Seat Number (Number) - 125566

Seat Number (Words) – One Lakh Twenty-Five Thousand Five Hundred

and Sixty-Six
Semester- VI
Name of the Course – Principles of Taxation Law.

Q1.
Tax burden on a person is attracted on the basis of the following:
1. Individual’s Residential Status
2. Individual’s Nature of Income (whether Indian or Foreign)
Indian Income is one which is either received in India or which has
accrued in India i.e., the right to receive income arises in India or the
source of Income is based in India whereas Foreign Income is defined as
income which arises, which is received and which accrues outside India
which means none of the components out of the three have a linkage with
India.
A resident of India is one who has been in India for at least 182 days or
more in the previous year OR who has been in India for 60 days in the
previous year and has stayed in India for 365 days in the four preceding
previous years, if none of the conditions fulfil from the above two then the
individual will be categorized as Non-resident.
The question at hand deals with the Nature of Income to determine the
tax liability of the individual and before we proceed it is important to
understand the concept of Deemed Income. Sec 9 of the Income tax Act
mentions that in deemed Income, the income is not received or accrued
in India but arises in India, there should be some link with India which
means that in the whole transaction there should be some connection
with India in order to classify such Income as Deemed Indian Income.
Following is the treatment in the cases deciphering whether Income Tax
will be attracted in India or not: -
1. As Salary has been paid by the Central Government (Government of
India) it signifies that the source of Income lies in India which thereby
proves the connection as well, making it Deemed Indian Income and such
transaction will attract Income tax in India, the fact that Mr. A is a citizen
of India is irrelevant for us being a resident is of importance and the
citizenship of the individual does not matter. And even if the services
have been rendered outside India, as the source of the same is the
Government of India, such income will be Deemed Income and will thus
become taxable in India and the amount that will be taxed will be Rs.
6,50,000 and not 7,00,000 as he will be entitled to Standard deduction of
Rs.50,000.
2. The interest that is being paid is on the money that has been borrowed
for carrying out Business which means it is for the purpose of your
business or profession and the business is being carried out in India which
serves the link with India requiring it to be categorized as Deemed Indian
Income and thus the same will be taxable as the right to accrue will arise
in India it is also important to mention that interest received is also
taxable and the entire amount of Rs. 5,00,000 will be taxable.
3. In this case, it will be partly taxable and partly exempted as interest on
post saving bank account is exempted under Section 10(15) but only to
the limit of Rs. 3,500 in the case of an individual so that amount would be
exempted and also deduction under Section 80TTA which provides a
deduction of Rs 10,000 on interest income. This deduction is available to
an Individual and HUF and as the interest amount is more than Rs.10,000
entire 10,000 will be exempted and thus the amount that will taxed in the
hands of Mr. Z will be (19,000- 13,500) Rs.5,500.
4. In this case, there is no linkage with India whatsoever as Royalty has
been paid for a business that has been carried outside India and it will not
be taxed in the hands of the Non-resident as the same is not received in
India. This has been provided as an exception to deemed accrual
mentioned in Section 9(1).
5. Even if the lawyer was of United Kingdom, he fought the case in Delhi
High Court which is India so the Income has been accrued in India as the
right to recive arises here and also that he has recived the income in
India which proves the link with India in both ways and will make the
amount of Rs. 5,00,000 fully taxable.

Q2.
The Provision of Gift has been mentioned under Section 56 (2) of the
Income tax Act which says that the treatment of Gift will come under
Income from Other Sources and it is important to note that we are
dealing with the assessment year 2021-2022, so all transactions
pertaining to 1st April, 2020 till 31st March, 2021 that will be recorded and
because of this reason the gift of Rs. 1 Lakh as given on 1 st January,2020
will not be considered.
For chargeability of Income from other sources under sec 56(1)of the
Income Tax Act , there are certain conditions that should be followed, i.e.
there should be income, this income should not be exempt under any
other provision and not included under any other head. Under sec 56(2),
there are certain incomes that will always be considered under Income
from other Sources. Interest received on loan given to a relative will be
considered as Income from other Sources and because of that Rs. 50,000
received by Mrs. M would be includible in the total income of Mr. Kamal,
since such loan was given by her out of the sum of money received by her
as gift from her husband. However, as per sec 64, where any income
arises directly or indirectly, to the spouse of an individual from any assets
transferred (excluding House Property) to the spouse f such individual,
otherwise than for adequate consideration or in connection to live apart
shall be included in the hands of the individual and not the spouse.
After that these 50,000 were invested in shares by Mr. M and Capital
Gains as mentioned under Section 45 (1) mention that any gains or
profits from the transfer of a capital asset, that took place in the previous
year, will be chargeable to Income from Capital Gains. There has to be a
capital asset, which needs to be transferred, and some profit or gain
needs to arise from such transfer, only then will it be termed as capital
gain otherwise, it will be capital loss. For deciphering whether it is long
term capital asset or short term capital asset we have to look at the time
period for which the property is held by the assesse, if it is held for a
period of not more than 36 months it will be short term capital asset, this
rule has some exceptions. Any security (including shares) in a listed
company will only be treated as short term capital asset when they are
held for not more than 12 months, immediately preceding the date of
transfer. And, share of an unlisted company will only be considered under
Short term Capital asset if it is held for not more than 24 months. The
short-term capital gain of Rs.25,000 (Rs.75,000 (sale consideration) less
`50,000, (cost of acquisition)) arising in the hands of Mrs. M from
Transfer of shares acquired by investing the interest income of Rs.50,000
earned by her (from the loan given out of the sum gifted to her by her
husband), would not be included in the income of Mr.M, Income from
Profits and Gains of Business and Profession (PGBP).
Profits or gains from any business carried out by the assesse in the
previous year would be counted as PGBP Income. There must be a
business or profession that is carried on by the assesse and has been
carried on for a period of time in the preceding year. Mrs. M invested the
remaining amount of the gift made by Mr. M in the business, hence any
business loss will be included in Mr. M's income as per Sec 64(1). (iv).
And as per the Explanation 2 of sec 64, clubbing provision will be valid
even if there is loss.

Q3.
In the rule of Set off and carry forward of losses, there are two kinds of
adjustment- Inter head and Intra head by which losses can be set off. In
In Inter head adjustment losses can be set off only from the same type of
business i.e, if the loss is of speculation business it can be set off from the
profits of a speculation business whereas in the case of a normal business
the profit of speculation business can also be used to set off losses of a
normal business, same is applicable on specified business.
In inter head, short term capital can be used to set off the loss of both
short term capital loss and long term capital loss but long term capital
gain can be used to set off the loss only of long term capital loss.
And in Intra head, loss from other headers can be used like from Income
from House property loss can be set off to a maximum limit of Rs. 2 lakh
In the question at hand, Income received from statutory provident fund is
exempt under section 10(11). As the wife(spouse) doesn’t hold any
technical skill and since Mr. A holds more than 20% voting rights in XYZ
ltd. The income of wife will be clubbed in A’s income. Loss from tea
business will be carry forwarded. Loss from card will not be considered
therefore will not be carry forwarded.
The total loss that will be carry forwarded will be as follows:

Loss from speculative business 50,000

Loss from tea business
96,000
Loss from LTCG 86,000
----------------
2,32,000
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TOTAL INCOME

Income under head capital gain

Short term capital gain: 1,40,000
(-) Set off
(1,40,000)
(1,40,000)
----------------
NIL
----------------
Income under head Income from other resources
Income of wife (25,000 x 12)

3,00,000
Less: Set off from house property (60,000)
Less : Sum received from Statutory fund nil
-----------------------
--
Gross total income 2,40,000
Deduction (nil)
Total income 2,40,000

And as per Standerd Deduction of 50,000:

(2,40,000- 50,000) = Rs 1,90,000 is the taxable income.