Tax Notes Final

8/11/2019 Tax Notes Final

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Income from House Property (S.22-27)

Section 22 is the charging section

S.23 Determination of annual valueS.24 Deductions

S.25 what cannot be deducted

S.25A unrealized rentS.25B arrears of rent

S.2 conce!t of co"ownershi!

S.2# Deemed $wner of the !ro!ert%&. 'hat incomes are income of house !ro!ert%. 'e have seen before that each head is

e(clusive of each other. )ro!ert% for house !ro!ert% is the building and landappurtenant to the building. *he land has to b !art of the land and not se!arate land.

2. *he Assessee must be the owner of the !ro!ert%.3. +f one is using the building for business or !rofession, then its not house !ro!ert%.

Because it is a se!arate head altogether. -ust not be used for business !ur!ose.

'hat is building An% /ind of structure which is generating income. +ncludes, tents and huts.

0ven o!en swimming !ool, theatre are buildings under house !ro!ert%. +ts not essential to have aroof. 0ven letting of house !ro!ert% if it is the business of the !erson, that shall be treated as

income from house !ro!ert% and not as income from business. 0g., 1eal estate'hat is ownershi! nder common law it is similar to legal title. or income ta(, the

registration of deed not im!ortant. egal owner, ease owner or Deemed owner shall be coming

under the !urview of this Act

I! ". Poddar ement P"t #td. $%%7 22& I!' &2 S . *he su!reme court held that owner is a

!erson who is entitled to receive income on his own right. 1egistration of sale deed is not red

under S.22. ownershi! also im!lies right to e(clude others as well. or income ta( act, legal

owner is the owner. 'e must also remember that subletting is not !art of +ncome frm 6ouse)ro!ert%. the Also, Deemed $wner

eemed owneris defiend under the Act in S.2#. there are 5 situations where one can be adeemed owner.&. +f an individual transfers his house to his wife or to minor child, for a minor consideration

2. l

3. 6older of an im!artible estate if it is im!aratable !ro!ert% ten onl% the eldest shallwin him7

4. S.33A of *$)A )art )erformance

a. 'rtitten agreement

b. 0ither !aid or !a%abe b% the transfereec. *ransferee is in !ossession of tranfere transferee shll b

5. *ransfer u8s 29 A :; for more than a yearat a timeand if there is a lease made

and it goes on for a substantial time $2 years in aggregatethen lessee shall be thedeemed owner.

$nl% income from house !ro!ert% can be ta(ed on the basis of notional income. 'here there is

no income as well, it shall be ta(ed. *he Annual ow the members also become !artners in the firm. So this business is that of the

firm and not that of the 6


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omposite 'ent * nt sub+ect to ta,

'hat are hotels guest houses etc. etting out of !ro!ert% can never be

?om!osite rent is not for the house alone but various other services. +t is not se!arable thecharges for one service are not se!arable then the whole income shall be that from business.

6owever if it is se!arable, li/e the accounts are clear that other services are se!arated sa% what

is for a sho! and what is for securit% then the charges for other services shall be income fromother sources and >$* business and the income from the building shall be that of 6ouse

!ro!ert%.

I! ". ational Storage Pri"ate #td. $%&7 && I!' %& S * house owning howsoever!rofitable cannot be income from the in

S? said that nature of o!eration and not the ca!acit% of owner that is im!ortant.

0(em!ted from house !ro!ert%

$. sing his house property for business or profession

2. omposite rent

a. 1ent is se!arable from other sources

b. 1ent is not se!arable

3. #etting out is incidental to the main business or subser"ient to main business eg.?om!an%, which might have accommodation for their em!lo%ees, directors, manager and

getting rent out of it. 6ere letting out is not the business of the com!an% but is incidentalto the main business. etting out is not business. +f letting out is business then howsoever

it is !rofitable it shall be income from house !ro!ert% and not from business . I! "./odi Industries #td. $%%0 2$1 I!' $ (el) in this case the court held that if theletting out is incidental then it is not chargeable under house !ro!ert%

$ther e(em!tions

a. +ncome from a farm house is e(em!ted under S.&@:&; and 2:&A;:c;

b. Annual value of one !alace in the occu!ation of e("ruler &@:&9A;c. )ro!ert% income of local authorit% S.&@:2@;

d. )ro!ert% income of an a!!roved scientific research association S.&@:2&;

e. )ro!ert% income of an educational instn and hos!itals S.&@:23?;f. )ro!ert% income of registered trade union S.&@:24;

g. +ncome from !ro!ert% held for charitable !ur!oses S.&&

h. )ro!ert% income of a !olitical !art% S.&3Ai. +ncome from !ro!ert% used for his own business or !rofession S.22

. Annual value of one self"occu!ied !ro!ert%. S.23:2;

/. )ro!ert% income of a mutual coo!erative societ% or mutual societies though

there is no section in the Act, S? has held this if it is onl% for the members and ona no !rofit and no loss basis. !ollygun+e lub ". I!and helmsford lub ".I! (2111 20 I!' 3% S) Doctrine of mutualit%

)a%ing guest accommodation is also income from business /anohar Singh " I!&95 5+*1 592 :) C6; here a building had thirteen rooms and was let out along with services li/e

lunch, brea/fast and other services. $ne shall not be ta/ing these rooms other than for these

services and hence this was ta/en to be income from business.

4tu5al Shopping omple, ". I! this is the sho!!ing mall case where if the boo/s show that

there are se!arate heads shown then it shall be income from house !ro!ert% while other heads

shall be income from other sources.


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6ast India Housing and #and e"elopment !rust ". I! ($%&$ 02 I!' 0% S) * if their

whole obective of the com!an% is to let out the house then it shall be income from house

!ro!ert% and not income from business.

etermination of 4nnual alue

irst to be determined is the ross Annual AH Actual 1 G @@@@

nrealized rent shall be deducted from the Actual 1ent onl% under certain circumstances

'hen tenanac% is bonafide

Ste!s have been ta/en to vacate the tenant

egal !roceedings have been started or that it shall be useless

+ts not in the occu!ation of someone less

oss due to ?I shall be deducted from Annual


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+nterest on borrowed ca!ital2for construction, renewal, re!air, reconstruction, !urchase

there is no monetar% limit to interest

or Self"occu!ied !ro!ert% >o SD

+nterest is deductible

o +f loan has been ta/en for repair< renewal< reconstruction or the constructionor the ac=uisitionof the !ro!ert% before A!ril &, &999 then interest deductible is

ma(imum 3@,@@@ 8"

o +f loan was ta/en on or after A!ril &, &999 for the construction and the

ac=uisitionof the !ro!ert% then ma(imum deduction is &,5@,@@@ 8". *he house

must be constructed within 3 %ears from the !reious %ear when u too/ the loan the

house must be constructed

o After A!ril &, &999 if loan is ta/en for repair< renewal or reconstructionthen

ma(imum deduction shall be 3@,@@@8"

*here are no other deductions other than the deductions abovementioned. *his deduction is

e(haustive. >ot even bro/erage, the registration fees, stam! dut% etc.

Salar% and 6ouse )ro!ert% for test on 4th

-arch, 2@&@et"out Self"occu!ied

&. *wo deductions

3@E SD

Dedcution of interest

amount !aid or !a%able

or munici!al ta(es

however onl% !aid ta(esshall be ta/en into

account

Deduction of interest onl%

+f loan has been ta/en for repair< renewalon"resident in +ndia

And if no *DS or withholding ta(es have been deducted, then there is no deduction of these

!a%ments. *he% are income under section 9 in the hands of the non"resident.


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+n the case of non"residents, we call it withholding ta(. +n the case of residents, we call it *DS.

Subclause :ia; resident !a%ers

*he !a%er and !a%ee both are residents, and it this condition *DS will not be deducted.

Subclause :ib; Securit% *ransaction *a( :S**;

2@@5"@ to 2@@"@9 Nunder section 0, from @"@9, deductible under section 3:&;:(v;O full%deductible.

Subclause :ii; +ncome ta( is not deductible.

Subect to section 9@, 9@A, 9& D*AA, unilateral benefits

+f %ou !a% ta( on turnover in some countr% such as *hailand, it is deductible.

Subclause :iia; 'ealth ta( not deductible.

Section 014(2) * )a%ment made to relatives :transfer !ricing;

iable to be disallowed in com!uting business !rofits to an e(tent that such e(!enditure isunreasonable /ee!ing in mind the current mar/et values.

1elative defined under section 2:4&;

'hat ha!!ens if the relative is rendering !rofessional services 6ow to determine mar/et !rice

in such cases 8" 5E is allowed" burden lies on the assessing officer to show it is unreasonable.

Recon %achine Tolls &vt Ltd v. CIT,2@@ &55 *a(mann 244 :Var;

)rofessional service

-3tec #otwares v. CIT, Bangalore *ribunal, 2@@# 294 +*1 32 :A!!ellate *ri. S!l Bench;

*ransfer !ricing, ver% im!ortant

Section 01(4)() * 'here the assessee incurs an% e(!enditure in res!ect of which he !a%s 1s.

2@,@@,@@@ in one da% to one !erson for one bill, total e(!enditure will be disallowed if it is notmade through A8? !a%ee cheue or DD.

1ule DD !rovides e(ce!tions to this rule.

Section 0? * ?ertain deductions will onl% be allowed whenever actual !a%ment has been made,

not on the basis of accrual.


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+nterest will onl% be deductible if there is actual !a%ment.

An% sum !a%able b% assessee as interest on an% loan.

An% amount for the encashment of leave.

Some other conditions also

S6!I; 0$

eemed Profit " 'here an allowance or deduction has been made in the assessment for an%%ear in res!ect of loss, e(!enditure or trading liabilit% incurred b% assessee and subseuentl% in

an% )I has been obtained b% assessee.

0(am!les"

Su!!ose in 2@@&"@2, there is certain loss incurred b% assessee A and is claimed as deduction in

the )I 2@@&"@2 itself.0g. oss due to fire and damage to stoc/ in trade has been claimed as business loss. Su!!ose in

2@@4"@5, A receives some amount as insurance claim. *his claim will be ta(able as a deemed!rofit.

Some bad debt has been written off in one %ear and subseuentl% in another %ear, some !art of

the debt is received b% the !erson. *hen this mone% will be deemed !rofit in this %ear and will beta(able as deemed !rofit.

Su!!ose in 2@@&"@2, there is sales ta( !a%ment b% A. he has de!osited this !rofit in !rotest and

has filed a claim in the 6?. Su!!ose in 2@@4"@5, 6? refunds 5@@@@ to him. *his is deemed !rofitin 2@@4"@5.

Pol+%hlex In$ia Pvt. Lt$. v. IT:2@@2; &24 *a(mann 3#3 :S?; Deemed !rofit.

)roblem arises in case of trading liabilit%, such as in case where a!!eal has been made, !a%mentof ta( etc.

eemed Profit (section 0$ subclause 0)

'here an allowance or deduction has been made in the Assessment %ear

a. oss, e(!enditure, trading liabilit% :e(cise dut%;

b. 1ecovered in the subseuent %ear

Deemed !rofit chargeable under section 2.

CIT v. %oolchand, &9& &3& +*1 #@ :Del;

4OI v. 0K #$nthetics Ltd, &993 &99 +*1 &4 :S?;

#$nclair &vt Ltd v. CIT,&9#4 9# +*1 &5 :S?;


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S6!I; 00

Presumpti"e !a,ation

+n case of retail business, trans!ortation services, construction services, what is the amount that

is charged under ta(Section sa%s that #.5E of total recei!t will be ta/en as income and ta( will be levied on that

amount onl%. *his is also !resum!tive ta(ation. *he% !resume that #.5E of the recei!t is income.

Section 0044 and 004? * ompulsory /aintenance of 4ccounts and ompulsory 4udit

)rofessionals 2 t%!es :1ule ;

a. S!ecified

b. >on"s!ecified

-onetar% limit total turnover of 1s &,5@,@@@ in the !revious %ear

Section 44AA and Section 44ABL -aintenance of Accounts and ?om!ulsor% maintenance ofaccounts :audit;

44AA is a!!licable to businessmen and !rofessionals. *here are two categories, s!ecified

!rofessionals and non"s!ecified !rofessionals. 1ule defines these two. S!ecified )rofession,

legal, medical, 0ngineering, Architecture, accountanc%, *echnical su!!ort. And other notifiedobs li/eL

W ilm ArtistL ever%thing related to films.

W Authorised 1e!resentatives

W ?om!an% Secrataries+f their gross recei!t in !rofession e(ceeds &,5@,@@@ in an% of the three %ears immediatel%

!receding the !revious %ear, or if the% are starting the business in the !revious %ear, their incomee(ceeds &,5@,@@@ the% are reuired to maintain such boo/s and accounts as !er the rules. i/e

ledgers, original bills.

+n case of non"s!ecified !rofessionals, the% must maintain accounts ust to satisf% the assessing

officer, but there is no other reuirement of maintaining accounts.Section 44AB, if his gross recei!t, total sales and turnover e(ceeds, 4@,@@,@@@ in an% !revious

%ear, he must ma/e a com!ulsor% audit. 4@,@@,@@@ has been increased to @,@@,@@@ in the recent

finance act.

ompulsory 4udit * *otal !roceeds8 turnover e(ceeds 1s 4@,@@,@@@ :2@&@"&& 1s @,@@,@@@;,

in case of !rofessionals, 1s &@,@@,@@@ :2@&@"&& 1s &5,@@,@@@;

or the !rofessionals if his salar% e(ceeds &@,@@,@@@ there must be a com!ulsor% audit and it has

been increased to 5@,@@,@@@.W Iou get a months e(tension if %ou need to do this audit, and %ou must submit it with the return.


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*here is a !enalt% under section 2#&A.

W +f a freighting, insurance etc. businesses :where !rofit is fi(ed at a certain E; sa% that there is

no !rofit at all, the% must ma/e an audit.

4PI!4# 84IS

2&B12B21$1

'elated Sections * 2($0)< 2(2%4)< 2(2%?)< 2(024)< 2(02?)< $1(&)< $1(7)< 2(02)< $$$< $$oteL +n this case the transfer is called Je(tinguishment of rightK, where the shares are

transferred from amalgamting com!an% to the amalgamated com!an%.1elinuishment of right is also transfer.O

0(!lanation 4 Share in resulting com!an% in case of demerger Same rule as in case ofamalgamation

0(!lanation 5 *rading or dealing rights of recognized stoc/ e(change if %ou have an% trading

rights before cor!oritizaiton or deutilization of stoc/ e(change.Su!!ose %ou have trading rights of BS0 from &stA!ril 2@@2. the cor!oritization of BS0 ta/es

!lace in 2@@5. >ow %ou are selling %our right in 2@@#. then what is the !eriod of holding *he

!eriod of holding will be counted from &stA!ril 2@@2. 0ven if %ou acuire some euit% shares oncor!oritization of BS0, then also the !eriod of holding will be counted from & stA!ril 2@@2 and

not from 2@@5.

