 INTRODUCTION OF INCOME TAX IN INDIA.

In India ,this tax was introduced for the first time in 1860,by Sir James Wilson in
order to meet the losses sustained by the Government on account of the Military
Mutiny of 1857.Thereafter ,several amendments were made in it from time to time.

In 1886,a separate Income tax act was passed. This act remained in force up to, with
various amendments from time to time. In 1918, a new income tax was passed and
again it was replaced by another new act which was passed in 1922.

This Act remained in force up to the assessment year 1961-62 with numerous
amendments.

The Income Tax Act 1961 has been brought into force with 1 April 1962.It applies to
the whole of India and Sikkim(including Jammu and Kashmir).Since 1962 several
amendments of far-reaching nature have been made in the Income Tax Act by the
Union Budget every year.

 Income tax
Annual charge levied on both earned income (wages, salaries, commission) and
unearned income (dividends, interest, rents). In addition to financing a government's
operations, progressive income taxation is designed to distribute wealth more evenly
in a population and to serve as automatic fiscal stabilizer to cushion the effects of
economic cycles. Its two basic
types are
(1) Personal income tax, levied on incomes of individuals, households, partnerships,
and sole-proprietorship's; and

(2) Corporation income tax, levied on profits (net earnings) of

incorporated firms. However, presence of tax loopholes (whose number increases in
direct proportion to the complexity of tax code) may allow some wealthy persons to
escape higher taxes without violating the letter of the tax laws.

Jagannath ramanuj das v/s state of orissa AIR 1954

supreme court held “a tax is undoubtedly in nature of a compulsory exaction of
money by public authority for public purpose”
  History of Taxation Pre – 1922

"It was only for the good of his subjects that he collected taxes from them, just as the
Sun draws moisture from the Earth to give it back a thousand fold" –--Kalidas in
Raghuvansh eulogizing KING DALIP.
It is a matter of general belief that taxes on income and wealth are of recent origin but
there is enough evidence to show that taxes on income in some form or the other were
levied even in primitive and ancient communities. The origin of the word "Tax" is
from "Taxation" which means an estimate. These were levied either on the sale and
purchase of merchandise or livestock and were collected in a haphazard manner from
time to time. Nearly 2000 years ago, there went out a decree from Ceaser Augustus
that all the world should be taxed. In Greece, Germany and Roman Empires, taxes
were also levied sometime on the basis of turnover and sometimes on occupations.
For many centuries, revenue from taxes went to the Monarch. In Northern England,
taxes were levied on land and on moveable property such as the Saladin title in 1188.
Later on, these were supplemented by introduction of poll taxes, and indirect taxes
known as "Ancient Customs" which were duties on wool, leather and hides. These
levies and taxes in various forms and on various commodities and professions were
imposed to meet the needs of the Governments to meet their military and civil
expenditure and not only to ensure safety to the subjects but also to meet the common
needs of the citizens like maintenance of roads, administration of justice and such
other functions of the State.
In India, the system of direct taxation as it is known today, has been in force in one
form or another even from ancient times. There are references both in Manu Smriti
and Arthasastra to a variety of tax measures. Manu, the ancient sage and law-giver
stated that the king could levy taxes, according to Sastras. The wise sage advised that
taxes should be related to the income and expenditure of the subject. He, however,
cautioned the king against excessive taxation and stated that both extremes should be
avoided namely either complete absence of taxes or exorbitant taxation. According to
him, the king should arrange the collection of taxes in such a manner that the subjects
did not feel the pinch of paying taxes. He laid down that traders and artisans should
pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th,
1/8th and 1/10th of their produce depending upon their circumstances. The detailed
analysis given by Manu on the subject clearly shows the existence of a well-planned
taxation system, even in ancient times. Not only this, taxes were also levied on
various classes of people like actors, dancers, singers and even dancing girls. Taxes
were paid in the shape of gold-coins, cattle, grains, raw-materials and also by
rendering personal service.
The learned author K.B.Sarkar commends the system of taxation in ancient India in
his book "Public Finance in Ancient India", (1978 Edition) as follows:-
"Most of the taxes of Ancient India were highly productive. The admixture of direct
taxes with indirect Taxes secured elasticity in the tax system, although more emphasis
was laid on direct tax. The tax-structure was a broad based one and covered most
people within its fold. The taxes were varied and the large variety of taxes reflected
the life of a large and composit population".
However, it is Kautilya's Arthasastra, which deals with the system of taxation in a real
elaborate and planned manner. This well known treatise on state crafts written
sometime in 300 B.C., when the Mauryan Empire was as its glorious upwards move,
is truly amazing, for its deep study of the civilisation of that time and the suggestions
given which should guide a king in running the State in a most efficient and fruitful
manner. A major portion of Arthasastra is devoted by Kautilya to financial matters
including financial administration. According to famous statesman, the Mauryan
system, so far as it applied to agriculture, was a sort of state landlordism and the
collection of land revenue formed an important source of revenue to the State. The
State not only collected a part of the agricultural produce which was normally one
sixth but also levied water rates, octroi duties, tolls and customs duties. Taxes were
also collected on forest produce as well as from mining of metals etc. Salt tax was an
important source of revenue and it was collected at the place of its extraction.
Kautilya described in detail, the trade and commerce carried on with foreign countries
and the active interest of the Mauryan Empire to promote such trade. Goods were
imported from China, Ceylon and other countries and levy known as a vartanam was
collected on all foreign commodities imported in the country. There was another levy
called Dvarodaya which was paid by the concerned businessman for the import of
foreign goods. In addition, ferry fees of all kinds were levied to augment the tax
collection.
Collection of Income-tax was well organized and it constituted a major part of the
revenue of the State. A big portion was collected in the form of income-tax from
dancers, musicians, actors and dancing girls, etc. This taxation was not progressive
but proportional to the fluctuating income. An excess Profits Tax was also collected.
General Sales-tax was also levied on sales and the sale and the purchase of buildings
was also subject to tax. Even gambling operations were centralised and tax was
collected on these operations. A tax called yatravetana was levied on pilgrims.
Though revenues were collected from all possible sources, the underlying philosophy
was not to exploit or over-tax people but to provide them as well as to the State and
the King, immunity from external and internal danger. The revenues collected in this
manner were spent on social services such as laying of roads, setting up of
educational institutions, setting up of new villages and such other activities beneficial
to the community.
The reason why Kautilya gave so much importance to public finance and the taxation
system in the Arthasastra is not far to seek. According to him, the power of the
government depended upon the strength of its treasury. He states – "From the
treasury, comes the power of the government, and the Earth whose ornament is the
treasury, is acquired by means of the Treasury and Army". However, he regarded
revenue and taxes as the earning of the sovereign for the services which were to be
rendered by him to the people and to afford them protection and to maintain law and
order. Kautilya emphasised that the King was only a trustee of the land and his duty
was to protect it and to make it more and more productive so that land revenue could
be collected as a principal source of income for the State. According to him, tax was
not a compulsory contribution to be made by the subject to the State but the
relationship was based on Dharma and it was the King's sacred duty to protect its
citizens in view of the tax collected and if the King failed in his duty, the subject had
a right to stop paying taxes, and even to demand refund of the taxes paid.
Kautilya has also described in great detail the system of tax administration in the
Mauryan Empire. It is remarkable that the present day tax system is in many ways
similar to the system of taxation in vogue about 2300 years ago. According to the
Arthasastra, each tax was specific and there was no scope for arbitratiness. Precision
determined the schedule of each payment, and its time, manner and quantity being all
Pre-determined. The land revenue was fixed at 1/6 share of the produce and import
and export duties were determined on advalorem basis. The import duties on foreign
goods were roughly 20 per cent of their value. Similarly, tolls, road cess, ferry charges
and other levies were all fixed. Kautilya's concept of taxation is more or less akin to
the modern system of taxation. His over all emphasis was on equity and justice in
taxation. The affluent had to pay higher taxes as compared to the not so fortunate.
People who were suffering from diseases or were minor and students were exempted
from tax or given suitable remissions. The revenue collectors maintained up-to-date
records of collection and exemptions. The total revenue of the State was collected
from a large number of sources as enumerated above. There were also other sources
like profits from Stand land (Sita) religious taxes (Bali) and taxes paid in cash (Kara).
Vanikpath was the income from roads and traffic paid as tolls.
He placed land revenues and taxes on commerce under the head of tax revenues.
These were fixed taxes and included half yearly taxes like Bhadra, Padika, and
Vasantika. Custom duties and duties on sales, taxes on trade and professions and
direct taxes comprised the taxes on commerce. The non-tax revenues consisted of
produce of sown lands, profits accuring from the manufacture of oil, sugarcane and
beverage by the State, and other transactions carried on by the State. Commodities
utilised on marriage occasions, the articles needed for sacrificial ceremonies and
special kinds of gifts were exempted from taxation. All kinds of liquor were subject to
a toll of 5 precent. Tax evaders and other offenders were fined to the tune of 600
panas.
Kautilya also laid down that during war or emergencies like famine or floods, etc. the
taxation system should be made more stringent and the king could also raise war
loans. The land revenue could be raised from 1/6th to 1/4th during the emergencies.
The people engaged in commerce were to pay big donations to war efforts.
Taking an overall view, it can be said without fear of contradiction that Kautilya's
Arthasastra was the first authoritative text on public finance, administration and the
fiscal laws in this country. His concept of tax revenue and the on-tax revenue was a
unique contribution in the field of tax administration. It was he, who gave the tax
revenues its due importance in the running of the State and its far-reaching
contribution to the prosperity and stability of the Empire. It is truly an unique treatise.
It lays down in precise terms the art of state craft including economic and
financialadministration.
  History of Taxation Post 1922

