TAXATION LAWS – II

(Semester VIII)
UNIT 1: INCOME TAX ACT
1.1 SET OFF AND CARRY FORWARD OF LOSSES
1. Set off is nullifying loss from one source of income against another source under the same
head income.
2. Section 70 states that where the net result in respect of any source of income other than capital
gain is a loss, then the assessee shall be entitled to have the amount of such loss set off against
his income from any other source under the same head. This is called intra-head adjustment.
3. There are some exceptions to intra-head adjustment i.e. intra head adjustment shall not be
permitted, which are as follows:
i. Loss from speculative business: Section 73 states that any loss in speculative business
shall be set off only against income from speculative business. Further, speculative
business loss cannot be set off against non-speculative income. Although, non-
speculative business loss may be set off against speculative business income.
ii. Examples of speculative business include stock-broking, dealing in gold/silver, etc.
iii. Loss from specified business: Section 73A states that any loss in specified business
shall not be set off except against profits or gains from other specified business. It
cannot be set off against any other business income.
iv. Specified businesses include only the following: cold chain facilities, business of
storage/warehousing of agricultural products, building and operating a new hotel (2
star and above); laying and operating natural gas or petroleum pipelines; building and
operating a hospital with at least 100 beds; and housing project for slum development.
v. Loss from winnings in crossword puzzles, lotteries: S. 74 states that no set off is
allowed from winnings in lotteries, crossword puzzles, card games or any other such
games against any losses from the same.
vi. Loss from activity of owning and maintaining horses: S. 74A provides that any loss
incurred from such activity shall only be set off against the income from such activity
and not any other source of income.
vii. Loss from any source which is exempted: In the case of CIT v. Tyagarajan, it was held
that any losses from a source of income which is exempted under the Act cannot be set
off against any other head which is taxable.
viii. Capital Losses: Short term capital loss can be set off from any gain from long term or
short term capital gains. However, loss from long term capital gains cannot be set off
against short term capital gains.
4. Set off of losses under one head of income may be set off against the income from any other
head which is called inter-head adjustment. However, losses from capital gains and business
and profession cannot be dealt with in the same way.
5. Loss under the head of capital gain, whether short term loss or long term loss shall not be
allowed to be set off against the income under any other head and shall be carried forward to
the next assessment year.
6. Loss under the head of income from business and profession cannot be adjusted against any
other head other than salary income.

1
 7. Further, all those categories of losses which are not permitted to be set off under the inter-
head adjustment cannot be set off by way of intra-head adjustment as well.
8. If a loss could not be set off as per the rules as stated above, the loss shall be carried forward
to the next assessment year as per the following provisions:
i. Loss from House Property: S. 71B states that if the loss could not be set off against
any other head, it shall be carried forward for the next 8 assessment years.
ii. Loss from Business: Section 72 states that such loss from business, if not adjusted in
the same assessment year shall be adjusted against the income from business or
profession for the next 8 years even if such business is not carried on.
iii. Speculative Loss: S. 73 states that if any speculative loss is incurred and it cannot be
adjusted against any speculative business, then the loss may be carried forward for the
next 4 years.
iv. Specified Business Loss: S. 73A states that such loss can be adjusted against income
from other specified business indefinitely to the next assessment years.
v. Capital Loss: S. 74 prescribes that any short term capital loss may be carried forward
to a maximum of 8 assessment years against capital gains. However, long term capital
loss can be carried forward and adjusted against only profits from long term capital
gains.
vi. Loss from any activity relating to owning and maintaining horses: S. 74A states that
such loss can be adjusted against the same head of income and be carried forward for
the same purpose for the next 4 assessment years.
**Please check the sums under this sub-unit
8.2 LIABILITY IN SPECIAL CASES
1. Section 4 of the IT Act states that income tax will be calculated on a person’s income in the
previous year according to the slabs or rates prescribed in the Finance Act.
2. However there are some exceptions to this rule where the income of the year shall be taxed in
the same year itself instead of the next assessment year. They are as follows:
i. S. 172: Shipping business of a non resident.
a. Income of a non resident shipping company having no representative in India shall
be taxed in the same year for any income derived from carrying passengers,
livestock, mail or goods shipped at a port in India.
b. Tax shall be charged at 7.5% of the amount paid or payable of such carriage.
c. The ship will be allowed to leave the port only after tax has been paid or
alternative arrangements to pay tax are made.

ii. S. 174: Assessment of persons leaving India

a. If it appears to the Assessing Officer that an individual is leaving India during the
current assessment year or shortly and has no intention of returning to India, then
such person shall be liable to pay tax.
b. Tax shall be charged on the income from the date of expiry of the previous year to
the probable date of departure.
c. The rates shall be as per the current assessment year and separate assessments shall
be made in respect of each of the previous years.
d. If the income cannot be determined, income shall be estimated by the Assessing
Officer as per the Act.
2
 e. A notice of not less than 7 days shall be given to such assessee to furnish the return
for the previous year and the estimated income for any part of the previous years’
income.

iii. S. 174A: Assessment of association of persons, body of individuals, artificial juristic

person formed for a particular event or particular period.
a. When an association of persons, body of individuals, artificial juristic person
formed for a particular event or particular period, they shall be liable to tax.
b. Tax shall be charged for the income from the expiry of the previous year to the
date of dissolution.
c. The proceedings of a person leaving India in S. 174 shall apply to such persons.

iv. S. 175: Transfer of property to avoid tax

a. If it appears to an Assessing Officer that during the current assessment yea a
person might be selling, charging, transferring, disposing of or otherwise parting
with assets to avoid payment under the Act, shall be liable to tax.
b. The income of such person for the period from the expiry of the previous year to
the date in the current assessment year in which proceeding commence shall be
chargeable to tax.
c. The proceedings of a person leaving India in S. 174 shall apply to such persons.

v. S. 176: Discontinued Business

a. Discontinuance means cessation of the business or profession. However, if
business is sold to another it shall not be considered as discontinued.
b. If a business is divided and such parts are run by various people, it shall be
considered as discontinues.
c. The income from the expiry of the previous year to the date in the current
assessment year when such discontinuance takes place shall be chargeable to tax.
d. Notice of such discontinuance shall be given to the Assessing Officer within 15
days.

3. Presumptive Tax
i. S. 44A provides that Books of Accounts must be maintained by all assessee’s carrying
on business or profession except those under Rule 6F which deals with the profession
of law, medicine, accountancy, architecture, etc in the following cases-
a. Where the income received in any of the preceding 3 years exceeds Rs.1,20,000 or
in case of a newly set up business, it is likely to exceed Rs.1, 20,000 in the current
previous year.
b. Where the turnover or sales or gross receipts has exceeded Rs.10, 00,000 in any of
the 3 preceding years or in case of a newly set up business, it is like to exceed
Rs.10, 00,000 in the current previous year.
c. Where the profits and gains from the business are deemed to be profits and gains
of the assessee under Ss. 44AD, 44AE, 44AF, 44BB or 44BBB.
ii. Rule 6F provides that books of accounts of profession of law, medicine, accountancy,
architecture, etc. shall have to be maintained if the gross receipts have exceeded Rs. 1,
50, 000 in all three immediately preceding previous years or likely to exceed Rs. 1, 50,
000 in the current year if it is a new set-up.
iii. The following books shall have to be maintained: cash book; ledger; journal; copies of
bills exceeding Rs. 25; bills of expenditure exceeding Rs. 50. For a medical
practitioner the following additional books shall have to be maintained: daily case
register and inventory of stock of medicines.
iv. Such books shall have to be maintained for 6 years from the end of the assessment
year. If not done, then S. 271 states that a penalty of Rs. 25, 000 shall be levied.

3
v. S. 44AB provides that in case of any person carrying on-
(a) Any business whose total sales or turnover or gross profits is Rs.40,00,000, OR
(b) Any profession where the gross receipts exceed Rs.10, 00,000, OR
(c) Any business under Ss.44AD, 44AE, 44AF, 44BB or 44BBB.
vi. The books of account for the above persons shall be audited every year by a chartered
accountant before the specified date (30th September of the relevant previous year
unless extended by the CBDT by way of a notification), else such income shall be
treated as being defective.
vii. As per Rule (g), the audit report must be furnished in Form 3CA and Form 3CD for
income from business and in Form 3CB and Form 3CD for income from profession.
viii. S.271 (b) provides a penalty upto Rs.1, 00,000 for non-submission of audit reports and
for not getting accounts audited.

ix. S. 44AD deals with civil construction business (which includes construction or repair
of any building, bridge, dam, etc. and the execution of any works contract).
x. It states that where any person is engaged in such business or provides labour for such
business whose gross receipts from the same do not exceed Rs.40,00,000, a sum equal
to 8% of such gross receipts paid or payable to the assessee or such higher amount as
declared by the assessee shall be deemed to be income from the same.
xi. The assessee however is not required to maintain books of accounts and only the
receipts of civil construction business must be considered for calculation of turnover.

xii. S. 44AE states that where a person is engaged in the business of plying, hiring or
leasing goods carriages and owns not more than 10 goods carriages at any time during
the year, his income from the same shall be deemed to be Rs.3500 for one heavy
vehicle and Rs.3150 for all other vehicles every month or part of every month for
which the goods carriages are in his possession during the previous year or such higher
sum as declared by the assessee.

xiii. S.44AF states that where the assessee is in retail business with respect to goods or
merchandise and the total turnover doesn’t exceed Rs.40, 00,000, the income from
such business shall be deemed to be 5% of the turnover or such other higher sum
declared by the assessee. However, this provision doesn’t apply when the assessee is
partly engaged in retail business and partly in wholesale business.

xiv. Where an assessee who is a non-resident is engaged in shipping business, his gross
profits shall be deemed to be 7.5% of the sum paid or payable to him on account of
carriage of passengers, goods, livestock or mail where the same is shipped to any part
of India or even outside India. (S.44B)

xv. Under S.44BB, where a non-resident is engaged in the business of providing plant and
machinery for the extraction or production of mineral oils, the gross profits of such
person shall be deemed to be 10% of the sum payable or paid inside or outside India.

xvi. S. 44BBA states that where a non-resident is engaged in the business of operating an
aircraft, the gross profits shall be deemed as being 5% of the sum payable or paid with
respect to such business inside or outside India.

xvii. S.44BBB states that where a foreign company is engaged in civil construction business
or in the erection of any plant or machinery or testing or commissioning thereof with
regards to any turnkey power project approved by the Central Government, the gross
profits shall be deemed to be 10% of the sum paid or payable inside or outside India
with respect to such business.
4
8.3 TAX DEDUCTED AT SOURCE, COLLECTION AT SOURCE, ADVANCE PAYMENT OF
TAX

1. The following are some of the modes of recovery of tax from assessee’s:
i. Tax deducted at source;
ii. Payment of advance tax; and
iii. Tax collection at source.

Tax Deducted at Source

1. Tax is deducted at source so as to ensure that there is regular flow of revenue to the
government.
2. The payer of such tax, who is responsible for deducting the tax at source shall be responsible
for interest, penalty and prosecution in respect of defaults committed.
3. If you are salaried employee in an organization, then you will get the salary after deducting
tax by the employer. This process is called as Tax Deduction at Source(TDS).
4. Every company has to get the TIN. TIN is Tax Identification Number. This number is issued
to person who is responsible to deduct Tax on payments made to employees.
5. At the end of financial year, company must issue a Form 16 which contains the details about
the salary earned by that employee and how much tax deducted. It will have details on each
month.
6. In simple terms Form 16 is details about the tax deducted by the employer in behalf of
employee.
7. The same will be paid to government by the company. A tax payer has to use the Form 16 to
file the IT return every financial year end.

8. Section 191 of the Act clearly states that tax shall be paid by the assessee himself directly
other than in the following cases:
i. Where there is no specific section warranting that tax be deducted at source; OR
ii. The payer fails to deduct tax at source in accordance with the provisions of the Act.
9. Sections 192 to 194 warrant deduction of tax either on credit or payment, whichever is earlier.
10. If a deductor follows the accrual system of accounting, he shall deduct tax immediately after
passing the accrual entry in the books of accounts irrespective of the actual payment.
11. TDS rates are provided with respect to different things differently.
12. However, with respect to salary of individual assessee’s, tax liability shall be according to the
slabs and not at any flat rate.
13. Surcharge at the rate of 2.5% shall be charged in respect of foreign companies when payment
exceeds Rs. 1 crore. Surcharge will not apply in other cases.
14. Educational cess @ 3% shall be charged in respect of non-citizens and foreign companies on
TDS.
15. Section 192: Salary
i. Any person, responsible for the payment of salary is liable to TDS at the slab rate
applicable to individual employees under the head salaries.
ii. The status of the employer does not matter and neither does it matter whether such
employer is carrying on a business or profession or claiming such salary as a
deduction.
iii. The number of employees is also not a relevant factor.
iv. TDS will not occur where after all deductions and allowances, a person’s taxable
income is NIL. An employee is entitled to all deductions u/s 10 and S. 80.
v. TDS is warranted only at the time of actual payment of salary. Therefore, if the
mercantile system of accounting is followed and salary is provided on an accrual basis,
the TDS system will not be followed.
5
 vi. When an employee is working under more than one employee simultaneously OR
leaves a job with one employer and joins another employer it will be mandatory for
such employee to fill out Form 12B.
vii. Form 12B shall contain information regarding his salary, TDS, previous employment,
etc.
viii. There is an option of furnishing any other source of income while calculating TDS to
the employer. Similarly, details of losses may also be furnished.
ix. Every employer shall provide an employee with details of profits in lieu of salary and
perquisites, etc. in Form 12BA.
x. An employer has an option to pay tax in respect of non-monetary perquisites on behalf
of the employee. If the same is done, then such amount shall not be deducted as TDS.

NOTE: Read Examples of problems as given in T.N. Manoharan on pages 798-792.

16. Section 193: Interest on Securities

i. Any person paying interest to a resident on securities is liable to TDS,
ii. TDS is not warranted if the following cumulative conditions are satisfied:
a. Payer is a company in which the public is substantially interested.
b. The payment is made by account payee cheque or DD.
c. The amount does not exceed Rs. 2500.
iii. Interest payable to the following institutions shall not liable to tax deductible at source:
LIC; GIC and its subsidiaries; insurers whose beneficial interest is held by GIC;
Corporate bonds issued to resident on which tax is payable, etc.
iv. The rate of TDS shall be 10% for all assessee’s.

17. Section 194: Dividends

i. Any domestic company declaring and paying dividends on equity or preference shares
to resident shareholders shall deduct tax at the rate of 10%.
ii. TDS is not warranted if the following cumulative conditions are satisfied:
a. Payer is a company in which the public is substantially interested.
b. The payment is made by account payee cheque or DD.
c. The amount does not exceed Rs. 2500.
iii. Interest payable to the following institutions shall not liable to tax deductible at source:
LIC; GIC and its subsidiaries; insurers whose beneficial interest is held by GIC;
Corporate bonds issued to resident on which tax is payable, etc.
iv. This is only for deemed dividend as dividend is given an exemption under S. 10(34).

