IncomeTaxManagement

The law relating to Income Tax is one of the most complicated law of India. A number of different documents cover the various aspects of Income Tax provisions and one has to go through all these documents (sources) to have a through knowledge of it. These documents are known as ‘Sources Of Law Relating To Income Tax’ and are as follows

(1) Income Tax Act, 1961.

On the recommendation of Law Commission and Direct Taxes Administration Enquiry Committee chaired by Sh. Mahavir Tyagi, a bill was framed. This bill was referred to a select committee and was finally passed in September, 1961. This Act came into force from April 1, 1962 in whole of the country. Income Tax Act, 1961 is a comprehensive Act which consists of 298 sections and many subsections grouped under XXIII Chapters along with XIV Schedules. The Act contains detailed provisions regarding applicability, basis of charge, residential status, heads of income, clubbing provisions, set-off of losses, deductions, exemptions and assessment procedures involving appeals, penalities and filing of return etc.

(2) Income Tax Rules, 1962.

The provisions contained in Income Tax Act are duly supported by Income Tax Rules, 1962 that help in carrying out the purposes of the Act. These rules are prepared by ‘Central Board of Direct Taxes” (CBDT) by virtue of power granted to it (i.e., Board) under section 295 of the Income Tax Act, 1961. These rules deal with procedural part of the various aspects of Income Tax.

Certain Examples of Income Tax Rules

(i) Rule 3—Valuation of perquisites for calculating ‘Salary income’.

(ii) Rule 6—Prescribed authority for expenditure on scientific research.

(iii) Rule 7—Splitting up of partly agricultural income and partly non-agricultural income.

(iv) Rule 6DD—Cases and circumstances in which payment exceeding’ 20,000 may be made otherwise than by an account payee cheque or account payee bank draft.

These rules are made applicable by way of notification in the Official Gazette of India and are subject to the control of Central Government.

(3) Annual Finance Act.

Annual Finance Act is an important piece of legislation that updates! amends the Income Tax Act, 1961. It gives effect to the financial proposals of the government for the relevant financial year and is finalised at the beginning of every financial year. It contains

(i) Introduction of new sections to the Income Tax Act, 1961;

(ii) Deletion of certain sections from the Income Tax Act, 1961; and

(iii) Rates of Income Tax for an assessment year, rates of tax for deducted at source for the financial year and rates of advance tax for the relevant financial year.

(4) Circulars and Clarifications issued by CBDT.

The Indian Central Board of Direct Taxes (CBDT) is the apex institution that regulates the overall administration of the direct taxes (IncOme Tax and Wealth Tax) of the country. Section 119 of the Income Tax Act, 1961 empowersCBDT to issue certain orders, instructions and directions to the revenue department (i.e., Income Tax department) to assist in the interpretation of the law. These orders/instructions/directions are issued in the form of circulars/instructions and are required to be followed by the Income Tax authorities. These circulars clarify the ambiguities in statutory provisions and provide greater ease of administration.

Important Points             (i)         CBDT circulars are binding on Income tax department officials.
            (ii)        Circulars are not binding on assessee.
            (iii)       Circulars are not binding on CTT (Appeals) and other appellate authorities.

(5) Judicial Decisions/Case Law.

Judicial decisions are also one of the most important source of Income tax law.

Important Points (i) Any decision given by any High Court shall be applicable in the particular case.

(ii) Any decision given by the honorable Supreme Court shall be treated as law applicable throughout the country.

(iii) The decision of Supreme Court can be reversed by the Parliament by encasing a law contrary to such decision.

Taxes to be imposed only by Authority of Law

Taxes to be imposed only by Authority of Law [ Article 245 ]

Article 265 of the Indian Constitution states that no tax shall be levied or collected in India except by the authority of law as sanctioned by the Constitution. Thus, every tax to be charged in India has to be backed by the law passed by the Parliament or State Legislature and any tax charged without the constitutional authority shall be void ab initio.