1. Preliminary :

The rapid changes in administration of direct taxes, during the last decades, reflect the
history of socio-economic thinking in India. From 1922 to the present day changes in
direct tax laws have been so rapid that except in the bare outlines, the traces of the I.T.
Act, 1922 can hardly be seen in the 1961 Act as it stands amended to date. It was but
natural, in these circumstances, that the set up of the department should not only
expand but undergo structural changes as well.

2. Changes in administrative set up since the inception of the department:

The organisational history of the Income-tax Department starts in the year 1922. The
Income-tax Act, 1922, gave, for the first time, a specific nomenclature to various
Income-tax authorities. The foundation of a proper system of administration was thus
laid. In 1924, Central Board of Revenue Act constituted the Board as a statutory body
with functional responsibilities for the administration of the Income-tax Act.
Commissioners of Income- tax were appointed separately for each province and
Assistant Commissioners and Income-tax Officers were provided under their control.
The amendments to the Income tax Act, in 1939, made two vital structural changes:
(i) appellate functions were separated from administrative functions; a class of
officers, known as Appellate Assistant Commissioners, thus came into existence, and
(ii) a central charge was created in Bombay. In 1940, with a view to exercising
effective control over the progress and inspection of the work of Income-tax
Department throughout India, the very first attached office of the Board, called
Directorate of Inspection (Income Tax) - was created. As a result of separation of
executive and judicial functions, in 1941, the Appellate Tribunal came into existence.
In the same year, a central charge was created in Calcutta also.
2.1 World War II brought unusual profits to businessmen. During 1940 to 1947,
Excess Profits Tax and Business Profits Tax were introduced and their
administration handed over to the Department (These were later repealed in 1946
and 1949 respectively). In 1951, the 1st Voluntary Disclosure Scheme was
brought in. It was during this period, in 1946, that a few Group 'A' officers were
directly recruited. Later on in 1953, the Group 'A' Service was formally
constituted as the 'Indian Revenue Service'.
2.2 This era was characterised by considerable emphasis on development of
investigation techniques. In 1947, Taxation on Income (Investigation)
Commission was set up which was declared ultra vires by the Supreme Court in
1956 but the necessity of deep investigation had by then been realised. In 1952,
the Directorate of Inspection (Investigation) was set up. It was in this year that a
new cadre known as Inspectors of Income Tax was created. The increase in 'large
income' cases necessitated checking of the work done by departmental officers.
Thus in 1954, the Internal Audit Scheme was introduced in the Income-tax
Department.
2.3 As indicated earlier, in 1946, for the first time a few Group A officers were
recruited in the department. Training them was important. The new recruits were
sent to Bombay and Calcutta where they were trained, though not in an organized
 manner. In 1957, I.R.S. (Direct Taxes) Staff College started functioning in
Nagpur. Today this attached office of the Board functions under a Director-
General. It is called the National Academy of Direct Taxes. By 1963, the I.T.
department, burdened with the administration of several other Acts like W.T.,
G.T., E.D., etc., had expanded to such an extent that it was considered necessary
to put it under a separate Board. Consequently, the Central Board of Revenue
Act, 1963 was passed. The Central Board of Direct Taxes was constituted, under
this Act.
2.4 The developing nature of the economy of the country brought with it both
steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure
Scheme was brought in followed by the 1975 Disclosure Scheme. Finally, the
need for a permanent settlement mechanism resulted in the creation of the
Settlement Commission.
2.5 A very important administrative change occurred during this period. The
recovery of arrears of tax which till 1970 was the function of State authorities
was passed on to the departmental officers. A whole new wing of Officers - Tax
Recovery Officers was created and a new cadre of post of Tax Recovery
Commissioners was introduced w.e.f. 1-1-1972.
2.6 In order to improve the quality of work, in 1977, a new cadre known as IAC
(Assessment) and in 1978 another cadre known as CIT (Appeals) were created.
The Commissioners' cadre was further reorganized and five posts of Chief
Commissioners (Administration) were created in 1981.
2.7 Tax Reforms : Certain important policy and administrative reforms carried
out over the past few years are as follows :-
(a). The policy reforms include :-

• Lowering of rates;

• Withdrawals/reduction of major incentives;

• introduction of measures for presumptive taxation;

• simplification of tax laws, particularly relating to capital gains; and

• widening the tax base.

(b). The administrative reforms include :--

• Computerisation involving allotment of a unique identification number to tax payers

which is emerging as a unique business identification number; and

• realignment of the available human resources with the changed business needs of
the organization.
2.8 Computerisation : Computerisation in the Income-tax Department started with the
setting up of the Directorate of Income tax (Systems) in 1981. Initially
Computerisation of processing of challans was taken up. For this 3 computer centres
were first set up in 1984-85 in metropolitan cities using SN-73 systems. This was later
extended to 33 major cities by 1989. The computerized activities were subsequently
extended to allotment of PAN under the old series, allotment of TAN, and pay roll
accounting. These computer centres used batch process with dumb terminals for data
entry.
In 1993 a Working Group was set up by the Government to recommend
Computerisation of the department. Based on the report of the Working Group a
comprehensive Computerisation plan was approved by the Government in October,
1993. In pursuance of this, Regional Computer Centres were set up in Delhi, Mumbai,
and Chennai in 1994-95 with RS6000/59H Servers. PCs were first provided to
officers in these cities in phases. The Plan involved networking of all users on
LAN/WAN. Network with leased data circuits were accordingly set up in Delhi,
Mumbai and Chennai in Phase-I during 1995-96. A National Computer Centre was
set up at Delhi in 1996-97. Integrated application software were developed and
deployed during 1997-99. Thereafter, RS6000 type mid range servers were provided
in the other 33 Computer Centres in various major cities in 1996-97. These were
connected to the National Computer Centre through leased lines. PCs were provided
to officers of different level upto ITOs in stages between 1997 and 1999. In phase II
offices in 57 cities were brought on the network and linked to RCCs and NCC.
2.9 Restructuring of the Income-tax department : The restructuring of the Income-tax
Department was approved by the Cabinet in its meeting held on 31-8-2000 to achieve
the following objectives :-

