Business Taxation Notes. UNIT 1: Introduction

1. UNIT 1: Introduction
Assessee
Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any other
sum of money is payable under this Act, and includes -
• 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 the amount of
refund due to him or to such other person;
• Every person who is deemed to be an assessee under any provision of this Act;
• Every person who is deemed to be an assessee in default under any provision of this
Act;
Assessment year
Assessment year means the period of twelve months commencing on 1st April every year and
ending on 31st March of the next year. Income of previous year of an assessee is taxed during
the following assessment year at the rates prescribed by the relevant Finance Act
Gross Total Income
Under the scheme of computation of total income under the Income Tax Act, the income falling
under each head is to be computed as per the relevant provisions of the Act relating to
computation of income under that head. The aggregate of income under each head is known as
'Gross Total Income'
Person
The income tax is charged in respect of the total income of the previous year of every 'person'.
Here the person means--
1. an individual : a natural human being i.e male, female minor or a person of sound or
unsound mind
2. a Hindu undivided family (HUF)
3. a company :
o any Indian company
o any body corporate incorporated by under the laws of a country outside India
o any institution, association or body whether Indian or non Indian, which is
declared by general or special order of the board to be a company
o any institution, association or body which is or was assessable or was assessed
as a company for any assessment year under the Indian Income tax Act, 1922 or
which is or was assessable or was assesses under this act as a company for any
assessment year commencing on or before the 1st day of April. 1970
4. a firm i.e a partnership firm

2. 5. an association of persons or a body of individuals whether incorporated or not
6. a local authority-- means a municipal committee, district board, body of port
commissioners, or other authority legally entitled to or entrusted by the government with
the control and management of a municipal or local fund.
7. every artificial, juridical person, not falling within any of the above categories.
Previous year
The Financial Year in which the income is earned is known as the previous year. Any financial
year begins from 1st of April and ends on subsequent 31st March. The financial year beginning
on 1st of April 2003 and ending on 31st March 2004 is the previous year for the assessment
year 2004-2005.
Residential status under Income Tax Act, 1961
Residential status of an Individual & Hindu Undivided Family
Residential status of an assessee is important in determining the scope of income on which
income tax has to be paid in India. Broadly, an assessee may be resident or non-resident in
India in a given previous year.
Under Section 6(1), an individual is said to be resident in India in any previous year if he
satisfies any one of the following basic conditions:
(a) He is in India in the previous year for a period of at least 182 days or,
(b) He is in India for a period of at least 60 days during the relevant previous year and at least
365 days during the four years preceding that previous year.
In case an Indian citizen leaves India for employment abroad in any year for the purpose of
employment (or where an individual, who is a citizen of India, leaves India as a member of the
crew of an Indian ship), or where an Indian citizen or a person of Indian Origin, who has settled
abroad, comes on a visit to India in the previous year, shall not attract clause (b) of the basic
conditions Therefore, such individuals may stay in India upto 181 days in a given previous year
without becoming resident in India for that previous year. An individual who does not satisfy

3. either of the above basic conditions is non-resident for that previous year.A Hindu Undivided
Family (HUF) is said to be resident in India if control and management of its affairs is wholly or
partly situated in India during the relevant previous year.
A resident individual or HUF assessee may further be classified into (i) resident and ordinarily
resident (ROR) and (ii) resident but not ordinarily resident (RNOR). A resident individual or HUF
is treated as ROR in India in a given previous year, if he satisfies the following additional
conditions:-
1) He has been resident in India in at least 9 out of 10 previous years (according to basic
conditions noted above) preceding the relevant previous year; and
2) He has been in India for a period of at least 730 days during 7 years preceding the
relevant previous year.
An individual or HUF becomes ROR in India if the individual or Karta of HUF satisfies at least
one of the basic conditions and both the additional conditions. An individual or Karta of HUF
who is resident in India but does not satisfy both the additional conditions is RNOR for that
previous year.
Residential status of assessee other than an Individual & HUF
In case of an assessee, other than an individual and HUF, the residential status depends upon
the place from which its affairs are controlled and managed.
As per Section 6(2), a partnership firm or an association of persons are said to be resident in
India if control and management of their affairs are wholly or partly situated within India during
the relevant previous year. They are, however, treated as non-resident if control and
management of their affairs are situated wholly outside India.
As per Section 6(3), an Indian company is always resident in India. A foreign Company is
resident in India only if, during the previous year, control and management of its affairs is
situated wholly in India. Where part or whole of control and management of the affairs of a
foreign company is situated outside India, it shall be treated as a non-resident company.
As per Section 6(4), every other person is resident in India if control and management of his
affairs is, wholly or partly, situated within India during the relevant previous year. On the other
hand, every other person is non-resident in India if control and management of its affairs is
wholly situated outside India.

