LAW OF Taxation

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TAXATION

1. Residential status of assessee under IT Act ?

Income tax is imposed on the basis of duration of residence of assessee in India. Citizenship is
not precondition for liability to Income Tax. Subject of IT is person, depending on his residence
in India and not citizens. The extension of resident is greater than the extension of citizen.All
citizens are resident but all residents are not citizens.

Determination of residential status of an assessee is very important matter for the purpose of
determining the total income of any previous year of assessee.
Types of Taxable Entities
 Individual

 Hindu Undivided Family (HUF)

 Firm, Association of Persons or body of individuals

 Company

 Every other person

Types of Residential Status

 Resident and ordinarily resident

 Resident and not ordinarily resident

Non resident

From section 5 of he Act it is abundantly clear that when an assesee is resident of

India then his total income includes income from whatever source derived which accrues or arise
to him outside India during such year. Provided that in the case of a person “not ordinary
resident” in india within the meaning of sec.6. the income which accrues or arises to him outside.
India shall not be so included unless it is derived from a business controlled in or a profession set
up in india. For an assessee who is a non resident in India his total income under sec 5 of the said
Act shall not include income that accrues or arises to him outside India during the previous year.
Therefore it is very important for an Assessing Officer to decide wheather an assessee is a
resident of India or non resident.

Section 6

Resident and ordinarily resident

 An individual is said to be resident of India if

o He is in India in the previous year for a period of 182 days or more (60 days in the
person is a member of the crew of an Indian ship)
o He is in India for a period of 365 days or more within 4 years preceding the
assessment year AND periods amounting to all to 60 days or more in that year
 The exception is given to member of the crew of an Indian ship because they work for moths
together on duty on the seas

Case Law Vijay Mallya vs Assistant commissioner :Assessee was in india for 182 days and there
after abroad for the remaining 193 days for the assessment year 1989-90.Relying on provision
6(1) a.the residential of the assessee was determined by the Asessing officer as non resident with
in the meaning of sec 2(30).Notice dated 08.01 1996 issued under sec 154 with a view to retify
the mistake apparent from the record challenged by the petitioner.
Held: Dissmissing the challenge to notice issued under sec 154 Hon’ble judge held that assessee
may be resident in india either under sec 6(1)(c) of the said Act. Is the duty bound to record his
reason as to why he is not holding the assessee as resident either under sec6(1) (a),or(c)of Act. If
assessing officer fails to record the reason why he is not holding the assesee as a resident of india
either under section 6 (1)(a)(c) of the said Act such failure would be a mistake apparent from the
record which would call for rectification.
“Not Ordinarily Resident” in India sec 6(6) a person is not ordnerily resident in india in any
previous year if such person is an individual who has been a non resident in India in nine out of
ten previous years preceding that year been in India for a period of seven hundred and twenty
nine days or less.
For determination of residential status of an assessee following principles should be considered.
a. Place and purpose of stay in India is not of significance.
b. Continuous stay is not essential.
c. Stay on a boat in territorial water
d. When a person is in India only for a part of a daythe calculation of physical presence in
India in respect of such broken period shall be made on an hourly basis. Atotal of 24
hours of stay spread over a number of days is to counted as equivalent to stay of one day
e. If statistics is not available to calculate the period of stay of an individual in India in
terms of hours then the day on which he leaves India shall be taken into account.

Residential status of hindu undivided family: A Hindu undivided family firm or other
association of person is considered resident in India in any previous year except where the contrl
and managmentof its affairs is situated wholly outside india. Under Section 6(1), an individual is
said to be resident in India in any previous year if he satisfies any one of the following basic
conditions:

 He is in India in the previous year for a period of at least 182 days or,
 He is in India for a period of at least 60 days during the relevant previous year and at
least 365 days during the four years preceding that previous year.

In case an Indian citizen leaves India for employment abroad in any year for the purpose of
employment (or where an individual, who is a citizen of India, leaves India as a member of
the crew of an Indian ship), or where an Indian citizen or a person of Indian Origin, who has
settled abroad, comes on a visit to India in the previous year, shall not attract clause (b) of the
basic conditions Therefore, such individuals may stay in India upto 181 days in a given
previous year without becoming resident in India for that previous year. An individual who
does not satisfy either of the above basic conditions is non-resident for that previous year.

A Hindu Undivided Family (HUF) is said to be resident in India if control and management of its
affairs is wholly or partly situated in India during the relevant previous year.

A resident individual or HUF assessee may further be classified into (i) resident and ordinarily
resident (ROR) and (ii) resident but not ordinarily resident (RNOR). A resident individual or
HUF is treated as ROR in India in a given previous year, if he satisfies the following additional
conditions:-

 He has been resident in India in at least 9 out of 10 previous years (according to basic
conditions noted above) preceding the relevant previous year; and
 He has been in India for a period of at least 730 days during 7 years preceding the
relevant previous year.

An individual or HUF becomes ROR in India if the individual or Karta of HUF satisfies at least
one of the basic conditions and both the additional conditions. An individual or Karta of HUF
who is resident in India but does not satisfy both the additional conditions is RNOR for that
previous year.

Residential status of assessee other than an Individual & HUF

In case of an assessee, other than an individual and HUF, the residential status depends upon the
place from which its affairs are controlled and managed.

As per Section 6(2), a partnership firm or an association of persons are said to be resident in
India if control and management of their affairs are wholly or partly situated within India during
the relevant previous year. They are, however, treated as non-resident if control and management
of their affairs are situated wholly outside India.

As per Section 6(3), an Indian company is always resident in India. A foreign Company is
resident in India only if, during the previous year, control and management of its affairs is
situated wholly in India. Where part or whole of control and management of the affairs of a
foreign company is situated outside India, it shall be treated as a non-resident company.

As per Section 6(4), every other person is resident in India if control and management of his
affairs is, wholly or partly, situated within India during the relevant previous year. On the other
hand, every other person is non-resident in India if control and management of its affairs is
wholly situated outside India.
Case. SubbayyChettiar Vs CIT : HUF shall be taken to be resident in India unless control and
management of its affairs is situated wholly out side India..Official visit of kartha to India does
not make HUF resident of India.

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2. Discuss in brief the provision regarding appeal under Income Tax Act 1961?
Introduction:
Appeal proceeding taken to rectify an erroneous decisions of a court right to appeal under
IT law is a creation of statute not an inherent right. Income tax liability is determined at the level
of assessing officer first. Sec.252 to 255 of Income Tax Act deals with Appeal provision.
A tax payer aggrieved by various action of assessing officer can appeal before
Commissioner of Income Tax. Further appeal can be preferred before the Income Tax Appellate
Tribunal. On substantial question of law further appeal can file before the High Court and even
to the Supreme Court with the ladder up approach appeal procedure.
 Appeal before the Commissioner
 Appeal before the High Court
 Appeal before Supreme Court

When appeal can be filed before the Commissioner

When a tax payer is adverse by various income tax authorities appeal can be filed before
the commissioner.
Form of Appeal: Form No.35
Name and address of tax payer, permanent account number, assessment year details
which appeal is filed, etc. are to be filed in Form No.35.
It should be signed and verified by individual tax payer or person assigned.
Payment of accepted tax liability must be paid before filing appeal. An appeal will be admitted
by the Commissioner only if tax as per the returned income is filed.
Fee:
 Fee to be paid before filing appeal to commissioner depends upon the total income
determine by the assessing officer.
An appeal to be filed before the commissioner within 30 days of the date of service of
notice of demand relating to assessment or penalty order or the date of service of order sought to
be appealed.
On receipt of form No.35 commissioner of income tax fixes date and place of hearing the
appeal by issuing notice to the tax payer and assessing officer against whose order appeal is
preferred.
Filing of additional evidence :
During appeal proceedings the tax payer is not entitled to produce any evidence whether
oral or documentary other than what was already produced before the assessing officer.
Decision:
Hearing is concluded when commissioner passes order in writing disposing of appeal and
stating the decision on each ground of appeal with reason.

When appeal can e filed before income tax appellate tribunal:

Sec. 252 to 255 deals with it. Appeal can be filed before the Appellate Tribunal if order
by Commissioner u/s.263 revising assessing officer’s order if considered prejudicial interest to
revenue.
Form No.36 to be filed in triplicate and is to be accompanied by two copies of order
appealed against.
A fee to be paid according total income as computed by assessing officer. Where the
subject matter of appeal relates to another matter fee of Rs.500/- is to be paid. An application for
stay of demand is to be accompanied by fee of Rs.500/-. The order appealed is communicated to
tax payer or the Commissioner within 60 days.
Normally appeals are heard by a bench comprising one judicial member and one
accountant member. Appeals were total income computed by assessing officers does not exceed
RS. 5 Lakhs may be disposed by single member bench. /bench normally pronounces its order in
court.
High Court:
 Appeal against appellate tribunal order lies with the High Court, wherein it accepts the
cases which involved the substantial question of law. Within 120 days the tax payer or chief
commissioner should appeal before the High Court. High Court hears appeal only on question of
law so formulated. Appeal filed before high court is heard by bench of not less than 2 judges and
the decision by majority.

