2023 | Taxation Law 9th Semester 4th Paper

 

2023 | Taxation Law

Full Marks - 80 9th Semester 4th Paper

The figures in the margin indicate full marks, Candidates are required to give their answer in their own words as far as practicable

1. (a) State whether the following statements are true or false: [1×8]

(i) Income Tax is indirect tax.

(ii) The Institute of Chartered Accountants of India has to pay tax on all of its income.

(iii) Income of the cricket control board is wholly exempted from the Income Tax.

(iv) Res Judicata is applicable in taxing statute.

(v) An income from Provident Fund is wholly exempt from Income Tax.

(vi)Daily allowance paid to MLA's and MP's are part of their taxable income.

(vii)Causal Income is altogether exempt from Taxation.

(viii)The employer employee relationship is mandatory for an income adjudged under the

head "Salaries".

(b) How would you determine the Residential status of an individual under Income Tax Act,

1961. [8]

Ans:(i) Income Tax is indirect tax. False. Income Tax is a direct tax levied on income, where the burden cannot be passed on to others.[cleartax]​

(ii) The Institute of Chartered Accountants of India has to pay tax on all of its income. False. ICAI is a statutory body registered under Section 12A/12AA, enjoying exemptions on income from its objects under Sections 10 and 11 of the Income Tax Act.

(iii) Income of the cricket control board is wholly exempted from the Income Tax. False. BCCI's income is taxable as it operates on commercial lines; only specific charitable incomes may qualify for exemption.

(iv) Res Judicata is applicable in taxing statute. True. The principle of Res Judicata applies to income tax proceedings to prevent re-litigation of settled issues, as upheld by courts.

(v) An income from Provident Fund is wholly exempt from Income Tax. True. Interest on recognized Provident Funds and withdrawals after 5 years of continuous service are fully exempt under Section 10(11) and 10(12).

(vi) Daily allowance paid to MLA's and MP's are part of their taxable income. False. Daily allowances received by MPs and MLAs are wholly exempt under Section 10(17).

(vii) Casual Income is altogether exempt from Taxation. False. Casual income (e.g., lottery winnings) is taxable under "Income from Other Sources" at special rates, with limited deductions.

(viii) The employer employee relationship is mandatory for an income adjudged under the head "Salaries". True. Income under "Salaries" requires a master-servant or employer-employee relationship as per Section 17(1).

​Residential status of an individual under the Income Tax Act, 1961, is determined annually for each previous year based on physical presence in India, as outlined in Section 6. This classification—Resident, Not Ordinarily Resident (NOR), or Non-Resident (NR)—affects the scope of taxable income.[cleartax]​

Basic Conditions for Resident Status

An individual qualifies as a Resident if either condition is met:

• Present in India for 182 days or more during the relevant previous year.

• Present in India for 60 days or more in the previous year and 365 days or more in the preceding four assessment years (this 60-day rule extends to 182 days for Indian citizens leaving for employment abroad or crew members of Indian ships).[cleartax]​

If neither condition is satisfied, the individual is a Non-Resident (NR).

Further Classification for Residents

Residents are subdivided into Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR) using two additional tests under Section 6(6):

• Resident in India in at least 2 out of 10 previous years preceding the relevant year.

• Present in India for 730 days or more in the preceding 7 previous years.

Status	Condition 1	Condition 2	Tax Scope
ROR	Satisfied	Satisfied	Global income taxable
RNOR	Not satisfied (either)	Not satisfied (either)	Indian income + foreign business income controlled from India
NR	Basic resident conditions not met	N/A	Only Indian-sourced income

Deemed Residency Rules

From AY 2021-22, Indian citizens with total income (excluding foreign sources) over ₹15 lakh, not liable to tax elsewhere, are deemed residents (typically RNOR) even if basic conditions fail. Status is assessed at the financial year's end, with the assessee proving stay periods via documents like passports.

2. (a) Define and discuss the following under the Income Tax Act, 1961. (any two): [4×2]

(i) Person.

(ii) Company.

(iii) Assessing Officer.

(iv) AOP and BOP.

(b) Explain the importance of notice section 142 (1) and 143 (2) of Income Tax Act, 1961. [8]

Ans:Under the Income Tax Act, 1961, key terms like "Person," "Assessing Officer," and "AOP/BOI" define taxable entities and authorities, while notices under Sections 142(1) and 143(2) ensure compliance and scrutiny in assessment proceedings.[legalwindow]​

Person [Section 2(31)]

A "Person" includes seven categories for taxation purposes:

• Individual (natural persons, including minors).

• Hindu Undivided Family (HUF).

• Company.

• Firm.

• Association of Persons (AOP) or Body of Individuals (BOI), whether incorporated or not.

• Local authority.

• Artificial juridical person (e.g., deities, idols).[taxpage]​

This inclusive definition covers all potential assessees, whether formed for profit or not.[incometaxindia.gov]​

Assessing Officer [Section 2(7A)]

Assessing Officer (AO) means the Income Tax Officer, Block Assessing Officer, Assistant Assessing Officer, or Deputy Assessing Officer assigned jurisdiction over an assessee. The AO handles assessments, notices, refunds, and enforcement under the Act.[incometaxindia.gov]​

AOP and BOI

• AOP: Association of Persons formed voluntarily for a common purpose, where members (individuals or artificial persons) share profits; taxed as a separate entity if shares are indeterminate.

• BOI: Body of Individuals, typically comprising only individuals (not companies), engaged in joint ventures; taxed similarly to AOP unless shares are fixed (then as partners).[legalwindow]​

Notice u/s 142(1)

Section 142(1) empowers the AO to issue notice for inquiry before assessment, requiring return filing (if not filed), production of accounts/books, and evidence of correct income computation. It applies to non-filers or suspected incomplete returns, ensuring pre-assessment verification.[incometaxindia.gov]​

Notice u/s 143(2)

Issued within 3/6 months (as applicable) if return selected for scrutiny, requiring assessee's attendance or representative appearance with evidence. It prevents ex-parte assessments and allows AO to verify claims, detect concealment, or adjust income during detailed scrutiny.[incometaxindia.gov]​

Importance of Notices

These notices promote voluntary compliance, enable evidence-based assessments, and protect against arbitrary taxation. Non-compliance attracts penalties u/s 271(1)(b) or best judgment u/s 144.[incometaxindia.gov]​

3. Define salary. Explain the importance of employer and employee relationship. [16]

Salary under the Income Tax Act, 1961, refers to remuneration received by an employee from an employer, forming one of the five heads of income under Section 15. This broad definition encompasses not just basic pay but also wages, pension, allowances, bonuses, commissions, perquisites, and profits in lieu of salary as detailed in Section 17(1).[cleartax]​

Definition of Salary [Section 17(1)]

Salary includes:

• Any advance salary, arrears, or salary due/received from employer or former employer.

• Pensions or annuity payments taxable as salary.

• Gratuity, leave encashment, and terminal benefits (subject to exemptions).

• Allowances (e.g., HRA, LTA, subject to conditions), perquisites (e.g., rent-free accommodation, cars), and profits in lieu of salary (e.g., ESOPs).[apslaw.co]​

It is taxed on a "due" or "receipt" basis, whichever is earlier, excluding voluntary payments post-employment cessation.[tax2win]​

Employer-Employee Relationship

This relationship is fundamental for income to qualify under "Salaries," characterized by a contract of service (master-servant dynamic) with employer control over work, timing, and methods. Key tests include:

• Selection and appointment by employer.

• Payment of wages/salary.

• Right to control and dismiss.[scribd]​

Without this, payments (e.g., to independent contractors) fall under "Profits and Gains of Business/Profession" or "Income from Other Sources."[cleartax]​

Importance of the Relationship

• Tax Head Classification: Determines computation method, deductions (e.g., standard deduction u/s 16, professional tax), and exemptions specific to salaries (e.g., HRA u/s 10(13A)).[incometaxindia.gov]​

• Withholding Obligations: Triggers TDS u/s 192 by employer, ensuring advance tax collection; no TDS if misclassified.[apslaw.co]​

• Perquisite Valuation: Special rules u/s 17(2) apply only to employees (e.g., concessional loans, club memberships).[bajajfinserv]​

• Retirement Benefits: Eligibility for tax-free gratuity (u/s 10(10)), provident fund exemptions depends on employment status.[cleartax]​

Judicial Perspective

Courts emphasize mutuality of obligation: Governor-Administrator vs. Employee (e.g., CIT v. T. N. K. Govindaraju Chetty) ruled no salary without control. Freelance/consultancy lacks this, shifting to business income (Dr. P. A. Varghese v. CIT). This prevents tax evasion via misclassification.[scribd]​

4. (a) Distinguish between the following: [4×3]

(i) Tax Planning and Tax Evasion

.(ii) Earned Income and Unearned Income.

(iii) Source of Income and Heads of Income.

(b) Give four examples of "Income from other sources". [4]

5. (a) Discuss the following: [2×4]

(i) Return on Computer Readable Media.

(ii) Return of Loss.

(iii) Revised Return.

(iv) Belated Return.

(b) Define PAN. What is the procedure for allotment of this number and its use? [8]

6. Write a note on self-assessment Income and Income Escaping Assessment. [16]

Under the Income Tax Act, 1961, distinctions between tax concepts clarify legal compliance, while specific return types and assessments ensure accurate tax computation and revenue protection.[gripinvest]​

(a) Distinctions

(i) Tax Planning vs. Tax Evasion

Aspect	Tax Planning	Tax Evasion
Legality	Legal; utilizes provisions like deductions u/s 80C [hdfclife]​	Illegal; involves concealment or fraud [gripinvest]​
Method	Proactive structuring (e.g., investments)	Deceptive acts (e.g., underreporting income)
Outcome	Reduces liability ethically	Attracts penalties u/s 271 (100-300% of tax) [wintwealth]​

(ii) Earned Income vs. Unearned Income

Aspect	Earned Income	Unearned Income
Source	Salary, pension, professional fees (active effort) [cleartax]​	Rent, interest, dividends (passive)
Tax Treatment	Eligible for standard deduction u/s 16	Taxed u/s "Other Sources"; no standard deduction
Rebate	Eligible for rebate u/s 87A (if applicable)	Generally ineligible

(iii) Source of Income vs. Heads of Income

Aspect	Source of Income	Heads of Income
Nature	Origin/activity (e.g., employment, property)	Statutory classification u/s 14 (5 heads: Salary, House Property, etc.) [incometaxindia.gov]​
Purpose	Factual basis	Computation mechanism with specific rules/deductions
Example	Salary from job	"Salaries" head u/s 15-17

(b) Examples of "Income from Other Sources" [Section 56]

• Dividends from shares.

• Interest on bank deposits (non-salary).

• Family pension (net of 1/3rd deduction).

• Lottery winnings (taxed at flat 30% + cess).[incometaxindia.gov]​

5. (a) Discussion

(i) Return on Computer Readable Media

Electronic filing via ITR forms in JSON/XML on designated portal u/s 139(1); mandatory for specified assessees (e.g., e-commerce operators). Ensures faster processing and verification.[incometaxindia.gov]​

(ii) Return of Loss

Filed u/s 139(3) within due date to carry forward losses (e.g., business loss up to 8 years). Mandatory for carry-forward benefits; belated returns disallow this.[incometaxindia.gov]​

(iii) Revised Return

u/s 139(5): Filed before assessment completion to correct errors/omissions in original return. Limited to one per return; no additional tax liability increase allowed post-due date changes.[incometaxindia.gov]​

(iv) Belated Return

u/s 139(4): Filed after due date but before end of assessment year/relevant AY end (e.g., Dec 31). Incur late fee u/s 234F (₹5,000 max); no carry-forward of losses.[incometaxindia.gov]​

(b) PAN: Definition, Allotment, and Use

PAN (Permanent Account Number) u/s 2(35A) is a 10-digit alphanumeric identifier (e.g., ABCDE1234F) for tracking financial transactions.

Allotment Procedure:

• Apply online via NSDL/UTITSL portals (Form 49A for individuals).

• Submit ID/address proofs; processing fee ₹107 (India)/₹1017 (abroad).

• Issued within 15 days via post/email.[incometaxindia.gov]​

Uses:

• Mandatory for ITR filing, TDS returns, high-value transactions (>₹2 lakh cash deposit).