Constitutional Provision Governing Taxation in India

Article 246 ( Seventh Schedule) of the Indian Constitution contains the legislative powers (including taxation) of the Union Government and the State Governments. It contains the following 3 lists covering the various subjects :

List I—Central List. It contains the areas in respect of which only the parliament i.e., Central Government can make laws (including taxation laws.)

List II—State List. It contains the areas in respect of which only the State Legislature can make laws (including taxation laws).

List III—Concurrent List. It contains the areas in respect of which both the Parliament and the State Legislature can make laws concurrently. It is important to note that this list does not specify any law relating to taxation. In other words, there is no head of taxation under the concurrent list and hence Union and the State have no concurrent power of taxation.

SEVENTH SCHEDULE
(Article 246)

List 1—UnionlCentral List (14 Heads of Taxation)

1. Taxes on income other than agricultural income: [Entry 82] [Income Tax Act 1961]

2. Duties of customs including export duties; [Entry 83] [Customs Act 1962]

3. Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii); [Entry 841 [Central Excise Act 1944]

4. Corporation Tax; [Entry 851

5. Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies; [Entry 86]

6. Estate duty in respect of property other than agricultural land; [Entry 87]

7. Duties in respect of succession to property other than agricultural land; [Entry 88]

8. Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight; [Entry 89]

9. Taxes other than stamp duties on transactions in stock exchanges and futures markets; [Entry 901

10. Rate of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of landing, letter of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. [Entry 911

11. Taxes on the sale or purchase of newspapers and on advertisements published therein; [Entry 92]

12. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce; [Entry 92 A] [Central Sales Tax Act 1957]

13. Taxes on the consignment of goods in the course of inter-State trade or commerce. [Entry 92B]

14. All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution; [Entry 92 C] for e.g. Service Tax.

Note : The Department of Revenue under the Government of India’s Finance Ministry is solely responsible for levy and collection of above union taxes.

List—II (State List) (19 Heads of Taxation)

The nineteen heads List-Il of Seventh Schedule of the Indian Constitution covered under State taxation, on which State Legislative enacts the taxation law, are as under

1. Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues;

2. Taxes on agricultural income; [Entry 46)

3. Duties in respect of succession to agricultural income; [Entry 47]

4. Estate Duty in respect of agricultural land; [Entry 48]

5. Taxes on lands and buildings; [Entry 491

6. Taxes on mineral rights; [Entry 501

7. Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics; [Entry 511

8. Taxes on entry of goods into a local area for consumption, use or sale therein [Entry 52]

9. Taxes on the consumption or sale of electricity; [Entry 53]

10. Taxes on the sale or purchase of goods other than news papers; [Entry 54]

11. Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television; [Entry 55]

12. Taxes on goods and passengers carried by roads or on in land waterways; [Entry 56]

13. Taxes on vehicles suitable for use on roads; [Entry 57]

14. Taxes on animals and boats; [Entry 58]

15. Tolls; [Entry 59]

16. Taxes on profession, trades, callings and employments; [Entry 60]

17. Capitation taxes; [Entry 61]

18. Taxes on luxuries, including taxes on entertainments amusements, betting and gambling; [Entry 62]

19. Stamp duty in respect of documents other than those specified in the provisions of List I.

List—III (Concurrent List)

No Head of Taxation

[Section 9(1 )(vii)] - Income By Way Of Fees For Technical Services

Any fee for technical services payable by

(a) the Government ; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any incomefrom any source outside India ; or

(c) a person who is non resident, where the fees are payable in respect of services utilised in business or profession carried on by such person in India or for the purposes of making or earning any income from any sourcein India.

Important Points

(i) This provision shall not apply in relation to any income by why of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1977 and approved by the Central Government.

(ii) For the purposes of such income, an agreement made on or after the 1st day of April 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

(iii) The terms “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”).

(iv) Any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court of a High Court within the meaning of the Government of India Act, 1935 continues to serve on or after the commencement of the Constitution as a Judge in India.

List of Exempted Incomes (Tax-Free) Under Section-10

Sources Of Law Relating To Income Tax

Taxes to be imposed only by Authority of Law

Constitutional Provision Governing Taxation in India

[Section 9(1 )(vii)] - Income By Way Of Fees For Technical Services