Dr. G.

Lawrence,
M. Com, M. Phil, ICWA (Inter), PGDPM & IR, DCFA, SET, Ph.D,
Head & Asst. Professor – Dept. of Commerce - Unaided,
V.O. Chidambaram College, Thoothukudi-8

History of Tax:
Income tax is an important direct tax. In India, tax was introduced
in 1860 by Sir James Wilson to meet military expenses for mutiny in 1857.
In 1882, Salt Act was introduced by British. In Jan’ 20, 1930, Mahatma
Gandhi started Dandy Yatra and walked for 240 miles to take salt in Dandi
in Gujarat. He added all the people far and wide. It becomes a
revolution. Finally, tax sparked to get the freedom of India in 1947. After
independence, Income Tax Act, 1961 was passed in Sep’ 1961. This is the
base Act for Income tax and so many amendments were made every
year. The Income Tax Act, 1961 has been brought into force with effect
from 1st April 1962.

Every person, whose taxable income for the previous financial year
exceeds the non-taxable limit, is liable to pay income tax during the
current financial year on the income of the previous financial year at the
rates applicable during the current financial year. Similarly, any person
whose taxable income exceeds the non-taxable limit during the Previous
year or Financial year 2019-20 has to pay tax on income during the
Assessment year 2020-2021.
 Unit I – Basic Concept
1. PERSON [ Section 2(31) ]
The word “Person” is a very wide term and includes the following:

 Individual : It refers to a natural human being whether Male or

Female , Minor or Major.
 Hindu Undivided Family (HUF) : It is a relationship created due to
operation of Hindu Law. The Manager of HUF is called “ Karta”
and its member are called ‘Coparceners’.
 Company : It is an artificial person registered under Indian
Companies Act 1956 or any other Law.
 Firm : It is an entity which comes into existence as a result of
partnership agreement. The Income Tax accepts only these
entities as Firms which are accessed as Firms under Section 184 of
the Act.
 Association of Persons (AOP): Co-operative societies, MARKFED,
NAFED, etc are the example of such persons. When persons
combine together to carry on a joint enterprise and they do not
constitute partnership under the ambit of law, they are assessable
as an Association of Persons.
 Body of Individuals (BOI): An A.O.P. can have firms, companies,
associations and individuals as its members. A Body of Individual
cannot have non-individuals as its members. Only natural human
being can be members of a Body of Individuals.
 Local Authority : Municipality, Panchayat, Cantonment Board,
Port Trust etc. are called Local Authority.
 Artificial Judicial Person : Statutory Corporations like Life
Insurance Corporation, a University etc. are called
Artificial Judicial Persons.
2. Assessee [ Section 2(7)]
Assessee means a person by whom any tax or any other sum of
money is payable under this Act and includes the following:
i) Every person in respect of whom any proceeding under the
Income-tax Act has been taken:

a. for the assessment of his income or the income of any other person
in respect of which he is assessable; or
b. to determine the loss sustained by him or by such other person; or
c. to determine the amount of refund due to him or to such other
person.

(ii) A person who is deemed to be an assessee under any

provisions of this Act i.e. a person who is treated as an assessee. This
would include the legal representative of a deceased person or the
legal guardian of minor if minor is taxable separately.

iii) Every person who is deemed to be an assessee in default

under any provisions of this Act. A person is said to be an assessee in
default if he fails to comply with the duties imposed upon him under
the Income-tax Act. For example: a person, paying interest to another
person, is responsible for deducting tax at source on this amount and
to deposit the tax with the Government. If he fails in either of these
duties i.e., if he does not deduct the tax, or deducts the tax but does
not deposit it with the Government, he shall be deemed to be an
assessee in default.