• Increase in effectiveness and productivity;

• Increase in revenue collection;

• Improvement in services to tax payers;

• Reduction in expenditure by downsizing the workforce;

• Improved career prospects at all levels;

• Induction of information technology; and

• Standardization of work norms

The aforementioned objectives have been sought to be achieved by the department
through a multi-pronged strategy of :

a. redesigning business processes through functionalisation;

b. increasing the number of officers to rationalise the span of control for better
supervision, control and management of workload and to improve tax-payer services
and

c. re-orient, retrain and redeploy the workforce with appropriate incentives in the
form of career advancement.
3. Important events affecting the administrative set up in the Income-tax
department:

 1939

 Appellate functions separated from inspecting functions.

 A class of officers known as AACs came into existence.

 Jurisdiction of Commissioners of Income tax extended to certain classes of

cases and a central charge was created at Bombay.

 1940

 Directorate of Inspection (Income-tax) came into being.

 Excess Profits Tax introduced w.e.f. 1-9-1939.

 1941

 Income-tax Appellate Tribunal came into existence.

 central charge created at Calcutta.

 1943

 Special Investigation Branches set up.

 1946

 A few officers of Class-I directly recruited.

 Demonetization of high denomination notes made.

 Excess Profits Tax Act repealed.

 1947

 Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949).

 1951

 Report of Income-tax Investigation Commission known as Vardhachari

Commission received.

 Voluntary Disclosure Scheme introduced.

 1952

 Directorate of Inspection (Investigation) set up.

 Inspector of Income-tax declared as an I.T. authority.

 1953

 Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953.

 Act XXV of 1953 gave effect to the recommendations of Commission

appointed under Taxation of Income (Investigation Commission) Act, 1947.

 1954

 Internal Audit Scheme in the Income-tax Department introduced.

 Taxation Enquiry Commission known as John Mathai Commission set up.

 1957

 The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957.

 I.R.S.(DT) Staff College started functioning at Nagpur and much later four
R.T.Is. stationed at Bombay, Calcutta, Bangalore and Lucknow opened.

 1958

 The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958.

 Report of Law Commission received.

 1959

 Direct Taxes Administration Enquiry Committee submitted its report.

 1960

 Directorate of Inspection (Research, Statistics & Publications)was set up.

 Two grades of Inspectors - selection and ordinary grades - merged into one
single grade.

 1961

 Direct Taxes Advisory Committee set up - Direct Taxes Administrative

Enquiry Committee constituted.

 Income-tax Act, 1961 came into existence w.e.f. 1-4-1962.

  Revenue Audit introduced for the first time in the Department.

 New system for evaluation of work done by Income-tax Officers introduced.

 1963, 1964

 Central Board of Revenue bifurcated and a separate Board for Direct Taxes
known as Central Board of Direct Taxes (CBDT)constituted under the Central
Board of Revenue Act, 1963.

 For the first time an officer from the department became Chairman of the
CBDT w.e.f. 1-1-1964.

 The Companies (Profits) Sur -tax Act, 1964 was introduced.

 Annuity Deposit Scheme, 1964 introduced.

 1965

 Voluntary Disclosure Scheme came into operation.

 1966

 Functional Scheme introduced.

 Special Recovery Unit created.

 Intelligence Wing created and placed under the charge of Directorate of

Inspection (Investigation).

 1968

 Valuation Cell came into existence in the Income tax Department.

 Report of rationalisation and simplification of tax structure (Bhoothalingam

Committee) received.

 Administrative Reforms Commission set up.

 1969

 Direct Recruitment to Class II Income-tax Officers made.

 The post of IAC (Audit) created in the Income-tax Department.

 1970
  The posts of Addl. Commissioner of Income-tax created and abolished after
one year.

 Recovery functions which were hitherto performed by Income- tax Officers,

given to Tax Recovery Officers. Prior to that State Government officials
exercised the functions of a Tax Recovery Officer.

 1971

 A new cadre of posts known as Tax Recovery Commissioners introduced

w.e.f. 1.1.1972.

 Report of Direct Taxes Enquiry Committee received.

 Summary Assessment Scheme introduced w.e.f. 1-4-1971.

 1972

 A Special Cell within the Directorate of Inspection (Investigation) created to

oversee the cases of big industrial houses.

 A new cadre of posts known as IAC created and IAC appointed as Competent
Authority with the insertion of new Chapter XXA in the Income Tax Act,
1961 on the acquisition of immovable properties in certain cases of transfer to
counter evasion of tax.

 Directorate of Organization & Management Services (Income- tax) created.

 The post of I.T.O. (Internal Audit) created.

 Bradma Scheme in the Income-tax Department introduced.

 System of Permanent Account Number introduced.

 Valuation Officers given statutory powers under the Income-tax Act, 1961
and Wealth-tax Act, 1957.

 1974

 Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.

 Action Plan for the Income-tax Officers introduced for the first time.

 Concept of M.B.O introduced.

 1975

 Voluntary Disclosure Scheme for Income and Wealth implemented.

  Special Cell for dealing with Smugglers' cases created.

 1976

 Settlement Commission created and Taxation Laws (Amendment) Act,1975

inserted a new Chapter XIXA in the Income Tax Act w.e.f.1-4-1976.

 Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act,

1976 introduced w.e.f. 25-1-1976.

 A new scheme for departmentalization of accounts introduced.

 Chokshi Committee submitted its interim report.

 1977

 A new cadre of posts known as IAC (Assessment) created.

 1978

 Appellate functions given to a new cadre of Commissioners known as

Commissioner (Appeals).

 Directorate of Inspection (Recovery) set up.

 A new directorate known as Directorate of Inspection (Vigilance) came into

existence by bifurcating the functions of Directorate of Inspection
(Investigation).

 Chokshi Committee submitted its final report.

 1979

 A new directorate designated as Directorate of Inspection (Publication &

Public Relations) created out of the Directorate of Inspection (RS&P).

 1980

 Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981.

 1981

 Economic Administrative Reforms Commission set up.

 Three new Directorates viz. Directorate of Inspection (Intelligence),

Directorate of Inspection (Survey) and Directorate of Inspection (Systems)
created.
  Within the Directorate of Inspection (Income Tax and Audit), a separate
Director of Inspection (Audit) appointed.

 Directorate of Inspection (RS&P) re-organised and Directorate of Inspection

(P&PR) re-designated as Directorate of Inspection (Printing & Publications).

 I.R.S.(DT) Staff College, Nagpur, re-designated as National Academy of

Direct Taxes.

 Special Bearer Bonds (Immunities & Exemptions) Act promulgated.

 Director General (Special Investigation) and Director General (Investigation)

appointed to control the functioning of various Directorates under the control
of Central Board of Direct Taxes.

 Five posts of Chief Commissioner (Administration) created.

 A few posts of Commissioner of Income-tax were earmarked as

Commissioner of Income-tax (Inv.) and Commissioner of Income- tax
(Recovery).

 1982

 Special Cell within the Directorate of Inspection (Investigation) converted

into a separate Directorate and re-designated as Directorate of Inspection
(Special Investigation).

 DIT (Systems) appointed in the Directorate of Income-tax (Organization and

Management Services) to coordinate efforts in introducing electronic data
processing in the IT Deptt. A microprocessor based EDP system along with
data entry system was installed heralding the era of Computerisation.

 Levy of Hotel Receipts Tax discontinued.

 Regional Training Institute at Nagpur started functioning under the control of

the National Academy of Direct Taxes.

 1983

 The vigilance set up reorganised and the strength of Dy. Director (Vigilance)
and Asstt. Director(Vigilance) augmented.

 Computerised systems for processing challans and PAN designed and

developed.

 1984
  Taxation Laws(Amendment) Act 1984 passed to streamline procedures in the
interest of better work management; avoid inconvenience to tax payers;
reduce litigation; remove anomalies and rationalise some provisions.

 1985

 Post of Director General (Investigation) created for more effective checking

of tax evasion.

 E.D.(Amendment) Act 1985 discontinues levy of estate duty on deaths

occurring on or after 16.03.1985.

 Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued

w.e.f. 1.4.1985.

 Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985

 A new "Reward Scheme" for motivating officers introduced w.e.f. 1.4.1985.

 1986

 The I.T. Act and W.T. Act amended by Taxation Laws (Amendment and
Miscellaneous Provisions) Act :-

 Established Settlement Commission.

 Introduced Block assets concept for depreciation.

 Four offices of Appropriate Authority for acquiring property in which

unaccounted money is invested set up in metropolitan cities.

 1987

 Government's approval obtained to set up three new benches of Settlement

Commission.

 L.K. Jha Committee set up for simplification and rationalisation of tax laws.

 Office of Directorate General (Tax Exemption) set up at Calcutta.

 The Direct Tax Law(Amendment) Act 1987 introduced uniform previous year
and redesignated the following authorities :-

 Director of Inspection

 Insp. Asstt. Commissioner of I.Tax

 Appellate. Asstt. Commissioner

  Income tax Officer Gr. A

 Income tax Officer Gr. B

 Director of Income Tax

 Dy. Commissioner of Income Tax.

 -Do- (Appeals)

 Asstt. Commissioner of I.Tax

 Income tax Officer

 Expenditure Tax Act 1987 brought into force.

 1988

 Benami Transactions Prohibition Act 1988 introduced.

 The Government announced a "Time Window Scheme" which allowed tax

payers 50% rebate of interest u/s 220(2) if they pay the tax and balance
interest. The scheme was in operation between 1.7.88 to 30.9.88.

 CIT (Central) placed under the control and supervision of Director General
(Investigation).

 Government decided that cadre control for Group 'C' and 'D' posts would be
with Chief Commissioner and with CBDT for Group 'A' and 'B'posts.

 Extension of Direct Tax Law to the State of Sikkim by a notification of the

President of India dated 7.11.1988.

 1989

 Creation of an attached office of DGIT(Management Systems) to supervise

Directorate of I.Tax(Research, Statistics, Publication & Public Relations) and
Directorate of I.Tax (Organization and Management Services) from Sept.
1989.

 1990

 Gift tax Bill introduced on 31.5.1990.

 Creation of 65 posts of Dy. Commissioner of I.Tax by upgradation of equal

number of posts of Asstt. Commissioner of I.Tax.

 1991
  Interest Tax Act, 1974 revived.

 Directorate of I.Tax(Systems) started reporting directly to Board.

 1992

 Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen tax

base.

 The post of Director General of Income-tax (Management Systems) was

abolished.

 1993

 40 additional posts of Commissioner of Income-tax (Appeals) created.

 Authority for Advance Rulings set up.

 A comprehensive phased cadre review for Group B, C and D initiated.

 1994

 2068 additional posts in Group B, C and D sanctioned.

 New PAN introduced.

 Regional Computer Centres (RCCs) were set up in Chennai, Delhi and

Mumbai.

 1995

 New procedure for search assessment introduced.

 50 years of training commemorated and "Seminar Twenty Five" introduced by

National Academy of Direct Taxes.

 1996

 77 posts of Commissioners of Income-tax created.

 Infrastructure for operational needs strengthened.

 Study report on 4th cadre review of Group 'A' officers (IRS) of the
Department prepared by Directorate of Income Tax (Organization and
Management Services).

 1997
  Rates of Income-tax reduced significantly.

 Legal measures to widen tax base on certain economic indicators introduced

in selected cities.

 Presumptive tax scheme discontinued.

 Voluntary Disclosure Scheme 1997 introduced.

 Minimum Alternate Tax introduced.

 National Computer Centre (NCC) was set up in Delhi.

 1998

 Sec. 260A introduced enabling direct appeals to High Court.

 1/6 Scheme & penalty for non-filing of return introduced to widen tax base.

 Gift-tax abolished for gifts made after 1.10.1998.

 Kar Vivad Samadhan Scheme 1998 introduced.

 Silver Jubilee of Regional Training Institutes celebrated.

 Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy.

Commissioner and that of Dy. Commissioner (Junior Administrative Grade)
to Joint Commissioner.

 1999

 Furnishing details of bank account and credit cards in the prescribed form
made mandatory for refund purpose.

 Prima-facie adjustments to return done away with; acknowledgments to serve

as intimations.

 Samman Scheme introduced in 1999 to honour deserving tax payers.

 2000

 The process of implementation of restructuring of the Department commenced

to increase efficiency and to deal with increased workload.
  Total sanctioned work force reduced from 61,031 to 58,315.

 Certain rationalisation measures at structural levels introduced.

 Interest-tax Act terminated with effect from 1-4-2000.

 2001

 The restructuring of the Department resulted in reducing the stagnation at all

levels and large number of personnel were promoted in various grades.

 Jurisdiction pattern was revamped.

 New posts were created at the level of DGIT/DIT in the areas of Research,
International Taxation and Infrastructure.

 2002

 Computerised processing of returns all over the country introduced.

 Kelkar Committee Report, inter alia, recommended :-

i. Outsourcing of non-core functions of the department ;
ii. Reduction in exemptions, deductions, reliefs, rebates etc.

 The National Website of the Income Tax Department

(www.incometaxindia.gov.in) was launched to provide a vital interface
between the Department and taxpayers.

 2003

 The National Website of the Department (www.incometaxindia.gov.in) won

the Silver Medal in the category of the 'Government Websites'under the
National e-Governance Awards.

 2004

 As a measure of widening of tax base, the concept of AIR (Annual

Information Return) was introduced.

 Fringe Benefit Tax (FBT) was introduced as a major step towards widening of
tax base and bolstering of the Direct Tax Collection.
  Securities Transaction Tax (STT) was introduced.

 2005

 Tonnage Tax was introduced for the Shipping Companies.

 Banking Cash Transaction Tax (BCTT) was introduced w.e.f. 01-06-2005.

 2006

 A project for enabling electronic filing (e-filing) of Income Tax Returns was
launched.

 Tax Return Preparer Scheme (TRPS) was launched to assist individuals and
HUF taxpayers to file their Return of Income.

 The institution of Income Tax Ombudsman set up in 12 cities throughout the

country to look into tax related grievances of the common public.

 2007

 The Refund Banker Scheme was launched in Delhi and Patna charges.

 Sevottam Scheme was launched to standardize service delivery to the

taxpayers.

 The first citizen-friendly single window Aayakar Seva Kendra (ASK)was

setup,for centralized receipt and registration of specified categories of
documents, including income tax returns.

 The Income Tax Department became the biggest revenue mobiliser for the
Government in 2007-08, with its share increasing from 34.76%in 1997-98 to
52.75%in 2007-08.

