [Sec. 131(3)] 396
412.4 Collection of information on requests received from tax authorities outside India 396
413. Search and seizure 397
413.1 Circumstances in which search and seizure can be conducted [Sec. 132(1)] 397
413.2 Who is the authorised officer 397
413.3 Powers of authorised officer in respect of search and seizure 397
413.4 If books of account, etc. are kept in building not specified in the search
warrant [Sec. 132(1A)] 399
413.5 Police assistance [Sec. 132(2)] 399
413.6 Where it is not practicable to seize books of account etc. [Sec. 132(3)] 399
413.7 Examination on oath [Sec. 132(4)] 399
413.8 Presumptions [Sec. 132(4A)] 400
413.9 Time-limit for retention of seized books of account, etc. [Sec. 132(8)] 400
413.10 Taking copies of seized documents [Sec. 132(9)] 400
413.11 Authorised Officer having no jurisdiction [Sec. 132(9A)] 400
414. Requisitioning of books of account, etc. 400
414.1 Who can exercise powers 400
414.2 Requisitioning officers 400
414.3 Situations in which powers under section 132A can be invoked 401
414.4 Requisition procedure 401
415. Application of assets seized or requisitioned [Sec. 132B] 401
415.1 Release of sum remaining after recovery 401
415.2 Recovery through any other modes 402
415.3 Payment of interest by the Central Government 402

CONTENTS I-28
PAGE
416. Power to call for information [Sec. 133] 402
417. Power of survey 403
417.1 Places where an income-tax authority can enter 403
417.2 Powers of survey 403
417.3 If a person refuses to obey orders 404
417.4 Meaning of proceeding 404
418. Power to collect certain information [Sec. 133B] 404
419. Scheme of assessment 404
419.1 Notice for submission of return of six assessment years 404
419.2 Pending assessment 404
419.3 Provisions for re-assessment vis-à-vis section 153A 404
419.4 Regular tax rate will be applicable 405
419.5 Time-limit for completion of assessment under section 153A [Sec. 153B] 405
419.6 Assessment of income of any other person [Sec. 153C applicable from June
1, 2003] 407
420. Prior approval in the case of search [Sec. 153D] 408
UNIT III
WEALTH-TAX
35 WEALTH-TAX
440. Chargeability 411
441. Assessment year 411
442. Valuation date [Sec. 2(q)] 411
442.1 Change of ownership on the valuation date 411
443. Net wealth - How computed 412
444. Incidence of tax [Sec. 6] 412
444.1 Location of assets 412
445. Assets [Sec. 2(ea)] 412
445.1 Guest house, residential house or commercial building [Sec. 2(ea)(i)] 412
445.2 Motor cars [Sec. 2(ea)(ii)] 414
445.3 Jewellery, bullion, utensils of gold, silver, etc. [Sec. 2(ea)(iii)] 414
445.4 Yachts, boats and aircrafts [Sec. 2(ea)(iv)] 414
445.5 Urban land [Sec. 2(ea)(v)] 414
445.6 Cash in hand [Sec. 2(ea)(vi)] 415
445.7 Illustrative examples 415
445.8 Assets must belong to the assessee [Sec. 2(ea) read with sec. 2(m)] 416
446. Deemed assets [Sec. 4] 416
446.1 Assets transferred by one spouse to another [Sec. 4(1)(a)(i)] 416
446.2 Assets held by minor child [Sec. 4(1)(a)(ii)] 418
446.3 Assets transferred to a person or an association of persons [Sec. 4(1)(a)(iii)] 418
446.4 Assets transferred under revocable transfers [Sec. 4(1)(a)(iv)] 419
446.5 Assets transferred to sons wife [Sec. 4(1)(a)(v)] 419

I-29 CONTENTS
PAGE
446.6 Assets transferred for the benefit of sons wife 420
446.7 Interest of partner [Sec. 4(1)(b)] 420
446.8 Conversion of self-acquired property into joint family property [Sec. 4(1A)] 420
446.9 Gifts by book entries [Sec. 4(5A)] 420
446.10 Impartible estate [Sec. 4(6)] 420
446.11 Property held by a member of a housing society [Sec. 4(7)] 421
446.12 Property held by a person in part performance of a contract [Sec. 4(8)] 421
447. Assets exempt from tax [Sec. 5] 421
447.1 Property held under a trust [Sec. 5(i)] 421
447.2 Coparcenary interest in a Hindu undivided family 421
447.3 Residential building of a former ruler 421
447.4 Former rulers jewellery [Sec. 5(iv)] 422
447.5 Assets belonging to the Indian repatriates 422
447.6 One house or part of a house [Sec. 5(vi)] 423
448. Debt owed 423
448.1 Debt owed - Meaning of 423
449. Valuation of assets [Sec. 7] 424
449.1 Valuation of a building 424
449.2 Valuation of self-occupied property 429
449.3 Valuation of assets of business 429
449.4 Value of interest in firm 430
449.5 Value of life interest [Part F, Schedule III] 433
449.6 Valuation of jewellery 434
449.7 Valuation of any other asset 435
450.1 Charitable or religious trusts [Sec. 21A] 435
450.2 Association of persons where shares of members are indeterminate/unknown
[Sec. 21AA] 436
450.3 Derecognition of partial 436
451. Return of wealth and assessment 436
451.1 Return in response to a notice 436
451.2 Return showing wealth below taxable limit [Sec. 14(2)] 436
451.3 Return after due date or amendment of return [Sec. 15] 436
451.4 Assessment 436
451.5 Regular assessment 437
452. Interest or penalty/prosecution 437
453. Rate of tax 438
UNIT IV
SERVICE TAX
36 SERVICE TAX
480. Why service tax 447
480.1 Need of service tax 447
480.2 Beginning 447