Supreme Court:
Under Article 136of the Constitution of India against the order of High Court the tax
payer or the commissioner can appeal before the Supreme Court.

3. Authorities under IT Act ? Powers and function ?

The Income Tax Department, also referred to as IT Department, is a government agency in
charge of monitoring the income tax collection by the Government of India. It functions under
the Department of Revenue of the Ministry of Finance.
1. INCOME TAX AUTHORITIES SECTION 116 • Central Board of Direct Taxes
( CBDT) • Directors- General of Income tax or Chief commissioner of income tax • Additional
directors of income tax or additional commissioner of income tax • Joint directors or joint
commissioner of income tax • Deputy director or deputy commissioner of income tax
Assistant directors or assistant commissioner of income tax • Income tax officers • Tax
recovery officers • Inspectors of income tax
2. CBDT • The Central Board of Direct Taxes (CBDT) is a part of Department of Revenue
in the Ministry of Finance. The CBDT provides inputs for policy and planning of direct taxes in
India, and is also responsible for administration of direct tax laws through the IT Department.
The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.
The officials of the Board in their ex officio capacity also function as a division of the Ministry
dealing with matters relating to levy and collection of direct taxes. The CBDT is headed by
Chairman and also comprises six members, all of whom are ex officio Special Secretary to the
Government of India.
5 The Chairman and members of the CBDT are selected from the Indian Revenue Service (IRS),
whose members constitute the top management of the IT Department. The Chairman and every
member of CBDT are responsible for exercising supervisory control over definite areas of field
offices of IT Department, known as Zones. Various functions and responsibilities of the CBDT
are distributed amongst Chairman and six members, with only fundamental issues reserved for
collective decision by the CBDT. The areas for collective decision by the CBDT include policy
regarding discharge of statutory functions of the CBDT and of the Union Government under the
various direct tax laws. They also include general policy relating to:
Set up and structure of Income Tax Department; • Methods and procedures of work of the
CBDT; • Measures for disposal of assessments, collection of taxes, prevention and detection of
tax evasion and tax avoidance; • Recruitment, training and all other matters relating to service
conditions and career prospects of all personnel of the Income-tax Department; • Laying down of
targets and fixing of priorities for disposal of assessments and collection of taxes and other
related matters; • Write off of tax demand exceeding Rs.25 lakhs in each case; • Policy regarding
grant of rewards and appreciation certificates. • Any other matter, which the Chairman or any
Member of the Board, with the approval of the Chairman, may refer for joint consideration of the
Board
3. APPOINTMENT OF INCOME TAX AUTHORITIES SECTION 117 The Central
Government may appoint such persons as it thinks fit to be income-tax authorities. Without
prejudice and subject to the rules and orders of the Central Government regulating the conditions
of service of persons in public services and posts, the Central Government may authorise the
Board, or a Director-General, a Chief Commissioner or a Director or a Commissioner to appoint
income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner.
Subject to the rules and orders of the Central Government regulating the conditions of service of
persons in public services and posts, an income- tax authority authorised in this behalf by the
Board may appoint such executive or ministerial staff as may be necessary to assist it in the
execution of its functions.
4. CONTROL OF INCOME TAX AUTHORITIES SECTION 118 • The Board may, by
notification in the Official Gazette, direct that any income-tax authority or authorities specified
in the notification shall be subordinate to such other income-tax authority or authorities as may
be specified in such notification.
5. INSTRUCTIONS TO SUBORDINATE AUTHORITIES SECTION 119 • 1) The Board
may, from time to time, issue such orders, instructions and directions to other income-tax
authorities as it may deem fit for the proper administration of this Act, and such authorities and
all other persons employed in the execution of this Act shall observe and follow such orders,
instructions and directions of the Board: • Provided that no such orders, instructions or directions
shall be issued • (a) so as to require any income-tax authority to make a particular assess-ment or
to dispose of a particular case in a particular manner; or • (b) so as to interfere with the discretion
of the Commissioner (Appeals) in the exercise of his appellate functions. • (2) Without prejudice
to the generality of the foregoing power, • (a) the Board may, if it considers it necessary or
expedient so to do, for the purpose of proper and efficient management of the work of
assessment and collection of revenue, issue, from time to time general or special orders in
respect of any class of incomes or fringe benefits or class of cases, setting forth directions or
instructions as to the guidelines, principles or procedures to be followed by other income-tax
authorities in the work relating to assessment or collection of revenue or the initiation of
proceedings for the imposition of penalties and any such order may, if the Board is of opinion
that it is necessary in the public interest so to do, be published and circulated in the prescribed
manner for general information;
6. (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine
hardship in any case or class of cases, by general or special order, authorise any income-tax
authority, not being a Commissioner (Appeals) to admit an application or claim for any
exemption, deduction, refund or any other relief under this Act after the expiry of the period
specified by or under this Act for making such application or claim and deal with the same on
merits in accordance with law; • (c) the Board may, if it considers it desirable or expedient so to
do for avoiding genuine hardship in any case or class of cases, by general or special order for
reasons to be specified therein, relax any requirement where the assessee has failed to comply
with any requirement specified in such provision for claiming deduction thereunder, subject to
the following conditions, namely: • (i) the default in complying with such requirement was due
to circumstances beyond the control of the assessee; and • (ii) the assessee has complied with
such requirement before the completion of assessment in relation to the previous year in which
such deduction is claimed : • Provided that the Central Government shall cause every order
issued under this clause to be laid before each House of Parliament.
7. JURISDICTION OF INCOME TAX AUTHORITIES SECTION 120 • 1) Income-tax
authorities shall exercise all or any of the powers and perform all or any of the functions
conferred on, or, as the case may be, assigned to such authorities by or under this Act in
accordance with such directions as the Board may issue for the exercise of the powers and
performance of the functions by all or any of those authorities. • Explanation. For the removal of
doubts, it is hereby declared that any income-tax authority, being an authority higher in rank,
may, if so directed by the Board, exercise the powers and perform the functions of the income-
tax authority lower in rank and any such direction issued by the Board shall be deemed to be a
direction issued under sub-section (1). • (2) The directions of the Board may authorise any other
income-tax authority to issue orders in writing for the exercise of the powers and performance of
the functions by all or any of the other income-tax authorities who are subordinate to it.
8. 3) In issuing the directions or orders ,the Board or other income-tax authority authorised
by it may have regard to any one or more of the following criteria, namely : • (a) territorial area;
• (b) persons or classes of persons; • (c) incomes or classes of income; and • (d) cases or classes
of cases. • (4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by
general or special order, and subject to such conditions, restrictions or limitations as may be
specified therein, • (a) authorise any Director General or Director to perform such functions of
any other income-tax authority as may be assigned to him by the Board; • (b) empower the
Director General or Chief Commissioner or Commissioner to issue orders in writing that the
powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by
or under this Act in respect of any specified area or persons or classes of persons or incomes or
classes of income or cases or classes of cases, shall be exercised or performed by a Joint
Commissioner or a Joint Director, and, where any order is made under this clause, references in
any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be
deemed to be references to such Joint Commissioner or Joint Director by whom the powers and
functions are to be exercised or performed under such order, and any provision of this Act
requiring approval or sanction of the Joint Commissioner shall not apply.
9. (5) The directions and orders may, wherever considered necessary or appropriate for the
proper management of the work, require two or more Assessing Officers (whether or not of the
same class) to exercise and perform, concurrently, the powers and functions in respect of any
area or persons or classes of persons or incomes or classes of income or cases or classes of cases;
and, where such powers and functions are exercised and performed concurrently by the
Assessing Officers of different classes, any authority lower in rank amongst them shall exercise
the powers and perform the functions as any higher authority amongst them may direct, and,
further, references in any other provision of this Act or in any rule made there under to the
Assessing Officer shall be deemed to be references to such higher authority and any provision of
this Act requiring approval or sanction of any such authority shall not apply. • (6)
Notwithstanding anything contained in any direction or order issued the Board may, by
notification in the Official Gazette, direct that for the purpose of furnishing of the return of
income or the doing of any other act or thing under this Act or any rule made there under by any
person or class of persons, the income-tax authority exercising and performing the powers and
functions in relation to the said person or class of persons shall be such authority as may be
specified in the notification. •
Powers
Sec Power regarding discovery, production of evidence, etc. (1) The
131 Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner,
Commissioner (Appeals) and Chief Com-missioner or Commissioner shall,
for the purposes of this Act, have the same powers as are vested in a court
under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in
respect of the following matters, namely : (a) discovery and inspection;
(b)enforcing the attendance of any person, including any officer of a
banking company and examining him on oath; (c) compelling the
production of books of account and other documents; and (d) issuing
commissions.
132 Search and seizure: The authorised officer to
(i) enter and search any building, place, vessel, vehicle or
aircraft where he has reason to suspect that such books of account, other
documents, money, bullion, jewellery or other valuable article or thing are
kept;
(ii) break open the lock of any door, box, locker, safe, almirah or
other receptacle for exercising the powers conferred by clause (i) where the
keys thereof are not available;
(iia) search any person who has got out of, or is about to get into,
or is in, the building, place, vessel, vehicle or aircraft, if the authorised
 officer has reason to suspect that such person has secreted about his person
any such books of account, other documents, money, bullion, jewellery or
other valuable article or thing;
(iib) require any person who is found to be in possession or
control of any books of account or other documents maintained in the form
of electronic record as defined in clause (t) of sub-section (1) of section 2 of
the Information Technology Act, 2000 (21 of 2000), to afford the authorised
officer the necessary facility to inspect such books of account or other
documents;
(iii) seize any such books of account, other documents, money,
bullion, jewellery or other valuable article or thing found as a result of such
search:
Provided that bullion, jewellery or other valuable article or
thing, being stock-in-trade of the business, found as a result of such search
shall not be seized but the authorised officer shall make a note or inventory
of such stock-in-trade of the business;
(iv) place marks of identification on any books of account or
other documents or make or cause to be made extracts or copies therefrom;
(v) make a note or an inventory of any such money, bullion,
jewellery or other valuable article or thing :