18. Section 194A: Interest other than interest on securities

i. TDS is only possible when such interest amount exceeds Rs. 5000 during any financial
year.
ii. In case of interest paid by the following entities, TDS shall only take place if such
interest amount exceeds Rs. 10,000:
a. a banking company
b. a cooperative society engaged in banking business
c. post office on any deposit scheme framed by the Central Government and notified.
iii. Savings bank account interest is not covered under TDS.
iv. Exemption has been granted from deduction of tax at source for the following:
a. Interest paid by a firm to the partner of a firm.
b. Interest paid by a cooperative society to its member or any other cooperative
society.
c. Interest on compensation awarded by the Motor Accidents Claims Tribunal when
such amount does not exceed Rs. 50,000 in a financial year.
d. Income paid or payable on zero coupon bonds issued by an infrastructure
company, a public sector company or scheduled bank.
6
 v. Tax shall be deducted at the rate of 10%.

19. Section 194B: Winnings from lottery or crossword puzzle or card games or other games of
any sort exceeding Rs. 5000, payable by any person to any other person, is subject to TDS at
the rate of 30%. An additional 3% cess shall be charged.

20. Section 194BB: Winnings from horse race: Any person being a bookmaker or person holding
license for horse racing, wagering, betting in any race course, paying to any person any
amount exceeding Rs. 2500 by way of winning from a horse race is under an obligation to
deduct tax at the rate of 30%. An additional 3% cess shall be charged.

21. Section 194C: TDS on contracts:

i. Any person responsible for paying any sum to a residential contractor for carrying out any
work such as supply, etc. shall be liable to tax being deducted at source.
ii. Contracts for advertising, broadcasting, telecasting, etc. shall be liable to TDS @ 1% and
an additional tax of 3%.
iii. TDS is only applicable for any payment of consideration of more than Rs. 20000 OR
aggregate payments of more than Rs. 50000.
iv. In case of HUF, individual payees it shall be 1% and in the case of other payees it shall be
2%.

22. Section 194D: any person paying insurance commission in excess of Rs. 5000 to any resident
person is liable to deduct tax at the rate of 10 in case of all assessee’s. An additional 3% cess
shall be charged.

23. Section 194G: Any person making payment by way of commission, remuneration or prize
exceeding Rs. 1000 to any person stocking, distributing, purchasing or selling lottery tickets is
liable to deduct tax at the rate of 10%.

24. Section 194H: Commission or Brokerage

i. Any person paying commission or brokerage exceeding Rs, 2500 per annum to any
resident person is liable to deduct tax at the rate of 10%.
ii. When the payer is an individual or HUF whose gross receipts exceed the limits
prescribed u/s 44AB shall be required to deduct tax at source.
iii. An addition 3% cess shall be charged.
iv. Commission payable by BSNL, MTNL, etc. no deduction at source.

25. Section 194I: Rent

i. Any person making payment towards rent shall be liable to deduct tax at source where
the aggregate of the amounts paid or credited exceed 1, 20,000 during the financial
year TDS shall be warranted.
ii. Rents are categorised into 3 parts:
a. Rent of plant and machinery or equipment whoever be the recipient- TDS @ 2%
b. Rent for land, building or both; rent of furniture and fitting where the recipient is
any person – TDS @ 10%
iii. There is no requirement to deduct TDS if income is by way of rent and the recipient is
the
a. Government
b. Local authorities

26. Section 194J: Any person who pays any resident fees for professional or technical services or
royalty or non-compete fee exceeding Rs. 20000 in a financial year shall liable to TDS @
10%.

7
 27. Section 197: Lower tax deduction or no tax deduction
i. The Assessing Officer may after giving due regard to the genuineness of the case give
a person a certificate for lower rate for deduction of tax or no deduction of tax.
ii. Tax shall then be deducted at the rate as mentioned in the certificate until such
certificate is cancelled.
iii. For lower rate Form 15G shall be filed and for no deduction Form 13 shall be filed.
iv. A resident individual may give a declaration under which benefit may be obtained
under S. 194 dealing with dividends
v. Any other payee other than a company or firm may give a declaration under which
benefit may be obtained under S. 193: interest on securities; S. 194: interest other than
interest on securities.

28. Section 203A: Tax Deduction and Collection Account Number (TDCAN)
i. Every person deducting or collecting tax with the relevant provisions shall apply to the
Assessing Officer for the allotment of TDCAN.
ii. Such TDCAN shall be quoted in all:
a. Challans for payment
b. Certificates
c. Statements prepared an delivered
d. Returns delivered
e. Other documents prescribed.
iii. Rule 114A further states that for the allotment of a tax deduction and collection
account number shall be made in duplicate in Form 49B.

Advance Payment of Tax

1. S. 207 states that tax shall be payable in advance during a financial year in respect of the total
income of the assessee which would be chargeable to tax for the assessment year immediately
following that financial year.
2. Advance tax shall be payable in every case where the amount of such tax payable during that
year is Rs. 10000 or more. (S. 208)
3. Section 209: Computation of advance tax payable by an assessee in the financial year shall be
as follows:

Particulars Amount

Estimated Income xxxx

Tax on Estimated Income xxx

Less: TDS xxx

Amount payable as advance tax xxxx

4. Section 210 states that every person who is liable to pay advance tax shall on his own accord
pay the appropriate percentage of the advance tax on his current income as calculated in S.
209 in the manner laid down in S. 211.
5. Section 211 enumerates the due dates for payment of advance tax.
i. Companies which are liable to pay advance tax shall have to pay the instalments as follows:

S. No. Due date of instalment on or Amount Payable

before

8
 1. 15th June Not less than 15% of the advance tax

2. 15th September Not less than 45% of the advance tax –

amount paid in the earlier instalment

3. 15th December Not less than 75% of the advance tax –

amount paid in the earlier instalment

4. 15th March Not less than 100% of the advance tax –

amount paid in the earlier instalment

ii. All other assessee’s shall pay the instalments for advance tax as follows:

S. No. Due date of instalment on or Amount Payable

before

1. 15th September Not less than 30% of the advance tax

2. 15th December Not less than 60% of the advance tax –

amount paid in the earlier instalment

3. 15th March Not less than 100% of the advance tax –

amount paid in the earlier instalment

6. If an assessee does not pay any instalment of advance tax, he shall be deemed to be an
assessee in default in respect of such instalment or instalments. (S. 218) Penalty shall be
levied equivalent the amount of arrears.
7. Any sum paid by or recovered from an assessee as advance tax shall be treated as payment of
tax in respect of the income assessable in the relevant assessment year. (S. 219)
8. Section 234C deals with the interest on deferment of payment of advance tax.
i. In case of companies for the 1st two instalments a concession of 12% and 36% is
given. However, if this is not paid or the remaining two instalments are not paid as per
S. 209, then simple interest of 1% shall be charged on the shortfall.
ii. In case of other assessee’s if the instalments are not paid as stated, then simple interest
of 1% shall be charged on the shortfall.
iii. If there is a shortfall due to underestimation or failure to estimate capital gains or
winnings from lotteries, crossword puzzles, races, card games and other games of the
same nature, and the assessee pays the tax amount due on the by March 31st, then no
interest shall be levied.

9
1.4 SPECIAL PROVISIONS RELATING TO SHIPPING COMPANIES AND TONNAGE TAX

1. To make the Indian shipping industry more competitive, a tonnage tax scheme for taxation of
shipping profits was introduced.
2. Such scheme has been introduced in many maritime nations.
3. S. 115V to S. 115 VZC have been introduced in Chapter XIIG of the Income Tax Act in order
to deal with taxation of resident shipping companies in April 2005.
4. For tonnage tax to apply, there must be a qualifying company or there must be a qualifying
ship.
5. A qualifying company (S. 115 VC):
i. It is an Indian company;
ii. The place of effective management is some place in India;
iii. It owns at least one qualifying ship;
iv. The main business of the company is to carry on the business of operating ships
6. A qualifying ship (S. 115 VD):
i. It is a sea going ship or vessel of 15 net tonnage or more;
ii. It is a ship registered under the Merchant Shipping Act; or a ship registered
outside India but has a license under the Merchant Shipping Act.
iii. A valid certificate indicating that its net tonnage is in force
iv. It does not include the following:
a. Fishing vessels;
b. Factory ships
c. Pleasure crafts;
d. A qualifying ship used as a fishing vessel for 30 days in the previous year;
e. Harbour and river ferries, etc.
7. The notional income is taxed at the normal corporate tax applicable for the year i.e. 30.5%.
Tax is payable even if there is a loss in the year.
8. A company may opt for such scheme by making an application to the Joint Commissioner
under S. 115VP.
9. Such scheme shall be opted for within 3 months of incorporation of the company or from the
date it became a qualifying company.
10. The application shall be made in Form 65 under Rule 11P. The Joint Commissioner after
determining the eligibility of the company shall permit it to be included as a part of the
tonnage tax scheme.
11. A company may opt for the scheme and once such option is exercised, there is a lock-in
period of 10 years. If a company opts out, then it is debarred from entry for the next 10 years.
(S. 115VQ).
12. Since this is a preferential regime of taxation, certain conditions like creation of reserves,
training, etc. are required to be met. A company may be expelled in certain circumstances.
13. The income is computed under S. 115VG in respect of the tonnage capacity of the ship and
tax is calculated on slab basis.
14. The slab is as follows:

S. No. Qualifying ship having net tonnage Amount of daily tonnage income

1. Up to 10,000 Rs. 46 for each 100 tons

2. Exceeding 10,000 but not more than 20,000 Rs. 460+ Rs. 35 for each 100 tons

3. Exceeding 10,000 but not more than 25,000 Rs. 3610+ Rs. 28 for each 100 tons
exceeding 10,000

4. Exceeding 25,0000 Rs. 7810+ Rs. 19 for 100 tons exceeding

25,000

10
**Check sum from megha’s notes
1.5 INCOME TAX ON FRINGE BENEFITS (Not in force so need not study)

1.6 APPEALS, REVISION, REFERENCE TO THE HIGH COURT, ADVANCE RULING

1. Remedies provided under the IT Act against the original order passed by the Assessing
Officer are – Appeal and Revision.
Appeal
1. Appeal is statutory right created by law and not a fundamental right.
2. Appeal may be filed for any order passed by any authority adjudicating upon matters relating
to income tax.
3. When an order is passed by the Assessing Officer, S. 246A states that appeals from the
Assessing Officer shall lie to the Commissioner which must be filed within 30 days of the
order passed in Form 35.
4. Section 253 states that a second appeal from the order of the Commissioner, Income Tax shall
lie with the Income Tax Appellate Tribunal (ITAT) which may be filed by either the assessee
or the Commissioner within 60 days in Form 36.
5. The Chairman of the ITAT must be either a retired Judge or should have been a civil Judge
for at least 10 years.
6. Further, all matters before the ITAT should be heard by a 2 Judge Bench or more.
7. S. 260A states that all orders of the ITAT may be given for reference to the HC within 120
days and S. 261 states that all orders of the HC shall be given for reference to the SC within
120 days.
8. Section 246, 246A and 248 state what orders are appealable under the Act.
9. Orders against which appeal may lie:
i. Order against the assessee when he denies his liability to be assessed under the Act;
ii. Order of assessment where the assessee objects to the income assessed and the amount
of tax determined or the amount of loss computed.
iii. Order of rectification either enhancing the assessment or reducing the refund;
iv. Order relating to refund matters;
v. Orders imposing penalty;
vi. Order of Joint Commissioner imposing penalty.
10. Orders against which appeal cannot lie:
i. Order imposing interest;
ii. Revision orders u/s 264;
iii. Order of authority for advance ruling;
iv. Order of appropriate authority in case of acquisition of immovable property;
v. Order of Settlement Commissioner.
11. Section 249 lays down the procedure to be followed in filing such appeal.
12. The period of 30 days for filing appeal shall be calculated from the date of service of notice of
demand. If the last day is a Sunday or a holiday, the next day shall be the last date.
13. Form 35 is also known as the Memorandum of Appeal. It shall contain the following
particulars:
i. Statement of fats;
ii. Grounds of appeal;
iii. Copy of the order and notice of demand;
iv. Payment challan for feed paid for filing of appeal;
a. If the assessed income is less than Rs. 1 lac, then the fees is Rs. 250
b. If the assessed income is more than Rs. 1 lac and less than Rs. 2 lacs, then the fees
is Rs. 500.
c. If the assessed income is more than Rs. 2 lacs, then the fees is Rs. 1000
d. If any other matter, then Rs. 250.

11
 14. Section 268, states that in case of delay in filing appeal the appellate authority shall have the
right to condone the delay if sufficient cause for the same is shown.
15. Power of adjournment of matter is given to the appellate authority.
16. Once the appeal is submitted, then on the preliminary hearing the application is scrutinised to
check whether the required documents are present. In case some document is missing, then a
summary rejection will take place.
17. A notice shall be issued to the assessee to enclose the document. If on the given date the
documents are not present, then there is a summary rejection, else the appeal filed by the
assessee shall be restored.
18. The appellate authority may make an order for part payment which shall be 30% of the tax,
penalty, etc. After such payment is made, the appeal is fixed for final hearing and a notice for
the same is issued.
19. On the day of the hearing, the assessee must be personally present. A Chartered Accountant or
CWA may appear before the Tribunal, however not the court. Before the Court only lawyers
may appear on behalf of their clients.
20. Section 251 gives the Commissioner the following powers:
i. He may confirm, reduce, enhance or annul the assessment order however, he cannot
set it aside.
ii. He may confirm, cancel or vary an order imposing penalty.
iii. In any other case, he may pass such order in appeal as he deems fit.
21. Composition of ITAT:
i. It shall consist of both judicial and accountant members.
ii. The Judicial members shall have at least 10 years experience as a civil judge or as a
member of the Indian Legal Service or should be an Advocate for 10 years.
iii. The Accountant members shall have at least 10 years experience as a CA or a member
of the Income Tax Service (Grade A) and has held the post of Additional
Commissioner of Income Tax.
22. There must be at least 2 members on the Bench of the ITAT and a maximum of 7 Judges.
23. To determine the questions of law involved, a majority is required.
24. On submission of appeal, a notice must be issued to the defendant who is required to file its
cross-objections within 60 days in Form 36A.
25. The procedure for appeal is the same.
Revision
1. Section 263 states that the Commissioner of IT can either suo moto call any record for
examination and if he deems fit that there is a loss of revenue which is prejudicial, he may
pass an order for enhancing or modifying the assessment or cancelling the assessment and
directing a fresh assessment.
2. It is mandatory for him to issue a notice in case he takes up a case to determine revenue. This
is so that a reasonable opportunity to be heard is given to the assessee.
3. The time limit for the same is 2 years from the end of the financial year. There is no time limit
to revise an order as a consequence of any finding of the ITAT, HC or SC.
4. A revision order passed by the CIT may be appealed against before the ITAT, then to the HC
and finally to the SC.
5. Section 264, further provides that in case of a delay in submission of an application for
appeal, then an application for revision may be made to get relief from the original assessment
order.
6. An application for revision may be filed relating to tax assessed, penalty or interest.
7. There is no appellate authority against the order passed by the CIT when such application is
made by the assessee.
8. The time limit for the same is one year from the end of the financial year in which the
application is made by the assessee.
Special provision to avoid repetitive appeals (S. 158A)
12
 1. When the assessee claims that any questions of law arising in his case which is pending before
the assessing officer or appellate authority which is identical to a question of law in another
assessment year which is pending, he may furnish a declaration in Form 8.
2. Such declaration would means that the assessee agrees to apply the final decision in the
relevant case and he shall not raise such questions of law in an appeal.
Advance Ruling
1. Section 245N provides certain definitions which are as follows:
i. Advance ruling means a determination by the Authority in relation to:
a. A transaction which has been undertaken or is proposed to be undertaken by a non-
resident applicant;
b. The tax liability of a non resident arising out of a transaction which has been
undertaken or is proposed to be undertaken by a non-resident applicant relating to
questions of law or fact;
c. Computation of total income pending before any authority or appellate tribunal
relating to any questions of law and fact.
ii. Applicant means any person who is:
a. A non-resident as referred to above;
b. A resident;
c. A resident falling within any such class or category of persons as the Central
Government may notify
d. Makes an application.
2. S. 245O of the IT Act states that a non-resident assessee who in the future will undertake a
transaction in India, may take an advance opinion on Income Tax Law from the Authority for
Advance Rulings.
3. This Authority for Advance Rulings shall consist of the following members appointed by the
Central Government:
i. A Chairman, who is a retired Judge of the SC;
ii. An officer of the Indian Revenue Services who is qualified to be a member of the
CBDT (Central Board of Direct Taxes);
iii. An officer of the Indian Legal Services or who is qualified to be the Additional
Secretary to the Government of India.
4. The headquarters for the Authority for Advance Rulings will be at New Delhi.
5. Application and Procedure for Advance Ruling (S. 245Q and S. 245R)
i. If an applicant is a non resident, he shall have to submit Form 34C; if he is a person
notified by the Central Government he shall submit Form 34E and in any other case
Form 34D.
ii. Such application shall be in quadruples and shall be accompanied with a Demand
Draft of Rs. 2500 and signed by the assessee himself.
iii. After duly receiving the application, a hearing shall be scheduled.
iv. Before the hearing, the Secretary shall collect the required information from the CIT
of the respective jurisdiction.
v. The applicant shall have an option of withdrawing such application within 30 days.
vi. The Authority for Advance Rulings shall give the applicant to remove any defect from
the application by sending such application to the applicant.
vii. The Authority for Advance Rulings may reject the application in the following three
cases:
a. If the applicant is not a non-resident;
b. The question of law or fact is pending before any other IT authority or appellate
authority.
c. The question posted in the application has been decided earlier.
6. Such ruling shall be binding for that specific case on the applicant, the CIT and any other IT
Authorities in the jurisdiction of the applicant. (S. 245S).