3. PREVIOUS YEAR [ Section 3 ]

As the word ‘Previous’ means ‘coming before’ , hence it can be
simply said that the Previous Year is the Financial Year preceding the
Assessment Year e.g. for Assessment Year 2020-2021 the Previous Year
should be the Financial Year of 2019 – 2020 (1-4-2019 to 31-3-2020).
4. ASSESSMENT YEAR [ Section 2 (9) ]
“ Assessment Year” means the period of 12 months commencing on
the 1st day of April every year. In India, the Govt. maintains its accounts
for a period of 12 months i.e. 1st April to 31st March every year. As such
it is known as Financial Year. The Income Tax department has also
selected same year for its Assessment procedure.
The Assessment Year is the Financial Year of the Govt. of India
during which income a person relating to the relevant previous year is
assessed to tax. Every person who is liable to pay tax under this Act, files
Return of Income by prescribed dates. Income of Previous Year of an
assessee is taxed during the next following Assessment Year at the rates
prescribed by the relevant Finance Act.
These Returns are processed by the Income Tax
Department Officials and Officers. This processing is called Assessment.
Under this Income Returned by the assessee is checked and verified. Tax
is calculated and compared with the amount paid and assessment order
is issued. The year in which whole of this process is under taken is called
Assessment Year. At present the Assessment year 2020-21, which will
commence on April 1, 2020, will end on March 31, 2021.

5. INCOME [ Section 2(24) ]

According to English dictionary, the term “Income” means
periodical monetary return coming in regularly from definite sources like
one’s business, Land, Work, Investments etc.
It’s nowhere mentioned that “Income” refers to only monetary
return. It includes value of Benefits and Perquisites.
The term “Income” includes not only what is received by using the
property but also the amount saved by using it himself. Anything which
is convertible into income can be regarded as source of accrual of
income.
Income includes :
1. Profits and gains.
2. Dividend.
3. Voluntary Contributions received by a trust. As such contributions
received by following types of trusts, funds, associations, bodies
etc. are included in the income of such bodies.
i. Contributions received by a trust created wholly or partly for
charitable or religious purposes.
ii. Contributions received by a scientific research association.
iii. Contributions received by a fund or institution set up for
charitable purposes.
iv. Contribution received by any university or other educational
institution and hospital.
4. The value of any perquisite or profit in lieu of salary.
5. Any special allowance or benefit, other than perquisite included
to the assessee to meet expenses wholly, necessarily and
exclusively for the performance of the duties of an office or
employment of profit.
6. Any allowance granted to the assessee either to meet his personal
expenses at the place where the duties of his office or employment
of profit are ordinarily performed by him or at a place where he
ordinarily resides or to compensate him for the increased cost of
living.
7. The value of any benefits or perquisites obtained from a company
either by a director or by a person, who has a substantial interest in the
company or by a relative of a director of such person and any sum paid
by such company.
8. The value of any benefit or perquisite.
9. Any capital gain taxable under section 45.
10. The profit and gains of any business of insurance carried on by a
mutual insurance company or by a co-operative society or any surplus
taken to be such profits and gains by virtue of provisions contained in
the first schedule
11. Any winnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort or from gambling
or betting of any form or nature.
12. Any sum received by the assessee as his employers’ contributions to
any provident fund or superannuation fund or any fund set up under the
provisions of the Employee’s State Insurance Act, 1948 or any other fund
for the welfare of such employees.
13. Any sum received under a keyman insurance policy including the
sum allocated by way of bonus on such policy.
14. The profits and gains of any business of banking (including providing
credit facilities) carried on by a co-operative society with its members.
15. Any consideration received for issuing shares as exceeds the fair
market value of the shares.
16. Any sum of money received as advance in the course of negotiation
for the transfer of capital assets and in case of default, the amount so
forfeited.
17. Any sum whether received or receivable in cash or in kind under an
agreement for not carrying out any activity in relation to any business or
not sharing any know-how, patent, copyright, trade-mark, license,
franchise or any other business or commercial right of similar nature or
information or technique to share in the manufacture or processing of
goods or provision of services.
18.Any sum of money or value of property received without
consideration or for inadequate consideration by any person from any
person or person on or after 1-4-2017.
19. Compensation or other payment, due or received by any person in
connection with the termination of his employment or modification of
the terms and conditions relating thereto.
20. The fair market value of inventory as on the date on which it is
converted into, or treated as, a capital asset.
6. GROSS TOTAL INCOME:
U/s 14 the term “Gross Total Income” means aggregate of
incomes computed under the following Five heads :
 Income under the head “Salaries”

 Income under the head “ House Property”

 Income under the head “Profit and Gains from Business or

Profession”.
 Income under the head “Capital Gain”.

 Income under the head “ Other Sources”.

After aggregating income under various heads, losses are adjusted and
the resultant figure is called “ Gross Total Income”.

7. TOTAL INCOME:
From Gross Total Income , Deductions u/s 80 C from 80 U are
deducted the Net income is called as Total Income or Taxable income.

8. Agricultural Income:
Sec.10(1) exempts Agricultural Income from Income-Tax.
Agricultural Income means the income satisfies the three following
conditions.

 Any Rent or Revenue derived from Land which is situated in India

and is used for agricultural purposes.
 Any income derived from such land :
o Use for Agricultural purposes or

o Used for agricultural operations means irrigating and

harvesting, sowing, weeding, digging, cutting etc. It involves

employment of some human skill, labour and energy to get
some income from land.

According to Sec. 2(1)(a) , if the following three conditions are

satisfied, income derived from Land can be termed as “Agricultural
Income”.
Condition-1 Income derived from Land:
It is essential that for any income to be termed as
agricultural Land must be effective and immediate source of Income
and not indirect and secondary.
As a result, interest on arrears of land revenue, dividend paid by a
company out of its profits which included agricultural income also and
salary paid to a manager for managing agricultural farms are not
agricultural incomes because in all these cases land is not the effective
and immediate source of income.
Condition-2 Land is used for Agricultural Purposes:
To term any income as agricultural income, it is necessary that
income must be the result of agricultural operations performed on
agricultural land. Agriculture means performance of some basic
operations such as irrigating and harvesting , sowing, weeding, digging,
cutting etc. it involves employment of some human skill, labour and
energy to get some income from land.
Condition-3 Land is situated in India:
To qualify the exemption u/s 10(1) of the Act, it is necessary that
agricultural income must be derived from land situated in India. In case
income is derived from agricultural land situated outside India or is from
any non-agricultural land, it will not be exempted u/s 10(1). It is taxable
income under the head “Income from other Sources”.

Assessment
Assessment means the determination of total income and tax payable.
(1) Self-assessment – u/s 140A
The type of income tax assessment where the assessee personally
calculates the tax themselves usually accompanied by payment of the
amount due. After taking TDS and subtracting advance tax paid, tax
payable is required to be given. under Section 139, Section 142, Section
148, or Section 153A. Simply, it is an assessment made by the assessee
himself.
(2) Summary Assessment / Assessment on the basis of Return u/s
143(1)
The assessment under Section 143(1) is similar to the initial review
of Income tax returns online. The taxpayer receives an intimation u/s
143(1) from the Income tax Authority, the Income tax department will
send you a comparative income tax calculator. The overall income or
loss incurred is computed in prescribed form.
(3) Scrutiny Assessment / Assessment based on Evidence u/s 143(3)
Scrutiny assessment is the assessment of a return filed by an
assesse by providing an opportunity for the assessee to support the
declared income and expenses, as well as claims of deductions, losses,
exemptions and so on, in the return using proof.
The committee manages it using a single work plan. The
committee undertakes specific work as well as forming informal panels
or working groups. The assessing officer is given the chance to conduct
an investigation in order to determine if the assessee correctly reported
their income in the return. The claims for deductions, exemptions and
other benefits are legal and factually correct. In case of any omissions,
contradictions, inaccuracies, or other errors, the assessing officer
prepares their own assessment for the assessee, taking into account all
relevant circumstances.

(4) Best Judgment Assessment u/s 144

The term ‘best judgment assessment’ refers to the assessing
officer’s opinion or calculation of the assessee’s income in the context
of income tax law. In the situation of best judgment assessment, the
evaluating officer will make the decision based on the best reasoning.
The assessee will not be dishonest in their assessment nor will they be
hostile to the officer.
i) Compulsory Best Judgement Assessment
This assessment is to be made in the following cases,
Where a person fails to submit his or her return.
Where a person fails to comply with all terms of a notice U/s 142(1).
Where a person fails to comply with direction to get his accounts
audited.
Where a person fails to respond to a scrutiny notice U/s 143(2).
ii) Discretionary Best Judgement Assessment
Where, the assessing officer is suspect with the assessee relating
to correctness of accounts, method of accounting employed and income
computed with the standard notified by the Government, he shall make
the assessment at his discretion. It is known as Discretionary Best
Judgement Assessment.
(5) Protective Assessment
This is a type of assessment that focuses on those that are made to
‘protect’ the revenue’s interests. The income tax legislation, however,
has no provision for the imposition of income tax on anyone other than
the person to whom it is due. It is open to the authorities to undertake a
protective or alternative assessment if it is unclear who among a few
probable persons is actually liable to pay the tax. The authorities just
make an assessment and keep it on paper until the situation is resolved
when they make a protective assessment. A protective order of
assessment but not one of penalty, can be issued.
(6) Re-Assessment (or) Income Escaping Assessment u/s 147
If the assessing officer has reason to think that income liable to tax
has escaped assessment for any assessment year, they will conduct an
income escaping assessment under Section 147. Moreover, it gives
them the authority to reassess or re-compute income, turnover and
other figures that have escaped their notice. The goal of conducting an
assessment under Section 147 is to bring any income that escaped
assessment in the original assessment into the tax net.
(7) Assessment in Case of Search u/s 153A
The assessing officer will do the following in this type of income tax
assessment:
 Giving such a person notice requires furnishing it within the time

frame mentioned in the notice. Clause (b) referred to the income

return for each of the six assessment years.
 The assessor re-assesses the total income of the six assessment
years immediately preceding the assessment year relevant to the
previous year in which such search or requisition is made.
Return

As per provisions of sec. 139(1), following persons need to file a

return of income in the prescribed form and within the prescribed time.
Any person, being resident other than not ordinarily resident, shall
furnish, a return, within due date, in respect of his income or loss for the
previous year irrespective of the fact that his total income exceeds non
taxable limit.
Types of Return

1) Belated Return U/s 139 (4)

An assessee fails to file return within the time limit allowed u/s
139(1) or within the time allowed under a notice issued u/s 142(1), he
can file a belated return. The Assessee may file such return on or before
the end of the relevant assessment year or before the completion of
assessment (u/s 144) whichever is earlier. However, if an assessee files a
belated return, he would be liable to fee and interest.
2) Return of a Charitable Trust U/s 139 (4A)
Every person who is in receipt of income from property held under
the trust or other legal obligation wholly or partly for charitable or
religious purpose or income by way of voluntary contribution on behalf
of such trust or institution and if such income exceeds the non taxable
limit must file a return before the due date. Where an assessee fails to
file return of income within the time limit, it shall be liable to pay a
penalty of Rs. 100 per day during which such failure continues.
3) Return of a Political party U/s 139 (4B)
The chief executive officer of any political party is required to
furnish a return in respect of income of such political party, if the
amount of gross total income before allowing exemption exceeds the
non taxable limit.
4) Return of a Scientific Research Association, etc, U/s 139 (4A)
Every
• Research Association referred to in sec. 10(21);
• News agency referred to in sec. 10(22B);
• Association or institution referred to in sec. 10(23A) or 23 B;
• Specified Employee Welfare Fund referred to in sec. 10(23AAA);
• Any university or other educational institution referred to in sec.
10(23C);
• Any hospital or other medical institution referred to in sec.
10(23C);
• Fund or institution referred to in sec. 10(23C)(iv);
• Trust or institution referred to in sec. 10(23C)(v);
• Any university or other educational institution referred to in sec.
10(23C)(vi);
• Any hospital or other medical institution referred to in sec.
10(23C)(via);
• Mutual Fund referred to in sec. 10(23D); • Securitisation trust
referred to in sec. 10(23DA);
• Investor Protection Fund referred to in sec. 10(23EC) or ED;
• Core Settlement Guarantee Fund referred to in sec. 10(23EE);
• Venture Capital Company or Venture Capital Fund referred to in
sec. 10(23FB);
• Trade union or an association of such union referred to in sec.
10(24);
• Body or authority or Board or Trust or Commission referred to in
sec. 10(46) or 29A;
• Infrastructure debt fund referred to in sec. 10(47);
 The assessee must file a return, if the total income exceeds the
non taxable limit. Where an assessee fails to file return of income
within the time limit, it shall be liable to pay a penalty of Rs. 100 per
day during which such failure continues.
5) Return of an University / College, etc. U/s 139 (4D)
Every University, college or other institutions referred to in sec.
35(1)(ii) or (iii) is required to furnish a return in respect of income or
loss irrespective of income or loss.
6) Return of Business Trust, etc. U/s 139 (4E)
Every business trust, which is not required to furnish return of
income or loss under any other provisions of this section, shall
furnish the return of its income in respect of its income or loss in
every previous year.
7) Return of Investment Fund U/s 139 (4F)
Every investment fund referred to in sec. 115UB which is not
required to furnish return of income or loss under any other
provisions of this section, shall furnish the return of income in
respect of its income or loss in every previous year.
8) Revised Return U/s 139 (5)
If an assessee discovers any omission or wrong statement which
is bonafide in nature, he can revise his return. The Assessee may file
the revised return before the end of the relevant assessment year or
before completion of regular assessment whichever is earlier.
(a) Replacement of original return: Once a revised return is filed, it
replaces the earlier return. This signifies that the revised return
should be complete and not merely an accessory to the original
return.
(b) Revision of revised return: A revised return can again be revised
and can be filed for correcting any omission or wrong statement
made in the first revised return within specified time.
(c) Revision of belated return: A belated return can be revised.
(d) Revision of loss return: A loss return can be revised (e) Return
filed pursuant to notice cannot be revised.
9) Defective Return U/s 139 (9)
When a return is termed defective - A return of income is said
to be defective where all the following conditions are not fulfilled:
• The return is furnished without paying self-assessment tax along
with interest, if any.
• The annexure, statements and columns in the return of income
have been duly filled in.
The return is accompanied by the following documents
a. a statement showing the computation of tax liability;
b. the audit report with proof of furnishing the report u/s 44AB;
c. the proof of tax deducted or collected at source, advance tax paid
and tax paid on self-assessment;
d. where regular books of account are maintained by the assessee:
(i) copies of Manufacturing A/c, Trading A/c, Profit and Loss A/c or
Income and Expenditure A/c or any other similar account and
Balance Sheet;
(ii) in the case of A proprietary business or profession - the personal
account of the proprietor;
(iii) A firm, AOP or BOI - personal account of the partners or
members;
Where the Assessing Officer considers that the return of income
furnished by the taxpayer is defective, he may intimate the defect to
the taxpayer and give him an opportunity to rectify the defect. Time
limit for rectification: The assessee must rectify the error within a
period of 15 days from the date of intimation served on the assessee
or within such extended time as allowed by the Assessing Officer.
Where the taxpayer rectifies the defect after the expiry of the period
of 15 days or such extended period but before the assessment is
completed. If defect is not rectified within the time limit, the
Assessing Officer will treat the return as an invalid return as per
provisions of the Act
All the Best!