UNIT IV
Deemed Income
Any income which is received in India, during the previous year by any assessee, is liable to tax in India, irrespective of the residential status of the assessee and the place of accrual of such income.
Receipts means the first receipt: The receipt of income refers to the first occasion when the recipient gets the money under his own control. Once an amount is received as income, any remittance or transmission of the amount to another place does not result in receipt within the meaning of this clause at the other place.
This principle is of importance, firstly, in determining the year of receipt, and secondly, for ascertaining the incidence of taxation where it depends purely upon receipt of income. For instance, in the case of non-residents, their foreign income is not assessable, unless it is actually received in India. In their case, unless, at the time the money is received in India, it is received as income from an outside source, such receipt will not be an income receipt. If a non-resident had already received moneys outside India (in an earlier year or during the previous year) as income or exempt income and he was transferring the funds into India in the accounting year, such moneys will not count as income in the eyes of law.
Income Deemed To Be Received In India - under Income Tax Act. 1956. (Section 7)
The following incomes shall be deemed to be received in India in the previous year even in the absence of actual receipt:
In certain cases, some amounts are deemed as income in the hands of the assessee though they are actually not in the nature of income. These cases are contained in sections 68, 69, 69A, 69B, 69C and 69D. The Assessing Officer may require the assessee to furnish explanation in such cases. If the assessee does not offer any explanation or the explanation offered by the assessee is not satisfactory, the amounts referred to in these sections would be deemed to be the income of the assessee. Such amounts have to be aggregated with the assessee’s income.
Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However, the Income-tax law in India does provide taxpayers some benefits of incurring losses too. The law contains provisions for set-off and carry forward of losses which are discussed in detail in this article.
1. Set off of losses
2. Carry forward of losses
Set off of losses
Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be an intra-head set-off or an inter-head set-off.
a. An intra-head set-off
b. An inter-head set-off
a. Intra-head Set Off
The losses from one source of income can be set off against income from another source under the same head of income.
For eg: Loss from Business A can be set off against profit from Business B, where Business A is one source and Business B is another source and the common head of income is “Business”.
Exceptions to an intra-head set off:
1. Losses from a Speculative business will only be set off against the profit of the speculative business. One cannot adjust the losses of speculative business with the income from any other business or profession.
2. Loss from an activity of owning and maintaining race-horses will be set off only against the profit from an activity of owning and maintaining race-horses.
3. Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gain.
4. Losses from a specified business will be set off only against profit of specified businesses. But the losses from any other businesses or profession can be set off against profits from the specified businesses.
b. Inter-head Set Off
After the intra-head adjustments, the taxpayers can set off remaining losses against income from other heads.
Eg. Loss from house property can be set off against salary income
Given below are few more such instances of an inter-head set off of losses:
1. Loss from House property can be set off against income under any head
2. Business loss other than speculative business can be set off against any head of income except except income from salary.
One needs to also note that the following losses can’t be set off against any other head of income:
a. Speculative Business loss
b. Specified business loss
c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses
Carry forward of losses
After making the appropriate and permissible intra-head and inter-head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rules as regards carry forward differ slightly for different heads of income. These have been discussed here:
Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred
Can be adjusted only against Income from house property
Can be carried forward even if the return of income for the loss year is belatedly filed.
2. Losses from Non-speculative Business (regular business) loss :
Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred
Can be adjusted only against Income from business or profession
Not necessary to continue the business at the time of set off in future years
Cannot be carried forward if the return is not filed within the original due date.
3. Speculative Business Loss :
Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred
Can be adjusted only against Income from speculative business
Cannot be carried forward if the return is not filed within the original due date.
Not necessary to continue the business at the time of set off in future years
4. Specified Business Loss under 35AD :
No time limit to carry forward the losses from the specified business under 35AD
Not necessary to continue the business at the time of set off in future years
Cannot be carried forward if the return is not filed within the original due date
Can be adjusted only against Income from specified business under 35AD.
5. Capital Losses:
Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred
Long-term capital losses can be adjusted only against long-term capital gains.
Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains
Cannot be carried forward if the return is not filed within the original due date
6. Losses from owning and maintaining race-horses:
Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred
Cannot be carried forward if the return is not filed within the original due date
can only be set off against income from owning and maintaining race-horses only.
Key Takeaways:
Income Tax Authority -Their Appointment, Jurisdiction ND Powers-
Explanation to the tax Authority [section 133A (a)]:
"Income tax authority" means a commissioner, Co-commissioner, director, co-director, assistant director or deputy director or evaluator, or taxman , for the needs of subsection(1)section(I), subsection(3)and subsection(5)section(I). This includes the inspector of tax.