0(!lanation " 1ight issues of the shares the date of acuisition is from the date of offer of

such right in favour of that !erson, so for that !erson, the !eriod of holding will be from date of

offer.

0(!lanation " +n case of Bonus Shares the !eriod of holding commences from the date when%ou acuire the shares.

IT v. Bimal chan$ 0o+alchan$:&993; 2@& +*1 442 :1a; " A bu%s land in 2@@2. 6e

starts construction in 2@@5 and com!letes the building in 2@@. he sells it in 2@@9. 'hatis the !eriod of holding A!!ortionment has to be made between the land and the

su!erstructure. +n this case, the land has been held since 2@@2 and therefore it is long term

ca!ital asset. 6owever, the building was com!leted in 2@@, therefore the acuisition ofthe building will be calculated from 2@@. therefore, in case of the su!erstructure it is

short term ca!ital asset.

IT v. 'l%s Theatre :&9#; 5 +*1 3## S? for the !ur!ose of de!reciation s!lit

between the land and the su!erstructure needs to be made.


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!ransfer * Section 2(07) +nclusive of transfer of immovable !ro!ert% as defined under Section

29 A. Definition of transfer includes, conversion, com!ulsor% acuisition. An% sale under

*$)A or S$A are also included, etc."efinition of relin8uishment9 iving u! right in favour of another !erson.

*his was discussed in the case ofK.R. Srinath v 'ssistant ommissioner IT +n this case, A

gave 1s &,4@,@@ as advance to B for !urchasing his !ro!ert%. After one %ear, B relinuished hisright over the !ro!ert% and gave A the freedom to sell it off to an%one. A gave 1s 5@,@@@ in lieu

of this right. *his is ca!ital gains in hands of B.


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$B1B21$1

Sec 0($4)

ania Sil5 /ills " I! &99& 59 *a(man 3 :S?; +n this case, there was insurance on

machiner% which was damaged b% fire. *he% received some mone% on claim. S? said that

insurance claim does not amount to ca!ital gain. After this 45:&A; was added b% the amendmentact of &999 states that if an% mone% is received from insurer due to fire, calamit%, fire, action b%

enem%, then an% !rofit arising from it is chargeable to ca!ital gains. S? said in the above case

that there was no asset at all as the asset has been damaged. +n case of ca!ital gain, there shouldbe transfer of an asset. +n this case there was no transfer or an% asset. +n case of damage, !artial

or com!lete, there is no uestion of transfer and hence there is no ca!ital gain.

6owever, in IT v. !:S 0race ollis 2@@& 24 +*1 323 :S?;, the above amendment has been

favoured. *his is a case of amalgamations. +t sa%s that transfer includes e(tinguishment of rights.:6ence it includes total destruction of !ro!ert%;. *hus in case of amalgamation, there is

e(tinguishment of an entit% :analog% drawn;. *hus the ow it has been converted into stoc/ in trade. Su!!ose the fair mar/et

value of this gold is 1s &@ la/h. >ow as !er sub section 2 this conversion of ca!ital asset into

stoc/ in trade is transer. 6owever no ca!ital gain incurs at this !oint. +f however he sells it at 1s&2 la/h in 2@@9, then since it is a long term ca!ital gain :held for so man% %ears;L"

&2,@@,@@@ minus

ost of ac=uisition :4,@@,@@@; F ost inflation inde, of %ear of transfer :2@@#"@;:sa% 53@;

ost Inflation Inde, of Gear of ac=uisition:&99&; :sa% 23@;

G 9,2&,@@@ :sa% 9,@@,@@@;

i.e. &2,@@,@@@ 9,@@,@@@ G 3,@@,@@@ a%ital 0ain+n addition to this, we need to calculate the business income in 2@@9 i.e. &2,@@,@@@ &@,@@,@@@ G2,@@,@@@ Business income

$B0B21$1

$. +n conversion of ca!ital asset, we ta/e the fair mar/et value and not the sale

consideration. Sec 03 air mar/et value on the rate of conversion shall be a!!licable

and not the sale value.

2. Sec 0(24) *ransfer of beneficial interest +t sa%s that when an% !erson has had at an%

time an% beneficial interest in an securities, then transfer made b% de!ositor% to the

beneficial owner shall be ta(able as ca!ital gain in the hands of the beneficial owner andnot the de!ositor%. -ethod to count the !eriod of holding of securities +$ :irst in

first out;. ircular no 7&3 of $%%3 tal/s about ta( chargeable to beneficial owner of

securities.

. Sec 45:3; *he !rofit or gains arising from the transfer of ca!ital asset to a firm or A$)

or B$+ b% a !artner of such firm.

e.g. MIX is a firm. I transfers a building to the firm. et mar/et !rice be &@ lac. et

entr% in boo/s of value be 5 lac. *his section sa%s that the transfer consideration shall be


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the boo/ value of the !ro!ert% and not the mar/et value. *hus 5 lac shall be considered

for com!utation of ca!ital gain. >ow, if the !ro!ert% was acuired b% I in &99@"&99&. +f

at that time, the cost of acuisition was 1s & lac.

apital 8ainG ?oo5 "alue:5 lac; ?ost of Acuisition F ?++ of %ear of transfer ?++ of %ear of ac=uisition

*his ca!ital gain is ta(able at the rate of 21 .0. Sec 0(0) *ransfer of ca!ital assets on the dissolution of firm +f boo/ value of assets

is 5 lac on date of transfer of assets b% firm to the !artners due to dissolution and the fair

mar/et value is &@ lac, then the fair mar/et value i.e. 1s &@ lac shall be considered for the

com!utation of ca!ital gains.

. *he ca!ital gain in the above case is alwa%s short term ca!ital gain. 0(!lanation Sa%

the firm was formed in &99@ and dissolved in 2@@#, ever% %ear de!reciation is charged

and hence ever% %ear, the cost of acuisition changes. 6ence the ca!ital gain chargeableis alwa%s short term in such cases. *hus in all cases of de!reciable assets, there shall

never be an% long term ca!ital gain. or de!reciable assets, cost of acuisition changes

ever% %ear

&. Sec 0() ?om!ulsor% acuisition of land b% the government" >otwithstandingan%thing in sub sec &, ca!ital gain arising out of an% com!ulsor% acuisition of land b%

government, then the same shall be chargeable in the %ear of recei!t and not the %ear of

transfer. :*his is an e(ce!tion to the afore"mentioned cases;. +f in future, the courtenhances the com!ensation, the recei!t of the same shall be ta(able in the %ear of

enhancement.

e.g. Iear of acuisition &99&Iear of giving com!ensation &992 :*hen ? chargeable in &992;

Iear of enhancement of com!ensation is &994 :*hen ? chargeable in &994;

?a!ital gain is then calculated b% deducting e(!enditure incurred b% the assessee

7. Section 0&($) +t is a charging Section. ?a!ital gain on the distribution of assets b% a

com!an% in liuidation. 'hen assets of a com!an% are distributed to shareholders ondissolution, it shall not amount to transfer. 6ence no ca!ital gains shall be charged.