13
 7. All proceedings before the Authority for Advance Rulings shall be judicial proceedings and it
shall have the powers of a civil court as under S. 195 of the CPC. (S. 245U).

1.7 PENALTIES, OFFENCES AND PROSECUTION

1. Whenever any default is committed by an assessee with respect to non-compliance with law,
he has to give a penalty. However, if this default takes place repeatedly and there is a
deliberation of the acts of the assessee, it shall be an offence.
2. There is a necessity to establish mens rea as to the intention to avoid tax illegally. The burden
of proof regarding this lies on the IT Department.
3. Before lodging a complaint, prior permission of the Commissioner must be taken. Such
complaint is to be lodged at the nearest police station after which the officer-in-charge
conducts an inquiry.
4. Such offences are cognisable and bailable and thus, the Commissioner has the power to
compound the offender by payment of compounding amount which is twice the amount of
tax evaded [S. 279(2)].
5. The power to conduct a trial is with the JMFC or Metropolitan magistrate.
6. The complaint is lodged through an IT Officer.
7. However, if a penalty is levied, then prosecution of the offence cannot take place.
8. The punishment may be simple or rigorous punishment not exceeding 3 years or fine.
9. The Criminal Procedure Code shall apply for all matters regarding filing of complaint.
10. The penalties and offences under the Income Tax Act are as follows:

S. No. Section Default/Offence Punishment

1. 275 A Dealing with seized assets in Imprisonment not exceeding 2

contravention of the order made by the years and fine.
Officer conducting search

2. 275B Failure to afford facility to conduct Imprisonment not exceeding 2

inspection of records maintained on years and fine.
electronic media

3. 276 Fraudulent removal, concealment or Imprisonment not exceeding 2

transfer of property to thwart recovery years and fine.
of tax

4. 276B Failure to pay tax to the Government Minimum: 3 months and fine
Treasury after deducting TDS
Maximum: 7 years and fine

5. 276C (1) Wilful attempt on any manner to If tax payable is less than Rs.
evade tax, interest or penalty 1 lac – 3 years and fine.
If tax payable exceeds Rs. 1
lac – 7 years.

6. 276D Wilful failure to produce books of 1 year and fine of Rs. 10 per
accounts, documents registered under day during which default
S. 42 or wilful failure to have accounts continues.
audited as per directions

7. 277 If a person makes a statement un any If tax payable exceeds Rs. 1

verification which he either knows or lac – rigorous punishment not
believes to be false less than 6 months and not
exceeding 7 years and fine.

14
 In any other case - rigorous
punishment not less than 3
months and not exceeding 3
years and fine.

8. 278 Abetment or inducement to others to If tax payable is less than Rs.

make false statements in relation to 1 lac – 3 years and fine.
any income of the assessee
If tax payable exceeds Rs. 1
lac – 7 years.

9. 278A Punishment for second or subsequent Imprisonment no exceeding 7

offences years and fine.

10. 221(1) Failure to pay the whole of any part of A penalty which shall not
the self assessment tax or interest. exceed the amount of tax in
arrears

11. 221(2) Failure in making the payment of tax, A penalty which shall not
interest or any demand within the exceed the amount of tax in
prescribed time arrears

12. 271(b) Failure to comply with a notice on self Penalty of Rs. 10000 for each
assessment or regular assessment or ex failure.
parte assessment or getting accounts
audited

13. 271(c) Concealing particulars of income or Minimum penalty of tax

furnishing accurate particulars of sought to be evaded and
income maximum 3 times such
amount.

14. 271A Failure to keep, maintain or retain Rs. 25, 000

books of accounts or any documents
prescribed.

15. 271B Failure to produce audited accounts or Minimum penalty of 1.5% of

a report of such accounts total turnover of sales or of
gross receipts not exceeding
Rs. 1 lac.

16. 271D As per S. 269SS, every loan or deposit Amount of loan or deposited
of more than Rs. 20,000 shall be by taken or accepted.
cheque only, contravention of this
shall be penalised

17. 271E Any amount repayable under S. 269SS Amount of loan or deposited
if not done by way of a cheque shall taken or accepted.
be a contravention

18. 271F Failure to furnish return of income by Rs. 5000

the end of the assessment year

19. 272B(1) Person failing to apply for a PAN or Rs. 10000 penalty
fails to quote the PAN or if the PAN
quoted is false

15
 20. 273B If reasonable cause is shown to have NO PENALTY
defaulted from 10-19,

11. If any of the above offences are committed by companies, the managing director shall be
liable and any other director who is liable for the business of the company.
12. In case of an HUF – the karta is liable.
13. In case of a partnership firm – all partners shall have joint and several liabilities.

1.8 TAX AUDIT

Procedure for assessment:
1. Section 139 talks about return of income.
Section 139(3) says that if any person has sustained any loss in the previous year under the
head ‘Profits and gains of Business and Profession’ or ‘capital gains’ and claims the loss or
any part should be carried forward then he may furnish within time allowed, a return of loss in
the prescribed form and verified in prescribed manner along with required particulars and all
provisions will apply as if it were a return under S. 132(1).
2. Section 139(4) says any person who has not furnished a return within time allowed to him
under the section or within time allowed under a notice under S. 142(1), he may furnish a
return for any previous year at any time before the expiry of one year from the end of the
relevant assessment year or before the completion of assessment, whichever is earlier.
3. However, where the return relates to the previous year relevant to the assessment year
commencing on 1/4/1988 or before then the one year is construed as two years from the end
of the relevant assessment year.
4. Section 139(4A) states that every person in receipt of income derived from property held
under trust or any other legal obligation wholly or partly for religious or charitable purposes
or income from voluntary contributions, shall furnish a return of such income of previous year
in the prescribed form and verified in prescribed manner along with required particulars and
all provisions will apply as if it were a return required to be furnished under S. 132(1).
5. This is incase, the total income as representative assessee exceeds the maximum amount not
chargeable to tax.
6. Section 139(4B) states that the Chief executive officer of every political party shall furnish a
return of such income of previous year in the prescribed form and verified in prescribed
manner along with required particulars and all provisions will apply as if it were a return
required to be furnished under S. 132(1). This is only if the total income in respect of which
the political party is assessable exceeds the maximum amount not chargeable to tax.
7. Section 139(4C) states that every scientific research association, news agency, association or
institution, fund or trust or university or other educational institution or hospital or medical
institution or trade union under Section 10 shall furnish a return of such income of previous
year in the prescribed form and verified in prescribed manner along with required particulars
and all provisions will apply as if it were a return required to be furnished under S. 132(1).
8. This is applicable only when the total income in respect of such exceeds the maximum
amount not chargeable under tax without giving effect to provisions under Section 10.

16
 9. Section 139(4D) states that every university, college or other institution referred to under
Section 35, which is not required to furnish return of income or loss under any other
provisions of S.139 shall furnish return with respect to its income or loss in every previous
year and all provisions of the act shall apply as if it were a return required to be furnished
under S. 139(1).
10. Section 139(5) states that any person having furnished return under S. 139(1) or in pursuance
of a notice issued under S. 142(1) discovers any omission or wrong statement then he may
furnish a revised return at any time within one year from the end of the relevant assessment
year or before completion of assessment, whichever is earlier.
11. Where the return relates to the previous year relevant to the assessment year commencing on
1/4/1988 or before then the one year is construed as two years from the end of the relevant
assessment year.
12. Section 139(9) states that where the Assessing Officer considers return furnished to be
defective, he may intimidate the defect to the assessee and give him 15 days from the date of
intimidation or time period prescribed by him to rectify the defect.
13. If such defect is not rectified within the 15 days or the prescribed period then it shall be
treated as an invalid return and the provisions of the act will apply as if he has failed to furnish
the return.
14. This is provided if the assessee rectifies the defect after the expiry of 15 days or the prescribed
time but before assessment is made then the Officer may condone the delay and treat the
return as a valid one.
15. Section 272A states the penalty for failure to answer questions, sign statements, furnish
information, returns or statements, allow inspection etc.
16. Section 272A (2) states that if any person fails to furnish the return of income which he is
required to furnish under S. 139 (4A) or (4B) or to furnish it within the prescribed time limit
and manner required by the section then he shall pay as penalty Rs 100 per day of continuance
of failure.
Permanent Account Number (PAN): Section 139A
1. in the following cases PAN is mandatory under the Section:
i. Of the total income of assessee which is assessable under this act exceeds maximum
amount which is chargeable to tax in any previous year.
ii. If he is carrying on any business or profession whose total sales or gross receipts is
likely to exceed Rs. 5 Lakhs in any previous year.
iii. Assessee who is required to furnish the return of income under S. 139(4A) may apply
to the assessing officer for allotment of the PAN.
iv. The assessing officer may issue a notice to opt PAN or he may allot PAN in respect of
the nature of transaction which is likely to be taxed under the act.
2. Quoting of PAN is compulsory in certain transactions:
i. Sale or purchase of any immovable property valued at more than 5 Lakhs.
ii. Sale or purchase of motor vehicle other than 2 wheeler.
iii. Time deposit exceeding Rs 50000 with banking company, bank or institutes.

17
 iv. Deposit exceeding Rs. 50000 in post office savings bank.
v. Opening an account with bank or banking institutions
vi. Application for installation of telephone connection.
vii. Payment in cash for purchase of bank draft or banker’s check of more than Rs 5000 in
one day.
viii. Deposit in cash of 50,000 or more.
ix. Payment of an amount to any mutual fund or acquiring shares or debentures.
Assessment:
1. The return under S. 139 shall be signed and verified:

Incase of: Signed and Verified by:

Individuals - By the individual himself;

- Where he is mentally incapacitated from attending to
his affairs by guardian or any other person competent
to act on his behalf;
- Where he is absent from India, by individual himself or
any other person (holds valid power of attorney and
attaches to return) authorised by him;
- Where for any other reason, it is not possible to sign the
return by person duly authorised by him (holds valid
power of attorney and attaches to return).

HUF - The karta;

- If the karta is absent or mentally incapacitated, by any
adult member of the HUF.

A company - By the Managing Director; or

- If due to unavoidable reason the MD is unable to sign it
or is no MD, by any director thereof.
Provided if company is not resident in India then return is
signed and verified by person who is duly authorised by a
power of attorney which is attached to the return.
Provided that where the company is being wound up, whether
under the orders of the company or otherwise, or where person
has been appointed as receiver of the company, the return shall
be signed and verified by the liquidator appointed.
Also provided that where the management of the company has
been taken over by the government (state or central) under any
law, the returns shall be signed and verified by the principal
officer thereof.

Firm - By the Managing Partner;

18
 - If due to unavoidable reason the Managing partner is
unable to sign it or there is no Managing partner then
any partner.

Limited liability - By the Designated Partner;

partnership
- If due to unavoidable reason the designated partner is
unable to sign it or there is no designated partner then
any partner.

Local authority - Principal officer

Political party - Chief executive officer

Any other - By any member of the association; or

association
- Principal Officer.

2. The three types of assessments include:

i. Self assessment under S. 140A;
ii. Regular assessment under S. 142;
iii. Best judgment or ex parte assessment under S. 144.
3. Self assessment under S. 140A:
i. Where any tax is payable on the basis of any return to be furnished under S. 139 then
after taking into account:
a. The amount of tax already payable under any other provision of the act;
b. Any tax deducted or collected at source;
c. Any relief or deduction of tax claimed on account of tax paid outside India;
d. Any tax credit claimed to be set off in accordance with the provisions of the act,
ii. The assessee shall be liable to pay such tax together with interest payable under any
provisions of this act for any delay in furnishing the return or any default or delay in
payment of advance tax before furnishing the return.
iii. The return shall be accompanied by receipt of payment of such tax and interest.
iv. If he fails to pay wholly or partly such tax and interest then he shall be an assessee in
default in respect to the unpaid amount of tax and interest under the provisions of the
act.
4. Regular assessment under S. 142:
i. To make an assessment, the Assessing Officer may serve a notice on any person who
has made a return or to whom time was allowed to furnish return has expired-
a. Where such person has not made a return within the time allowed under S. 139 or
before the end of the relevant assessment year in the prescribed form and manner
furnished return; or

19
 b. To produce, or cause to be produced such accounts or documents as the Assessing
Officer may require; or
c. To furnish in writing and verified in the prescribed form and on such matters as the
Assessing Officer may require. Such accounts should not be for more than 3 years
prior to the assessment year.
ii. The Assessing Officer can make an enquiry as he considers necessary for the purpose
of obtaining full information of the income or loss of the person.
iii. The Officer can also if he feels necessary ask the assessee to get his accounts audited ,
with the previous approval of the Chief commissioner or commissioner but only after
giving the assessee reasonable opportunity to be heard.
iv. Every audit report shall be furnished by the assessee within such period as specified by
the Assessing Officer.
v. The Assessing Officer may, on his own or on application of the assessee and for any
good and sufficient reason extend the time period to any period he deems fit, such that
total period granted does not exceed 180 days.
vi. The assessee shall be given an opportunity to be heard in respect of any material
gathered on the basis of an inquiry or audit and proposed to be utilized for the
purposes of the assessment.
5. Best judgment or ex parte assessment under S. 144:
i. If any person fails to make return or revised return, fails to comply with directions or
terms of notice, or makes return but fails to comply with the notice then the Assessing
Officer shall make the assessment of the total income to the best of his judgment and
determine the sum payable by the assessee on the basis of such assessment.
ii. The Officer makes such assessment after taking into account all relevant material
which the Officer has gathered.
iii. Also after giving the assessee an opportunity to be heard by serving a notice calling
upon the assessee to show cause as to why assessment should not be made to the best
of his judgment on date and time specified in notice.
iv. There is no need to give opportunity to be heard in case notice issued before making
assessment under this section.
6. Section 145 states method of accounting:
i. Income chargeable under the head ‘profit and gains of business or profession’ or
‘income from other sources’ shall be computed in accordance with either cash or
mercantile system of accounting regularly employed by the assessee.
ii. This provided that the Central Government notify in the Official Gazette from time to
time accounting standards to be followed by any class of assesses or for any class of
income.
iii. The Assessing Officer can make an assessment as given under S.144 if he is not
satisfied with the correctness or completeness of accounts of the assessee or where the
method of accounting or accounting standards are not followed by the assessee.
7. Section 147 talks about income escaping assessment:

20
 i. If the Assessing Officer has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year then he may assess or reassess such
income and also any other income chargeable to tax which has escaped assessment and
has come to his notice subsequently in the course of the proceedings under this
section.
ii. He may also recompute the loss or depreciation allowance or any allowance for the
assessment year concerned. The Officer cannot assess or reassess income involving
matters which are subject matters of any appeal, reference or revision.
iii. This is provided the section has been used for the relevant assessment year; no action
shall be taken under this section after the expiry of 4 years from the end of the relevant
assessment year.
iv. This is not applicable and assessment can be made even after expiry of 4 years where
any income chargeable to tax has escaped assessment by reason of failure on the part
of the assessee to make return or to disclose fully or truly all material facts necessary
for his assessment in the assessment year.
v. During the period of regular assessment following shall be deemed to be cases where
wealth has escaped assessment-
a. No return of income is filed even though it exceeds the maximum amount not
liable for tax;
b. Where the return of income has been furnished and the assessing officer is of the
opinion that some of the wealth has escaped as the assessee has understated the
income or claimed excessive loss, deduction or relief.
8. Section 149 talks about time limit for notice:
i. No notice under S. 148 (notice issued where income has escaped assessment) shall be
issued for the relevant assessment year-
a. If 4 years have elapsed from the end of the relevant assessment year;
b. If 6 years have elapsed from end of the relevant assessment year incase escaped
assessment amounts to Rs 1 lakh or more for that year.
ii. The provisions under S.149 are subject to S. 151, which gives sanction for issue of
notice.
iii. If notice is issued to the agent of a non-resident and the assessment, reassessment or
re-computation to be made in pursuance of notice is to be made on such agent, then the
notice shall not be issued after expiry of 2 years from end of relevant assessment year.

21
1.9 TAXATION OF CHARITABLE TRUST AND CO-OPERATIVE SOCIETIES

Charitable Trust
1. S. 2 (15) defines charitable purpose to include relief to the poor, education, medical relief,
preservation of environment and preservation of monuments and places or objects of artistic
or historic interest and the advancement of any other object of general public utility.
2. Section 11 further states that to avail of such exmeption, the trust must be created after April
1, 1952.
3. Under S. 11, any income derived from property held under trust wholly for charitable or
religious purposes is exempt from tax subject to certain conditions which are as follows:
i. The trust should be registered with the IT Commissioner
ii. The accounts of the trust must be audited if the income of such trust exceeds Rs.
1,60,000 in the previous year.
iii. 85% of the income should be applied for approved purposes
iv. The unapplied income should be invested or deposited in specified forms or modes.
4. Any voluntary contributions received by the trust shall be treated as income for the purposes
of S. 11.
5. Every trust must submit a registration form to the IT Commissioner in Form 10A before the
expiry period of 1 year from the date of creation of the trust or establishment of the
institution, whichever is later.
6. The Commissioner may call for any documents to inquire into the details of the trust. After
being satisfied of the genuineness of the trust’s activities, the Commissioner may register the
trust, which is then sent to the applicant.(Section 12)
7. The Commissioner may refuse the registration of a trust. In such a case, the Commissioner
must give the applicant a reasonable opportunity to be heard.
8. The amount equivalent to 15% of the income of the trust shall be exempt from tax even if
such amount is not spent on the objects of such trust. Even if such income is permanently
retained by the trust, it can be exempt from tax. [S. 11(1) (a)]
9. For calculating this 15% of the income, donations and contributions shall also be included.
10. When the trust hold property outside India for the purposes of the trust to promote
international welfare, prior permission of the CBDT must be taken. [S. 11(1) (c)]
11. When there is a voluntary contribution for a specified purpose, the same shall be eligible for
85% exemption. If 60% of such contribution is spent, then 25% shall still be eligible for
exemption. [S. 11(1) (d)]
12. Corpus donations shall be eligible for 15% exemption on such amount and it may be carried
forward to the next year. However, such donation must be utilised within 8 years.
13. When there is a donation with a specific condition for which a fund is created, the donations
shall be exempt from tax. It is necessary that a fund be made for s special purpose.
14. The funds of the charitable trust must be invested in or deposited in the following: Units of
UTI, Government bonds, immovable property, etc. (S. 11(5))
15. Section 13 lists the income which shall not be exempt under S.11 which are as follows:
i. The income from the property held under the trust for private religious purpose which
does not ensure benefit of the public.
ii. The income of the charitable trust which is used for the benefit od a particular
religion, community or caste (other than those formed for OBS, SC/ST, women or
children).
iii. Any income used directly or indirectly, for the benefit of the author, founder,
manager, trustee, any relatives of these people who have made a contribution above
Rs. 50,000.
iv. Any income or contribution invested in contravention of S. 11(5).
v. Income from the charitable trust which is not incidental to the objectives of the trust.

22
 vi. Any voluntary contribution for which the identity of the person making the donation
is unknown. (Anonymous donations shall be taxed @ 30%).
16. If the income of the charitable trust is not applied for the purpose it was to be applied for and
if tax returns are not filed, then the registration may be cancelled.
17. Further, the charitable trust is required to file returns u/S. 139 (4) of the IT Act if such
income is chargeable to tax.
Co-operative Societies
1. A co-operative society is defined under S. 2 (19) as a co-operative society registered under the
Co-operative Societies Act. 1912 or any other law for the time being in force in any State for
the registration of co-operative societies.
2. The following steps need to be followed in order to assess tax liability of so-operative
societies:

Gross total income of the Cooperative society xxxx

Add: Income from house property xxxx
Add: Income from business and profession xxxx
Add: Income from other sources xxxx
Add: deemed income of other persons to be included xxxx
Less: Deductions on set off and carry forward (xxx)
Gross Total Income xxxxx
Less: Deductions u/s 80 (xxx)
Net Taxable Income XXXX
3. Where, in the case of an assessee being a co-operative society, the gross total income includes
any income referred to hereunder.
4. The whole of the amount of profits and gains of business in the case of a co-operative society
engaged in any one or more of such activities:
i. carrying on the business of banking or providing credit facilities to its members; or
ii. a cottage industry; or
iii. marketing agricultural produce grown by its members; or
iv. the purchase of agricultural implements for the purpose of supplying them to its
members; or
v. the processing, without the aid of power, of the agricultural produce of its members, or
vi. the collective disposal of the labour of its members, or
vii. fishing or allied activities, for the purpose of supplying them to its members,
                  
5. The whole of the amount of profits and gains of such business in case of a co-operative
society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables
raised or grown by its members to
i. a federal co-operative society, being a society engaged in the business of supplying
milk, oilseeds, fruits, or vegetables, as the case may be; or
ii.  the Government or a local authority; or
iii. a Government company or a corporation established by or under a Central, State or
Provincial Act (being a company or corporation engaged in supplying milk, oilseeds,
fruits or vegetables, as the case may be, to the public),
23
 6. In the case of a co-operative society engaged in activities other than those specified above so
much of its profits and gains attributable to such activities as does not exceed,
i. where such co-operative society is a consumers co-operative society, one hundred
thousand rupees; and
ii. in any other case, fifty thousand rupees.

7. In respect of any income by way of interest or dividends derived by the co-operative society
from its investments with any other co-operative society, the whole of such income;
8. In respect of any income derived by the co-operative society from the letting of godowns or
warehouses for storage, processing or facilitating the marketing of commodities, the whole of
such income;
9. Where the gross total income does not exceed twenty thousand rupees, the amount of any
income by way of interest on securities or any income from house property chargeable in case
of a co-operative society, not being
i. a housing society or
ii. an urban consumers society or
iii. a society carrying on transport business or
iv. a society engaged in the performance of any manufacturing operations with the aid of
power,
10. The provisions of this section shall not apply in relation to any co-operative bank other than a
primary agricultural credit society or a primary co-operative agricultural and rural
development bank.
11. The tax slab for co-operative societies is as follows:

Income Rate of Tax

Upto Rs. 10000 10%

10000-20000 20%

Above 20000 30%

** Please check sum on taxability of co-operative societies.

INCOME TAX AUTHORITIES AND POWERS (Not under any specific unit but taught in class)
1. Section 116: There shall be the following classes of income-tax authorities for the purposes of
this Act, namely :- 
i. The Central Board of Direct Taxes constituted under the Central Boards of Revenue
Act, 1963 (54 of 1963),
ii. Directors-General of Income-tax or Chief Commissioners of Income-tax,
iii. Directors of Income-tax or Commissioners of Income-tax or Commissioners of
Income-tax (Appeals),
iv. Additional Directors of Income-tax or Additional Commissioners of Income-tax or
Additional Commissioners of Income-tax (Appeals),
v. Joint Directors of Income-tax or Joint Commissioner of Income-tax;
vi. Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy
Commissioners of Income-tax (Appeals),
vii. Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
viii. Income-tax Officers,
ix. Tax Recovery Officers,
x.  Inspectors of Income-tax 

24
2. Powers of C.B.D.T:
The board works under the Ministry of Finance and has power of administration, supervision
and control in the area of direct taxes levied by the Central govt which are:
i. To declare any institution, association or body to be a company.
ii. To direct income from property held under a trust not to be included in total income.
iii. To notify any probation covered under the 44AA.
iv. To prescribe the period in which person is called as technician.
v. To make rules and specify permanent disability for the purpose of S. 88.
vi. Exercise control over IT authorities by issuing notifications.
vii. Issue instructions, orders and directions to subordinate authorities.
3. S. 120- Jurisdiction of IT Authorities:
IT Authorities carry out all functions as directed by the Board by exercising their powers.
They have got jurisdiction according to the following criteria:
i. Territorial area;
ii. Person or class of persons;
iii. Income or class of incomes;
iv. Cases or class of cases.
4. S. 131- Important powers of the IT Authorities:
i. Power similar to a court with respect to –
a. Discovery and inspection of evidence;
b. Enforcing attendance of any person;
c. Compelling production of books of accounts and other documents;
d. Issuing commissions.
ii. S. 133A gives power of survey:
An IT Authority may enter into any place:
a. Within the limits of the area assigned to them;
b. Occupied by any person who they can exercise jurisdiction upon;
c. Over which has authority under the act.
iii. S. 132 give power of search and seizure.
iv. Power to retain books of accounts (S. 132A).
v. Power to call for information (S. 133).
vi. S. 116-120 give power to delegate from higher ranking officer to subordinate officers.

25
RANDOM STUFF TAUGHT IN CLASS

Section 275: limitation for imposing penalty:

i. Where penalty is to be levied for concealment or furnishing inaccurate information of
income under S. 271(1)(c). The order is passed by assessing officer on or before
expiry of financial year in which assessment proceedings are completed. Otherwise
cases in which order of commissioner appeal is received for the purpose of levy of
penalty on or before 1 year from end of financial year in which order is received.
ii. Where penalty levied under order passed under S. 250 by commissioner appeals then
on or before expiry of 6 months from the end of the month in which order for tribunal
was received.
iii. Where penalty levied for default other than concealment of income order passed
within 6 months from end of the month of completion of the proceedings.
Security Transaction Act:
1. Security Transaction Tax (STT) was introduced from 1st Oct 2004 under this provision. STT is
payable on the transactions of purchase and sale of shares, debentures etc entered into
recognised stock exchange and sale of certain mutual funds transactions.
2. The rate of STT is as follows:
i. Purchase of an equity share in a company or a unit of an equity oriented fund, taxable
security transaction rate of tax is 0.125% payable by purchaser, where;
a. A transaction of such purchase is entered into recognised stock exchange;
b. The contract of purchase of share or units is settled by actual delivery or
transfer of such shares or units.
ii. Sale of an equity share in a company or a unit of an equity oriented fund, where the
transaction is entered into recognised stock exchange and delivery is given at the rate
of 0.125% payable by seller.
iii. Sale of equity share in a company or units of an equity oriented funds otherwise than
actual delivery. Rate of tax is 0.025% payable by seller only.
iv. Sale of an opinion in securities, rate of tax is 0.017% payable by seller.
v. Sale of an option in securities where option is exercised, rate of tax is 0.125% payable
by purchaser.
vi. Sale of unit of an equity oriented fund to a mutual fund, rate of tax is 0.25%.

26
UNIT II: WEALTH TAX ACT
2.1: DEFINITION, ASSESSMENT YEAR, VALUATION DATE, ASSESSABLE ENTITIES
1. Application to the whole of India having effect from 1-4-57. Wealth tax is chargeable on the
following basis: (S. 3(2))
i. Wealth tax is chargeable only in case of 3 categories of persons- individual, HUF and
company.
ii. Wealth tax is chargeable at 1% on the net wealth exceeding Rs. 30, 00,000.
iii. Net wealth of the assessee is to be computed as on the valuation date i.e. 31st March,
immediately preceding the relevant assessment year.
iv. Net wealth in case of HUF and Company is computed on the basis of residential status
of the previous year ending on the valuation date.
v. Net wealth in case of Individual is computed on the basis of his nationality and
residential status of the previous year ending on the valuation date. The residential
status is to be determined in same manner as laid down under S.6 of the Income Tax
Act.
2. The expression ‘individual’ includes the following:
i. The trustee of a private trust. Joint trustees of a private trust are regarded as a unit for
the purpose of taxation and they can be assessed to Wealth tax in the status of an
individual in respect of the value of the properties held by them in the trust, and not as
association of persons.
ii. Hindu deities;
iii. Holder of an impartible estate;
iv. Heirs of an individual, who died intestate leaving behind his self-acquired property
will be assessed in their individual capacity;
v. Association of persons, where the shares of the members are indeterminate or
unknown;
vi. Mahila Marumakkathayam Tarwards.
3. The expression Hindu Undivided Family is to be construed in the sense in which it is
understood under Hindu Law. HUF is to be considered as given under the IT Act and as per
decision of the courts. Jain and Sikh families are not governed by Hindu Law but for the
purpose of IT Act are treated as HUFs.
4. If the Karta of the HUF dies then the HUF does not cease to exist. The share of the Karta
devolves on his heirs and is assessed in their individual hands. The remaining property will
continue to be assessed in the hands of the HUF.
5. Company under the act will have the meaning assigned to it in S. 2(17) of the IT act.
6. S. 45 gives lays down persons not liable to pay wealth tax, this includes:
i. Any company registered under S. 25 of the Companies Act, 1956 (non-profit making
companies);

27
 ii. Any co-operative societies;
iii. Any social club;
iv. Any political party;
v. Any mutual fund specified under S. 10(23D) of the IT Act.
7. Apart from persons excluded under S.45, persons specifically excluded from wealth tax
include- associations of persons (except when their shares are determinate and can be taxed
individually), local authority, artificial juridical person, public charitable or religious trusts
other than those covered under S. 21A.
8. Valuation date (S. 2q): valuation date in relation to any year for which an assessment is to be
made under the act means the last day of the previous year as defined in S3 of the IT Act. In
other words, it shall be 31st March preceding the relevant assessment year.
9. Assessment year (S. 2d): assessment year means a period of 12 months commencing on 1st
April every year. This period of 12months will be immediately successive to the valuation
date.
10. Assessee (S. 2c): assessee means a person by whom wealth tax or any other sum of money
including penalty and interest is payable under this act. Includes:
i. Every person in respect of whom any proceeding under this act has been taken for the
determination of wealth tax payable by him or any other person or amount of refund
due to him or any other such person.
ii. Every person who is deemed to be any assessee under the act;
iii. Evert person who is deemed to be an assessee in default under any provisions of the
act.
2.2: ASSET EXEMPT FROM TAX
Section 5: Assets or Deemed assets which are exempt from wealth tax:
1. Property under a trust (S. 5(i)):
Any property held by the assesseee under legal obligation for the public purpose of charitable
or religious nature in India is exempt from tax. However, this exemption shall be fortified
under S21 A if:
i. Any part of such property or any income for such trust applied for the benefit of
persons referred under S. 13(3) of the IT Act; or
ii. Any part of income of the trust used for interested persons in the trust; or
iii. Any funds of the trust are invested or deposited in any mode other than given under S
11(5).
The above exemption shall not apply to any property forming part of any business carried on
by the above trust. In some cases the exemption will continue where
i. Such business is carried on for attaining objectives of the trust institution and separate
books of account have been maintained for such business.

28
 ii. The institution is carrying a business for the khadi or village industries and not for the
purpose of profit. Also to collect certain funds for donating to the PM’s national relief
funds, universities, educational or medical institutions.
2. Interest in the coparcenary property of the HUF (S. 5(ii)):
As the HUF is itself a unit of taxation under the wealth tax act, the interest of the assessee in
the coparcenary property of any HUF where assessee is a member shall be exempted from tax.
3. One official residence of a ruler (S. 5(iii)):
The erstwhile ruler of an Indian state has been given an exemption in respect of any one
building in his occupation which is declared by Central govt as his official residence before
the commencement of constitution.
In Mohammad Ali &Khan v. CWR; the portion of the palace which was let out was not
exempted, only part where ruler actually residing. In CWT v. D.S. Virawala Suragwala; held
that if the official residence was demolished and reconstructed then the exemption is still
available after reconstruction.
4. Heirloom jewellery of an erstwhile ruler (S. 5(iv)):
A former ruler is granted exemption for jewellery in his possession, subject to the following
conditions:
i. Such jewellery should not be his personal property;
ii. Such jewellery must have been recognised before 1-4-1957 by the Central govt or by
the CTBT at the time of his first wealth tax assessment as his heirloom jewellery.
Where the recognition has been recognised by the Central govt then the following conditions
must be satisfied with effect from 9-9-1972:
i. The jewellery should be kept in India and should not be moved out of India except by
purpose and period approved by the board;
ii. Substantial steps taken to keep jewellery in original shape;
iii. Reasonable facilities should be allowed to any officer of the govt authorised by the
board to examine the jewellery as and when necessary.
5. Money and the assets brought into India by citizens of India or persons of Indian origin (S.
5(v)):
Any assessee who is an individual is entitled to exemption under this clause in respect of any
money or asset brought into India provided the following conditions are satisfied:
i. Such individual should be a citizen of India or a person of Indian origin;
ii. He was ordinarily residing in a foreign country;
iii. He has returned to India with the intention of permanently residing in India.
Assets which are exempt if the above conditions are satisfied are:
i. Money and value of assets brought by him to India; and
ii. Value of all assets acquired by him with such money within one year immediately
preceding the date of his return and/or any time thereafter.

29
 The exemption in this case is available for a period of 7 successive assessment years,
commencing with the commencing with the assessment year next following the date of return
to India.
6. One house or a part of a house (S. 5(vi)):
Exemption under this clause is available only to individual and HUF assessee. The exemption
is allowed with respect to one house or part of a house or a plot of land not exceeding 500 sq
metres, in any area. The house may or may not be residential.
Section 6: exclusion of assets and debts outside India:
The exclusion under this section depends on –
i. Nationality and residential status in case of individual;
ii. Residential status in case of company and HUF.
These exclusions include:

Type of Person Whether assets to be Whether debts to be

included deducted

Located in Located Located Located outside

India outside India in India India

In case of an individual
who is an Indian National:
1. resident and ordinary
resident of India Yes Yes Yes Yes

2. resident but not Yes No Yes No*

ordinary resident of India
3. non-resident
Yes No Yes No*

In case of an individual Yes No Yes No*

who is a foreign national

Incase of a HUF:
1. resident and ordinary Yes Yes Yes Yes
resident
Yes No Yes No*
2. non-resident or resident
but not ordinary resident

In case of a company:
1. resident Yes Yes Yes Yes
2. non-resident Yes No Yes No*

*(unless incurred in relation to assets in India)

1. When assets and debts located outside India should not be included in the net wealth of an
individual: Except when an individual is a citizen and resident and ordinary resident of India.

30
 2. When assets and debts located outside India shall not be included in the net wealth of a HUF:
Except when HUF is resident and ordinarily resident in India.
3. When assets and debts are located outside of India shall not be included in the net wealth of
the company: except when the company is a resident of India.
4. If A returns to India in 0ct 2006:
i. Sends money to India on 5 Nov 2005 and purchases gold for it on 28 Nov 2005, then
money is taxable on 31-3-2006 and exempted for 7 years from 31-3-2007.
ii. He sends Rs 20 Lakhs on 5th Aug 2005 and purchased residential plot of land in del on
16 Aug 2005 then, taxable on 31-03-2006 but exempted for 7 years from 31-3-2007.
5. Further instructions were issued in a circular dated 28 Sept 1957 further amended:
i. Tangible immovable property is situated in India, if the property is situated in India.
ii. Rights or interests in or over immovable property or benefits arising from immovable
property are located in India if the immovable property is located in India.
iii. Rights and interest in or over tangible movable property are located in India if such
property is located in India.
iv. Debts secured or unsecured are located in India if they are contracted to be repaid in
India or the debtor is residing in India.
v. Aircraft or motorcars are located in India if they are registered in India.
Debts owed by the assessee:
1. Debts owed by the assessee are deductible from the net wealth, these deductibles include:
i. Debts should have been incurred with respect to those assets which are included in the
net wealth of the assessee;
ii. Debt should be outstanding on valuation date;
iii. Debts located in or outside India shall be deductible on the basis of nationality and
residential status in case of an individual, and HUF and Company will be deductible
based on its residential status.

31
2.3: NET WEALTH, INCIDENCE OF TAX
1. Section 2 (EA): Assets included in net wealth for calculating wealth tax:
ASSET INCLUDED IN CALCULATING
NET WEALTH
House including 1. Any building or land appurtenant
farmhouse whether used for residential or
commercial purpose or guest house;
2. A farmhouse if it is situated within
25kms from the local limits of any
municipality or corporation or
cantonment board.
Motor cars All motor cars whether Indian or
foreign.
Jewellery, bullion, Those made wholly or partly of gold,
furniture and other silver, platinum, or any other precious
utensils metal or any alloy containing one or
more of such precious metals.
Yachts, boats and Yachts, boats and aircrafts are included
aircrafts in net wealth. This includes ships.
Urban land It means land situated:
In any area within jurisdiction of
municipality corporation, town
committee or cantonment board and
which has population of not less than
10,000 according to last census
applicable.
In any are not more than 8 kms from
the local limits of municipality,
corporation, cantonment or any other
area notified in the official gazette.
Cash in hand Incase of individual or HUF, cash in
hand in excess of Rs 50,000 treated as
asset, whether it is recorded in the
books of accounts or not.
In case of any other person it is treated
as asset for any amount not recorded in
books of accounts.
32
EXCLUDED
1. House meant exclusively for residential purposes
and which is allotted by the company to its director or
officer or employee who is in whole time employment
having salary less than 5, 00, 000. Whole time
employment is 8hours or more in a day.
2. Any house for residential or commercial purposes
which forms part of stock in trade.
3. Any house which the assessee may occupy for the
purpose of any business or profession carried out by the
assessee.
4. Any residential property let out for a minimum
period of 300 days in the previous year.
5. Any property in the nature of commercial
establishment or complex.
Motor cars used in the business of running them for
hire. Also those held as closing stock or stock in trade
as a manufacturer or dealer.
If the assets are held as stock in trade. Also gold bonds
are excluded from jewellery.
Those held for commercial purposes.
The following are not treated as urban land:
Land on which construction building is not permissible
under any law for time being in force in that area.
A land occupied by any building which has been
constructed with the approval of appropriate authority.
Any unused land held for industrial purpose for a
period of 2years from date of acquisition.
Any land held as stock in trade for a period of 10 years
from date of acquisition.
In case of individual or HUF; amount less than or up to
Rs. 50,000.
In case of any other person, unrecorded amount of
cash.
Section 2(m)- Net Wealth:
Means the amount by which the aggregate value computed in accordance with the provisions
of the act of all the assets, wherever located, belonging to the assessee on the valuation date,
including assets required to be included in his net wealth as on that date under this act, is in
excess of the aggregate value of all the debts owed by the assessee on the valuation date
which have been incurred in relation to the said assets.
2. Formula to calculate net wealth:

RS. RS.

Value of all assets as on 31st March 20XX XX

ADD: Deemed Assets (S. 4) XX

LESS: Assets exempted (S. 5) XX

LESS: Debts incurred to acquire such assets XX

taxable under the act

NET WEALTH XXX

Basic exemption (30,00,000)

Balance XXX

Wealth tax at 1% of the Balance 1% of XXX

33
2.4: VALUATION OF ASSETS, DEEMED ASSETS IN NET WEALTH
1. Section 4: Deemed assets:
ASSET
Assets transferred to spouse.
Assets held by minor child.
Assets transferred to a
person or association of
persons for the benefit of the
individual or spouse.
Assets transferred to a
person or association of
persons under revocable
transfer
Assets transferred to son’s
wife.
Assets transferred to person
or association of persons for
the benefit of son’s wife.
Converted property
Holder of impartiable estate.
INCLUDES EXCLUDED
Assets held by spouse of an individual to Unless transferred for adequate consideration
whom such assets have been transferred or in connection with an agreement to live
by the individual. apart.
Assets held by minor are to be included Assets taxable in the hands of the minor
in net wealth of minor’s parent. when:
Assets included in net wealth of parent - Assets held by minor child suffering from
as under: any disability under S. 80Uof the IT Act.
- Where marriage subsists included in -Assets held by minor married daughter.
parent with greater net wealth.
-Assets acquired by minor child out of
- Where marriage does not subsist income from manual labour done by him or
included in net wealth of parent who income from activity involving application of
maintains the minor child in the relevant his skill, talent or specialised knowledge or
previous year ending on the valuation experience.
date.
Directly or indirectly, other than for Transfer made for adequate consideration.
adequate consideration for immediate or
deferred benefit of the individual or
spouse.
Also applicable when spouse is given a
right to enjoy the income of such asset
for life without absolute ownership.
All transfers other than irrevocable The value of any asset transferred under an
transfers. irrevocable transfer shall be liable to be
included in computing the net wealth of the
transferor as and when the power to revoke
arises to him.
Transfer directly or indirectly, on or after Transfer made for adequate consideration.
1-6-1973.
Transferred directly or indirectly on or Transfer made for an adequate consideration.
after 1-6-1973 for complete or deferred
benefit to son’s wife.
When an individual, who is a member of Transfer made for an adequate consideration.
an HUF, converts his individual property
after 31-12-1969, to the HUF as a gift or
common stock of family otherwise than
adequate consideration will be
considered part of net wealth of the
individual.
Such holder is deemed to be individual
owner of all properties.
34
 2. Deemed assets which are included incase of following assessee:
i. Interest in a firm or association of persons incase of an assessee who is a partner in a
firm or member of an association of persons, the value of his interest in the assets of
the firm or association is considered as his deemed asset.
ii. Where a gift of money from one person to another is made by entries in books of
account by any one or more of the following persons:
- The donner; or
- An individual or HUF or firm or association of persons with which the donner has
business or any relationship in such a case value of such gift shall be included in the
net wealth of the donner.
iii. Membership under house building scheme, where the assessee is a member of a co-
operative society, company, association of persons and any building or part allotted or
leased to him under house building scheme shall be deemed to be the owner of such
building or part and which is to be included in the net wealth of such person.
iv. A person who is allowed to take or retain possession of any building in part of
performance of contract referred in S. 53A of TOPA shall be deemed to be owner of
such asset.
Provision further states that a person who acquires any rights in any building as owner
of such asset under S. 269 of the IT Act, i.e. (lease for not less than 12 years period)
shall be included in completing net wealth of such person.
3. CWT v. A.S Rathore, 1994 it was held that accretion to the asset shall not be treated as a
transfer covered under S. 4.
4. Section 7: Valuation of assets
Wealth-tax is charged on the net wealth of the assessee, therefore, it is an important function
of the Assessing Officer to determine the value of the assets held by the assessee on the
valuation date. The value of assets, other than cash, as on the valuation date, shall be
determined in the manner laid down in Schedule III of the Wealth-tax Act.
Registered valuers will submit a report with respect to the value of the wealth (i.e. assets). The
assessee can approach a registered valuer to assess the value of the assets.

ASSETS EXCLUDED EXEMPTED

35
 1. House including farmhouse.
2. motor cars
3. Jewellery, bullion, furniture,
utensils.
4. Boats, yachts and aircrafts.
5. urban land
6. cash in hand
7. Assets transferred to spouse.
8. Assets held by minor child.
9. Assets transferred to a person or
association of persons for the
benefit of the individual or
spouse.
10. Assets transferred to a person or
association of persons under
revocable transfer
11. Assets transferred to son’s wife.
12. Assets transferred to person or
association of persons for the
benefit of son’s wife.
13. Converted property
14. Holder of impartiable estate.
2.5: FILING OF RETURNS, COMPUTING OF WEALTH TAX LIABILITY
1. stock in trade 1. Property held
under a trust.
2. house given to employee with salary of
5,00,000 or less 2. Interest in the
coparcenary property
3. Any house which the assessee may occupy of a HUF
for the purpose of any business or profession
carried out by the assessee. 3. One official
residence of a ruler.
4. Any residential property let out for a
minimum period of 300 days in the previous 4. Heirloom
year. jewellery of an ex-
ruler.
5. Any property in the nature of commercial
establishment or complex. 5. Money and assets
brought into India by
6. Motor cars for running business of hiring a citizen or person of
them. Indian origin
7. Yachts, boats and aircrafts used for
commercial purposes.
8. Land on which construction building is not
permissible under any law for time being in
force in that area.
9. A land occupied by any building which
has been constructed with the approval of
appropriate authority.
10. Any unused land held for industrial
purpose for a period of 2years from date of
acquisition.
11. In case of individual or HUF; amount less
than or up to Rs. 50,000.
12. In case of any other person, unrecorded
amount of cash.
13. Assets taxable in the hands of the minor
when:
- Assets held by minor child suffering from
any disability under S. 80Uof the IT Act.
-Assets held by minor married daughter.
-Assets acquired by minor child out of
income from manual labour done by him or
income from activity involving application of
his skill, talent or specialised knowledge or
experience.
14. Transfers made for adequate
considerations.
15. Bank balance
36
1. Section 14 contains the relevant provisions relating to the filing of return of wealth. Section
14(1) of the Wealth-tax act requires every person to furnish return if his net wealth or the net
wealth of any other person in respect to which he is assessable under the act, on the valuation
date exceeds the maximum amount (30, 00, 00) which is not chargeable to tax.
2. Section 14(2) states that a return on net wealth which shows the net wealth below the
maximum amount which is not chargeable to tax (i.e 30,00,000) shall be deemed never to
have been furnished.
3. The provision under 14(2) is not applicable if the return is furnished by the assessee in
response to a notice under Section 17 which deals with wealth escaping assessment.
4. Section 15 says that if any person has not furnished a return within time allowed under S
14(1) or in response to a notice issued under S. 16, he may furnish a return at any time before
the expiry of one year form the end of the relevant assessment year or before the completion
of assessment, whichever is earlier.
5. The SC in Jagdish Chandra Sinha v. CIT held that a belated return cannot be revised.
6. The return made under Ss. 14 and 15 shall be signed and verified by the following as given in
S. 15A.

Incase of: Signed and Verified by:

Individuals - By the individual himself;

- Where he is absent from India, by individual himself or
any other person authorised by him;
- Where he is mentally incapacitated from attending to
his affairs by guardian or any other person competent
to act on his behalf;
- Where for any other reason, it is not possible to sign the
return by person duly authorised by him.

HUF - The karta;

- If the karta is absent or mentally incapacitated, by any
adult member of the HUF.

A company - By the Managing Director; or

- If due to unavoidable reason the MD is unable to sign it
or is no MD, by any director thereof.

7. Provided that where the company is being wound up, whether under the orders of the
company or otherwise, or where person has been appointed as receiver of the company, the
return shall be signed and verified by the liquidator appointed.
8. Also provided that where the management of the company has been taken over by the
government (state or central) under any law, the returns shall be signed and verified by the
principal officer thereof.

37
2.6: ASSESSMENT, PENALTY
1. The process of assessment commences after the submission of return by wealth by the
assessee. The assessing officer can make the assessment in any of the following ways (S.16):
i. Summary assessment;
ii. Ex-parte assessment;
iii. Scrutiny assessment.
2. Summary assessment:
The assessing officer may complete the assessment under this provision about calling assessee
for scrutiny of documents. The assessment officer has to send any intimidation to the assessee
for any tax or interest payable on the basis of return filed by the assessee. The assessing
officer has no right to add any wealth under this provision but he has to complete the
assessment on the basis of information submitted by the assessee.
3. Ex-parte assessment:
It is also known as the best judgment assessment which can be passed under the following
circumstances:
i. Original return is not filed by the assessee and fails to file belated returns also;
ii. Assessee fails to comply with the terms of notices issued for scrutiny assessment;
iii. Assessee fails to produce documents etc.
The officer has to act judicially and apply the principles of equity as assessing officer has to
pass ex parte order on the basis of information available. It is not done to punish the assessee.
4. Scrutiny assessment:
It is also known as regular assessment. If the assessment officer is not satisfied with the return
filed, he shall send a notice requiring the assessee to appear in front of the officer along with
the evidence to prove the wealth assessment. After through scrutiny of the documents and
statements, the assessing officer computes the tax liability and passes the assessment order.
5. Self assessment (S. 15(b)): the assessee himself has to compute the net wealth and make
deduction for the same. There is an acceptance of return filed by assessee in toto, but
corrections can be made by the officer by issuing notice.
6. S. 17(1) talks about wealth escaping assessment or reassessment.
If the assessing officer has reason to believe that any wealth chargeable to tax in respect is
assessable under the Wealth Tax Act has escaped assessment for any assessment year. Under
the following circumstances escaping assessment provision is applicable:
i. Assessee is under-assessed at the time of regular assessment, it means any wealth
which is not disclosed by the assessee in the return of the wealth and which is not
assessed in the regular assessment.
ii. The assessment officer computed the tax liability at lower rate.
iii. During the period of regular assessment following shall be deemed to be cases where
wealth has escaped assessment-

38
 a. No return of wealth is filed even though it exceeds the maximum amount not
liable for tax;
b. Where the return of net wealth has been furnished and the assessing officer is
of the opinion that some of the wealth has escaped.
It is mandatory on the assessing officer to issue notices to the assessee if his case is selected
for escaping assessment and he must get reasonable opportunity of hearing if there is any
increase in tax liability or the interest.
7. Sec 17A states time limit for assessment of wealth tax:
i. That assessment under S.16 should be done within 21 months from the relevant
assessment year.
ii. Re-assessment under S. 17 is limited to 9 months from end of the financial year in
which notice under S.17 was served.
iii. Fresh assessment where ordinary assessment is set aside or cancelled by appellate
authority then time limit has been set at 9 months from end of the financial year in
which order has been passed.
iv. Assessment or re-assessment to give effect of any finding or directions of the appellate
authority, then the time limit has been set at 21 months from end of the financial year.
8. Sec 35 states the rectification of mistake. The rectification of mistake should be within 4 years
from the end of the financial year in which the order was passed in the first appeal or revision
and in other cases it is four years from the end of the financial year in which the order sought
to be amended was passed.
9. Section 25 states the revision of orders by the Commissioner. The commissioner can revise
the orders passed by any authority subordinate to him under two circumstances:
i. In the interest of assessee;
ii. In the interest of the revenue.
The commissioner, either on his own motion or on the application of the assesses for revision,
can call on record for any proceeding under this act which has been conducted by any
authority subordinate to him. After making enquiry the commissioner can pass orders as he
deems fit but it cannot be prejudicial to the assessee.
The commissioner cannot revise any order on his own motion if a period of more than 1 year
has expired from the date of the order sought to be revised. If application is made by the
assessee then it must be made within 1 year from the date of order which ought to be revised
or such period as commissioner may think fit allow on being satisfied by sufficient cause for
delay.
The commissioner can own his own motion ask for revision if he considers that any order
passed by the assessing officer is prejudicial to the interests of revenue. He has to give
reasonable opportunity to the assessee to be heard before passing order by which he can
enhance or modify the assessment or cancel it or direct a fresh assessment.
The commissioner cannot revise any order where an appeal against the order lies or order is
subject of an appeal before the commissioner (appeals) or the Tribunal.
10. Section 18 C talks about avoidance of repetitive appeals. It states that question of law arising
in a case for an assessment year which is pending before the assessing officer or any appellate

39
 authority, which is identical to the question of law raised in another case then the appellant
agrees that he shall not raise such question of law in the relevant case.
11. Section 27A: Appeal to the High Court-
The section provides that an appeal shall lie to the High Court from every order passed on an
appeal by Appellate Tribunal if the High Court is satisfied that the case involves a substantial
question of law. An appeal can be made within 120 days of the date of service of relevant
order.
The Memorandum of Appeal shall precisely stat4e the substantial question of law involved in
the appeal. If the High Court is satisfied then it shall formulate the question. The High court
delivers judgment which has to be given effect to by the assessing officer.
12. Section 29: Appeals to the Supreme Court-
An appeal may lie to the Supreme Court from any judgment of a High Court provided the
High Court certifies the case to be a fit one for appeal to the Supreme Court. Such certificate
is given by the High court if the substantial question of law is involved in the case or likely to
occur in future or if the question if otherwise of great public or private importance.
If the High Court does not give certificate then the aggrieved party may make an application
to the Supreme Court under Art 136 of the Constitution of India. The court after hearing the
appeal, may affirm, vary or reverse the decision of the High Court. The Tribunal has to pass
orders necessary for disposing of the case in conformity with the judgment of the Supreme
Court.
13. In case of default by assessee penalty is levied. Before levy of penalty, a show cause notice is
to be sent to the assessee to show why penalty should not be levied. In response to this notice
the assessee must submit a reply. If notice is not given then penalty levied will be contrary to
law.
14. The penalty levied is discretionary in nature and if the assessee proves a reasonable cause for
the default then penalty will not be levied.
15. There are two types of defaults:
i. Default for non-payment of tax and interest due on self assessment;
ii. Non-payment of tax, interest, penalty, fine which is payable in consequence of any
order passed under the act.
16. Section 32 says that the quantum of penalty in addition to the tax amount can be maximum
equal to the amount of tax in arrears.

40
SECTION NATURE OF DEFAULT
Penalties:
S. 15B(3) Failure to pay tax or interest
payable on self assessment.
Failure to comply with notice
S. 18(1)(ii) under S. 16(2) or (4) without
reasonable cause.
Concealment of wealth.
S. 18(1)(iii)
S. 18(1)(a),(b) and (c)
Failure to answer questions:
- legally bound; or
- sign statements legally
required; or
- comply with summons
under S. 37(1) without
reasonable cause.
S. 18A(2)
Failure to furnish in due time
statement or information
required under S. 38 without
reasonable cause.
S. 32 Committing default in
payment of tax.
Prosecutions:
S. 35A Wilful attempt to evade tax,
penalty or interest, in case
amount sought to be evaded
exceeds Rs 100000.
In any other case.
Wilful attempt to evade
S. 35A(2)
payment of tax, penalty or
interest.
41
S. 35B Wilful failure to furnish in
PENALTY OR FINE
Liable for penalty by
deeming assessee to be in
default, not exceeding 100%
of tax in arrears.
Minimum: Rs 1000 for each
failure, Maximum: Rs 25000
per failure.
Minimum: 100% of tax
sought to be avoided;
Minimum: 500% of tax
sought to be avoided.
Minimum: Rs 500 for each
default; Maximum: Rs.
10000 for each default.
Maximum: Rs 100 for every
day of default; Minimum: Rs
200 for every day of default.
Not exceeding 100 percent of
tax in arrears.
6 months rigorous
imprisonment which may
extend to 7 years. Also fine
without prejudice to penalty
imposable under any other
provision of the act.
3 months rigorous
imprisonment which may
extend to 3 years. Also fine
without prejudice to penalty
imposable under any other
provision of the act.
3 months rigorous
imprisonment which may
extend to 3 years. Also fine
without prejudice to penalty
imposable under any other
provision of the act.
17. Section 18(5) states time limit for imposing penalty.
Where the assessment to which the imposition of penalty relates by deputy commissioner
(appeals) or commissioner (appeals) or appellate tribunal:
i. The period of limitation is the financial year in which the proceedings have been
initiated are completed.
ii. Where the relevant assessment is the subject matter of revision under 35(2), the period
of limitation is 6 months from the end of the month, in which order of revision is
passed.
iii. In all other cases, time limit is the financial year in which proceeding in the course of
imposition of penalty has been initiated.
18. Section 18 B gives power to commissioner to waive or reduce the penalty on its own or by the
application by assessee. This is under the following conditions:
i. Person has prior detection by the assessing officer of the concealment voluntarily and
in good faith made a full and true disclosure of such particulars.
ii. Person has co-operated in any inquiry relating to the assessment of his net wealth.
iii. Person has either paid or made satisfactory arrangement for payment of tax, interest
payable in consequence of penalty order.
19. No penalty order can be waived or reduced without the permission of Chief Commissioner or
Director in case of concealment exceeding sum of Rs 5 lakhs. The order of reduction of
penalty under 18B shall be final and no appeal shall lie against the order.

42
Question 1: ABC Ltd is a trading company of CNC machines (rate of tax is 12.5%) having a head office at delhi
and its branch office at Pune. It has the following turnover of sales in Maharashtra for the period July-Sept
2010.

PARTICULARS NET TAX GROSS

Sales in Maharashtra state 2,00,000 VAT= 25000 2,25,000

Sales to dealer in Ahmedabad 1,00,000 2,000 1,02,000

against Form C

Sale to dealer in Jaipur against 2,00,000 4,000 2,04,000

Form C

Sale to America 5,00,000 5,00,000

Sale against Form E1 1,00,000 1,00,000

Transfer of goods to head 2,00,000 2,00,000

office

Sale against Form I 1,00,000 1,00,000

Sales to Sirwasa without Form 5,00,000 65,500 5,65,500

C

Notes:
1. Dealer has not received Form E1.
2. Goods sold to Jaipur on 25th March 2010 returned by him due to quality on 30.9.10 of Rs.
1,00,000.
ANSWER:
GTO of sales (Mah. Sales + outside Mah. Sales +VAT+CST) = 19,96,500
Deduction: Mah. Sales + VAT = 2,25,000
Balance= 17,71,500
Exemptions:
1. u/s 5(1) America = 5,00,000
2. E1 not received = nil
3. Form I= 1,00,000
4. Branch to HQ= 2,00,000
Total = 8,00,000
Therefore, balance = 9,71,5000
Goods returned within 6 months are not applicable
Deduction under Sec 8A= 65,500+4000+2000 = 71,500
Balance taxable sales = 9,00,000
1. Against Form C – 3,00,000 @ 2% = 6000
2. Without Form C- 6,00,000 @12.5% = 75,000

43
UNIT III: MINOR TAX
3.1: PROFESSIONAL TAX
Maharashtra State tax on Professional Trade, calling and Employment Act, 1975:
1. The act is applicable to the state of Maharashtra. Its object is to raise resources for
employment guarantee scheme of the state government.
2. By virtue of power under Article 276, the state government is empowered to levy tax on every
person who is earning income in the state liable to pay tax. Eg: CA, CS and other
professionals to be paid directly to the state government.
3. Trade includes every activity which a person undertakes with the intention of earning profits,
also includes any business activity (self-employed also). While calling includes rendering of
services on call and profession includes knowledge, intellectual and personal skills.
4. When a person is employed and earns salary or wages then it is the duty of the employer to
deduct such amount according to the tax slab from the salary or wage of the employee in
Maharashtra.
5. The act is divided into two parts:
i. Enrolment of persons;
ii. Registration of persons.
Enrolment of persons:
6. Section 3 imposes liability to pay taxes if the class of person is covered under Schedule I Part
II. Then such person becomes liable to pay yearly taxes as per schedule rates.
7. The maximum amount of tax under this act is 2500. Under Entry 8 Schedule I, dealers
registered under MVAT Act and CST Act whose annual sales turnover or purchases of the
previous year is up to 25 Lakhs the tax rate is Rs. 2000 per annum. When turnover is over 25
Lakhs the tax rate is 2500 per annum.
8. Under Entry 10 Schedule I, those employers who are employers in an establishment where
i. No employee is employed, tax rate is 1000 per annum;
ii. Up to 2 employees are employed, tax rate is 2000 per annum;
iii. More than 2 employees are employed; tax rate is 2500 per annum.
9. Holder of permits for transport vehicles granted under the MVAT Act, which are used or
adopted to be used for hire or reward, where any such person holds permit or permits for
(provided maximum tax under this entry paid does not exceed Rs. 2500):
i. Any three wheeler goods vehicle, for each such vehicle; Rs. 750 per annum;
ii. Any taxi, passenger car, for each such vehicle, Rs. 1000 per annum;
iii. Any goods vehicle other than those mentioned above; Rs 1500 per annum.
10. Other than the above mentioned entries, the persons who are covered in Schedule I Part II are
liable to pay tax of Rs. 2500 per annum.

44
11. A director of a company residing in the state of Maharashtra has to pay professional tax in
Maharashtra. While in a partnership firm, only partners have to pay tax of up to 2500 per
annum.
12. A self employed person is exempted from paying tax under this Act for the first 2 years. This
does not mean 365 days but instead means 2 financial years.
13. If a person is liable to pay tax under 2 entries in the Schedule then the amount to be deposited
is 2500 in total. If a person has paid 2500 for one entry then no other entry is required. For eg:
of tax for business is 2500 per annum and for salary is 1500 per annum, then he has to pay
2500 per annum only.
14. When a person is covered in Part II of Schedule I he has to apply for enrolment within a
period of 30 days from the date they became liable to pay tax (commencement of business or
professional activity) in the prescribed form. The documents to be enclosed include:
i. PAN card Xerox;
ii. Shop Act license;
iii. Bank account details; and
iv. Copy of partnership deed or memorandum as the case maybe.
15. A mandatory penalty of Rs.5 per day for everyday of delay in filing of the application for
enrolment has to be levied.
16. Enrolment certificate in Form II contains name of applicant, rate of tax and the date by which
tax should be paid. It is mandatory to exhibit the certificate in the place of business.
17. The certificate can be surrendered at any time due to death of person or close of the activity
for which the enrolment was taken. Also on loss of certificate application can be made for a
duplicate certificate by payment of fees.
18. The payment of tax is to be done by the enrolled person in the prescribed channel, which is
channel no. 8.
19. Section 27 A provides exemptions with respect to certain class of persons which include:
i. Members of the process as defined under the Army, Naval or Air force Acts. It also
includes the members of oscillary forces or reserves in any part of the state.
ii. Badly or substitute workers in the textile industries.
iii. Any person suffering from permanent physical disability including blindness which is
certified by a physician or surgeon in a government hospital. Also such disability
reduces the person’s capacity for normal work or gainful employment.
iv. Women who are exclusively engaged as agents under Mahila Pradhan Bachat Yojana.
v. Parents or guardians of persons who are mentally disabled as specified in the rules and
certified by physician working in a government hospital.
vi. Persons who have completed 65 years of age.
vii. Parents or guardians of a child suffering from physical disability as mentioned above.
20. Amnesty Scheme: the state government has declared a scheme of amnesty for the enrolled
persons to pay tax in advance for 4 years and 5th year tax will be exempted.

45
 21. For every late payment of tax interest is payable at 2% per month for each month for period of
delay as given under Section 9.
Registration of Employer:
22. Section 2(c) of the act talks about employer in relation to the employee earning salary or
wages on a regular basis under him. It means the person or officer who is responsible for
disbursement of salary or wages and includes the head of the office who is responsible for
paying salary or wages of the employees.
23. Section 2(h) states that salary or wages includes pay or wages, dearness allowance and all
other remunerations received by any person on regular basis whether payable in cash or kind
and also includes perquisites and profits in lieu of salary but does not include bonus in any
form or gratuity.
24. The first responsibility of the employer is to obtain registration under the Act. His second
responsibility is regarding deduction of tax from salary of employee as per Entry I Schedule I.
25. Rate of tax with respect to salary:
i. Salary does not exceed Rs. 5000 per month, rate of tax is nil;
ii. Salary exceeds Rs 5000 but does not exceed Rs. 10000 per month, then tax is Rs 175
per annum;
iii. Salary exceeds Rs 10000 per month then the tax is levied at Rs 200 per month except
for the month of February and Rs. 300 for the month of February.
26. Every employer who is deducting tax at source as professional tax has to file returns of his
liability to pay tax and he has to make payment as per Section 8 of the Act. The prescribed
form for filing returns is given in 3B of the Professional Tax Act.
27. Time limit for filing returns:

Tax Liability Periodicity Months of salary to Due date

be covered

Less than Rs. Annual March of the 31st March

5,000 in the previous previous year and
year April to February of
the current year

Rs. 5,000/- or more Quarterly  

but less than Rs.
20,000 in previous April to June  March to May 30th June
year or in case of
July to September June to August 30th September
first year of business
Oct. to December Sept. to November 31st December
January to March Dec. to February 31st March

20,000 or more in Monthly Salary for previous End of the month

previous year month

46
 28. If the employer fails to deduct tax or pay tax amount after deduction then he is liable to simple
interest of 125% of the amount of tax, since it is a statutory provision he may also be punished
with imprisonment up to 3 years.
29. Section 10 proposes penalty in addition to interest payable for non payment of tax at 10% of
the tax amount. Assessing officer has to give reasonable opportunity of hearing before levying
the penalty under the act.
30. There are exemptions with respect to registration and enrolment of persons given under the IT
Act.
3.2: ENTRY TAX
Maharashtra Tax on Entry of Goods in Local Areas Act, 2002:
1. Features of this act: This act was introduced with effect from 1st Oct 2002 and entry tax is
levied on 14 products. This tax is in addition to the Levy of Entry Tax on Motor Vehicle Act.
2. This tax is to be levied when goods are brought to the local areas from outside the state or
country for consumption or use or sale.
3. No entry tax will be levied if goods brought into local area from another local area. Here local
area means within the state of Maharashtra.
4. The liability to pay tax is on the importer, who is either the owner of the goods or the agent of
the owner of the goods.
5. Valuation of goods includes purchase cost, cost of transport, packing, forwarding, insurance,
taxes and duties (other than octroi).
6. This tax is to be levied on the Market value of goods. The liability of entry tax can be reduced
by other taxes paid by the dealer under CST Act or Local Act of other states.
7. Registered dealer under the Act is entitled for set off on the excess paid on all purchases. Rate
of tax are covered under the Schedule at the following rates:
i. High speed diesel oil – 33% and Re 1 per litre;
ii. Aviation turbine fuel (duty paid)- 25%;
iii. Aviation turbine fuel (bonded)- 30%;
iv. Aviation gasoline (duty paid)- 10%;
v. Aviation gasoline (bonded)- 24%;
vi. Any other kind of motor speed- 30% and Re 1 per litre;
vii. Light diesel oil- 12.5%;
viii. Low sulphur heavy stock- 12.5%;
ix. Kerosene- 12.5%;
x. Furnace oil- 12.5%;
xi. Air conditioning machines (motor driven fan)- 12.5%;
xii. All types of tiles putrefied or not, made from cement, ceramics, marbles or from
artificial stones excluding roofing tiles – 12.5%.
xiii. Naphta – 12.5%
xiv. Bitumen – 12.5%
8. Exemptions from payment of entry tax:
i. No entry tax is chargeable if the goods are brought into local area for processing them;
ii. No entry tax is payable if the goods are brought for resale in the course of interstate or
export trade;
iii. No entry tax is payable, on the fuel contained in the fuel tank of the goods vehicle into
local area.

9. Every importer who imports the specified goods mentioned above worth Rs. 10,000 or more
is required to apply for registration in Form No. 1 within 30 days from the date of exceeding
the turnover limit.
10. Payment of Tax and filing of returns
47
Type of Importer Time Limit for payment of taxes Return-cum-
challan
Unregistered Within 30 days from the date of entry of goods into local Form 4
Importer area
Registered Importer Monthly, within 25 days of the next month Form 4

11. Levy and collection of tax, penalties and interest

i. The Authorities appointed under the VAT Act will perform all the duties under the
Entry Tax provisions relating to assessment, review, collection of taxes, interest and
penalty and they will have the same powers as under the VAT Act.
ii. All the provisions of the VAT Act relating to returns, imposition of the tax liability,
recovery of tax from the third parties, appeals, rectification, review, refunds, penalties,
seizure of documents, compounding of offences etc. will apply to the Entry Tax
provisions.
iii. A late fee of 1.25%simple interest.
iv. Non-payment of such tax will result in the imposition of a penalty.

3.3: LUXURY TAX

Maharashtra Tax on Luxuries and Tax by way of Cess on any other facilities, services, consumption
etc Act, 1987:
1. The act provides levy of luxury tax and came into being from 1st January 1988. The act covers
hoteliers, tobacconists and textile traders.
2. Section 2(f) says: hotelier means the owner of the hotel and includes the person who for the
time being is in charge of the management of the hotel.
3. Section 2(e) says: a hotel includes-
i. A residential accommodation, a club, a lodging house, an inn, a public house or a part
of a building, where residential accommodation is provided by way of business.
ii. A club where supply is made or given of goods, being food or any other article of
human consumption or any drink by way of or as part of any service or in any other
manner, for cash, deferred, payment or other valuable consideration.
4. Luxury provided in a hotel means:
i. Any accommodation or other services provided in a hotel, the rate or charges for
which include charges for air conditioning, telephone, television, radio, music,
entertainment, extra beds and the like is Rs 200 or more, per residential
accommodation. And;
ii. Any supply in a club by way of or as part of any service or other manner whatsoever
of goods, being food or any other article of human consumption or any drink, where
such supply or service is for cash, deferred, payment or other valuable consideration.
5. Textile means as described in Chapter 50 to 60 of the Schedule appended to the CST Act,
when sold at a price exceeding Rs. 1000 per metre.
6. Tobacco means to include both manufactured and unmanufactured tobacco as given under the
CST Act.
7. Tobacconist includes:
48
 i. a manufacturer who supplies tobacco by way of sale or otherwise, includes any person
for the purpose of business gets the manufacturing done from any other person,
whether or not on job work basis; but does not include any person who manufactures
tobacco only on job work basis without proprietary rights.
ii. Any person who for the purpose of business brings or causes to be brought tobacco in
the state or to whom any tobacco is dispatched from any place outside the state and
who supplies it by sale or otherwise.
iii. Any person who supplies tobacco from a place within the state to outside state by sale
or otherwise.
iv. Any person who does not buy or otherwise obtain manufactured tobacco under a
brand name but supplies such unmanufactured tobacco by sale or otherwise in a
sealed container under a brand name.
8. Rate of tax on Hotelier:

Charges for luxury provided in a hotel per Rate of tax

residential accommodation

Less than Rs. 200 Nil

Rs. 200 to Rs. 1200 4%

More than Rs. 1200 10%

9. On the turnover with respect to food and drinks, clubs can charge 12% but where sales tax is
levied on such items luxury tax cannot be levied on the same supply.
10. Rate of tax on net turnover receipts of tobacconist:

Type of tobacco Rate

Cigars, cheroots & cigarettes 8%

Snuff 8%

Jarda supplied for Rs 200 for more per Kg 20%

Gutka and panmasala containing tobacco 25%

Other tobacco 20%

11. Tax on textile traders:

If traders’ turnover is more than 50000 Rs then the trader has to get registered under the act
and has to pay on turnover until registration is cancelled. Tax is levied at 4% of the turnover
receipts.
12. The following are excluded from turnover:
i. Second sale provided it is shown that tax is already paid by someone else;
ii. Branch transfer or consignment sale;
iii. Sold in interstate trade or in the course of export outside the country.

49
UNIT 4: CENTRAL SALES TAX ACT, 1956
4.1 CONCEPT OF INTER-STATE SALE AND EXPORT SALE
1. Section 2 (h) of the act states that “sale price” means the amount payable to a dealer as
consideration for the sale of any goods, less any sum allowed as cash discount according to
the practice normally prevailing in the trade, but inclusive of any sum charged for anything
done by the dealer in respect of the goods at the time of or before the delivery thereof
other than the cost of freight or delivery or the cost of installation in cases where such cost is
separately charged;
2. Sale price = Consideration to the dealer- cash discount + amount for anything done by the
dealer at the time or before the delivery - (cost of freight or delivery + cost of installation)
3. In the case of a transfer of property in goods (whether as goods or in some other form)
involved in the execution of a works contract, the sale price of such goods shall be determined
in the prescribed manner by making such deduction from the total consideration for the works
contract as may be prescribed and such price shall be deemed to be the sale price for the
purposes of this clause.
4. Section 3, 4 and 5 determine the principals with respect to inter-state sale, outside sale, export
sale and import purchase.
5. Section 3 deals with when is a sale or purchase of goods said to take place in the course of
inter-State trade or commerce:-
i. A sale or purchase of goods shall be deemed to take place in the course of intercourse
trade or commerce if such sale or purchase:
a. Occasions the movement of goods from one state to another; [S. 3(a)]
b. Is effected by a transfer of documents of title to the goods, during their
movement from one state to another. [S. 3(b)]
ii. Documents of title include: order for delivery of goods, railway receipt or any other
document used in the course of business as proof of possession of goods or
authorisation (by delivery or transfer) possession of a document to transfer the goods
so represented.
iii. For the purposes of clause (b): Where goods are delivered to a carrier or other bailee
for transmission, the movement of the goods shall, be deemed to commence at the
time of such delivery and terminate at the time when delivery is taken from such
carrier or bailee.
iv. Where the movement of goods commences and terminates in the same State it shall
not be deemed to be a movement of the goods from one State to another by reason
merely of the fact that in the course of such movement the goods pass through the
territory of any other State.
v. In the case of CST, Delhi v. Motor Das, it was held that since there was an implied
tem in the contract to move the good from Delhi to Himachal Pradesh, the sale would
be an inter-state sale of goods due to the express intention of the parties.
vi. Further in the case of Sahani Steel Press Works Ltd. vv. Commercial Tax Officer, it
was held that it was an inter-state sale as goods were moved from Maharashtra to
Hyderabad.
vii. Movement of goods from the branch office to the head office will not be treated as a
contract of sale.
viii. EXAMPLE: A dealer in Pune sells goods to a person in Ahmadabad. [This is an inter-
state sale under S. 3(a)]
a. If a dealer in Baroda takes delivery, the movement of goods shall be terminated.
When he sells them to a dealer in Surat, this would not be an inter-state sale.
b. If the dealer in Ahmadabad endorses it to a dealer in Baroda, such subsequent sale
would be an inter-state sale under S. 3(b).

50
 c. If the dealer in Ahmadabad endorses it to a dealer in Baroda, and he further
endorses it to a dealer in Surat, such subsequent sale would be an inter-state sale
under S. 3(b).
6. Section 4 deals with when is a sale or purchase of goods said to take place outside a State

i. Subject to the provisions contained in section 3, when a sale or purchase of goods is

determined to take place inside a State, such sale or purchase shall be deemed to have
taken place outside all other States.

ii. A sale or purchase of goods shall be deemed to take place inside a State, if the goods
are within the State-

a. in the case of specific or ascertained goods, at the time of the contract of sale is
made; and

b. in the case of unascertained or future goods, at the time of their appropriation to

the contract of sale by the seller or by the buyer, whether assent of the other party
is prior or subsequent to such appropriation.

c. Ascertained or specific goods are those which are specifically known goods which
are ready for delivery at the time of making the contract

d. Unascertained or future goods are those which come into existence after the
contract is made.

iii. Where there is a single contract of sale or purchase of goods, situated at more places
than one, this section shall apply as if there were separate contracts in respect of the
goods at each of such places.

iv. A seller in Punjab, buys goods from a seller in Bombay and delivery of such goods is
taken in Bombay and the transaction ends. Such sale is an inside state sale. Subsequent
action would be taking the goods to Punjab.

7. Section 5 states when is a sale or purchase of goods said to take place in the course of import
or export
i. A sale or purchase of goods shall be deemed to take place in the course of the export of
the goods out of the territory of India only if

a. the sale or purchase either occasion such export or

b. is effected by a transfer of documents of title to the goods after the goods have
crossed the customs frontiers of India. [S.5(1)]

ii. Export Sale:

a. Sale should occasion export;
b. Sale to a foreign tourist is not an export sale;
c. Goods should be destined to a foreign country though actual reaching or
destination is not necessary.

iii. A sale or purchase of goods shall be deemed to take place in the course of the import
of the goods into the territory of India only if
a. the sale or purchase either occasion such import or

51
 b. is effected by a transfer of documents of title to the goods before the goods have
crossed the customs frontiers of India. [S.5(2)]

iv. Types of import purchase include:

a. Direct import.
b. Import through agents.
c. Transfer of documents of title also known as high sea sale.

v. Custom frontier under the CST Act, means the custom houses in India.
vi. EXAMPLE: If goods arrive from Japan to Pune and they have to be sent to Bangalore.
The goods shall come directly from Japan to Bangalore and the transaction between
Pune to Bangalore shall be a High Sea Sale.

vii. S. 5(3) deals with deemed export. It states that the last sale or purchase of any goods
preceding the sale or purchase occasioning the export of those goods out of the
territory of India shall also be deemed to be in the course of such export, if such last
sale or purchase took place after, and was for the purpose of complying with, the
agreement or order for or in relation to such export.
viii. Conditions under S. 5 (3) are as follows:
a. The sale is for the purpose of complying with the agreement or orders in relation
the export.
b. It is made after the agreement or order for the export.
c. Same goods which are sold in course of export.
d. The exporter has to submit Form H to the dealer supplying the exports.
ix. The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless
the dealer selling the goods furnishes to the prescribed authority in the prescribed manner
a declaration duly filled and signed by the exporter to whom the goods are sold in a
prescribed form obtained from the prescribed authority. [S. 5(4)]
x. If any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its
international flight, such purchase shall be deemed to take place in the course of the
export of goods out of the territory of India.

3. High Sea Sale

i. If the imported goods are sold to a buyer in India by transfer of document of title
before the goods cross the customs frontier of India, it will be treated as sale or
purchase in the course of import.
ii. Where the documents of title effects sale, such transfer should take place before the
goods are moved out of the customs station.
iii. If the above 2 conditions are satisfied no tax under CST nor would any local tax shall
be imposed, otherwise the dealer shall have to pay local tax on such goods.
4. Procedure to effect High Seas Sale
i. The Indian buyer and seller enter into a formal contract.
ii. The agreement must clearly state that rights, obligations and duties regarding payment
of custom duties.
iii. It must mention that transfer of property will take place as soon as the documents are
endorsed and delivered to the buyer.
iv. The high seas buyer should file declaration under Rule 10 of Customs Valuation
Rules, 1998.
v. The high seas buyers should file the bill of entry in his name only.
vi. The high seas buyer should maintain copies of bill of lading duly endorsed bearing the
endorsement date.

4.2 SALE IN TRANSIT

52
 1. Section 6 states that every transaction effected under S. 3 (a) or (b) shall be liable to tax as
under S. 8.
2. However, if some goods are exempted under the local sales tax laws, then no tax shall be
charged.
3. Exemption with sale-in-transit:
i. The sale must be an inter-state sale
ii. Goods are sold to another person during movement and terminates when delivery is
taken.
iii. The sale must be to a registered dealer.
iv. The goods must be mentioned in the registered certificate.
v. Subsequent sale must be registered under CST Laws.
vi. For example: there is an inter-state sale from Pune to Baroda, subsequent sale was
made to a dealer in Ahmadabad and there was a further sale in transit in Surat where
delivery was taken in Baroda. Since delivery was taken only in Baroda, there shall be
an exemption.
4. Forms to get exemption:
i. Form C: allows the dealer to purchase at a concessional rate, the rate of tax is 2%
ii. Form E1: this is issued by the selling dealer
5. Section 6A:Transfer otherwise than sale
i. Where any dealer claims that he is not liable to pay tax under this Act, in respect of
any goods, on the ground that the movement of such goods from one State to another
was occasioned by reason of transfer of such goods by him to any other place of his
business or to his agent or principal, as the case may be and not by reason of sale,
Section 6A gives an exemption from tax if the following conditions are satisfied:
a. Transfer of goods otherwise than by sale.
b. Transfer made to his own place of business or principal or agent
c. Dealer has to produce prescribed declaration in Form F to the prescribed authority
while claiming exemption.
d. The contents of the goods must be similar to that which is covered in the
certificate.

4.3 REGISTRATION (Section 7)

1. Registration may of 2 kinds: voluntary or compulsory.

2. S. 7 (1) states that registration of the dealer is compulsory when there is an inter-state sale.
The application for the same shall be filed within 30 days in Form A.
3. Section 7(2) deals with voluntary registration under the local sales tax act. This is to be done
for dealing in tax free goods and purchasing goods from other states and selling it locally.
4. The Bombay CST Rules state the following:
i. A dealer shall apply in Form A for all the places of business in a state.
ii. The following particulars shall be mentioned in the application:
a. Name of the business
b. Address of the principle place of business
c. Additional places of business, if any.
d. Nature of business
e. Description of goods in which the dealer carries on business.
iii. Such application must be submitted within 30 days from the first inter-state sale and if
the application is under S. 7(2) then at any time.
iv. An application fee of Rs. 25 is payable by affixing a court fee stamp on such
application.
v. The following documents shall be submitted along with the application:
i. A photocopy of the PAN card
ii. Proof of the place of business (such as rent agreement, sale deed, etc.)
iii. Residential proof of the dealer (any 2 documents)
53
 iv. Proof of business eg: shop license, partnership deed or MOA
v. Cancelled cross cheque of current bank account
vi. Passport size photograph
vii. Profession tax enrolment number.
vi. Registration shall be granted after:
a. The Registration Officer scrutinises all the documents produced by the dealer.
b. A certificate is then provided to the dealer in Form B.
vii. The Registration Officer has the power to reject application of the dealer if he believes
the dealer is not genuine.
viii. Further the Officer may ask for a security for the purposes of realisation of tax. This
security may be in the form of bank guarantee, surety or cash deposit.
ix. The registration certificate is enforceable from the date of application in case the
application is submitted late, otherwise it shall be effective from the date of the first
inter-state sale, if the application is on time.
x. The registration number for VAT and CST shall be the same. For eg: for CST it shall
be 23456 C and for VAT 23456 V.

4.4 LEVY OF TAX AND PENALTIES

Section 8: Rate of Tax

1. The general rate of tax is 2% when an application is made under Form C. If there is no Form
C, then higher taxes shall be charged as if they are charged locally.
2. Every dealer, who in the course of inter-State trade or commerce
(a) sells to the Government any goods; or
(b) sells to a registered dealer other than the Government, goods of the description referred to
in sub-section (3)
(c) shall be liable to pay tax under this Act, which shall be 2% of his turnover or at the rate
applicable to the sale or purchase of such goods inside the appropriate State under the
sales tax law of that State, whichever is lower.
3. Prior to this the rate of tax was 4%
4. The tax payable by any dealer on his turnover in so far as the turnover or any part thereof
relates to the sale of goods in the course of inter-State trade or commerce not falling within
sub-section (1):
i. in the case of declared goods, shall be calculated at twice the rate applicable to the
sale or purchase of such goods inside the appropriate State
ii. in the case of goods other than declared goods, shall be calculated at the rate of ten
per cent or at the rate applicable to the sale or purchase of such goods inside the
appropriate State, whichever is higher and
iii. in the case of goods, the sale or, as the case may be, the purchase of which is,
under the sales tax law of the appropriate State, exempt from tax generally shall be
nil.
5. The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade
or commerce unless the dealer selling the goods furnishes to the prescribed authority in the
prescribed manner-
i.
a declaration duly filled and signed by the registered dealer to whom the goods are
sold containing the prescribed particulars in the prescribed form obtained from the
prescribed authority; or
ii. if the goods are sold to the Government, not being a registered dealer, a certificate
in the prescribed form duly filled and signed by a duly authorised officer of the
Government.
6. No tax under this Act shall be payable by any dealer in respect of sale of any goods made by
such dealer, in the course of inter-State trade or commerce to a registered dealer for the
54
 purpose of setting up operation, maintenance, manufacture, trading, production, processing,
assembling, repairing, reconditioning, re-engineering, packaging or for use as packing
material or packing accessories in an unit located in any special economic zone or for
development, operation and maintenance of Special Economic zone by the developer of the
Special Economic zone, if such registered dealer has been authorised to establish such unit or
to develop, operate and maintain such Special Economic Zone by the authority specified by
the Central Government in this behalf.

Determination of turnover (section 8A)

1. In determining the turnover of a dealer for the purpose of this Act, the following deductions
shall be made from the aggregate of the sale prices, the amount arrived at by applying the
following formula-

rate of tax X aggregate of sale prices

100 + rate of tax

2. However, no deduction on the basis of the above formula shall be made if the amount by way
of tax collected by a registered dealer, in accordance with the provisions of this Act, has been
otherwise deducted from the aggregate of sale prices.
3. Where the turnover of a dealer is taxable at different rates, the formula shall be applied
separately in respect of each part of the turnover liable to a different rate of tax;

4. The sale price of all goods returned to the dealer by the purchasers of such goods,-

(i) within a period of three months from the date of delivery of the goods, in the
case of goods returned before the 14th day of May, 1966;

(ii) within a period of six months from the date of delivery of the goods, in the case
of goods returned on or after the 14th day of May, 1966:

5. However, if satisfactory evidence of such return of goods and of refund or adjustment in

accounts of the sale price thereof is produced before the authority competent to assess or, as
the case may be, re-assess the tax payable by the dealer under this Act; and

6. Such other deductions as the Central Government may, having regard to the prevalent market
conditions, facility of trade and interests of consumers prescribe.

7. In determining the turnover of a dealer for the purposes of this Act, no deduction shall be
made from the aggregate of the sale prices.

Filing of Returns

1. Form 3E shall be filled up and taxes shall be paid within 21 days.

2. If the tax liability in the previous year is less than 1 lac then half yearly tax shall be paid; if
between1 lac to 10 lac then it shall be paid quarterly and more than 10 lac then monthly.

3. The penalty for not filing return is Rs. 5000

4. Returns may be filed on www.mahavat.gov.in

Section 14 and 15: Declared Goods

55
 1. Section 2 (c) defines declared goods as goods declared under section 14 to be of special
importance in inter-State trade or commerce;
2. Section 14 enlists the following goods which are useful and need based for the country’s
industry and commerce.
3. These goods form a necessity in the livelihood of the citizen and it covers life saving drugs.
4. They are as follows:
i. Cereals: paddy, rice, ragi etc.
ii. Coal including coke in all its forms except charcoal
iii. Cotton: cotton fabrics and yarns
iv. Crude oil
v. Hides and skins
vi. Iron and steel
vii. Jute
viii. Oil seeds
ix. Pulses
x. Man made fabrics
xi. sugar
xii. tobacco
xiii. woven fabrics

5. Section 15 lays down the restrictions and conditions on the state legislature in levy of taxes:
i. the tax payable under that law in respect of any sale or purchase of such goods inside
the State shall not exceed 4% of the sale or purchase price.

ii. where a tax has been levied under that law in respect of the sale or purchase inside the
State of any declared goods and such goods are sold in the course of inter-State trade
or commerce,and tax has been paid under this Act in respect of the sale of such goods
in the course of inter-State trade or commerce, the tax levied under such lawshall be
reimbursed to the person making such sale in the course of inter-State trade or
commerce in such manner and subject to such conditions as may be provided in any
law in force in that State;

iii. where a tax has been levied under that law in respect of the sale or purchase inside the
State of any paddy, the tax leviable on rice procured out of such paddy shall be
reduced by the amount of tax levied on such paddy;

iv. Where a tax on sale or purchase of paddy is leviable under that law and the rice
procured out of such paddy is exported out of India, the paddy and rice shall be treated
as a single commodity for S. 5(3)

v. Each of the pulses whether whole or separated, and whether with or without husk, shall
be treated as a single commodity for the purposes of levy of tax under this law.

6. Any EOU is exempt from CST and local tax against Form I

7. If goods are purchased for any diplomatic mission, they are exempted from tax.

Penalties

1. Section 9 (2)(A) states that all penalties referred to under the local acts, shall be applicable to
those dealers registered under the CST Act.
2. They shall also be liable for the penalties under VAT.

3. The JMFC is empowered to try the offences.

56
4. In case of any prosecution against an Officer, the permission of the Commissioner shall be
taken.

5. Further all provisions of the Code of Criminal Procedure are applicable.

6. Section 10 enlists some of the CST. They are:

i. Offences by Seller: He shall be liable to simple imprisonment which may extend upto
6 months or fine or both for the following offences:

a. If a dealer has made an inter-state sale but has failed to register himself.

b. Security is not furnished

c. Fails to execute a surety bond on the death or insolvency of the original surety.

d. Fails to furnish additional security.

e. If such offences are continuing in nature then a fine of Rs. 50 per day shall be
charged till the offence continues.

ii. Offences by Buyer: he shall be punishable with simple imprisonment extending to 6

months or fine or both in the following cases:

a. The buyer furnishes a deal in form C, D, E, E2 and H which he knows or has

reason to believe is false.

b. Falsely represents the goods furnished by him are covered by his registration

c. He utilizes the goods for other purposes than stated without any reasonable cause.

d. He collect any amount of CST

e. If such offences are continuing in nature then a fine of Rs. 50 per day shall be
charged till the offence continues.

7. Section 10A. Imposition of penalty in lieu of prosecution

i. If any person purchasing goods is guilty of an offence, the authority who granted to
him or, as the case may be, is competent to grant to him a certificate of registration
under this Act may, after giving him a reasonable opportunity of being heard, by order
in writing, impose upon him by way of penalty a sum not exceeding one and a half
times the tax which would have been levied if the sale had been a sale under S. 8.
ii. No prosecution for an offence under section 10 shall be instituted in respect of the
same facts on which a penalty has been imposed under this section.
iii. The penalty imposed upon any dealer under sub-section (1) shall be collected by the
Government of India in the manner provided in sub-section (2) of section 9-

(a) in the case of an offence under section 10 (b) or (d), in the State in which the
person purchasing the goods obtained the form prescribed in connection with the
purchase of such goods,
(b) in the case of an offence under section 10 (c), in the State in which the person
57
purchasing the goods should have registered himself if the offence had not been
committed.

58