1.1. Various institutions
The tax Act of 1987 led to significant changes within the organizational structure. The implementation of this act is within the hands of those authorities. The change within the designation of certain authorities and therefore the creation of certain new posts within the structure are the most features of the amendment by the tax Act of 1987. The new functions of the authorities are properly drawn on the chart of the facing page. Two main wings for these authorities:
(I) administrative [income tax authorities] [Section 116]
e. Assistant director of tax or Assistant Commissioner of tax ,
f. Income tax officer,
g. Tax inspector,
h. Income tax inspectors.
(II) Evaluator [Sec.2 (7A)])]
"Evaluator “means a vice-chairperson or vice-chairperson or vice-chairperson or tax officer with relevant jurisdiction by an instruction or order issued under Paragraph 1 or 2 of this act under paragraph 120 or other provisions, and a co-chairperson or co-chairperson as directed under Paragraph(B)of Paragraph 4, which can be granted or assigned to an evaluator under this act. This suggests that you simply will exercise or perform all or any of the rights and functions provided by you.;
Importance of Officer Evaluation:
In the organizational setting of the tax Department, assessing officers plays a really important role. He’s the first authority that initiates his proceedings and is directly connected with the general public. Form the time of filing a return until the assessment is completed he plays a pivotal role. He can start such procedures as non-declaration, imposition of penalties. Orders also are possible. The department can amend his order only by the commissioner of tax, if it's proven that there's a negative impact on the income.
(III) Appointment of tax authorities [Sec.117].
2. Authority of the board and other higher authorities: in accordance with the principles and orders of the central government regulating the terms of service of persons publicly services and posts, the central government shall appoint the board, or the chief Director, Chief Commissioner or director or commissioner, the tax Authority below the rank of Deputy Commissioner or Deputy Commissioner. You’ll also use this feature to permit the user to make a replacement account. 117th (2)) ]
3. Authority to appoint officers and ministerial staff: in accordance with the principles and orders of the central government regulating the terms of service of persons publicly services and posts, the tax Authority, authorized in its place by the council, may appoint such officers or ministerial staff as necessary to help within the performance of its functions.
(IV) Control of tax authorities [Sec.118]
The board may, by notification of the Official Gazette, instruct the tax Authority or authority laid out in the notice to be subordinate to the opposite tax authority or authority laid out in such notice.
For the purposes of this law, there shall be the following income tax authorities:
(1) For the needs of this law, there shall be the subsequent tax authorities:—
(a) Central Revenue Committee,
[(A) i s inspection,]
(b) Tax commissioner,
(C) To look at the Assistant Commissioner of tax appeal or the Assistant Commissioner of tax could also be either the Assistant Commissioner of tax
(d) Tax officer,
(e) Tax inspectors
[(1A) the central government may appoint as many inspection directors because it deems appropriate, and therefore the inspection Directors shall be under the control of the Central Revenue Committee and shall perform such functions of other tax authorities assigned by the central government.]
[(2) the central government may appoint as many tax commissioners because it deems appropriate, as could also be dictated by the central Income Commission of such region or person of such person or class or case of such income or class or case of such case or class if such instructions are assigned to the commissioners of income or class income or class income or class income or class income or class tax within the same region or an equivalent person or class, they shall have concurrent jurisdiction in accordance with the orders that the central Income Commission may perform for the allocation and allocation of the work performed to be.
(3) the central government may appoint as many because it deems appropriate tax officers and appeals or inspectors of tax officers serving class I, and therefore the commissioners could also be authorized by the central government at any time as tax officers serving Class II and tax inspectors, in accordance with the principles and orders of the central government regulating the terms of service of persons publicly services and posts could also be appointed.
(3A) in accordance with the principles and orders of the central government regulating the terms of service of persons publicly services and posts, the tax Authority may appoint such executive or ministerial staff as could also be necessary to help within the performance of its functions.]
(4)income tax appeal the assistant commissioner shall be under the direct control of the central Income Commission and shall perform its functions with reference to such person or class of persons[or of such income or class of income]with reference to such area as could also be indicated by the central Income Commission[and such instructions shall be in two if one or more appeals are assigned to the Assistant Commissioner, an equivalent person or person class or an equivalent income or income class or an equivalent area]in accordance with any order that the central Income Commission may bring the allocation and allocation of labor to be performed.
(5) the inspection assistant of the tax and tax Officer shall perform its functions with reference to such person or class of persons[or of such income or class of persons]may instruct in respect of areas like the tax officer[and, if such instruction is assigned to 2 or more inspection assistants of the tax or tax officer, such person or class the tax Commissioner shall fulfil its function with reference to the category , class of an equivalent person or person or class of an equivalent income or class of income or an equivalent area]in accordance with any order that the tax Commissioner may bring the distribution and distribution of labor performed. The commissioner shall, by written General or special order, have the proper granted to the tax officer and therefore the appellate aide by or under this law, and any regard to the tax officer and therefore the refore the appellate aide during this law or the principles made herein shall be deemed to be a regard to the inspector aide and the commissioner, respectively. it is not.