Howe"er< if on dissolution of the com!an%, the s8h receives an% cash or asset, the same is

chargeable to ca!ital gains.

e.g. -r. M !urchases &@,@@@ shares of a com!an% AB? ?o td Y 1s. &@ !er share.

?om!an% goes into liuidation in 2@@#.Let the ollowin' (e the Balance sheet at time o li@uidation

Liabilities 'ssets

7 Rs =; la!h

$n liuidation, -r M receives 2@@ shares of MIX com!an% worth 1s la/h cash in

hand of 1s 2.5 la/h hence a total of 1s &@.5 la/h is the total recei!t. >ow dividend is

calculated from accumulated !rofit at &@ E. *herefore &@ E of accumulated !rofit is 1s 5

la/h. *his is subtracted from total recei!t.&@.5 la/h 5 la/h G 5.5 la/h *his is the full "alue of consideration. >ow cost of

acuisition needs to be subtracted from this to get capital gains.i; ost of ac8uisition 5short term7sa% :&2 !er share; G &@,@@@ M &2 G &.2 la/h


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6ence 5.5 la/h* &.2 la/h 94.3 la/h ?a!ital gain

ii; ost of ac8uisition 5long term; G &.2 la/h F ?++ of %ear of transfer?++ of %ear of acuisition

6ence apital 8ainsG 5.5 la/h the above amount

B0B21$1

$. Sec 0&(2)-& Bhag(ati 'mman v IT2@@3 259 +*1 # S? said 4 :2; is the chargingsection. +t sa%s that when S86 receives an% mone% or assets :irres!ective of the fact that

there is transfer of ca!ital asset; on dissolution of com!an%, he has to !a% ca!ital gains

ta(. 6owever this is against the notion of Section 45 becauseL"

i)6e is not the transferor or transferee

ii)*he assets ma% not be a ca!ital asset. 6ence under Section 4:2; he has to !a% ta(

even if the asset is not a ca!ital asset.*his is also an e(ce!tion to Section 24@

2. Section 0& 4 * ?a!ital gain on bu%bac/ of shares

. Section 07 * *ransactions not regarded as transfer. Section 2:4#; defines transfer. Section4# defines what is Fnot transfer=. *he following are not transferL"

i)Section 4:&; ?om!an% distributing assets to S86 on dissolution of com!an%.ii)Distribution of ca!ital assets on total or !artial !artition of 6

iii)An% transfer under gift or will:&roviso > 'it o shares as )#O& is considered as transer;

i")An% transfer of ca!ital asset from holding com!an% to the +ndian subsidiar% com!an%

:6olding com!an% holds &@@ E shares of the subsidiar% com!an%; then it is not transfer.

") An% transfer of ca!ital asset from +ndian subsidiar% to com!an% to the holding

com!an%. 4:5;

"i)An% transfer in the scheme of arrangement from the transferring com!an% to theresulting com!an%, it does not amount to transfer. :6owever, amalgamated com!an% must

be +ndian com!an%;

"ii) +f there is amalgamationof 2 foreign com!anies :A and B;. A is holding certainshares of an +ndian com!an%. *he transfer of assets won=t be chargeable to ca!ital gainsifL"

a; 2 of S86 of amalgamating com!an% is retained in the resulting com!an%

b; >o ca!ital gains is charged on such transfer in the countr% in which theamalgamating com!an% is incor!orated.

"iii)+n case of demergerfrom a foreign to a resulting com!an%, the same !rovision as

above a!!lies e(ce!t that the !ercentage of shareholders in the resulting entit% must be 7

and not 2 and such e(em!tion must be granted in the countr% in which the foreign

demerging com!an% is incor!orated.

i,) An% transfer of shares b% S86 in case of scheme of amalgamation such that

shareholders of amalgamating com!an% are allotted share in the amalgamated com!an%,it does not amount to transfer.

,)An% transfer of ca!ital assets being bonds or D1 b% a non resident to a resident is not

transfer.

,i)0(!lanation An% transfer of a ca!ital asset being agricultural land before the first

da% of &9#@ is not transfer. +t became ta(able after &9#@. 6owever, in case of com!ulsor%

acuisition, it gets e(em!tion under &@:3#;

,ii) An% transfer b% wa% of conversion of bonds, debentures, etc is not transfer.


37/50

,iii) An% transfer made on or before 3&stda% of &99, b% a !erson having trading right in

a stoc/ e( is not transfer

,i") An% transfer of ca!ital assets or intangible assets b% a firm to a com!an% is ":incomplete5

,") An% transfer of ca!ital asset in transaction of Jreverse mortgageK in a scheme

formulated b% ?entral ovt. is not transfer. *his !rovision was inserted for old citizensb% 2@@ amendment. 1everse mortgage means that successors or sons of old !eo!le who

have mortgaged !ro!ert% to fund their living can !a% bac/ the mone% and ta/e bac/ the

!ro!ert%.inance Bill 2@&@ sa%s that the conversion of a !rivate com!an% into an ) is not

transfer :su(ject to certain conditions5


38/50

B10B21$1< &B10B21$1 and 7B10B21$1

$. Sec * 074 ?ertain conditions for fulfillment after transfer :for transaction not to beregarded as transfer;. +n these conditions, it is transfer. +f shares are transferred within

%ears from holding to subsidiar% com!an%, its amounts to transfer and is subect to

?a!ital gains.2. Sec * 03 -ode of com!utation

Short !erm apital 8ains #ong !erm apital gains

ull value of consideration

Less 0(!enditure received in connection with

transferLess > ?ost of acuisition

Less" ?ost of +m!rovement

GShort Term a%ital 0ains

ull value of consideration

Less 0(!enditure received in connection with

transferLess > +nde(ed cost of acuisition

Less > inde(ed cost of im!rovement

GLong Term a%ital 0ains

. Aull "alue of considerationE-;aishnath haturbhuj v IT:&9#; 3 +*1 43 :Bom;

a.A transfers a !ro!ert% to B who is a develo!er for 1S 4 la/h. B !romised free flat to A. ullvalue consideration G air mar/et value of lat 4 la/h.

b.A transfers land to B and B gives 1s 4@,@@@ as advance. B could not bu% land and A forfeited

1s 4@,@@@. A transfers land to ? and ? gives 1s &@@,@@@ in advance. ? could not bu% the land

and A forfeited the mone%. ater A transferred the land to D for 1s &@ la/h.ull value consideration G 1s &@,@@,@@@ :&@@,@@@ 4@,@@@; G 1s. ,@,@@@

c.I! " /an+ulata aysa:2@&@; 35 S$* &@5 :Bom;

6+nheritance +nheritance +nheritance 4 gift ?:&94; :&9#&; :2@@&; :2@@5; :2@&@;

0 had acuired the !ro!ert% initiall%. )eriod of holding of B starts from the time when 0 acuiredthe same :&94;. >ow ?ost of acuisition is calculated as followsL"?ost of acuisition G air mar/et


39/50

et Corth:!aid u! share general reserve; of the demerged com!an%

Section 0%()" ?ost of acuisition in case of transfer of asset 'hen there is transfer of asset

from holding com!an% to the subsidiar% com!an% :or vice versa; within %ears :in case ofconversion of asset to stoc/ in trade;. 'hen the% have acuired the asset from the

holding8subsidiar% com!an%.

Section 0%(079 IT v B Srinivasa Shett+&9& &2 +*1 294" Self generated goodwill is notsubect to ?a!ital ains ta(.

Section 1 ?om!utation of ?a!ital ains ta( for de!reciable asset :same as discussed in

de!reciable assets;.

Section 14 A transfers to B a de!reciable asset for 1s 5,@@,@@@. As !er the Assessing $fficerthe value of asset G 1s 4,@@,@@@. or A, the value is 5,@@,@@@ but for B it is 1s 4,@@,@@@.

Section 1 ? * Slum! sale" Slum! sale is defined in Section 2:42?;. Slum! sale refers to the sale

of whole or !art of an underta/ing for a lum! sum consideration as an ongoing concern. +fsu!!ose, 2 underta/ings A and B are transferred, A being short term ca!ital asset and B being

long term ca!ital asset, the whole transfer would be subect to short term ca!ital gain ta(.

?alculationL"

apital 8ainG Aull alue consideration :et worthof com!an% e,penditurefor transfer;et worthG *otal value " iabilities

Section 1 * Special pro"ision for -ull ;alue consi$eration

1euisites for a!!lication of this sectionL"i; *ransfer of land and building in return for consideration.

ii; o cost of im!rovement is allowed if 3@E standard deduction is ta/en.?ost of acuisition"i; +n case of asset !urchased from !revious owner, the cost of acuisition is the !urchase !rice

ii; >o cost of acuisition for self generated assets.

iii; or right issues, and bonus shares the cost of acuisition will be value of original financialassets.

Section (2)(b)


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+f ca!ital asset was acuired before &stA!ril, &9& air mar/et value or actual !rice :whichever

in beneficial; is cost of acuisition. +f it is not feasible to find out the ?ost of acuisition then the

air mar/et value of &9& or the fair mar/et value of the date of !urchase is ta/en whichever isbeneficial.

3B10B21$1

Sec 9

+f the new residential house !ro!ert% within 3 %ears, :loc/ in !eriod;, total consideration will be

chargeable as ca!ital gain. 0.g. &8482@@2 assessee sells his house at &@ la/h :ca!ital gain;. >ew

house !urchased on &8582@@3 at &2 la/h. 1s &@ la/h will be e(em!ted from cost of acuisition. +n&8582@@4 he sells the !ro!ert% for &5 la/h.

?a!ital ain G consideration :&5 la/h; cost of acuisition :&2 &@ la/h; G &3 la/h :as sale is

within 3 %ears;. +f sold after 3 %ears, it will be

+f in a different case &8482@@2 assessee sells his house at &5 la/h :ca!ital gain;. >ew house!urchased on &8582@@3 at &2 la/h. 1s :&5"&2; will be deducted and 3 la/h will be chargeable as

ca!ital gain. +n &8582@@4 he sells the !ro!ert% for &5 la/h. *hen cost of acuisition is >+.?a!ital ain G consideration :&5 la/h; cost of acuisition :>+; G &5 la/h :as sale is within 3

%ears;.

Chat is the meaning of purchaseJ IT v T&. 'rvin$a Re$$+:&9#9; &2@ +*1 4 :S?;Assessee was the eldest of 4 brothers constituting a co!arcenar%. 6e sold his own house and

occu!ied the common house from his 3 brothers. *he 3 brothers e(ecuted a release deed in

favour of eldest brother. *he% charged 3@,@@@ each as consideration. *he% have also adusted this

consideration towards eldest brother as an e(tra share :0$est Bha'a in +indu law5. *hus aftersale of his own house, the eldest brother !urchased a house from his brothers for a consideration

of 1s 9@,@@@. S? held this is new !urchase and hence the ca!ital gain from the sale of his own

house can be set off against the consideration !aid.

IT v R.L. Soo$ :2@@@; 245 +*1 #2# :Del; !eaning of $ate of %urchase6igh ?ourt said that date of agreement to !urchase is the date of !urchase and not the date of

registration of the !ro!ert%.

!rs. Prema P. Shah v ITO :2@@;

'jit ;asvani v "IT:2@@&; & *a(mann &23

*ribunal said that there need not be a direct or live lin/ between ca!ital gain and investment. +f

one sells a house and still ta/es a home loan and !urchases a new house with it, he will get?a!ital ains e(em!tion.

ITO v Susheels !. ?averi:2@@#; &@# +*A* 32#

0(em!tion under 54 is available for onl% one residential !ro!ert% and not two. +n case of two!ro!erties, the assessee has the o!tion of selecting an% one of the two houses.

IT v ;. &atrajan :2@@; 2# +*1 2#& :-ad;

+n this case, the assessee has !urchased the !ro!ert% under his wife=s name. ?ourt said that thesame is allowed for the !ur!ose of a!!lication of Section 54.

%B10B21$1

Sec 0? ?a!ital gains arising out of transfer of an% land :not necessaril% agricultural land;

used for agricultural !ur!oses. 6ence the reuirements areL"


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i; *ransfer of land

ii; and must be used for agricultural !ur!oses. :As !er the decision of S? in Raja Bina+ Kumar

Saha case..see notes of !revious modules;:Basic o!eration subseuent o!eration;iii; Section is a!!licable onl% on individuals. 0ven though the section does not mention

individual, it is subect to sub section 2 which sa%s that for the section to a!!l%, the land must be

used for agricultural !ur!ose in !receding 2 %ears b% JassesseeK or J!arent of assesseeiv; ?a!ital gain arising out of transfer of the land. After the transfer of the land used for

agricultural !ur!ose, he must !urchase a new land which can be an+ land used for agricultural

!ur!ose and thus can claim the a!!lication of this section. +f within three %ears the ne( lan$is!urchased b% the assessee then the cost of acuisition will be >+.

Sec 54D, 540, 54 0A, 54AB offer same line of e(em!tion as above.

&e( !o$ule > I;/6 A';/ ;!H6' S;'6S

Sections & to 3

Sec &($) * general !rovision" +ncome of ever% /ind which is not to be e(cluded from total

income under Section &@, and not ta(able under the heads :salar%, house !ro!ert%, business and

ca!ital gain;, then such income shall be chargeable under Section 5.i; *here must be income

ii; -ust not be e(em!ted under Section &@iii; >ot ta(able under an% other head

Section &(2) S!ecific *he following incomes will alwa%s be chargeable under 5

i; Dividend :whether received b% investor or dealer of shares;. Dividend must be ta(able inhands of shareholders. Deemed dividend is ta(able in hands of Shareholders :2:22;;.

ii;Section 2:24;:viii; omitted in &9

iii; +ncome referred in 2:24;:9; 'innings from crossword, lotter%, horse race, etc. But income

of lotter% dealer is income from business.iv; 2:24;:&@;" An% sum received b% em!lo%er as a contribution towards !rovident fund from the

em!lo%ee is income in hands of em!lo%er. But if the same is given in time it amounts to

deduction.v; +ncome b% interest on securities.

vi; +ncome from !lant and machiner% belonging to assessee and let on hire.

vii; +ncome referred to under 2:24;:&&; An% sum received under scheme of insurance !olic%.viii; a; Section 5:2; :#; 'here individual or 6 receives from an% !erson in )I an% sum of

mone% which e(ceeds 1s 5@,@@@ in aggregate :not a!!licable for single transaction;.

)'. - receives 'it o Rs A;,


42/50

$2B10B21$1

Stam! dut% value is defined in this section. *he value of the !ro!ert% on which the dut% is to be

levied is determined b% the overnment of each State as !er the localit% in which the !ro!ert% issituated.

Section &(2)("iii) * +nserted b% inance Act 2@@9, a!!licable from &8482@&@. $n com!ulsor%

acuisition of land, an% interest on the com!ensation or enhanced com!ensation is income fromother sources. *his !rovision was inserted to get rid of confusion whether interest ualifies as

ca!ital gains or income from other sources.

Section 7- Deductions for income from other sources.i; +n case of dividends, an% reasonable sum !aid as remuneration8commission8bro/erage to

ban/er< then the same should be allowable as deduction from dividend income. 0.g. A ta/es a

loan to !urchase shares. :1s & la/h;. 6e !a%s &@@@ for the monthl% !a%ment of the loan. 6e

receives dividend of 1s &@,@@@ !er month. *hen this &@@@ shall be deduction. 6ence income inhands of A is 9@@@.

ii; +f there is an% e(!enditure incurred for income from lotter%, crossword, etc, then the same is

deductible. *his can also include trans!ort e(!enses for !artici!ating in a game show.

iii; amil% !ension" &83 of !ension or 5@,@@@ whichever is lower is deductible.Section 7()An% other e(!enditure not being ca!ital e(!enditure laid out e(clusivel% for the !ur!ose ofearning income under Section 5 is deductible. *his Jfor the %ur%ose of earning incomeK is a

restricted definition. Section 3# :An% other e(!enditure not being ca!ital e(!enditure laid out

e(clusivel% for the !ur!ose of business is deductible.; has been given wide inter!retation b% S?.+t has held that Jfor the %ur%ose of businessK shall also include cor!orate social res!onsibilit%.

+ncome from vacant land ualifies as income from other sources. 6ence an% e(!enditure towards

it shall be deductible.

6nhanced compensation * +n case of income that is referred as interest on enhancedcom!ensation 5@ E of the interest shall be deducted.

Section 3 * Amounts not deductible +t has overriding effect on all the other sections dealing

with e(!enditures incurred.

&e( !o$ule>S6! ;AA 4 4''G A;'C4'

Sections 71 to 31

$) Inter source *Section 71 oss of one source can be set off from another. +f there are 3

business, A, B and ?, there is business loss from A of &@,@@@, B of &@,@@@ and there is !rofit of

3@@@@ from ? then the losses from A and B can be set off from ? under inter source set off.

S? has said that if there are 2 businesses, A and B, both incurring losses of 1s &@,@@@ and thereis business ? in which one deals with shares. Dividend received in ? is 5@,@@@, then the losses

can be set off from the income from ? if the shares are held as Jstoc/ in tradeK even though

income under ? amounts to income from other sources. osses from s!eculative business cant beset off from a general business.

/estern State Tra$ing or% Lt$. ; IT 3 78?7 9< ITR A7 #C > +nter source adustment is

between sources, !ro!ert% from another !ro!ert%, etc. *here are certain e(ce!tion within intersource. 0.g.

i; ong term ca!ital loss can=t be set off against short term ca!ital gain. Short term ca!ital loss

can be set off from long term ca!ital gain.

ii; osses from s!eculative business can=t be set off from a general business.


43/50

iii; An% loss can=t be set off against income from winning from lotteries, crosswords, etc.

2) Inter head * Section 7$" +ncome from business can be set off from income from house

!ro!ert% or vice versa. Similarl% 6ouse !ro!ert% loss can be set off against salar% income butbusiness loss can=t be set off against salar% income. An% loss cannot be set off against winnings

from lotter%, crossword, etc. ?a!ital loss cannot be set off against an% other loss. +t can onl% be

set off against ca!ital gain. ong term ca!ital loss can onl% be set off against long term ca!italgain. Short term ca!ital loss can be set off against long term ca!ital gain. Also short term ca!ital

loss can=t be set off against salar%.

) arry forward-+n carr% forward, if house !ro!ert% loss if carried forward, it can onl% be setoff against gain from house !ro!ert%.

i; 6ouse !ro!ert% loss can be carried forward for %ears and can be set off inter source not inter

head. 0.g. +n 2@@&"@2 there is house !ro!ert% loss of 1s &@,@@@, it can be carried forward till

2@@9.ii; Business loss can be carried forward for %ears.

iii; ?a!ital loss can be carried forward for %ears.

iv; Securities and Business loss can be carried forward for 4 %ears.

v; nabsorbed de!reciation can be carried forward indefinitel%.+n case of set off, the general rule is that if the assessee has incurred a loss, onl% he can set off or

carr% forward the loss. 6owever there are certain e(ce!tions to this. +n case of amalgamating ordemerging com!an%, the loss can be carried forward or set off against the resulting com!an%.

Section 0$() +t tal/s about deemed !rofit. +f business is not carried on b% the assessee, then

!rofit earned b% successor can be considered as deemed !rofit of assessee. *he business mightnot be same as well. 6ence this will also o!erate as an e(ce!tion to the general rule. *hus if A

receives 1s &@,@@@ loss from amalgamating com!an% and after some %ears, it receive 1s &@,@@@

as deemed !rofit from the same com!an%, then the loss ma% be set off against the deemed !rofit.

Section 31 +f there is an% business loss, it can onl% be carried forward if the assessee has filedthe return for the loss. 6ence in order to set off or carr% forward business, assessee has to file

return. +n case of house !ro!ert% or ca!ital loss, there is no reuirement for filing return to set off

losses.

&e( !o$ule AI#I8 ;A '6!' 4 4SS6SS/6!

($0B10B21$1)

Cho must file returnJ Section &39 tal/s about filing of return. &39 sa%s that Jever% !ersonK,

has to file returnL"

i; Being a com!an% or

ii; irm:In both the abo"e cases< return has to be filed in all cases)iii; +f it is a !erson other than com!an% or firm such as individual, 6, B$), etc then it shall

file return ;#G if his total income in the )I e(ceeds ma(imum e(em!tion limit.iling of return is com!ulsor%. +n case of non filing of return, there shall be best udgment

assessment as !er Section &44.

Section &39:3; iling of return in case of loss

!ypes of returnE-

i) Original return(&39:&;)- 1eturn being filed for the first time before the due date


44/50

Due date for the individual is 3&stPul%, for com!an% and firm, it is 3@ thSe!tember but if audit is

reuired it is 3&st$ctober. or !revious %ear 2@@9"2@&@, we file return before 3& stPul% 2@&@, but

we have alread% !aid the ta( in 2@@9.

ii)Belate$ return:&39:4;;" +f return is not filed under section &39:&; $1 notice has been given

b% the A$ under &42:&; before the assessment to file a return, then the assessee ma% file a

belated return. *he time for filing a belated return is one %ear from the relevant assessment orbefore the assessment, whichever is longer. 0.g. )I is 2@@9"2@&@ and AI is 2@&@"2@&&. 6ence

belated return can be filed u! to 3&st-arch 2@&2 or before the com!letion of assessment. +f

su!!ose assessment :best udgment assessment :section &44; even without filing return; iscom!lete on &5th-arch 2@&& then the belated return has to be filed on such date. 0ven before

Best Pudgment Assessment under &44, there is show"cause notice issued for filing belated return.

onse8uences of belate$ return 3 )enalt% of 1s 5@@@ and interest.

iii)Revise$ return :&39:5;;" +f assessee has filed return under &39:&; or &42:&; and after thesame if it comes to the /nowledge of the assessee that there has been wrong filing of return then

a return ma% be filed before the due date as mentioned above. +n fact he ma% file an% number of

revised returns. 6owever, such omission or wrong statement has to be discovered b% the

assessee. +f the A$ discovers the fault, the assessee can=t file a revised return.IT v Ra$he+ Sh+am @6A @4C ITR @4


45/50

Section $% ? * Scheme for submission of return through *1)s :*a( return !a%ers;. *here are a

lot of illiterate !ersons who do not /now how to file a return. So *1)s hel! these !eo!le to file

return in e(change for a fee. *his !rovision has been made a!!licable from 2@@.

Section $% *>o need of filing documents with return.

Section $01 * +n case of com!an%"-D, firm "managing !artner, ) managing !artner,

!olitical !art%" chief e(ecutive shall be the authorized signatories for filing return.


46/50

&e( !o$ule 4SS6SS/6!

($B10B21$1)

Section &3 Assessment is a udicial !roceeding.

arious types of assessmentE-i; Self assessment :&4@ A; ii; Summar% assessment :&43:&;; iii;

Scrutin% assessment:&43:3;; iv; Best udgment assessment :Section &44; v; +ncome esca!ingassessment or reassessment vi; Bloc/ Assessment :during search and seizure;

Self 4ssessment * 0ver%one is under obligation to file self assessment. 0ver%one does self

assessment during filing of returns.

Summary 4ssessment- 'henever one files a return, an ac/nowledgment is !rovided. *his is

intimation under Section :&5 and &5#; that the assessment is com!lete. *he% tentativel% loo/

into the return and give intimation that the ta( has been !aid.

Scrutiny 4ssessment- Section &42 tal/s about enuir% before the assessment. Section &42:&;tal/s about issue of notice. Such notice is given if return is not filed. >otice is also given to file

documents, boo/s of account, etc. Section &42:2A; tal/s about #pecial audit. nder this

!rovision, the Assessing $fficer can as/ for the s!ecial audit also. Section &42 A states that the

Assessing $fficer, having regard to the com!le(it% of the boo/s of account and the interests ofthe revenue, he ma% as/ for a s!ecial audit.

Rajesh Kumar v "IT :2@@; 2# +*1 9& :S?; andSahara In$ia v IT :2@@; 3@@ +*1 4@3:S?;

-eaning of e(!ression Jhavin' re'ard toK in &42 A. *he e(!ression is relevant while

considering whether the A$ should as/ for a s!ecial audit. *he factors mentioned in Section &42A are not e(haustive. 6ence regard must be had to the factors mentioned in the section and such

other factors. )rinci!le of natural ustice must be a!!lied in cases of issue of s!ecial audit. 6ence

there should be material record for the Assessing $fficer to form an o!inion. *hus before issuing

a notice for s!ecial audit, notice must be given to assessee to clarif% his !rovision.!otorola Inc v "IT :2@@5; 95 +*D 29 :Del; *his case also discussed )rinci!les of natural

ustice. *here must be a!!lication of mind on the !art of the A$ while issuing notice for s!ecial

audit.

'men$ment has been ma$e in 4sa%ing that e(!enses for s!ecial audit must be borne b%

?entral overnment.

S(a$eshi Pol+tex Lt$. ; ITO N&93O &44 +*1 & :S?; +n this case, the auditors refused toaudit boo/s of account. ?onseuences of failure to audit areL"

i)+t will be invalid return and there will be best udgment assessment.

ii))enalt% under section 2#&

iii))rosecution under 2#

i")+ssue of warrant of authorization under Section .

6owever the argument was raised that if the auditor failed to audit, it is not fault of assessee.

Scrutin+ 'ssessment 3 'hen additional evidence or documents of additional !roof of income isgiven and assessment is made, it is called scrutin% assessment. After com!letion of scrutin%

assessment, there must be intimation sent b% the A$ about refund of dut% or due amount !a%able.

Best *u$gment 'ssessment 3 +f an% !erson fails to ma/e the return under &39:&; or &39 :4; or:5; or fails to com!l% with all the terms of notice under Section &42:&; or &42 :2A; or if he has

not com!lied with notice under &43:2; for additional documents, then best udgment assessment

shall be made. *hen the assessing officer, after ta/ing into account all the material on record,

shall issue notice as to wh% best udgment assessment should not be made.


47/50

Section $3 * Disclosure of information relating to the assessee. *he Board or an% other

authorit% ma% furnish or cause to be furnish if necessar% in !ublic interest, the !ersonal

information of a !erson.

$&B10B21$1

Section $07B$03 *Income esca%ing assessment or reassessment * +t states that if the A$ has

reason to believe that an% income has esca!ed assessment in an% !receding %ear or relevantassessment %ear, he ma% reassess the income, or recom!uted the income. +f in the !rocess of

reassessment, if A$ finds that there is some other income which esca!ed assessment, he ma%

reassess the same even though no notice is issued for it. 1eassessment can be done upto 0%earsfrom date of Assessment %ear or & years in case the esca!ed income is more than & la/h.

Section $03 tal/s about issue of notice to the assessee.

Section $ - -a(imum time limit for com!letion of assessment or reassessment.

i)or summar%8scrutin% or best udgment assessment 2& months from relevant assessment%ear.

ii)+f reference is made to *ransfer )ricing officer under 92 ?:a; then the !eriod will be e(tended

furtherb% &2 months.

iii)+f it is assessment or reassessment under &4# ma(imum time limit is 9 months from the dateof notice when it is served to the assessee. +f the matter is referred to the *)$ then &2 additional

months are given.i")resh assessment under order of court resh assessment is made under Section 25@, 254,

23 and 24. resh assessment is com!leted within 9 months from the date the order has been

received b% the ?ommissioner A!!eals in the financial %ear. *he time limit is a!!licable onl%when the order is given b% the ?ommissioner of A!!eals and not b% 6igh ?ourt or Su!reme

?ourt. or 6igh ?ourt and Su!reme ?ourt there is no time limit.

Section $00 * 4lternate dispute resolution panel * >ew !rovision inserted b% the inance

Act, 2@@9. *he assessee in case of dis!ute regarding order of A$ regarding assessment ma%ma/e a reference to the dis!ute resolution !anel. *he !anel is made of a collegium of 3

commissioners. *he dis!ute resolution !anel was constituted for transfer !ricing matters as well.

21th 4pril< 21$1

8eneral eductionsE Section 31 to 31E*his is im!ortant for individual and 6. +t is the

onl% section where the% can ma/e deductions. *he aggregate amount can=t e(ceed gross total

income in an% case. 'hat is the meaning of ross *otal +ncomeL it is all the income including theshort term ca!ital gain and long term ca!ital gain etc "&&5a, &&5ab, &&5dda, &&5d, &&5ac, &&5ad.

0.g. Su!!ose A is individual whose gross total income is 1s. &,4@,@@@8" and his ca!ital gain in

the !revious %ear is 1s. &,@@,@@@8", so the total ca!ital gain would be 1s. @,@@@8" since we have

set off 1s. 2@,@@@ therefore &,@@,@@@"2@,@@@G @,@@@. +f the income is above the ma( limit thenthe ta( will be !aid se!aratel% on the ca!ital gain and gross total income.

I.'. 0lobal Solution Lt$ v. IT, :Bangalore *ribunal;,

$. +f one is filing the return and the gross total income :+*; is 2,5@,@@@ and gross totaldeduction is &,@@,@@@, the total income would be &,5@,@@@. Since it is below the e(em!tion

limit, no ta( would be !aid.

2. Su!!ose +ncome is 5@,@@@ and deduction claimed under S.@? is &,@@,@@@8", during the!rocedure of transfer"!ricing , if income is increased due to arms length then on such income

one can=t claim an% deduction under S.@?.

. >ow onwards the order !assed b% the officer is binding.


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+t is the dut% of the officer to give de!reciation even if not claimed. 6owever the same shall not

a!!l% in the case when the deductions are made. 0ver% assessee needs to claim the deductions.

Section 31E+t includes @??A and @??D, the ma( ualif%ing amount is &,@@,@@@ howevernow it has been raised to much more amount after finance bill 2@&@ that in case of debentures,

euit% schemes, !ension fund contributions, )) contributions, >S0 etc. *his list is and

ma(imum amount which can be deducted is &,@@,@@@.Section 31L -edical +nsurance )remium is se!aratel% dealt in this section. -edical +nsurance

can be claimed as deductions where the limit is &5,@@@8". 6ere the assessee needs to be

individual for the !ur!ose of health of his famil% members. or !arents there is se!aratee(em!tion of 1s.&5,@@@8", so both can be claimed. *he !roviso sa%s that if %our !arents come

under the categor% of senior citizen then 2@,@@@8" can be claimed as deduction instead of

&5,@@@8". *here is a new circular which sa%s that this would constitute income for the hos!ital

and hence withholding can be done b% the insurance co.

Section 31E+t=s a!!licable to both individual and 6. +n case 4@E or more disablement

then 5@,@@@8" is deducted. +n case of @E of disablement then &,@@,@@@8" is deducted.

Section 31?E-edical *reatmentL +f the amount incurred on him or famil% members wholl%

or !artiall% relied on him then the ma(. limit is 4@,@@@8" if his !arents come under the categor% ofsenior citizen then its @,@@@8". 6owever, if one receives an% amount in insurance claim then that

would be included in the income of the assessee.

Section 316EDeduction on loan ta/en for 6igher 0ducationL +ncome used for !a%ment of

interest for loan ta/en for the !ur!ose of higher education ma( %ear is # from the first !a%ment.

0.g. 2@&@"&&" interest can be !aid till # %ears starting from this %ear.

Section 318EDeduction on donationsL su!!ose the *+ is &@,@@,@@@ and then one donated

&,@@,@@@ then deduction can be claimed till 5@E of such donation. *here are certain amendments

done" inal draft need to be made in D*? itself.

Section 3188EDeduction in case of 1ent !aid" li/e 61A in case of salaried !erson then !ersoncan claim this deduction. 6owever, a !erson who is not a salaried !erson or self em!lo%ed li/e

chaiwala then the% can also claim deduction under this section for the residential !erson. -a(

limit is 2@@@ !m or 25E of the total income or e(cess of actual rent !aid &@E over total incomewhichever is low that is deductedH on certain conditionL"

*a( !a%er must be self em!lo%ed

-ust be individual

6e should not own an% residential accommodation where he is claiming the rent

6e should be acuiring an% !ro!ert% where he is claiming benefit under 23 then

this !rovision won=t a!!l%

+t residential accommodation is on the name of his s!ouse, child then this section

won=t a!!l%.

2$B10B21$1&e( ha%ter> S64'H 4 S6IK'6 (Section $$< $2< $2 4< $)

*he widest !ower has been given to the 1evenue under Search and Seizure. Section &32 is acom!lete code in itself.

Section $$ Discover% and !roduction of evidence. *hus the de!artment has the !owers under

?)? of com!elling !roduction of boo/s of account, e(amination of witnesses includingde!artment em!lo%ees on oath, issuing commissions. *he% ma% im!ound or detain an%

documents used in an% !roceeding of the +* Act :e.g. documents filed during return;.


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Section $2

i)'here the Director eneral or ?hief ?ommission of +*, etc in conseuence of information in

his hand has reason to believe that there has been failure to !roduce boo/s of account after noticehas been issued, then a warrant of search or seizure can be issued.

ii)Such warrant can be issued even if it is believed that even on issuance of notice, such

documents will not be !roduced.iii)*hirdl%, if an% !erson is in !ossession of eweller% which he has not declared in an% %ear,

then such warrant can be issued.

Lac# of juris$iction (ill not invali$ate an+ search or sei1ure. +* de!artment is a centralgovernment de!artment. 0.g. D of -umbai ma% conduct search or seizure in Podh!ur with the

hel! of even the -umbai !olice if such information is received in -umbai. 6owever after search

and seizure, the same will be handed over to the local revenue de!artment. Assessment shall be

made b% the authorities in Podh!ur. 6ence urisdiction is onl% for the !ur!ose of assessment andnot search and seizure.

Powers *

i) *he% can enter or search under !remises, vehicle, etc where the% are of the belief that such

documents etc are to be found therein. *here must be information and a reason to believe inever% case of search and seizure.

ii)*he% can brea/ o!en, loc/, wall, floor etc if /e% is not !rovided. Such officers can=t be madeaccountable.

ITO v Seth Brothers &99 #4 +*1 3

S? said that if the !owers under Section &32 have been e(ercised in a bonafide manner and all!rocedures have been followed then the mere error in the udgment will not invalidate the search

or seizure.

Sibal v IT &9#5 &@& +*1 &&2 *he% raided -r. Sibal=s house and he had a heart attac/ as a

result of it. 6? said that Section &32 confers enormous to the +* de!artment regarding search andseizure which invades u!on !rivac% and freedom of ta( !a%er. +t has to be e(ercised /ee!ing

statutor% reuirements and !rinci!les of natural ustice in mind and not arbitraril%. 6ere the raid

was conducted at midnight. 6owever there have been cases where such raids have been allowed.

'jit *ain v 2OI 2@@& & *a(man 2@@5 :Del; -eaning of Jreason to (elieveK. JReason to

(elieveK means that a reasonable man under the circumstances would form a belief which will

im!el him to ta/e action under the law. *he formation of o!inion has to be in good faith and notunder mere !retence.

'ights and uties of persons searched

i; 1ight to see warrant of authorization dul% signed and sealed.

ii; 1ight to verif% identities of each member of search !art%.iii; 1ight to ma/e search of all member of search !art%.

iv; *o insist on !ersonal search of ladies to be ta/en b% ad% $fficer with decenc%. 2B10B21$1

v; *o have !resent 2 inde!endent residents of the localit% as witnesses.vi;+f there is a lad% occu!%ing an a!artment she has the right to withdraw from the !lace of

search if as a custom, she is not su!!osed to show herself to outsiders :e.g. !ardanasheen

women;vii; -edical ambulance to be !resent during search in case of medical emergenc%

viii; *o allow children to go to school after chec/ing their bags.

i(; *o allow the resident to have their meals at the !ro!er times

(; A Mero( co!% of the seized materials have to be given to the assessee.


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(i; After com!leting the seizure, within 9 months assessment needs to be com!leted. After

assessment, if the !ro!ert% is retained for more than 3@ da%s, central ovt. will !rovide Sim!le

+nterest at &.5 E.

eemed Sei>ure +t ma% not be !ossible to carr% awa% certain items. So the same are seized at

that same !lace. :Section &42 Second !roviso;

Date post:	02-Jun-2018
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