• Links Aadhaar for pre-filled returns; quoting failure attracts penalties u/s 272B (₹10,000).[incometaxindia.gov]​

6. Self-Assessment and Income Escaping Assessment

Self-Assessment [Section 140A]

Assessee computes total income, tax, interest (u/s 234A/B/C), and pays self-assessment tax before filing return. Declaration via ITR verification. Ensures voluntary compliance; failure leads to defective return notice u/s 139(9).[incometaxindia.gov]​

Income Escaping Assessment [Section 147]

AO reassesses if income escaped assessment (e.g., >₹50 lakh escaped for non-search cases, post-4-year limit with AO approval). Reasons recorded; notice u/s 148 issued post-Faceless Assessment Scheme. Time limits: 3 years (general), 10 years (assets evidence), 16 years (foreign assets).[incometaxindia.gov]​

Note: Protects revenue from concealment; taxpayer rights via objections u/s 149. Balances self-assessment autonomy with departmental checks.[incometaxindia.gov]​

Group B

(West Bengal Value Added Tax)

Answer any one Question

7. Write short notes on: [4×4]

(a)Capital Goods.

(b)Dealer.

(c)Zero rated sale.

(d)Manufacture.

8. Define VAT. Discuss the advantages and disadvantages of VAT. [16]

Group C

(Service Tax)

Answer any one Question

9. Discuss salient features of Service Tax. Distinguish between Commodity & Service Tax. [10+6]

10. (a)Define Service. What is "Declared service"? [10]

(b)Specify the services taxable in India. [6]

Under the West Bengal Value Added Tax Act, 2003 (WBVAT), key concepts define taxable events and input credits, while VAT principles offer economic benefits alongside administrative challenges. Service tax under the Finance Act, 1994, targeted value-added services until subsumed into GST in 2017.[comtax.wb.gov]​

Group B: WBVAT Short Notes [Question 7]

(a) Capital Goods

Capital goods under WBVAT Section 2(6) include plant, machinery, equipment, tools, appliances, and electrical installations (plus components/spares) directly used in manufacturing goods, excluding civil structures. Dealers claim 100% input tax credit (ITC) upfront, amortized over time, to avoid cascading taxes on production inputs.[indianemployees]​

(b) Dealer

Section 2(11) defines a "dealer" as any person (including HUFs, firms, companies) involved in business of buying, selling, supplying, or distributing goods, directly or indirectly, including in manufacture, works contracts, or transfers incidental to trade. Includes casual importers/exporters; registration mandatory if gross turnover exceeds ₹5 lakh (now GST threshold).[comtax.wb.gov]​

(c) Zero Rated Sale

Sales taxed at 0% rate (e.g., exports, sales to SEZ/100% EOU units under Section 19 read with notifications). Allows full ITC refund/credit carry-forward, preventing tax burden on exports and promoting competitiveness, distinct from exempt sales (no ITC).[comtax.wb.gov]​

(d) Manufacture

Involves processing goods to bring a new commercial commodity into existence with distinct identity, name, character, or use (e.g., conversion of raw cotton to fabric). Triggers VAT on value addition; eligible for ITC on inputs/capital goods used therein.[comtax.wb.gov]​

Group C: Service Tax

Question 10: Definition and Scope

Service under Section 65B(44) means any activity for consideration relating to production, supply, or receipt of goods (excluding manufacture/sale) or provision of intangible performance/immovable property services by one person to another. Excludes trading/manufacturing; broad negative list approach post-2012.[incometaxindia.gov]​

Declared Service [Section 66E]: Specific activities explicitly taxable regardless of service definition, e.g., casino services, betting, construction of ports/airports, processing plants. Ensures clarity for borderline cases; taxed at standard rate (12-15% inclusive of cess).[incometaxindia.gov]​

Taxable Services in India (examples pre-GST):

• Telecom, IT/software, banking/financial.

• Health/education (negative list exclusions).

• Construction (post-2015 works contracts).

• Import of services by recipient liable under reverse charge.[incometaxindia.gov]​

VAT: Definition, Advantages, Disadvantages [Question 8 Alternative]

VAT is a multi-stage tax on value addition at each supply chain stage (production to retail), levied on difference between sales and purchases (WBVAT rates: 5%/13.5%/others). Self-evident via ITC mechanism.[comtax.wb.gov]​

Advantages:

• Eliminates cascading (credit chain).

• Broad base, low rates; revenue neutral.

• Transparent, reduces evasion via invoice matching.

Disadvantages:

• Complex compliance/record-keeping for SMEs.

• ITC disputes, cash flow blocks.

• Hard-to-tax sectors (agriculture exempt).[comtax.wb.gov]​