CONTENTS I-30
PAGE
481. What are different approaches to service tax 447
482. What is nature of service tax 448
483. What are different features of service tax 448
484. Is it constitutional valid 448
485. How to define extent and application [Sec. 64] 449
486. What is basis of charge of service tax 449
487. How classification of taxable services determined [Sec. 65A] 449
487.1 Classification under two different clauses 449
488. How to find out valuation of taxable services [Sec. 67] 450
488.1 Value of taxable services 450
488.2 Computation of service tax 451
489. How service tax is paid 453
489.1 Credit for input service 453
489.2 Registration 453
489.3 Payment of service tax [Sec. 68] 453
489.4 Payment schedule of service tax 453
489.5 Registration requirements 454
489.6 Tax to be paid when amount is actually received or when service is provided 457
489.7 No service tax on free services 462
489.8 Payment of service tax if not collected from the client 462
489.9 Service tax on payments received in advance 462
489.10 Payment of service tax collected in excess to be paid to the Central
Government [Sec. 73A] 462
489.11 Interest payable on amount collected in excess [Sec. 73B] 463
489.12 Due date for payment of service tax 463
489.13 Manner of payment of service tax 464
489.14 Adjustment of service tax 465
489.15 Provisional payment of service tax 466
489.16 Interest on late payment of service tax [Sec. 75] 466
490. How service tax is administered 466
490.1 Levy and assessment 466
490.2 Collection of service tax in India 466
490.3 Administrative mechanism 467
490.4 Service tax law 468
490.5 Procedures of service tax 469
490.6 General exemptions from service tax 470
490.7 Analysis of Service Tax Revenue 471
491. What are provisions pertaining to returns 472
491.1 Furnishing of returns 472
491.2 Form of return 472
491.3 Periodicity for filing return 472
491.4 Due dates for filing return 472
491.5 Contents of return 472
491.6 First return 472
491.7 Return in case of multiple service providers 473
491.8 Return when no services are provided (nil return) 473
491.9 Mandatory e-filing with effect from October 1, 2011 473
491.10 Procedure for e-filing return 473

I-31 CONTENTS
PAGE
491.11 Revised return 473
491.12 Penalty for late filing of return 474
492. When a person is liable for penalty under service tax 474
492.1 Penalty for non-payment or late payment of service tax 474
492.2 Penalty for not obtaining registration 475
492.3 Penalty for non-maintenance of books of account and documents 475
492.4 Penalty for not furnishing information required 475
492.5 Penalty for failure to pay tax electronically when required 475
492.6 Penalty for issuing incorrect invoice or not accounting invoices in books of account 475
492.7 Penalty for late filing of return 475
492.8 Penalty for suppressing value of taxable services 475
492.9 Penalty for any other default 478
492A. What is role of chartered accountants 478
492A.1 Advising clients 478
492A.2 Procedural requirements 478
492A.3 Personal representation 478
492A.4 Certification and audit 478
492A.5 Constant updation of law and provisions 478
493. What are challenges before the service tax administration in India 478
494. Is there any electronic tax administration 479
495. What are taxable services 479
495.1 The statutory definition 479
495.2 Steps involved 479
495.3 Exclusion of out of pocket expenditure 479
495.4 Different taxable services 480
496. Export of service 481
496.1 Category A - Immovable property situated abroad 482
496.2 Category B - Services performed outside India 482
496.3 Category C - Service provided from India, but recipient of service outside India 482
496.4 Category D - Services which will never be treated as export of service 482
497. Case study 482
498. Amendments made by the Finance Act, 2012 490
498.1 Increase in service tax rates 490
498.2 Introduction of negative list approach 490
498.3 Amendments in the Finance Act, 1994 490
498.4 New reverse charge mechanism 491
498.5 Renting of immovable property service 491
498.6 Amendment to Service Tax Rules 491
498.7 Amendment to Point of Taxation Rules 491
APPENDIX TO CHAPTER 36 : Partial abatement 492
UNIT V
VALUE ADDED TAX
37 VALUE ADDED TAX (VAT)
530. What is the background and justification of VAT 497

CONTENTS I-32
PAGE
530.1 Justification of VAT 497
530.2 Illustrations 497
530.3 Tax on value added 498
531. What are the benefits of VAT in brief 498
532. What is the need for introducing VAT 499
533. What are the merits of VAT 499
534. Is there any demerit of VAT 500
534.1 Demerits in Indian context 500
534.2 Demerits in general 501
535. What is input tax credit 501
535.1 Coverage of set-off input tax credit 502
535.2 Carrying over of tax credit 502
535.3 Treatment of exports 503
535.4 Inputs procured from other States 503
535.5 Input tax and output tax 503
536. What are variants of VAT 503
536.1 Gross product variant 503
536.2 Income variant 504
536.3 Consumption variant 504
537. What are different modes of computation of VAT 504
537.1 Addition method 504
537.2 Subtraction method 504
537.3 Tax credit method 504
537.4 Provision illustrated 505
538. What are Administrative Procedures which are generally adopted by different States 507
538.1 Compulsory issue of tax invoice, cash memo or bill 507
538.2 Registration, small dealers and composition scheme 507
538.3 Taxpayers identification number (TIN) 508
538.4 Return 508
538.5 Procedure of self-assessment of VAT liability 508
538.6 Audit 508
538.7 Declaration form 508
538.8 Other taxes 508
538.9 Penal provisions 508
538.10 Coverage of goods under VAT 508
538.11 VAT rates and classification of commodities 509
538.12 Records 509
538.13 Stock transfer 509
538.14 Compensation of losses 509
ANNEX 1 : Tax Rates 510
ANNEX 2 : Present value tables 528

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A few words from the authors I-7

1 LAW OF INCOME-TAX IN BRIEF

n Income that is exempt from tax 8

n Profits and gains of business or profession 21

n Set off and carry forward of losses 38

n Permissible deductions from gross total income and tax liability 40

2 TAX PLANNING, TAX MANAGEMENT, TAX AVOIDANCE AND TAX

2. Tax planning/avoidance/evasion - Concept in brief 59

3. What is tax planning 60

4. What is tax avoidance 60

5. What is tax evasion 60

6. Tax avoidance v. Tax evasion 61

7. Tax planning v. Tax management 61

16. Company [Sec. 2(17)] 65

17. Indian company [Sec. 2(26)] 65

18. Domestic company 65

18.1 Arrangement for declaration and payment of dividend - Meaning of 66

19. Foreign company 66

20. Industrial company 66

20.1 Other points 66

21.1 Onus to prove 67

22. Investment company 67

23. Widely-held company 67

24. Closely-held company 67

25. Case study 67

MULTIPLE CHOICE QUESTIONS 68

4 RESIDENTIAL STATUS AND TAX INCIDENCE

28. Residential status of a company [Sec. 6(3)] 69

28.1 Control and management 69

29. Incidence of tax [Sec. 5] 70

29.1 Indian income and foreign income 70

29.2 Incidence of tax 71

30. Receipt of income 71

30.1 Receipt vs. Remittance 71

30.2 Actual receipt vs. Deemed receipt 71

30.3 Cash v. Kind 71

30.4 Receipt v. Accrual 71

31. Accrual of income 71

MULTIPLE CHOICE QUESTIONS 72

41. Taxable income - How computed 75

42. Tax liability - How computed 75

43. Minimum alternate tax [Sec. 115JB] 76

43.1 When applicable 76

43.3 Minimum income and tax 81

43.4 Report from a chartered accountant 81

43.5 Carry forward and set-off of tax credit 81

43.6 Hints for tax planning 83

44. Dividend tax 87

44.1 Basis of charge [Sec. 115-O(1)] 87

44.2 What is dividend 88

44.3 Nature of tax 88

44.4 Rate of dividend tax 88

44.5 Mitigating the cascading effect of dividend distribution tax 88

44.6 When the additional tax should be paid 89

44.7 Dividend tax is the final levy 89

44.8 Dividend tax is not deductible 89

44.9 Interest for non-payment of tax [Sec. 115P] 89

44.10 When company is deemed to be in default [Sec. 115Q] 90

44.11 Penalty under section 271C 90

44.13 Judicial rulings 90

47. Case studies 91

MULTIPLE CHOICE QUESTIONS 109

44.2 What is dividend 88

8 TAX PLANNING WITH REFERENCE TO NEW BUSINESS FORM OF

92.2 Distribution of accumulated profits entailing release of companys assets

11 TAX PLANNING IN RESPECT OF EMPLOYEES REMUNERATION