 All India Tax Network (TAXNET) was setup connecting more than 700
offices in more than 500 cities. Consolidation of 36 (RCC) independent
regional databases into a single centralized database (PDC or Primary Data
Centre) was carried out.

 Integrated Taxpayer Data Management System (ITDMS) for drawing of 360°

taxpayer profile was launched.

 2008

 Cyber Forensic Labs were setup to identify relevant digital data during search
and survey operations, recover hidden or password protected or deleted data
 and store retrieved data in a manner so that it could be used as evidence in
judicial proceedings.

 Electronic filing of Income Tax Returns Project was awarded Silver Award in
the category "Outstanding Performance in Citizen Centric Service Delivery"
under the National e-Governance Awards for the year 2007-08.

 2009

 Centralized Processing Centre was setup in Bengaluru for bulk processing of

e-filed and paper returns. The Centre operates without any interface with
taxpayers in a jurisdiction – free manner.

 2010

 Integrated Tax Payer Data Management System (ITDMS) was conferred the
Prime Minister's Award for 'Excellence in Governance and Administration'.

 CPC Bengaluru awarded the Gold Award for 'Excellence in Government

Process Re-engineering' under the National e-Governance Awards for the year
2010-2011.

 To simplify the 50 years old Income-tax Act, 1961,'The Direct Taxes Code
Bill, 2010' was introduced in the Parliament.

 2011

 Foreign Tax Division of CBDT was strengthened to effectively handle the

increase in tax information exchange and transfer pricing issues.

 Various IT initiatives were taken for efficient tax administration. These

include e-filing and e-payment of taxes, adoption of 'Sevottam concept by
CBEC and CBDT, web based facility for tax payers to track the resolution of
refunds and credit for prepaid taxes and augmentation of processing capacity.

 A new simplified form 'Sugam' was introduced to reduce the compliance

burden of small tax payers falling within presumptive taxation.

 2012

 Senior Citizens (not having any income from business/profession), were

exempted from payment of advance tax.

 TRACES (TDS Reconciliation, Accounting and Correction Enabling System)

launched to serve an integrated one-stop platform for the stakeholders to
facilitate the services related to TDS operations.
 2013

 The Government approved the Cadre restructuring of the Department for the
creation of 20,751 additional posts and for carrying out various measures to
increase the effectiveness of the Department.

 Briefly, the salient features of the approved restructuring are as under:

a. Number of assessment units (AUs) increased by 1080 from 3420 to 4500,

for strengthening the tax-administration;

b. Each Range to have one more Assessing Officer;

c. Increase in the number` of Administrative Cs IT deployed on assessment

related functions to increase from 228 to 250;

d. 114 Special Ranges to be created, with adequate supporting manpower;

e. Creation of reserves numbering 620 created in the IRS cadre;

f. Bifurcation of the posts of the CITs in the HAG and SAG scales, on
functional basis;

g. Upgradation of all existing 116 posts of CCsIT in HAG+ and Apex scales
along with an increase of their number by 1 post;

h. Strengthening of the training set-up with creation of three more RTIs;

i. Strengthening the Appellate/Advocacy Structure by increasing the number

of CIT Appeals and providing them supporting manpower. Advocacy
structure in the ITAT to be strengthened.

 2014

 New National Website of the Income Tax Department

www.incometaxindia.gov.in launched with enhanced new features and
content.

 SIT to investigate Black Money in Swiss Bank Accounts formed

 Tax Administrative Reforms Commission (TARC) headed by Dr.

Parthasarathi Shome submitted its report of reviewing the applicability of tax
policies and tax laws in the context of global best practices and
recommending measures for reforms required in tax administration to enhance
its effectiveness and efficiency.

 2015
  Abolition of levy of wealth tax under Wealth-tax Act, 1957.

 The concept of Place of Effective Management (POEM) was introduced.

 2016

 Introduction of Equalisation levy.

 Furnishing of Country-by-Country Report introduced to implement Base

Erosion and Profit Shifting ('BEPS') measures.

 Presumptive taxation scheme for professionals introduced.

 Pradhan Mantri Garib Kalyan Yojana (PMGKY) was launched for for
declaring unaccounted income.

 2017

 Introduction of levy of fees on taxpayers who filed income-tax returns after

the expiry of the original due date.

 Tax rate for the lowest slab of Rs. 2,50,000 to Rs. 5,00,000 was reduced from
10% to 5%.

 Shifting of base year from 1981 to 2001 for computation of Capital Gains.

 2018

 Reintroduction of the standard deduction from salary person.

 New deduction under section 80TTB was introduced for senior citizens
earning bank interest.

 Withdrawal of exemption available on capital gains arising from listed equity

shares.

 Launch of 'E-Proceeding' to conduct assessment proceedings electronically.

 2019

 Introduction of Alternate Tax Regime for domestic companies.

 To move towards less cash economy, Section 194N was introduced for
deduction of tax at source (TDS) on withdrawal of cash exceeding the
prescribed limit.

 PAN and Aadhaar can be used interchangeably.

  Introduction of Document Identification Number (DIN) to bring transparency
in the functioning of the department.

 Introduction of e-Assessment Scheme, 2019

 2020

 Introduction of Faceless Assessment Scheme 2020 & Faceless Appeal

Scheme 2020.

 Concessional Tax Rates were introduced for Individuals.

 Dividend Distribution Tax (DDT) was abolished.

 “Vivad se Vishwas scheme” was introduced to reduce litigation and generate

government revenues.

 2021

 Launch of New e-filing Portal.

 Introduction of JSON utility for filing of Income-tax returns.

 The exemption provided to senior citizens from the filing of Income-tax

returns in certain situations.

 New scheme launched for reassessment and search assessments.

 Introduction of faceless proceedings before the ITAT.

 Constitution of the Board for Advance Ruling.

 Discontinuance of Settlement Commission.

 2022

 Introduction of Taxation of Virtual Digital Assets.

 Introduction of tax relief for COVID 19-related compensation.

 Introduction of ‘Updated Return’ which can be filed even if the due date for
filing of belated/revised return has expired.
  Important concepts in Income Tax
 Income: Income is money that an individual or business receives in exchange for
providing a good or service or through investing capital
under section 2 (24) "income" includes—(i) profits and gains;
(ii) dividend;
(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2)
and (3) of section 17;
(iv) the value of any benefit or perquisite, whether convertible into money or not,
obtained from a company either by a director or by a person who has a
substantial interest in the company, or by a relative of the director or such
person, and any sum paid by any such company in respect of any obligation
which, but for such payment, would have been payable by the director or other
person aforesaid;
(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or
section 41 or section 59;
(vi) any capital gains chargeable under section 45;
(vii) the profits and gains of any business of insurance carried on by a mutual
insurance company or by a co-operative society, computed in accordance with
section 44 or any surplus taken to be such profits and gains by virtue of
provisions contained in the First Schedule;
In commissioner of Income-tax v/s Shaw Wallace and company 1923

Sir George Lowndes defined income as follows

“Income, in this Act connotes a periodical monetary return " coming in" with some
sort of regularity, or expected regularity, from definite sources. The source is not
necessarily one which is expected to be continuously productive, but it must be one
whose object is the production of a definite return, excluding anything in the nature of
a mere windfall.”

 Agricultural income
As per section 2(1A), agricultural income generally 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 operations including
processing of
agricultural produce so as to render it fit for the market or sale of such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain
conditions specified in this regard in section 2(1A).
Any income derived from saplings or seedlings grown in a nursery shall be deemed to
be
agricultural income.
Mustafa Ali Khan v/s CIT 1948 :Held, rent of agricultural land received from
subtenant by mortgage in possession is agricultural income
CIT V/s Cidanbaran Pillai(1970): Held ,share of profit of a partner from firm
engaged in agricultural operation is agricultural income
Following is not agricultural income
a) Income from poultry farming.
(b) Income from bee hiving.
(c) Income from sale of spontaneously grown trees.
(d) Income from dairy farming.
(e) Purchase of standing crop.
(f) Dividend paid by a company out of its agriculture income.
(g) Income of salt produced by flooding the land with sea water.
(h) Royalty income from mines.
(i) Income from butter and cheese making.
(j) Receipts from TV serial shooting in farm house is not agriculture income.
Certain points to be remembered;
(a) Agricultural income is considered for rate purpose while computing tax of
Individual/HUF/AOP/BOI/Artificial Judicial Person.
(b) Losses from agricultural operations could be carried forward and set off with
agricultural
income of next eight assessment years.(c) Agriculture income is computed same as
business income.

 Assessee Section 2(7)

Is a noun derived from verb “assess” dictionary meaning of which is “to evaluate or
estimate the value”
" Assessee" means a person by whom any tax or any other sum of money is payable
under this Act, and includes-
(a) every person in respect of whom any proceeding under this Act has been taken for
the assessment of his income or of the income of any other person in respect of which
he is assessable, or of the loss sustained by him or by such other person, or of the
amount of refund due to him or to such other person;
(b) every person who is deemed to be an assessee under any provision of this Act;
(c) every person who is deemed to be an assessee in default under any provision of
this Act;
CIT v/s Udhoji Shri Krishanadas (M.P high court, 2004)
Held from section 2(7), its clear that term assessee includes actual as well as deemed
assesses under provisions of Act.

 Assessment year Section 2(9) Income Tax

Assessment year is basically a 12 months period starting from April 1, during which
an assessee is required to file the return of income (ITR) and the ITO has to initiate
assessment proceedings for income as per ITR and tax thereon. Since Income Tax is
on income of a financial/ previous year or period, so tax filings and assessment can
start thereafter.
Probably, that’s why it’s called assessment year/ period.
As per S.2(9) of the Income Tax Act, 1961, unless the context otherwise requires, the
term “assessment year” means the period of twelve months commencing on the 1st
day of April every year .

What is the difference between Financial Year and Assessment Year?

AY is the assessment year and FY is the financial year. From an income tax
perspective, FY is the year in which you earn an income. AY is the year following the
financial year in which you have to evaluate the previous year’s income and pay taxes
on it.
For example, if your financial year is from 1 April 2015 to 31 March 2016, then it is
known as FY2015-16. The assessment year for income earned during this period
would begin after the financial year ends–that is on 1 April 2016 till 31 March 2017.
Hence, the assessment year would be AY2016-17.

 Previous Year: Section 2(34) Income Tax

Previous basically indicates an event previous to another event. Under Income Tax
main event is assessment, i.e. filings by assesses and their review by the ITO, which
may start after end of the year / period during which earnings are made and that
period is called previous year / financial year. Those earnings are subjected to tax in
the following period / year which is called assessment year / period.
As per S.2(34) of Income Tax Act, 1961, unless the context otherwise requires, the
term “previous year” means the previous year as defined in section 3.
In view of above, we need to visit definition of previous year under Section 3 also, as
under:
As per S.3 of Income Tax Act, 1961, for the purposes of this Act, the term “previous
year” means the financial year immediately preceding the assessment year.
Provided that, in the case of a business or profession newly set up, or a source of
income newly coming into existence, in the said financial year, the previous year shall
be the period beginning with the date of setting up of the business or profession or, as
the case may be, the date on which the source of income newly comes into existence
and ending with the said financial year.
What is the difference between previous Year and Assessment Year?
Assessment year is the year in which income is evaluated and taxed. This evaluation
and taxation is done on income that is earned in the previous year, which is known as
the financial year.
 Definition of ‘Business’
As per S.2(13) of the Income Tax Act, 1961, unless the context otherwise requires,
the term “business” includes any trade, commerce or manufacture or any adventure or
concern in the nature of trade, commerce or manufacture.
Pari mangaldas Girdharidas v/s CIT(1978)
In this case following tests are suggested to ascertain if an activity is business or not-
1. Whether the initial acquisition of the subject matter of transaction was with
intention
of dealing in item in question or with a view to finding an investment?
2. The purpose, manner and object of subsequent sale
3. The manner in which the assessee dealt with the subject matter of transaction.
4. The manner of filing return of income from such source by assessee.
5. The volume, frequency,continuity and regularity of transactions of purchase
6. In case of partnership firms or companies; whether the partnership deed or
memorandum of association authorized the firm or company to purchase and/or sell
the commodity in question.

 Dividend Section 2(22)

Dividend refers to a reward, cash or otherwise, that a company gives to its
shareholders. Dividends can be issued in various forms, such as cash payment, stocks
or any other form. A company's dividend is decided by its board of directors and it
requires the shareholders' approval. However, it is not obligatory for a company to
pay dividend. Dividend is usually a part of the profit that the company shares with its
shareholders
After paying its creditors, a company can use part or whole of the residual profits to
reward its shareholders as dividends. However, when firms face cash shortage or
when it needs cash for reinvestment's, it can also skip paying dividends. When a
company announces dividend, it also fixes a record date and all shareholders who are
registered as of that date become eligible to get dividend payout in proportion to their
shareholding.
The term dividend is not defined under the ACT. Under Section 2(22) following
income is
included in dividend-" dividend" includes-
(a) any distribution by a company of accumulated profits, whether capitalized or not,
if such distribution entails the release by the company to its shareholders of all or any
part of the assets of the company;
(b) any distribution to its shareholders by a company of debentures, debenture- stock,
or deposit certificates in any form, whether with or without interest, and any
distribution to its preference shareholders of shares by way of bonus, to the extent to
which the company possesses accumulated profits, whether capitalized or not;
(c) any distribution made to the shareholders of a company on its liquidation, to the
extent to which the distribution is attributable to the accumulated profits of the
company immediately before its liquidation, whether capitalized or not;
(d) any distribution to its shareholders by a company on the reduction of its capital, to
the extent to which the company possesses accumulated profits which arose after the
end of the previous year ending next before the 1st day of April, 1933 , whether such
accumulated profits have been capitalized or not;
(e) any payment by a company, not being a company in which the public are
substantially interested, of any sum (whether as representing a part of the assets of the
company or otherwise) made after the 31st day of May, 1987 , by way of advance or
loan to a shareholder, being a person who is the beneficial owner of shares (not being
shares entitled to a fixed rate of dividend whether with or without a right to participate
in profits) holding not less than ten per cent of the voting power, or to any concern, in
which such shareholder is a member or a partner and in which he has a substantial
interest (hereafter in this clause referred to as the said concern)] or any payment by
any such company on behalf, or for- the individual benefit, of any such shareholder,
to the extent to which the company in either case possesses accumulated profits; but
" dividend" does not include--
(i) a distribution made in accordance with sub- clause (c) or sub- clause (d) in respect
of any share issued for full cash consideration, where the holder of the share is not
entitled in the event of liquidation to participate in the surplus assets;
(ia) a distribution made in accordance with sub- clause (c) or sub- clause (d) in so far
as such distribution is attributable to the capitalized profits of the company
representing bonus shares allotted to its equity shareholders after the 31st day of
March, 1964 , and before the 1st day of April, 1965 ];]
(ii) any advance or loan made to a shareholder or the said concern] by a company in
the ordinary course of its business, where the lending of money is a substantial part of
the business of the company;
(iii) any dividend paid by a company which is set off by the company against the
whole or any part of any sum previously paid by it and treated as a dividend within
the meaning of sub- clause (e), to the extent to which it is so set off. Explanation 1-
The expression" accumulated profits", wherever it occurs in this clause, shall not
include capital gains arising before the 1st day of April, 1946 , or after the 31st day of
March, 1948 , and before the 1st day of April, 1956 .

Explanation 2.-- The expression" accumulated profits" in sub- clauses

(a) , (b), (d) and (e), shall include all profits of the company up to the date of
distribution or payment referred to in those sub- clauses, and in subclause (c) shall
include all profits of the company up to the. date of liquidation, but shall not, where
the liquidation is consequent on the compulsory acquisition of its undertaking by the
Government or a corporation owned or controlled by the Government under any law
for the time being in force, include any profits of the company prior to three
successive previous years immediately preceding the previous year in which such
acquisition took place].

Explanation 3.- For the purposes of this clause,-

(a) " concern" means a Hindu undivided family, or a firm or an association of persons
or a body of individuals or a company;
(b) a person shall be deemed to have a substantial interest in a concern, other than a
company, if he is, at any time during the previous year, beneficially entitled to not less
than twenty per cent of the income of such concern;]

 Capital Asset[ section 2(14)]

capital asset" means property of any kind held by an assessee, whether or not
connected with his business or profession, but does not include-

(i) any stock- in- trade, consumable stores or raw materials held for the purposes of
his business or profession;
(ii) For personal effects, that is to say, movable property (including wearing apparel
and furniture, but excluding jewellery) held for personal use by the assessee or any
member of his family dependent on him. Explanation.- For the purposes of this sub-
clause," jewellery"
includes-
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy
containing one or more of such precious metals, whether or not containing any
precious or semiprecious stone, and whether or not worked or sewn into any wearing
apparel;
(b) precious or semi- precious stones, whether or not set in any furniture, utensil or
other article or worked or sewn into any wearing apparel;]

(iii) agricultural land in India, not being land situate-

(a) 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
(b) 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;]

(iv) 6 per cent Gold Bonds, 1977 , or 7 per cent Gold Bonds, 1980 ,] or National
Defence Gold Bonds, 1980 ,] issued by the Central Government;]
(V) Special Bearer Bonds, 1991 , issued by the Central Government;]

 Person [section 2(31)]

Person" includes-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,(vi)
a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-
clauses;
(i) Individual: It refers to a natural human being whether male or female, minor or
major.

(ii) Hindu Undivided Family: It is a relationship created due to operation of Hindu

Law. The manager of HUF is called “Karta” and its members are called
‘Coparceners’.

(iii) Company: It is an artificial person registered under Indian Companies Act 1956
or any other law.
(iv) Firm: It is an entity which comes into existence as a result of partnership
agreement between persons to share profits of the business carried on by all or any
one of them. Though, a partnership firm does not have a separate legal entity, yet it
has been regarded as a separate
entity under Income Tax Act. Under Income Tax Act, 1961, a partnership firm can be
of the following two types
(i) a firm which fulfill the conditions prescribed u/s 184.
(ii) A firm which does not fulfill the conditions prescribed u/s 184.
It is important to note that for Income Tax purposes, a limited liability partnership
(LLP) constituted under the LLP Act, 2008 is also treated as a firm.

(v) Association of Persons or Body of Individuals: Co-operative societies,

MARKFED, NAFED etc. are the examples of such persons. When persons combine
together to carry on a joint enterprise and they do not constitute partnership under the
ambit of law, they are assessable as an association of persons. Receiving income
jointly is not the only feature of an association of persons. There must be common
purpose, and common action to achieve common purpose i.e. to earn income. An
AOP. can have firms, companies, associations and individuals as its members.
A body of individuals (BOI) cannot have non-individuals as its members. Only
natural human beings can be members of a body of individuals. Whether a particular
group is AOP. or BOI. is a question of fact to be decided in each case
separately.

(vi) Local Authority. Municipality, Panchayat, Cantonment Board, Port Trust

etc. are called local authorities.

(vii) Artificial Juridical Person: A public corporation established under special Act
of legislature and a body having juristic personality of its own are known to be
Artificial Juridical Persons. Universities are an important example of this category.

 Charge of income-tax Section (4).

(1) Where any Central Act enacts that income-tax shall be charged for any assessment
year at any rate or rates, income-tax at that rate or those rates shall be charged for that
year in accordance with, and subject to the provisions (including provisions for the
levy of additional income-tax) of, this Act in respect of the total income of the
previous year of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged
in respect of the income of a period other than the previous year, income-tax shall be
charged accordingly.
(2) In respect of income chargeable under sub-section (1), income-tax shall be
deducted at the source or paid in advance, where it is so deductible or payable under
any provision of this Act.
Balmukund Acharya vs DCIT (2009)
Where the assessee erroneously offered capital gains to tax and the same was
accepted by the AO vide Intimation u/s 143 (1)(a) and the assessee thereafter filed an
appeal against such assessment of capital gains and the same was held not
maintainable by the Tribunal, HELD, reversing the order of the Tribunal that:
(1) In view of the Explanation to s. 143 (prior to its deletion w.e.f. 1.6.1999) an
Intimation is deemed to be an appealable order and appeal is maintainable;
(2) The authorities under the Act are under an obligation to act in accordance with
law. Tax can be collected only as provided under the Act. If any assessee, under a
mistake,
misconceptions or on not being properly instructed is over assessed, the authorities
under the Act are required to assist him and ensure that only legitimate taxes due are
collected. If particular levy is not permitted under the Act, tax cannot be levied
applying the doctrine of estoppel.

 Residential status of Assesse

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 income tax is
person as defined under income tax Act,depending on his residence in India and not
citizen.
Section 5 in The Income- Tax Act, 1995
Scope of total income
(1) Subject to the provisions of this Act, the total income of any previous year of a
person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of
such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year;
or
(c) accrues or arises to him outside India during such year: Provided that, in the case
of a person not ordinarily resident in India within the meaning of sub- section (6) of
section 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.

(2) Subject to the provisions of this Act, the total income of any previous year of a
person who is a non- resident includes all income from whatever source derived
which-
(a) is received or is deemed to be received in India in such year by or on behalf of
such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1-Income accruing or arising outside India shall not be deemed to be
received in India within the meaning of this section by reason only of the fact that it is
taken into account in a balance sheet prepared in India. Explanation 2.- For the
removal of doubts, it is hereby declared that income which has been included in the
total income of a person on the basis that it has accrued or arisen or is deemed to have
accrued or arisen to him shall not again be so included on the basis that it is received
or deemed to be received by him in India.

Residential status of Assessee

the residential status of an assessee as defined in income tax act 1961. the residential
status will be helpful in determining the taxable income in India. Residential status of
an assessee is defined in Section 6 Of Income Tax Act, 1961.
The residential status of an assessee is classified into two parts:
1. Resident
2. Non- Resident

Residential Status of an Individual and HUF

An Individual & HUF which are resident are further classified under two headings:
 Ordinarily resident
 Not Ordinarily resident

Now we are going to understand the residential status assessee wise.

Residential Status of an Individual
Who will be Indian Resident Individual?
According to section 6(1) of the I.T. Act, 1961 an individual can be treated as
Resident Indian in the previous year if he fulfills any of the following conditions:
Condition 1 – He is in India in the previous year for a period of 182 days or more or
Condition 2 – He is in India in the preceding four years for a period of 365 days or
more & he is in India in the previous year for a period of 60 days or more
Special condition for Indian Citizen – The residential status of an individual who is
citizen of India rendering service outside India & who visit India during leave or
vacations in the previous year or an individual who is citizen of India or a person of
Indian origin is outside India & comes to India for visit in the previous year will be
treated as resident in India if he stays in India for a period of 182 days or more in the
previous year (instead of 60 days or more).
Amendment in Budget 2015
Following Clause have been inserted by Finance Bill-2015 in the case of an
individual, being a citizen of India and a member of the crew of a foreign bound ship
leaving India, the period or periods of stay in India shall, in respect of such voyage, be
determined in the manner and
subject to such conditions as may be prescribed.”

Who will non resident Individual?

The Individual who does not satisfies both the conditions laid down under section
6(1) then he will be treated as Non Resident Indian.The Individual which satisfy any
of the conditions
mentioned under section 6(1) then he will be treated as resident Indian & he is further
classified either as Ordinarily resident Or Not Ordinarily Resident.
According to section 6(6)(a) of I. T. Act, 1961 a Resident Individual will be treated
as Not Ordinarily resident if he satisfies both of the following conditions:
 He is Non resident for a period of 9 out of 10 Preceding years of the previous year or
 He is India for a period of 729 days or less in immediately preceding 7 Years of the
previous year.
The Resident Individual Who does not satisfy any of the conditions mentioned in
section 6(6)(a) will be treated as Ordinarily Resident.
Example to determine residential status of an assessee
Mr. Akshay an Indian citizen Comes to visit India on 1st April, 2014 & left India on
02nd Oct, 2014.
Further he is in India for following days in following years:
2008-09: 130 days2009-10: 150 days
2010-11: 165 days
2011-12: 158 days
2012-13: 147 days
2013-14: 49 days
In the above example the residential status of Mr. Akshay for Previous year 2014-15
is Resident but Ordinarily resident in India because he is in India in the previous year
for a period of 182 days or more i.e. 185 days (1st April to 2nd Oct). & he is treated as
Ordinarily resident because he does not satisfy all of the conditions mentioned under
section 6(6).

Residential Status of an Hindu Undivided Family (HUF)

A Hindu Undivided Family will be treated as Non Resident in India if during that
previous year the control & management of its affairs is situated wholly outside India.
If the above condition is not satisfied then he will be treated as Resident in India.
According to section 6(6)(b) of I. T. Act, 1961 a Resident Hindu Undivided Family
will be treated as Not Ordinarily resident if he satisfies both of the following
conditions:
 If the Manager of HUF is Non resident for a period of 9 out of 10 Preceding years of
the previous year or
 Manager of HUF is in India for a period of 729 days or less in immediately
preceding 7 Years of the previous year.

The Resident HUF Who does not satisfy any of the conditions mentioned in section
6(6)(b) will be treated as Ordinarily Resident.

Residential Status of an Company:

According to section 6(3) of I. T. Act, 1961 a company is said to be resident in India
if it satisfies any of following two conditions:
 It is an Indian Company or
 The control & management of company is wholly situated in India during that
previous year

 If
both the above conditions are not satisfied then such company is treated as Non
Resident Company.

Finance Budget 2015 : From 1 st April, 2016 a company is said to be resident in India
if it satisfies any of following two conditions:
 It is an Indian Company or
 Its place of effective management, at any time in previous year, is in India

Explanation.—For the purposes of this clause “place of effective management” means

a place where key management and commercial decisions that are necessary for the
conduct of the business of an entity as a whole are, in substance made.’.
If both the above conditions are not satisfied then such company is treated as Non
Resident Company. Residential Status of an Firm & Other associations of Persons:
Firm & Other association of persons will be treated as Non Resident in India if during
that previous year the control & management of its affairs is situated wholly outside
India. If the above condition is not satisfied then he will be treated as Resident in
India.
Vijay Malia vs Assistant commissioner High court of Calcutta,(2003)
Held , while deciding the residential status of an assessee the AO should consider the
provisions of both section 6(1)(a) and section 6(1)(c) of the said Act and this is
mandatory requirement of law. An assessee may not be ordinary resident of India
under section 6(1)(a) but may be resident under section 6(1)(c ) of said Act.
Also refer to:CIT and Anr. V. Morgenstern Werner
Subbaya chettair vs CIT 1951

Following propositions are stated in this case:

I. Generally HUF shall be taken to be resident in India unless control and
management of its affairs are situated wholly outside India
II. control and management means actual control and management and not merely the
right to control and manage
III. Place of residence and place of business of HUF
IV. occasional visits by a non resident ‘Karta to the place of HUF business India is
not sufficient to make HUF ordinarily resident in India.

 Deemed Income
Such incomes which are not actually received by a person, but law considers them as
receipt or incomes, are called incomes deemed to be received in India. The term
‘Statutory receipts’ can be easily used to cover this term. Following are the instances
of incomes deemed to be received
(i) Tax deducted at source is income deemed to be received by a person even though
he never receives such income (u/s 198).

(ii) Section 7 considers the following incomes as deemed to be received by an

assessee
(a) Employer’s contribution to Recognised provident fund in excess of 12% of
salary of employee [Section 7(i)1.
(b) Interest accrued on recognised provident fund balance in excess of 9.5% p.a.
[Section 7(i)].
(c) Taxable portion of transferred balance of URPF to RPF [Section 7(u)].
(d) The contribution made, by the Central Government in the previous year, to the
account of an employee under a pension scheme referred to in section 80CCD
[Section 7(iii)].

(iii) Transfer of income without transfer of assets is deemed to be the income of

transferor u/s 60 and 61.
(iv) Under section 8, the dividend distributed or deemed to be distributed u/s 2(22)
will be deemed to be distributed in the previous year. (v) Income from undisclosed
sources [Sections 68, 69, 69A, 69B, 69C and 69D]
  Who should pay Income Tax? – Types of Tax Payers

The Income tax Act has classified the types of taxpayers in various categories.

Different tax rules apply for different types of taxpayers.

Taxpayers are categorized as below:

 Individuals

 Hindu Undivided Family (HUF)

 Firms

 Companies

 Association of Persons(AOP)

 Body of Individuals (BOI)

 Local Authority

 Artificial Judicial Person

Further, Individuals are broadly classified into residents and non-residents. Resident

individuals are liable to pay tax on their global income in India i.e. income earned in

India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only

on income earned or accrued in India. The residential status has to be determined

separately for tax purposes for every financial year on the basis of the individual tenor

of stay in India.Resident Individuals are further classified into below mentioned

categories for tax purposes-

 Individuals less than 60 years of age

 Individuals aged more than 60 but less than 80 years

 Individuals aged more than 80 years

  Types of Income – What are the 5 heads of income?

Everyone who earns or gets an income in India is subject to income tax.(Yes, be it a

resident or a non-resident of India ). For simpler classification, the Income tax

department breaks down income into five main heads:

1. INCOME FROM HOUSE PREOPERTY: Income earned from renting a house

property is taxable under this head of income

2. INCOME FROM SALARIES: Income earned from salary and pension is taxable

under this head of income

3. INCOME FROM CAPITAL GAINS : Surplus Income from sale of a capital

asset such as mutual funds, shares, house property etc is taxable under this head of

Income.

4. INCOME FROM BUSINESS & PROFESSION: Profits earned by self

employed individuals, businesses , freelancers or contractors & income earned by

professionals like life insurance agents, chartered accountants, doctors and lawyers

who have their own practice, tuition teachers are taxable under this head.

5. INCOME FROM OTHER SOURCES : Income from savings bank account

interest, fixed deposits, winning in lotteries is taxable under this head