132A Powers to requisition books of account, etc.

132B Application of seized or requisitioned assets
133 Power to call for information
133A Power of survey
133B Power to collect certain information
134 Power to inspect registers of companies
135 Power of Director General or Director, Chief Commissioner or
Commissioner and Joint Commissioner
136 Proceedings before income-tax authorities to be judicial proceedings
D. - Disclosure of information
137 Omitted by the finance act, 1964, w.e.f. 1-4-1964
138 Disclosure of information respecting assessees
These are the powers of IncomeTax authority under IT Act.
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 4 Valuation of goods under excise Act?

Value under the Central Excise Act, 1944

1.1 Value of the excisable goods has to be necessarily determined when the rate of duty is on ad-
valorem basis. Accordingly, under the Central Excise Act, 1944 the following values are relevant
for assessment of duty. Transaction value is the most commonly adopted method.
1. Transaction value under Section 4.
2. Value determined on basis of maximum Retail Sale Price as per Section 4A.
3. Tariff value under Section 3.
1.Transaction Value
2.1 Section 4 of the Central Excise Act, as substituted by section 94 of the Finance Act,
2000(No.10 of 2000) ,has come into force from the 1st day of July 2000. This section contains
the provision for determining the Transaction value of the goods for purpose of assessment of
duty.
2.2 For applicability of transaction value in a given case, for assessment purposes, certain
essential requirements should be satisfied. If any one of the said requirement is not satisfied, then
the transaction value shall not be the assessable value and value in such case has to be arrived at
under the valuation rules notified for the purpose. The essential ingredients of a Transaction
value are:
4. The goods are sold by an assessee for delivery at the time of place of removal.
The term "place of removal" has been defined basically to mean a factory or a warehouse;
5. The assessee and the buyer of the goods are not related; and
6. The price is the sole consideration for the sale.
2.3 The definition of "transaction value" needs to be carefully taken note of as there is
fundamental departure from the erstwhile system of valuation that was essentially based on the
concept of ‘Normal Wholesale Price’, even though sales were effected at varying prices to
different buyers or class of buyers from factory gate or Depots etc. had to be determined.
2.4 The new section 4 essentially seeks to accept different transaction values which may be
charged by the assessee to different customers, for assessment purposes so long as these are
based upon purely commercial consideration where buyer and the seller have no relationship and
price is the sole consideration for sale. Thus, it enables valuation of goods for excise purposes on
value charged as per commercial practices rather than looking for a notionally determined value.
2.5 Transaction value would include any amount which is paid or payable by the buyer to or on
behalf of the assessee, on account of the factum of sale of goods. In other words, if, for example,
an assessee recovers advertising charges or publicity charges from his buyers, either at the time
of sale of goods or even subsequently, the assessee cannot claim that such charges are not to be
included in the transaction value. The law recognizes such payment to be part of the transaction
value that is assessable value for those particular transactions. Certain other elements which are
included in the Transaction value are, as follows:
7. Receipts/recoveries or charges incurred or expenses provided for in connection
with the manufacturing, marketing, selling of the excisable goods. In other words, whatever
elements which enrich the value of the goods before their marketing and were held by Hon’ble
Supreme court to be includible in "value" under the erstwhile section 4 would continue to form
part of section 4 value even under new section 4 definition.
8. If in addition to the amount charged as price from the buyer, the assessee recovers
any other amount by reason of sale or in connection with sale, then such amount shall also form
part of the transaction value. For example if assessee splits up his pricing system and charges a
price for the goods and separately charges for packaging or warranty, the packaging charges will
also form part of assessable value as it is a charge in connection with production and sale of the
goods recovered from the buyer. In this context, it may be clarified that it is immaterial whether
the warranty is optional or mandatory. Since the value can be different for different transactions,
wherever warranty charges are paid or payable to the assessee, in those transactions warranty
charges shall form part of the assessable value. In those transactions where warranty charges are
not recovered, the question of including warranty charges in transaction value does not arise.
9. Interest for delayed payments are a normal practice in industry. Interest under a
financing arrangement entered between the assessee and the buyer relating to the purchase of
excisable goods shall not be regarded as part of the assessable value provided that:
1. the interest charges are clearly distinguished from the price actually paid
or payable for the goods;
2. the financing arrangement is made in writing; and
3. where required, assessee demonstrates that such goods are actually sold at
the price declared as the price actually paid or payable.
10. Discount of any type or description given on any normal price payable for any
transaction will not form part of the transaction value for the goods, e.g. quantity discount for
goods purchased or cash discount for the prompt payment etc. will therefore not form part of the
transaction value. However, it is important to establish that the discount has actually been passed
on to the buyer of the goods. The differential discounts extended as per commercial
considerations on different transactions to unrelated buyers if extended can not be objected to
and different actual prices paid or payable for various transactions are to be accepted. Where the
assessee claims that the discount of any description for a transaction is not readily known but
would be known only subsequently – as for example, year end discount – the assessment for
such transactions may be made on a provisional basis. However, the assessee has to disclose the
intention of allowing such discount to the department and make a request for provisional
assessment.
11. The definition of transaction value mentions that whatever amount is actually paid
or actually payable to the Government or the relevant statutory authority by way of excise, sale
tax and other taxes, such amount shall be excluded from the transaction value. In other words, if
any excise duty or other tax is paid at a concessional rate for a particular transaction, the amount
of excise duty or tax actually paid at the concessional rate shall only be allowed to be deducted
from price.
12. As per commercial practice, the price for the goods charged, normally includes
the cost of packing charges. However, at times separate charge may be billed for special packing,
as per customer’s requirements. Whereas in the context of erstwhile section 4 certain disputes
often arose whether certain packing in relation to particular goods is secondary or primary and
whether its value is to be added for assessment purposes, under the new section 4, such issues are
no longer relevant. Any charges recovered for packing are obviously charges recovered in
relation to the sale of the goods under assessment and will form part of the transaction value of
the goods. In short, it is immaterial whether packing is ordinary or special. Whatever amount is
charged from the buyer for packing and if not already included by the assessee in the price
payable for the goods will be included while determining the transaction value of the goods.
2.6 Where the assessee includes all their costs incurred in relation to manufacture and marketing
while fixing price payable for the goods and bills and collects an all inclusive price –as happens
in most cases where sales are to independent customers on commercial consideration - the
transaction price will generally be the assessable value. Nevertheless, there could be situations
where the amount charged by an assessee does not reflect the true intrinsic value of goods
marketed and total value split up into various elements like special packing charges, warranty
charges, service charges etc. These cases would require to be scrutinised carefully to ensure that
duty is paid on correct value. The definition of "transaction value" makes it clear that all the
elements of cost which the assessee incurred till the sale/marketing as aforesaid, continue to be
included in the assessable value even under new section 4.
2.7 The term "place of removal" has been defined in the same manner as was defined in the
erstwhile section 4 prior to its amendment in 1996. If, therefore, the transaction value is with
reference to delivery at the time and place of removal, such transaction value will be the
assessable value.
2. Valuation Rules
3.1 In those cases where any of the three requirements mentioned in para 2 above is missing, the
assessable value shall be determined on the basis of the Central Excise Valuation (Determination
of Price of Excisable Goods) Rules, 2001 notified under Section 4(1)(b) by notification No.
45/2000-CE (NT), dated 30.6.2000.
3.2 Salient features of the new valuation rules are mentioned below:
1. If the assessee and the buyer are not related persons and the price is also the sole
consideration for sale but only the delivery of goods is made by the assessee at a place other than
the factory/warehouse, then the assessable value shall be the "transaction value" without the
addition of the cost of transportation from the factory/warehouse upto the place of delivery.
However, exclusion of cost of transportation is allowed only if the assessee has shown them
separately in the invoice and the exclusion is permissible only for the actual cost so charged from
his buyers. If the assessee has a system of pricing and sale at uniform prices inclusive of equated
freight for delivery at factory gate or elsewhere, no deductions for freight element will be
permissible.
2. If the goods are not sold at the factory gate or at the warehouse but they are
transferred by the assessee to his depots or consignment agents or any other place for sale, the
assessable value in such case for the goods cleared from factory/warehouse shall be the normal
transaction value of such goods at the depot, etc. at or about the same time on which the goods as
being valued are removed from the factory or warehouse. It may be pertinent to take note of the
definition of "normal transaction value" as given in the valuation rules. What it basically means
is the transaction value at which the greatest aggregate quantity of goods from the depots etc. are
sold at or about the time of removal of the goods being from the factory/warehouse. If, however,
the identical goods are not sold by the assessee from depot/consignment agent’s place on the date
of removal from the factory/warehouse, the nearest date on which such goods were sold or would
be sold shall be taken into account. In either case if there are series of sales at or about the same
time, the normal transaction value for sale to independent buyers will have to be determined and
taken as basis for valuation of goods at the time of removal from factory/warehouse. It follows
from the Valuation Rules that in such categories of cases also if the price charges is with
reference to delivery at a place other than the depot, etc. then the actual cost of transportation
will not be taken to be a part of the transaction value and exclusion of such cost allowed on
similar lines as discussed earlier, when sales are effected from factory gate/warehouse.
3. As a measure of simplification, it has been decided to value goods which are
captively consumed on cost construction method only as there have been disputes in adopting
values of comparable goods. The assessable value of captively consumed goods will be taken at
115% of the cost of manufacture of goods even if identical or comparable goods are
manufactured and sold by the same assessee. The concept of deemed profit for notional purposes
has thus been done away with and a margin of 15% by way of profit etc. is prescribed in the rule
itself for ease of assessment of goods used for captive consumption.
4. In the case where price is not the sole consideration for the sale, but the other
requirements of clause (a) of sub-section (1) of section 4 of the Central Excise Act are satisfied,
the value shall be determined in accordance with the provisions of rule 6 of the valuation rules.
This provides for adding, to the transaction value the money value of any additional
consideration flowing directly or indirectly from the buyer to the assessee. Such additional
consideration would include the money value of goods and services provided free or at reduced
cost by or on behalf of the buyer to the assessee. An Explanation has been added in the new rule
only to remove any doubts with respect to its scope.
5. Where goods are sold through related persons, the transaction value is not
applicable. The definition of related persons includes "inter-connected undertakings" as defined
in the Monopolies and Restrictive Trade Practices Act, 1969. The definition of inter-connected
undertaking in the said Act is comprehensive and includes two or more under-takings which are
inter-connected with each other in any of a number of ways such as if one owns or controls the
other, or where the undertakings are owned by firm, or if such firms have one or more common
partners, etc. A provision has been made in the Valuation Rules that even if the assessee and the
buyer are ‘inter-connected undertakings’, the transaction value will be "rejected" only when they
are "related" in the following manner:
1. They are relatives.
2. The buyer is a relative and a distributor of the assessee, or sub-distributor
of such distributor.
3. They have a direct or indirect interest in the business of each other.
In other cases, they will not be considered related. "Transaction value" could then form the basis
of valuation provided other two conditions, namely, price is for delivery at the time and place of
removal and the price is the sole consideration for sale are satisfied. If any of the two aforesaid
conditions are not satisfied then, quite obviously, value in such cases will be determined under
the relevant rule.
3. Valuation of Petroleum Products
4.1 The practice being followed is to assess the price administered petroleum products like motor
spirit, HSD, SKO (domestic) and LPG to duty on the ex-storage sale prices that are fixed by the
Oil Coordination Committee (OCC) from time to time. The assessable value is the same
irrespective of whether the administered petroleum products are sold at the refineries or through
the marketing companies.
4. Tariff Value
5.1 For certain items the Government may fix a tariff value as per provisions of Section 3(3) of
the Central Excise Act, 1944. In such cases the assessment of duty shall be on the basis of the
tariff value.
5. Value on basis of Maximum Retail Sales Price
6.1 The value is based on maximum retail sale price in terms of Section 4A of the Central Excise
Act, 1944. This is applicable to notified commodities. The notification issued in this regard
indicates the extent of abatement to be allowed for arriving at the assessable value for
determination of amount of duty.