[(5A) the tax inspector shall, within the execution of this act, perform the functions assigned by the tax officer or the tax Authority appointed thereunder, and shall not be liable for such acts.]
(6) the Central Revenue Committee May, through a notice within the Official Gazette, empower the tax Commissioner, appellate or inspection assistant and tax officer to perform such functions with reference to the income classification [or region] specified within the notice, in order that the required functions could also be assigned by other authorities appointed under (2)and (3) to the income classification[or region]identified.
[(7) For the needs of this law,—
(I) the inspection assistant commissioner shall be subordinate to the director of the inspection and therefore the tax Commissioner within its jurisdiction once they perform their functions.;
[(7A) the commissioner of tax may transfer any case from one tax officer to a different that's subordinate to him, and the Central Committee of revenue may transfer any case from one tax officer to a different. Such a transfer is often made at any stage of the proceedings and doesn't require the reissue of the notice already issued by the tax officer to whom the case was transferred.]
Key takeaways:
3. The board may, by notification of the Official Gazette, instruct the tax Authority or authority laid out in the notice to be subordinate to the opposite tax authority or authority laid out in such notice.
4. In the organizational setting of the tax Department, assessing officers plays a really important role.
5. For the purposes of this law, there shall be the following income tax authorities.
Every assessee, who earns income beyond the basic exemption limit in a Financial Year (FY), must file a statement containing details of his income, deductions, and other related information. This is called the Income Tax Return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are occasions where, based on set parameters by the Central Board of Direct Taxes (CBDT), the return of an assessee gets picked for an assessment.
The various forms of assessment are as follows:
1) Self Assessment.
2) Summary Assessment.
3) Regular Assessment.
4) Best Judgement Assessment.
5) Income Escaping Assessment.
1. Self Assessment
The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS and Advance Tax from that amount to determine the tax payable on such income. Tax, if still payable by him, is called self assessment tax and must be paid by him before he files his return of income. This process is known as Self Assessment.
2. Summary Assessment
It is a type of assessment carried out without any human intervention. In this type of assessment, the information submitted by the assessee in his return of income is cross-checked against the information that the income tax department has access to. In the process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustment for arithmetical errors, incorrect claims, and disallowances are automatically done. Example, credit for TDS claimed by the taxpayer is found to be higher than what is available against his PAN as per department records. Making an adjustment in this regard can increase the tax liability of the taxpayer.
After making the aforementioned adjustments, if the assessee is required to pay tax, he will be sent an intimation under Section 143(1). The assessee must respond to this intimation accordingly. Here you can read a more detailed article on Section 143(1).
3. Regular Assessment
The income tax department authorizes the Assessing Officer or Income Tax authority, not below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure that the assessee has neither understated his income or overstated any expense or loss or underpaid any tax.
The CBDT has set certain parameters based on which a taxpayer’s case gets picked for a scrutiny assessment.
a. If an assessee is subject to a scrutiny assessment, the Department will send a notice well in advance. However, such notice cannot be served after the expiry of 6 months from the end of the Financial year, in which return is filed.
b. The assessee will be asked to produce the books of accounts, and other evidence to validate the income he has stated in his return. After verifying all the details available, the assessing officer passes an order either confirming the return of income filed or makes additions. This raises an income tax demand, which the assessee must respond to accordingly.
4. Best Judgement Assessment
This assessment gets invoked in the following scenarios:
a. If the assessee fails to respond to a notice issued by the department instructs him to produce certain information or books of accounts
b. If he/she fails to comply with a Special Audit ordered by the Income tax authorities
c. The assessee fails to file the return within due date or such extended time limit as allowed by the CBDT
d. The assessee fails to comply with the terms as contained in the notice issued under Summary Assessment
After providing an opportunity to hear the assessee’s argument, the assessing officer passes an order based on all the relevant materials and evidence available to him. This is known as Best Judgement Assessment.
5. Income Escaping Assessment
When the assessing officer has sufficient reasons to believe that any taxable income has escaped assessment, he has the authority to assess or reassess the assessee’s income. The time limit for issuing a notice to reopen an assessment is 4 years from the end of the relevant assessment Year. Some scenarios where reassessment gets triggered are given below.
a. The assessee has taxable income but has not yet filed his return.
b. The assessee, after filing the income tax return, is found to have either understated his income or claimed excess allowances or deductions.
c. The assessee has failed to furnish reports on international transactions, where he is required to do so.
Key takeaways:
References:
