Important Definitions – UNIT 1

• Section 2(25A) – India

Means the territory of India as referred to in the Constitution, its territorial waters, seabed and subsoil underlying
such waters, continental shelf, exclusive economic zone or any other marine time zone as referred to under the
relevant Act and the air space above its territory and territorial waters.
Territorial waters extend upto 12 nautical miles from landmass of India.
Continental Shelf and exclusive economic zone extend upto 200 nautical miles.
• Section 2 (7)- Assessee:
Assessee means a person by whom any tax or any other sum of money is payable under this Act. In addition it includes
Every person in respect of whom any proceeding under this Act has been taken for the assessment of
 his income or
 The income of any other person in respect of which he is assessable or
 The loss sustained by him or by such other person or
 The amount of refund due to him or to such other person
Every person who is deemed to be an assessee under the provisions of this Act
Every person who is deemed to be an assessee in default under any provisions of this Act.
 Important Definitions – UNIT 1
• Section 2(31) – Person:
It includes –
i. An individual
ii. A Hindu Undivided Family
iii. A Company
iv. A Firm
v. An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not
vi. A Local Authority and
vii. Every Artificial Juridicial Person not falling within any of the preceding sub clauses.
• Section 2(9) – Assessment Year:
This means a period of 12 months commencing on 1st April every year. The year in which income is earned is the
previous year and such income is taxable in the immediately following year which is assessment year. Eg. Income earned
in P.Y./F.Y. 2022-23 is taxable in the A.Y. 2023-24
 Important Definitions – UNIT 1
• Section 3: Previous Year:
It means the financial year immediately preceding the assessment year.
IMPORTANT POINTS:
1. Generally a P.Y. is for a period of 12 months. However is the business has commenced during the P.Y. then the P.Y.
can be less than 12 months for that particular A.Y. In such a case the P.Y. will commence from the date of
commencement of business till 31 March.
Certain cases when income of a P.Y. will be assessed in the P.Y. itself
1. Shipping business of Non Resident
2. Persons leaving India
3. AOP/BOI/Artificial Juridical Person formed for a particular event or purpose
4. Persons likely to transfer property to avoid tax
5. Discontinued Business
• Section 2 (8)- Assessment:
This is the procedure by which income of an assessee is determined by the Assessing Officer. It may be by way of a
normal assessment or by way of reassessment of an income previously assessed.
Types of Assessments are – Self Assessment (Sec 140A), Summary Assessment [Sec 143(1)], Scrutiny Assessment [Sec
143(3)], Best Judgement Assessment [ Sec 144] and Re-assessment or Income escaping Assessment [Sec 147]
 Important Definitions – UNIT 1
• Section 2 (24)- Income:
It includes –
a. Profits and gains
b. Dividend
c. Voluntary contributions received by a charitable trust or religious trust or institution or association or university or educational
institutions or hospitals or electoral trusts
d. Value of any perquisite or profit in lieu of salary taxable u/s 17 and special allowance or benefit specifically granted either to meet
personal expenses or for the performance of duties of an office or an employment of profit
e. Export Incentives
f. Value of any benefit or perquisite whether convertible into money or not obtained by director or any person having substantial
interest or relative of such a person or any obligation met by the company on behalf of such a person
g. Value of any benefit or perquisite, whether convertible into money or not, obtained by representative assessee or any sum paid or
received by representative assessee on behalf of the beneficiary
h. Profits and gains of business or profession chargeable to tax u/s 28
i. Deemed income chargeable to tax u/s 41 or 59
j. Any interest, salary, bonus, commission or remuneration earned by a partner of a firm from such firm
k. Any capital gains chargeable u/s 45
l. Profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society
m. Profits and gains of any business of banking carried on by co-operative society with its members
 Important Definitions – UNIT 1
• Section 2 (24)- Income:
It includes –
n. Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from
gambling or betting of any form or nature whatsoever
o. Any sum received by the assessee from his employees towards welfare fund contributions such as provident funds,
superannuation fund, any fund set up under the provisions of the Employees’ State Insurance Act, 1948 etc
p. Any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy.
q. Non compete fee and any compensation for not sharing of any intangible asset such as know-how, patent, trademark.
r. Any sum of money, movable or immovable property received as gifts as stipulated u/s 56(2)
s. Any consideration received for issue of shares as exceeds the fair market value of the shares referred to u/s 56
t. Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if sum is
forfeited and the negotiations do not result in transfer of such capital asset
u. Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement by
Central Government or a State Government or any authority or any body or agency in cash or kind to the assessee
v. Fair Market value of inventory which is converted into or treated as a capital asset
w. Any compensation or payment received, due to or received by any person, in connection with termination of his employment or
the modification of the terms and conditions relating thereto.
 Important Definitions – UNIT 1
• Points regarding Income:
 Concept of Income – notes dictated in class
 Diversion of Income –
This principle by overriding title refers to those cases where there is an obligation on the recipient to part with a
portion of income in favour of the beneficiary, who possesses the right to receive such income. Income or the portion
so diverted with not be taxed in the hands of the recipient. Ex. Mr X inherits a property subjected to the condition of
right of residence in the favour of his mother. Any amount paid out of the sale consideration of such a property to the
mother for relinquishment of her right will fall under this principle. Any such amount paid to the mother is not
chargeable to tax in the hands of Mr. X. It will be assessed to tax in the hands of the mother.
 Application of Income –
If the assessee on his own wish or otherwise forgoes or utilizes his income for any reason or purpose, it will be
called as application of income. Ex. Donation made out of the salary earned.
 Real Income – Income Tax intends to tax real income only. Notional income if specified in the Act, will be considered
for the purpose of taxation.
 Change in Character – Income earned initially may be capital in nature and not taxable however due to change in
circumstances its character may change to revenue and it will be charged to tax in the year of change in character.
Similarly an expense recorded may change its character and be treated as an income chargeable to tax.
 Important Definitions – UNIT 1
• Points regarding Income:
 Concept of Revenue and Capital receipts and criteria for determining whether a receipt is capital or revenue in nature –
a. Act intends to charge revenue income and not capital income to tax.
b. Capital income will be charged to tax if specifically mentioned in the Act.

 Criteria (notes dictated in class)

a. Fixed Capital or Circulating Capital
b. Income from transfer of capital asset or trading asset

 Capital Receipts vis a vis Revenue Receipts – Tests to be applied (notes dictated in class)
a. Transaction entered into the course of business
b. Profit arising from sale of shares and securities
c. A single transaction – can constitute a business?
d. Liquidated Damages
e. Compensation on termination of agency/service contract
f. Gifts
 Important Definitions – UNIT 1
• Section 2 (1A)- Agricultural Income:
It 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 agriculture or by the process employed to render the produce fit for
market or by sale of such produce by a cultivator or receiver of rent in kind,
c. Any income derived from farm building, provided the following conditions are satisfied:
i. The building is on or in the immediate vicinity of the agricultural land
ii. It is occupied by the cultivator or receiver of rent or revenue
iii. It is used as a dwelling house or store house or out house and
iv. The land is assessed to land revenue in India or it is situated in rural area.
Explanations:
1. The revenue derived from the land shall not include any income arising from the transfer of the land referred to in sub clause
(a) and (b) above.
2. The revenue 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
shall not be agricultural income.
3. Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
4. Population means the population according to the last preceding census of which the relevant figures have been published
before the first day of the previous year.
 Important Definitions – UNIT 1
• Rural Agricultural land means an agricultural land in India which is situated in
a. 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; or
b. in any area within the distance, measured aerially,—
i. not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
ii. not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
iii. not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to
in item (A) and which has a population of more than ten lakh.
 Important Definitions – UNIT 1
• Important points
1. Income from Agricultural land situated outside India is not exempt from taxation.
2. Where an assessee has agricultural as well as non agricultural income, aggregation of agricultural income for rate
purposes is necessary.
3. Where agricultural produce is used as raw material for associated business by the assessee, the value of the raw
material for business will be the market value at which the produce is sold in the market if the produce is partially
consumed as raw material or else if the produce is fully consumed as raw material then all the expenses incurred for
the agricultural process undertaken plus a reasonable profit will be the value of the raw material.
4. In case of growing and manufacturing latex rubber, coffee and tea, the business income should be calculated assuming
there is no agricultural income. The taxable business income will be segregated into agricultural and non agricultural
income on the basis of Rule 7A, 7B and 8. ( of segregation dictated in class.)