5.Registration of Dealers under Sales Tax?

The Central Sales Tax (CST) is a levy of tax on sales, which are effected in the course of inter-
State trade or commerce.Every dealer liable to pay tax under this Act shall make an application
for registration under this Act to such authority in the appropriate State as the Central
Government may, by general or special order, specify, and every such application shall contain
such particulars as may be prescribed, a dealer shall be deemed to be liable to pay tax under the
sales tax law of the appropriate State notwithstanding that under such law a sale or purchase
made by him is exempt from tax or a refund or rebate of tax is admissible in respect thereof.]
Where it appears necessary to the authority to whom an application is made he may, by an order
in writing and for reasons to be recorded therein, impose as a condition for the issue of a
certificate of registration a requirement that the dealer shall furnish in the prescribed manner and
within such time as may be specified in the order such security as may be so specified, for all or
any of the aforesaid purposes.
If the authority to whom an application is made satisfied that the application is in conformity
with the provisions of this Act and the rules made thereunder[and the condition, if any, imposed
has been complied with he shall register the applicant and grant to him a certificate of
registration in the prescribed form which shall specify the class or classes of goods for the
purposes of section 8.
Where it appears necessary to the authority granting a certificate of registration , so to do for the
proper realisation of tax payable under this Act or for the proper custody and use of the forms
referred to , he may, at any time while such certificate is in force, by an order in writing and for
reasons to be recorded therein, require the dealer, to whom the certificate has been granted, to
furnish within such time as may be specified in the order and in the prescribed manner such
security, or, if the dealer has already furnished any security in pursuance of an order such
additional security, as may be specified in the order, for all or any of the aforesaid purposes.
No dealer shall be required to furnish any security or additional security unless he has been given
an opportunity of being heard.
The amount of security which a dealer may be required to furnish -section (3A) or the aggregate
of the amount of such security and the amount of additional security which he may be required to
furnish by the authority referred to therein shall not exceed—
(a) in the case of a dealer other than a dealer who has made an application, or who has been
registered in pursuance of an application, under sub-section (2), a sum equal to the tax payable
under this Act, in accordance with the estimate of such authority, on the turnover of such dealer
for the year in which such security or, as the case may be, additional security is required to be
furnished; and
(b) in the case of a dealer who has made an application, or who has been registered in pursuance
of an application, under sub-section (2), a sum equal to the tax leviable under this Act, in
accordance with the estimate of such authority on the sales to such dealer in the course of inter- s
tate trade or commerce in the year in which such security or, as the case may be additional
security is required to be furnished, had such dealer been not registered under this Act.]
Where the security furnished by a dealer is in the form of a surety bond and the surety becomes
insolvent or dies, the dealer shall, within thirty days of the occurrence of any of the aforesaid
events, inform the authority granting the certificate of registration and shall within ninety days of
such occurence furnish a fresh surety bond or furnish in the prescribed manner other security for
the amount of the bond.]
The authority granting the certificate of registration may by order and for good and sufficient
cause forfeit the whole or any part of the security furnished by a dealer,—
(a) for realising any amount of tax or penalty payable by the dealer;
(b) if the dealer is found to have misused any of the forms referred to have failed to keep them in
proper custody:
Provided that no order shall be passed without giving the dealer an opportunity of being heard.]
Where by reason of an order under sub-section the security furnished by any dealer is rendered
insufficient, he shall make up the deficiency is such manner and within such time as may be
prescribed.]
The authority issuing the forms may refuse to issue such forms to a dealer who has failed to
comply with an order until the dealer has complied with such order or such provisions, as the
case may be.]
The authority granting a certificate of registration may, on application by the dealer to whom it
has been granted, order the refund of any amount or part thereof deposited by the dealer by way
of security if it is not required for the purposes of this Act.]
Any person aggrieved by an order passed may, within thirty days of the service of the order on
him, but after furnishing the security, prefer, in such form and manner as may be prescribed, an
appeal against such order to such authority as may be prescribed: Provided that the appellate
authority may, for sufficient cause, permit such person to present the appeal—
(a) after the expiry of the said period of thirty days; or
(b) without furnishing the whole or any part of such security.]
(3-I) The procedure to be followed in hearing any appeal and the fees payable in respect of such
appeals shall be such as may be prescribed.]
The order passed by the appellate authority in any appeal shall be final.]
A certificate of registration granted under this section may—
be either on the application of the dealer to whom it has been granted or, where no such
application has been made, after due notice to the dealer, be amended by the authority granting it
if he is satisfied that by reason of the registered dealer having changed the name, place or nature
of his business or the class or classes of goods in which he carries on business or for any other
reason the certificate of registration granted to him requires to be amended; or
be cancelled by the authority granting it where he is satisfied, after due notice to the dealer to
whom it has been granted, that he has ceased to carry on business [or has ceased to exist or has
failed without sufficient cause, to comply with an order provisions has failed to pay any tax or
penalty payable under this Act], or in the case of a dealer registered has ceased to be liable to pay
tax under the sales tax law of the appropriate State or for any other sufficient reason.]
b.A registered dealer may apply in the prescribed manner not later than six months before the
end of a year to the authority which granted his certificate of registration for the cancellation of
such registration, and the authority shall, unless the dealer is liable to pay tax under this Act,
cancel the registration accordingly, and where he does so, the cancellation shall take effect from
the end of the year.
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6. Salient features of Service Tax ?