4. In the case of Resident in India (resident and ordinarily resident in case of individual or
HUF) [Section 5(1)]: The following incomes from whatever source derived form part of Total
Income in case of resident in India/ordinarily resident in India:
• any income which is received or is deemed to be received in India in the relevant
previous year by or on behalf of such person;
• any income which accrues or arises or is deemed to accrue or arise in India during the
relevant previous year;
• any income which accrues or arises outside India during the relevant previous year.
In the case of a Resident but not Ordinarily Resident in India (In the case of individuals
and HUF only) [Section 5(1) and its proviso]: The following incomes from whatever source
derived form part of Total Income in the case of resident but not ordinarily resident in India:
• any income which is received or is deemed to be received in India in the relevant
previous year by or on behalf of such person;
• any income which accrues or arises or is deemed to accrue or arise to him during the
relevant previous year;
• any income which accrues or arises to him outside India during the relevant previous
year if it is derived from a business controlled in or a profession set up in India.

5. In the case of Non-Resident [Section 5(2)]: The following incomes from whatever source
derived form part of Total Income in the case of Non-Residents in India:
• any income which is received or is deemed to be received in India during the relevant
previous year by or on behalf of such person;
• any income which accrues or arises or is deemed to accrue or arise to him in India
during the relevant previous year.
Residential Status Income
Received/receivable
or deemed to be
received/receivable
in India
Income
Accrued/Arising or
deemed to
Accrue/Arise in
India
Income
Accrued/Arising or
deemed to
Accrue/Arise
Outside India
Resident – R-OR √ √ √
Resident but not
ordinarily Resident
– R-NOR
√ √ √
Non Resident - NR
√ √ ----
FBT has been removed w.e.f. 1-4-2009. Hence, following discussions are valid only upto
AY 2009-10 i.e. upto 31-3-2009.
•
• Employer gives various benefits to employees. The benefits which are individually given
to employee can be identified with the particular employee and taxed in his hands.
However, where benefits are given collectively and it is difficult to identify individual
employee, these should be taxed at the hands of employer.
• FBT (Fringe Benefit Tax) has been introduced with this idea in mind w.e.f. 1-4-2005 (AY
2006-07).
• However, practically, some benefits which can be identified with individual employee are
taxable under FBT. Similarly, some expenses incurred by employer which hardly benefit
employees are also taxed under FBT.
Tax Deduction at Source:
Tax deducted at source is one of the modes of collecting Income-tax from the assessees in
India. Such collection of tax is effected at the source when income arises or accrues. Hence
where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on
the payer of such income to deduct a stipulated percentage of such income by way of Income-
tax and pay only the balance amount to the recipient of such income.
The tax so deducted at source by the payer has to be deposited in the Government treasury to
the credit of Central Govt. within the specified time. The tax so deducted from the income of the
recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment.

6. Income from several sources is subjected to tax deduction at source. Presently this concept of
T.D.S. is also used as an instrument in enlarging the tax base. Some of such income subjected
to T.D.S., are salary, interest, dividend, interest on securities, winnings from lottery, horse races,
commission and brokerage, rent, fees for professional and technical services, payments to non-
residents etc. It is always considered as an Advance tax which is paid to the government when
we are being paid for provision made by us in the form of products or services.

7. Income from several sources is subjected to tax deduction at source. Presently this concept of
T.D.S. is also used as an instrument in enlarging the tax base. Some of such income subjected
to T.D.S., are salary, interest, dividend, interest on securities, winnings from lottery, horse races,
commission and brokerage, rent, fees for professional and technical services, payments to non-
residents etc. It is always considered as an Advance tax which is paid to the government when
we are being paid for provision made by us in the form of products or services.