Service tax is a tax levied by Central Government of India on services provided or to be
provided excluding services covered under negative list and considering the Place of Provision
of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable
to pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he
may be service provider or service receiver or any other person made so liable. It is an indirect
tax wherein the service provider collects the tax on services from service receiver and pays the
same to government of India.
1. Scope: It is leviable on taxable services ‘provided’ or ‘to be provided’ by a service provider.
The services ‘to be provided’ in future are taxed only if payment in its respect is received in
advance.
Two separate persons required Payment to employees not covered: For charge of service
tax, it is necessary that the service provider and service recipient should be two separate persons
acting on ‘principal to principal basis’. Services provided by an employee to his employer are
not covered service tax and, therefore, salaries or allowances paid to them cannot be charged to
service tax.
2. Rate: It is leviable @ 12% of the value of taxable services. Education Cess @ 2% and
Secondary and Higher Education Cess @ 1 % are chargeable on the amount of service tax, thus,
making the effective rate of service tax at 12.36% of the value of taxable service.
3. Taxable services: Service tax is leviable only on the taxable services. Taxable services mean
the services taxable under section 65(105) of the Finance Act, 1994.
4. Value: For the levy of the service tax, the value shall be computed in accordance with section
67 read with Service Tax (Determination of Value) Rules, 2006.
5. Free services not taxable : No service tax is leviable upon the services provided free of cost.
6. Payment of service tax : The person providing the service (i.e. the service provider) has to
pay service tax in such manner and within such period as is prescribed in the Service Tax Rules,
1994. The service tax is to be paid only on the receipt of payment towards the value of taxable
services.
7. Procedures: Provisions have been made for registration, assessment including self
assessment, rectifications, revisions, appeals and penalties on the service provider.
8. CENVAT credit: The credit of service tax and excise duty across goods and services is
allowable in accordance with the CENVAT Credit Rules, 2004. Accordingly, output service
provider (i.e. provider of any taxable service) can avail credit not only of the service tax paid on
any input service consumed for rendering any output service but also of the excise duty paid on
any inputs and capital goods used for rendering output service. CENVAT credit so availed can
be utilized for payment of service tax on taxable output service.
9. Services provided by an unincorporated association/body to its members also taxable
[Explanation to Sec. 65] : ‘Taxable service’ includes any taxable service provided or to be
provided by any unincorporated association or body of persons to a member thereof, for
cash, deferred payment or any other valuable consideration. Hence, the services (falling
under any category of taxable service) provided or to be provided by any unincorporated
association/body to member thereof shall be liable to service tax. This provision is an
exception to the ‘principle of mutuality’.
10. Performance of statutory activities/duties, not ’service’: An activity performed by a
sovereign /public authority under provisions of law does not constitute provision of taxable
service to a person and, therefore, no service tax is leviable on such entities.
11. Import/Export of services: While import of services is chargeable to tax u/s 66A, the
export of services has been made exempt from tax. Import/export provisions are discussed
separately.
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7. Valuation of goods under Customs Act

The rates of customs duties leviable on imported goods (& export items in certain cases) are
either specific or on ad valorem basis or at times specific cum ad valorem. When customs duties
are levied at ad valorem rates, i.e., depending upon its value, it becomes essential to lay down in
the law itself the broad guidelines for such valuation to avoid arbitrariness and to ensure that
there is uniformity in approach at different Customs formations. Section 14 of the Customs Act,
1962 lays down the basis for valuation of import & export goods in the country.

Tariff Value:

The Central Government has been empowered to fix values, under sub-section (2) of Section 14
of the Customs Act, 1962 for any product which are called Tariff Values. If tariff values are
fixed for any goods, ad valorem duties are to be calculated with reference to such tariff values.
The tariff values may be fixed for any class of imported or export goods having regard to the
trend of value of such or like goods and the same has to be notified in the official gazette.
Recently tariff values have been fixed in respect of import of Crude Palm Oil, RBD Palm Oil,
RBD Palmolein under Notification No.36/2001-CUS (N.T.), dated 3.8.2001 and for RBD Crude
Palmolein under Notification No. 40/2001-CUS (N.T.) dated 28.08.2001.

Valuation of Imported/Export Goods where no Tariff Values fixed:

Section 2(41) of the Customs Act, 1962 defines ‘Value’ in relation to any goods to mean the
value thereof determined in accordance with the provisions of sub-section (1) of Section 14
thereof. Sub-section (1) of Section 14 in turn states that when a duty of customs is chargeable on
any goods by reference to their value, the value of such goods shall be deemed to be: -

"the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the
time and place of importation or exportation, as the case may be, in the course of international
trade, where the seller and the buyer have no interest in the business of each other and the price
is the sole consideration for the sale or offer for sale".

As far as export goods are concerned, provisions of sub-section (1) of Section 14 provide a
complete code of valuation by itself. On the other hand, for imported goods, as per sub-section
(1A) of Section 14, the value is required to be determined in accordance with rules made in the
Customs Valuation (Determination of Price of Imported Goods) Rules,.

The provisions of sub-section (1) of Section 14 follow the provisions contained in Article VII of
GATT. The Customs Valuation Rules, closely follow the WTO Customs Valuation Agreement
to implement Article VII of GATT. The methods of valuation prescribed therein are of a
hierarchical order. The importer is required to truthfully declare the value in the B/E and also
provide a copy of the invoice and file a valuation declaration in the prescribed form to facilitate
correct and expeditious determination of value for assessment purposes.

Methods of Valuation:
According to the Customs Valuation Rules, 1988, the Customs Value should normally be the
"Transaction Value", i.e., the price actually paid or payable after adjustment by Valuation
Factors (see below) and subject to (a) Compliance with the Valuation Conditions (see below) and
(b) Customs authorities being satisfied with the truth and accuracy of the Declared Value.

Transaction Value:

Rule 3(i) of the Customs Valuation Rules, 1988 states that the value of imported goods shall be
the transaction value. Rule 4(i) thereof states that the transaction value of imported goods shall
be the price actually paid or payable for the goods when sold for export to India, adjusted in
accordance with the provisions of Rule 9.

The price actually paid or payable is the total payment made or to be made by the buyer to the
seller or for the benefit of the seller for the imported goods. It includes all payments made as a
condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party
to satisfy an obligation of the seller.

If objective and quantifiable data do not exist with regard to the Valuation Factors, if the
Valuation Conditions are not fulfilled, or if Customs authorities have doubts concerning the truth
or accuracy of the declared value in terms of Rule 10A of the Customs Valuation Rules,
valuation has to be carried out by another method in the following hierarchical order:

 Comparative Value Method – Comparison with Transaction Value of Identical goods

(Rule 5);
 Comparative Value Method – Comparison with Transaction Value of Similar goods
(Rule 6);
 Deductive Value Method – Based on sale price in the importing country (Rule 7);
Computed Value Method – Based on cost of materials, fabrication and profit in the
country of production (Rule 7A);
 Fallback Method – Based on previous methods with greater flexibility (Rule 8).

VALUATION FACTORS:
 Valuation Factors are the various elements which must be taken into account by addition
(Dutiable factors) to the extent these are shown to be not already included in the price actually
paid or payable or deduction (Non-dutiable factors) from the total price incurred in determining
the Customs Value, for assessment purposes.

Dutiable Factors:

 Commissions and brokerage, except buying commissions;

 The cost of containers which are treated as being one for Customs purposes with the
goods in question;
 The cost of packing whether for labour or materials;
 The value, apportioned as appropriate, of the following goods and services where
supplied directly or indirectly by the buyer free of charge or at reduced cost for use in
connection with the production and sale for export of the imported goods, to the extent
that such value has not been included in the price actually paid or payable:-
 material, components, parts and similar items incorporated in the imported goods;tools,
dies, moulds and similar items

 engineering, developing, artwork, design work, and plans and sketches undertaken
elsewhere than in the importing country and necessary for the production of imported
goods;

 Royalties and license fees related to goods being valued that the buyer must pay either
directly or indirectly, as a condition of sale of the goods being valued, to the extent that
such royalties and fees are not included in the price actually paid or payable;

 The value of any part of the proceeds of any subsequent resale, disposal or use of the
goods that accrues directly or indirectly to the seller;

 Advance payments;

 Freight charges up to the place of importation;

  Loading, unloading and handling charges associated with transporting the goods;

 Insurance.

 Non-dutiable Factors:

 The following charges provided they are separately declared in the commercial invoice:-

 Interest charges for deferred payment;

 Post-importation charges (e.g. inland transportation charges, installation or erection

charges, etc.);

 Duties and taxes payable in the importing country.

Cases where transaction value may be rejected:

The transaction value may not be accepted for customs valuation in the following categories of
cases as provided in Rule 4(2):-

(a) If there are restrictions on use or disposition of the goods by the buyer. However, the
transaction value not to be rejected on this ground if restrictions:

(i) are imposed by law or public authorities in India;

(ii) limit geographical area of resale;

(iii) do not affect the value of the goods substantially.

(b) If the sale or price is subject to a Condition or consideration for which a Value cannot be
determined. However, conditions or considerations relating to production or marketing of the
goods shall not result in rejection.

(c) If part of the proceeds of the subsequent resale, disposal or use of the goods accrues to the
seller, unless an adjustment can be made as per valuation factors.

(d) Buyer and seller are related; unless it is established by the importer that –

(i) The relationship has not influenced the price;

(ii) The importer demonstrates that the price closely approximates one of the test values.

The transaction price declared can also be rejected in terms of Rule 10A, when the proper
customs officer has reasons to doubt the truth or accuracy of the value declared & if even after
furnishing of further information/documents or other evidence produced, proper officer is not
satisfied & has reasonable doubts about the value declared.

Rights of appeal:

The principles of natural justice are also required to be followed in valuation matters. When the
Customs authorities do not accept the declared value and re-determine the Customs value, the
importer or his representative is required to be given a written notice normally and even a
personal hearing. An adjudication order giving in detail the basis of determination of the value
can be obtained if the importer is aggrieved with the re-determination of value. Under the
Customs Act, 1962, an importer can appeal against a decision on valuation to the Commissioner
(Appeal) in the first instance. A second appeal lies to the Tribunal consisting of administrative
and judicial members. A third appeal lies to the Supreme Court of India. The importer is
informed regarding his rights of appeal by each of the adjudicating and appellate authorities.

Provisional clearance of imported goods:

15. Section 18 of the Customs Act, 1962 and Customs (provisional duty assessment regulation),
1963 [M.F. (D.R.) Notification No.181-Cus., dated 13th July, 1963], allows an importer to
provisionally clear the imported goods from Customs pending final determination of value by
giving a guarantee in the form of surety, security deposit or bank guarantee.

Valuation of Imported goods in case of related party transaction:

Sub-rule 2 of Rule 2 of Customs Valuation Rules, 1988 has enumerated the persons who shall
be deemed to be "related". Sub-Rule 3 of Rule 4 provides that where buyer and seller are related,
the transaction value can be accepted if the examination of circumstances of the sale of the
imported goods indicate that the relationship did not influence the price or if the importer
demonstrates that the declared value of the goods being valued, closely approximately to one of
the test values namely transaction value of identical/similar goods, deductive value for
identical/similar goods or computed value for identical/similar goods ascertained at or about the
same time.

The related party transactions are examined by Special Valuation Branches located at four major
Custom Houses namely Mumbai, Calcutta, Chennai & Delhi. The guidelines for examination of
the circumstances of the sale of the imported goods in case of related parties have been laid
down vide Ministry’s Circular No.11/2001-Cus., dated 23.2.2001. The circular provides a
questionnaire to be filed up and a list of documents to be furnished and the same could be studied
for ensuring timely action by concerned importers so that finalisation of provisional assessments
is expedited.

8.Short note

a. Wealth tax

The tax levied by the government on a person’s personal net wealth or capital is called wealth
tax. Net wealth is the net value of a person’s assets. The Wealth Tax Act 1957 lays down the
rules governing wealth tax in India. It applies to three kinds of assessees viz. Individuals, HUFs
and companies. Personal assets refer to an assessee’s land (urban), house, car, boats and yachts,
aircrafts, precious metals in various forms like jewellery, furniture etc.

The government abolished wealth tax as announced in the budget 2015. In its stead, the
government decided to increase the surcharge levied on the ‘super rich’ class by 2% to 12%.
Super rich are persons with incomes of Rs.1 crore or higher and companies that earn Rs.10
crores or higher. The abolition was a move to do away with high costs of collection and also to
simplify the existing tax structure thereby discouraging tax evasion.

It was a form of direct tax payable by individuals/entities on their wealth.

Wealth tax has been abolished (w.e.f April 1, 2016 for wealth held as on March 31, 2016) by the
central government, as announced by the finance minister, in his budget speech, in March, this
year. Super rich taxpayers, therefore, need not file their wealth returns for the financial year
2015-16 Some of the main objectives cited by experts behind the wealth tax abolished are

 Focus on more governance and less government: Finance minister, during his budget
speech, cited the lack of ease of doing business as one of the reasons for abolishing the
wealth tax. Also, by abolishing wealth tax, government has reduced the scope of some
taxpayers taking undue advantage of the loopholes in the wealth tax act.
 Simplification of tax procedures: According to experts, Indian tax laws are, by and
large, very complex and therefore, prone to litigations. Government wants to simplify
procedures for easier tracking and enhance transparency.
 Incurs high collection costs but provides low yield: In a country with increasing
number of billionaires, government collected a meagre Rs. 1008 crore as wealth tax last
fiscal, exposing how the cost of collecting the tax is much higher compared to the low
yield. Also, wealth tax does not form a major chunk of collection of direct taxes in India
(Rs.788.67 crore and Rs.844.12 crore were collected as wealth tax in 2011-12 and 2012-
13 respectively).
 Increase the revenue collection: By abolishing the wealth tax and replacing it with
additional surcharge, government can collect up to Rs. 9000 crore in a fiscal year, opined
the finance minister in his budget speech.
 Additional administrative burden: Taxpayers had to value their assets as per the
Wealth Tax Rules to compute their net wealth. For certain assets such as jewellery,
taxpayers had to obtain a valuation report from a registered valuer.
 Tax compliance and widening the tax base: Government wants to bring more persons
under its tax net given that individuals who file income tax returns outnumber those who
file wealth tax returns.
  Additional reporting: Taxpayers will have to do some additional reporting of
information in their income tax returns in terms of listing out their assets and liabilities.
 No leakage: Details about assets submitted by the taxpayer in the income tax returns will
help officials correlate declared wealth with the declared income. Tax officers can,
therefore, ensure that there is no tax ‘leakage’. Earlier, unproductive assets such as
jewelry which cannot be readily tracked would allow assessees to skip making such
disclosures in their wealth returns.
 Low Awareness: According to rough estimates, many assessees in the country are only
dimly aware of the existence of the wealth tax. Consequently, more often than not,
assessees are served with notices for failing to pay wealth tax. In 2011-12, the number of
wealth tax assessees in India stood at 1.15 lakhs.

Wealth Tax Rules:

Who does wealth tax apply to or who has to pay wealth tax and how is it applied?

The residential status of an individual was one of the key parameters to ascertain wealth tax
liability. Resident Indians were liable to pay wealth tax on their global assets. However, non-
resident Indians and foreigners were liable to pay wealth tax on their assets in India only. If a
non-resident Indian returns to India, his assets would not be exempt from wealth tax. Assets
acquired by NRIs within one year of their return are also exempt.

Assets which were covered under wealth tax:

 Wealth tax was payable on assets such as real estate and gold. Assets such as shares,
mutual funds and securities termed as ‘productive assets’, were exempt from wealth tax.
 Yachts, aircraft and boats came under the purview of wealth tax.
 While one residential home is exempt, more than one own house would come under the
purview of wealth tax. However, wealth tax is not applicable on a property if it is used
for business or rented for 300 days in a year.
 Tax is levied on the market price of a car, except when used in a car hiring business.
  Gold, platinum and silver ornaments came under the purview of wealth tax. Also, wealth
tax is applicable to cash-in-hand above Rs. 50,000.
 If a taxpayer had to pay wealth tax, transferring his or her assets to the spouse would not
result in evasion of levy, since assets even if gifted, would be considered the property of
the taxpayer.

Wealth Tax Exemptions/Limits:

Assets not covered

 Investment securities viz. shares, bonds, units of mutual funds, units of gold deposit
schemes
 Houses/plots of area below 500 sq. Mts.
 Houses as place of business/profession
 Residential properties rented out for 300 days or more in a year
 Vehicles for hire
 Stock-in-trade business assets

Calculation of Wealth Tax:

Wealth tax was calculated on the market value of all the assets owned, irrespective of whether
they yielded any returns or not. All individuals and Hindu Undivided Family with net wealth
above Rs. 30 lakh were required to pay wealth tax. Wealth tax was based on the valuation of
assets as on March 31 and would, therefore, be applicable on any assets acquired at the end of a
financial year. However, assets sold during the year would not come under the purview of wealth
tax. Significantly, some Double Taxation Avoidance Agreements (DTAAs) in the country,
provided relief to taxpayers from wealth tax, if they had already paid it in any other country.

Wealth Tax Rate:

Wealth tax was calculated at 1% on net wealth above Rs.30 lakhs. E.g. If you your net wealth for
the year was Rs.50 lakhs, wealth tax would be charged at 1% on Rs.20 lakhs i.e (Rs.50 lakhs -
Rs.30 lakhs). Amount payable = Rs.20,000.
Wealth Tax Returns - E-Filing VS. Wealth Tax Return Form:

The CBDT had, in 2014, made it mandatory for wealth tax returns to be filed online only i.e. E-
filing of wealth tax returns, effective FY 2014 -2015. The form would be filled and submitted
using a digital signature. This, however, would not apply to those who are not liable to be
audited. Such persons could file returns on wealth tax through the traditional means.

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b. .Baggage under custom act

A) Baggage includes –
i) Dutiable goods imported by
- Passengers
- Member of a crew
In his baggage
ii) Unaccompanied baggage if dispatched previously or subsequently within prescribed period.
Baggage does not include
- Motor vehicles, alcoholic drinks & goods imported their courier
- Articles imported under imported license for himself or for others

B) Following are general prohibitions

i) Indian/ Foreign currency (above RBI limits )
ii)Narcoticdrugs
iii) Domestic pets (If not as per health regulations )
iv) Exoctic Birds, wind orchids, wild life
v) Endangered species
vi) Ivory
vii) Reptile skins
viii) Antiques

C) There are 2 Channels

i) Green Channel – Person not having any dutiable goods can pass through this. However if
found carrying dutiable goods. Goods are confiscated & he is prosecuted.
ii) Red channel – Person having dutiable goods pass their this & submit declaration. Baggage
checked by customs officer & appropriate duty is charged at 35% + 2% E.C. & 1% SAH.
Education Cess. There is no SAD & CVD
D) Exemptions allowed for import through Baggage
· Person transferring his residence to India is eligible to bring his personal & household articles
to India without duty
· Bona fide baggage accompanying passenger is exempted from customs duty
This includes personal effects, wearing apparel & toilet requisites
· Laptop computer brought as baggage by person over 18 years of age (other than member of
crew is fully exempt from customs duty
· Gold brought as baggage by a passenger of Indian origin or a person holding Indian passport.
The duty is only Rs. 100 per 10 gms. For import of gold bars bearing manufacturer’s or refiner’s
engraved serial number and weight expressed in metric units and gold coins. In case of other
gold, including tola bars and ornaments (but excluding ornaments studded with stones or pearls),
the duty is Rs. 250 per 10 10 gms. Up to 10 kg. gold can be brought by each eligible passenger
· Silver brought as baggage by a passenger of Indian origin holding Indian passport up to 100 kg.
is chargeable to duty of Rs. 500 per kg. (plus education cess @ 2% and SAH education cess of
1% of duty), if the person was staying abroad for over six months. Duty has to be paid only in
convertible foreign currency. No CVD is payable. Silver can be brought in any form, including
medallions, coins and jewellary, except foreign currency coins and jewellery studded with stones
or pearls. Out of the period of 6 months. Short visits up to 30 days are permitted, if the
concession was not availed in such short visit.
· Customs duty is not payable if amount of duty is equal to or less than Rs. 100
· A passenger of 10 or more year of age is allowed general free allowance of Rs. 25,000, if the
Indian Resident is returning from country other than Nepal, Bhutan, Myanmar or China . This
allowance is also available to foreign citizens residing in India, after stay of more than three
days. This allowance cannot be pooled with General Free Allowance of other passengers e.g.
husband and wife bringing one item of Rs. 50,000 will not be permitted duty free. This General
Free Allowance is not applicable to un-accompanied baggage.
The limit of Rs. 25,000 is reduced as follows –(a) Rs. 12,000 for passengers after stay abroad of
three days or less(b) If the passenger is up to 10 years of age and is returning from country other
than Nepal, Bhutan, Myanmar or China, the allowance is Rs. 6,000 if a person is returning after
stay of more than 3 days & Rs. 3,000 it has stay was 3 days or less, (c) If the passenger is
returning from Pakistan by land route, as specified in Annexure IV of baggage Rules, the general
free allowances is Rs. 6,000 for passengers above 10 years and Rs. 1,500 for passengers up to 10
years. Of age.
· An Indian Resident or foreigner residing in Indian of Age 10 or more is entitled to lower rate of
General free allowance of Rs. 6,000 if he is returning form Nepal, Bhutan, Myanmar or China
after stay of more than 3 days, by route other than land route. Passenger up to 10 years returning
from these countries after stay of more than 3 days is entitled to General Free Allowance of Rs.
1,500. There is no duty on personal effects.
· There is no general free allowance if a person is returning from these countries after stay of
three days or less. There is no free allowance if passenger returns by land route from these
countries, even if his stay abroad was more than 3 days. If the passenger is returning from
Pakistan by land route the general free allowance is Rs. 6,000 for passengers above 10 years and
Rs. 1,500 for passengers up to 10 years of age.
· An Indian passenger who was engaged in his profession abroad for over three months is
allowed to import following duty free goods as additional allowance (a) Used household articles
up to Rs. 12,000 ( e.g. linen, utensils, tableware,
kitchen appliances, an iron etc. )
(b) Professional equipment like portable equipments, apparatus and appliances
required in such profession, up to Rs. 20,000. The limit will be increased
to Rs. 40,000 if he was abroad for over 6 months. [The allowance is in
addition to General Free Allowance ]
This exemption of professional equipment is only for carpenters, plumbers
welders, masons and the like and not for items of common use like
cameras, type writer, cassette – recorder, computers, word processor etc.
· If the passenger was residing abroad for over one year, jewellery can be imported duty free up
to Rs. 10,000 in case of gentleman passenger and Rs. 20,000 in case of lady passenger.
· A person who was working abroad and is returning to India on termination or work and who
was staying abroad for at leas 365 days out of previous two years, is eligible to certain
concessions. This is termed as ‘mini TR’ i.e. ‘Mini Transfer of Residence’. He is entitled to bring
personal effects and household articles up to Rs. 75,000 duty free [ The limit was Rs. 30,000
upto 28-2-2002]. This allowance is in addition to General Free Allowance. The conditions are (a)
These should be in possession of himself or his family and used for at least sixmonths

(b) He shall be allowed to avail himself of this exemption only once in three
years,
(c) Items in Annex I, Annex II or Annex III to Baggage Rules are not allowed
under this rule,
(d) Goods should be contained in his bona fide baggage.
· Exemption to Baggage of Tourists – Following are the exemptions –
(a) Used personal effects of tourist and travel souvenirs are allowed duty free. Personal effects
should be for personal use of the tourist and these goods, other than consumed should be re-
exported when tourist leaves India for foreign destination.
(b) Tourists of Indian Origin (even if holding foreign passport ) other than those coming from
Pakistan by land route as specified in Annexure IV of Baggage Rules, are entitled to General
Free Allowance in addition to ‘ personal effects ‘.
(c) Foreign Tourists are permitted to bring articles up to Rs. 8,000 for making gifts. This can
include up to 200 cigarettes or 50 cigars or 250 gms of tobacco and up to two liters of alcoholic
liquor or wine. Duty will have to be paid for gifts over the value of Rs. 8,000 (Rs. 6,000 if they
are coming from Pakistan)
(d) Tourists of Pakistani origin or foreign tourists coming from Pakistan or tourists of Indian
origin coming from Pakistan, by land route as specified in Annexure IV of Baggage Rules, are
entitled to bring used personal effects and travel souvenirs are allowed duty free. Personal effect
should be for personal use of the tourist and these goods, other than consumed, should be re-
exported when tourist leaves India for foreign destination. In addition, articles up to value of Rs.
6,000 for making gifts are permitted duty free
(e) Tourists of Nepalese origin coming from Nepal or of Bhutanese origin coming from Bhutan
are not entitled to any exemption.
Import by foreign experts – Foreign experts assigned to India under various UN schemes etc. are
 permitted to bring various articles, including VCR, video camera and Air – conditioners. These
are exempt from customs duty on obtaining certificate of undertaking from the expert. Duty will
be paid by concerned ministry / department

c. Agricultural income.

Section 2. (1A) of IT act “agricultural income”means—

(a) any rent or revenue derived from land which is situated in India and is used for agricultural
purposes b. any income derived from such land by (i) agriculture; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily

employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by
him fit to be taken to market ; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him,
in respect of which no process has been performed other than a process of the nature described in
paragraph (ii) of this sub-clause ;

(c) any income derived from any building owned and occupied by the receiver of the rent or
revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any
land with respect to which, or the produce of which, any process mentioned in paragraphs (ii)
and (iii) of sub-clause (b) is carried on : Provided that—

(i) the building is on or in the immediate vicinity of the land, and is a building which the
receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his
connection with the land, requires as a dwelling house, or as a store-house, or other out-building,
and

(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and
collected by officers of the Government as such or where the land is not so assessed to land
revenue or subject to a local rate, it is not situated—
  in any area which is comprised within the jurisdiction of a municipality (whether known
as a municipality, municipal corporation, notified area committee, town area committee,
town committee or by any other name) or a cantonment board and which has a population
of not less than ten thousand according to the last preceding census of which the relevant
figures have been published before the first day of the previous year ; or
 in any area within such distance, not being more than eight kilometres, from the local
limits of any municipality or cantonment board referred to in item (A), as the Central
Government may, having regard to the extent of, and scope for, urbanisation of that area
and other relevant considerations, specify in this behalf by notification in the Official
Gazette.

Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land
shall not include and shall be deemed never to have included any income arising from the
transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this
section.

Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any
building or land referred to in sub-clause (c) arising from the use of such building or land for any
purpose (including letting for residential purpose or for the purpose of any business or
profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be
agricultural income.

Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings
grown in a nursery shall be deemed to be agricultural income.

AGRICULTURE INCOME

As per Income Tax Act income earned from any of the under given three sources meant
Agricultural Income;

(i)Any rent received from land which is used for agricultural purpose: Assessees do not
have to pay tax on rent or revenue from agricultural land. Such land should, of course, be
assessed to land revenue in the country or be subject to a local rate. Further, there must be a
direct link between the agricultural land and the receipt of income by way of rent or other
revenue (for instance, a landlord could receive revenue from a tenant).

(ii)Any income derived from such land by agricultural operations including processing of
agricultural produce, raised or received as rent in kind so as to render it fit for the market, or sale
of such produce.

(iii)Income attributable to a farm house subject to the condition that building is situated on or
in the immediate vicinity of the land and is used as a dwelling house, store house etc. Income
from such farm houses is considered agricultural income. The definition of `farm houses’ covers
buildings owned and occupied by both cultivators of agricultural land and assessees who receive
rent or revenue from agricultural land. The sole purpose of such farmhouses should be for use as
dwellings for the cultivators or use as store houses. Normally, the annual value of a building is
taxable as `income from house property’. However, in the case of a farm house, the annual value
would be deemed agricultural income and would, thus, be exempt from tax.

(iv) Income earned from carrying nursery operations is also considered as agricultural income
and hence exempt from income tax.[v]

In order to consider an income as agricultural income certain points have to be kept in

mind:

(i) There must me a land.

(ii) The land is being used for agricultural operations:- Agricultural operation means that efforts
have been induced for the crop to sprout out of the land. The ambit of agricultural income also
covers income from agricultural operations, which includes processing of agricultural produce to
make it fit for sale. Like the people who receive passive agricultural income in the form of rent
or revenue, the people who actually carry out agricultural operations are also eligible for tax-free
agricultural income.

(iii) Land cultivation is must:- Some measure of cultivation is necessary for land to have been
used for agricultural purposes. The ambit of agriculture covers all land produce like grain, fruits,
tea, coffee, spices, commercial crops, plantations, groves, and grasslands. However, the breeding
of livestock, aqua culture, dairy farming, and poultry farming on agricultural land cannot be
construed as agricultural operations.

(iv) If any rent is being received from the land then in order to assess that rental income as
agricultural income there must be agricultural activities on the land.

(v) In order to assess income of farm house as agricultural income the farm house building must
be situated on the land itself only and is used as a store house/dwelling house.

(vi) Ownership is not essential. In the case of rent or revenue, it is essential that the Assessee
have an interest in the land (as an owner or mortgagee) to be eligible for tax-free income.
However, in the case of agricultural operations it isn’t necessary that the person conducting the
operations be the owner of the land. He could be just a tenant or a sub-tenant. In other words, all
tillers of land are agriculturists and enjoy exemption from tax. In some cases, further processes
may be necessary to make a marketable commodity out of agricultural produce. The sales
proceeds in such cases are considered agricultural income even though the producer’s final
objective is to sell his products.

. laminated card.

9 Problem solve
a. Format showing salary

Mr. A who is a CA and his Gross Salary is Rs.80,450, which includes:

Basic= 50000 + HRA=20000 + Travel allowance=1000 + Child's educational allowance=200 +

Medical allowance=1250 + other allowance=8000

The deductions allowed will be Travel allowance=1000 + Child's educational allowance=200 +

Medical allowance=1250 provided that Mr. A submits medical bills worth Rs.1250. Mr. A has a
house of his own so the HRA is not deducted. So his total exemption will be Rs.2,450.

The taxable annual gross income will be Rs. (80,450-2,450) x 12 which is Rs.9,36,000.

If Mr. A declares loss on House Property for the interest he is paying for the loan taken to buy
his house worth Rs.1,00,000. The Gross total income will be Rs.8,36,000 (9,36,000-1,00,000).

Mr. A declares Rs.1,00,000 as investment under Section 80C and Rs.25,000 under Section 80D,
the total taxable income will be Rs.7,11,000 (8,36,000-1,25,000). This is the net taxable income.
And Mr. A's income tax rate would be:

For the first Rs,2,00,000 it is nil, for the next Rs.5,00,000 it will be 10% that is Rs.50,000. And
on the balance of Rs,11,000, the tax rate is 20% amounting to Rs.2,200.

Mr. A's total annual tax is Rs.53,766 (Rs.52,200 plus the educational cess and higher education
cess that is charged at 3% which is Rs.1,566). The monthly tax that is levied on him will be
Rs.4,480.50/-.

Computation of Tax

In the books of accounts the Computation of Tax will look like:

Particulars Amount Amount

Basic pay XXXXX
+ Dearness allowance XXX

+ Annuity XXX

+ Bonus XXX
+ Commission XXX
+ Arrears of salary XXX

+ House Rent allowance

XXX (XXX) XXX
 Amount of HRA exempted
+ Leave travel allowance
XXX (XXX) XXX
 Amount exempted on Leave travel allowance
+ Perquisites
XXX (XXX) XXX
 Amount exempted

+ other allowances
XXX (XXX) XXX
 Amount exempted

+ VRS/ Retrenchment compensation

XXX (XXX) XXX
 Amount exempted

+ Gratuity received
XXX (XXX) XXX
 Exempted gratuity
+ Leave encashment
XXX (XXX) XXX
 Exempted leave encashment

+ Pension
XXX (XXX) XXX
 Amount exempted

+ employers contribution (in excess of 12% salary of employee) XXX

+ Interest on PF in excess of the notified amount XXX
Gross Salary XXXXX

 Deductions under the Section 16:

Entertainment allowance XXX

Professional Tax paid XXX
Income chargeable for tax under Salaries XXXX

---------------------------------------------------------------------------------------------------------------------
-------

b. Format showing house property income.

 Gross Annual Value (GAV): This is the highest among:

 Rent received or receivable
 Fair Market Value
 Municipal Valuation

If the Rent Control Act is applicable, the GAV is highest among:

 Standard Rent
 Rent Received

Net Annual Value (NAV): NAV = GAV – Municipal Taxes Paid

Deductions: To arrive at the actual taxable income from house property, two deductions are
allowed, under Section 24 of the Income Tax Act :

Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs, rent
collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if
the Annual Value is nil.

Interest on borrowed capital: is allowed as a deduction on accrual basis if the money was
borrowed to buy/construct the house. Deduction is allowed on whichever is lesser between
Rs.1,50,000 or the actual interest amount (in case the construction was completed within 3
years of taking the loan, on or after 1-April-1999.) In other cases, it’s between Rs.30,000, and
the actual interest, whichever is less.

Annual Value: Annual Value = NAV – Deductions.

Owner/deemed owner: Income from house property is taxable to the owner of the property.
The owner is the person who is entitled to receive income from property. This means that
income is chargeable to the person who receives financial benefit from the property, even if the
property is not registered to him, i.e. deemed owner. A deemed owner is an owner by
implication and not necessarily documented registration.

compute income from house property.

Income from house property contains the income generated by the owned property of an
individual.

Let’s assume you have a property and are charging Rs. 15,000 per month as rent. Let’s also
assume that you have paid Rs. 10,000 in municipal taxes for that year, and have Rs. 50,000 as
interest on borrowed capital.

Income of House Property Amounts (in Rs.)

Total annual rental income value 15,000 x 12 = 1,80,000

Less: Municipal Taxes 10,000

Net Annual Value (NAV) 1,70,000

------------------------------------------------------
Deductions under Section 24

Standard deduction (30% of NAV) 1,70,000 – 51,000 = 1,19,000

Interest on borrowed capital (if applicable) 50,000

Income from House Property 69,000