INCOME FROM HOUSE PROPERTY

AND TAX INVASION

Q5 Explain the provisions relating to ‘income from house property’ under the IT Act,
1961.

Introduction:

INCOME FROM HOUSE PROPERTY is dealt under the following sections (SEC 22
TO 27);

• Sec 22 & 23 – Income taxable under the head and how it is calculated

• Section 24 – Deductions Allowed

• Section 25 – Deductions which are not allowed and taxable

• Section 26 – Special treatment in case of co – owners of the house.

• Section 27 – Various Terms for this head of income.

Meaning:
The annual value of a property, consisting of any buildings or lands appurtenant thereto, of which
the assessee is the owner, is chargeable to tax under the head ‘Income from house property’.

Meaning of building/s:

Buildings or lands appurtenant thereto The term ‘building’ includes residential houses,
bungalows, office buildings, warehouses, docks, factory buildings, music halls, lecture halls,
auditorium etc. The appurtenant lands in respect of a residential building may be in the form
of approach roads to and from public streets.
However, if a house property, or any portion thereof, is occupied by the assessee, for the purpose
of any business or profession, carried on by him, the profits of which are chargeable to income-
tax, the value of such property is not chargeable to tax under this head.
Rental income from a vacant plot of land (not appurtenant to a building) is not chargeable to tax
under the head ‘Income from house property’, but is taxable either under the head ‘Profits and
gains of business or profession’ or under the head ‘Income from other sources’, as the case may
be. • However, if there is land appurtenant to a house property, and it is let out along with the
house property, the income arising from it is taxable under this head.
CONDITIONS FOR INCOME FROM HOUSE PROPERTY :

Three conditions are to be satisfied for property income to be taxable under this head.

1. The property should consist of buildings or lands appurtenant thereto.

• The assessee should be the owner of the property.

3. The property should not be used by the owner for the purpose of any business or
profession carried on by him, the profits of which are chargeable to income-tax.
OWNERSHIP OF HOUSE PROPERTY • It is only the owner (or deemed owner) of house
property who is liable to tax on income under this head. • Owner may be an individual, firm,
company, cooperative society or association of persons. • The property may be let out to a third
party either for residential purposes or for business purposes. • Annual value of property is
assessed to tax in the hands of the owner even if he is not in receipt of the income.
DEEMED OWNER Section 27 of the Income Tax Act provides that, in certain circumstances,
persons who are not legal owners are to be treated as deemed owners of house property for
the purpose of tax liability under this head.
1. If an individual transfers a house property to his or her spouse (except in connection with an
agreement to live apart) or to a minor child (except a married daughter) without adequate
consideration, he is deemed as the owner of the property for tax purposes. However, if an
individual transfers cash to his or her spouse or minor child, and the transferee acquires a house
property out of the gifted amount, the transferor shall not be treated as the deemed owner of the
house property.
2. The holder of an Impartible Estate is deemed to be the owner of all the properties comprised
in the estate. 3. A member of a co-operative society, company or association of persons, to
whom a property (or a part thereof) is allotted or leased under a house building scheme of the
society, company or association, is deemed to be the owner of such property. 4. A person who
has acquired a property under a power of attorney transaction, by satisfying the conditions of
section 53A of the Transfer of Property Act, that is under a written agreement 5. A person who
has acquired a right in a building (under clause (f) of section 269UA), by way of a lease for a
term of not less than 12 years (whether fixed originally or extended through a provision in the
PROPERTY INCOME EXEMPTED FROM TAX:
• Income from a farm house [section 2(1A) (c) and section 10(1)]. 2.

• Annual value of one palace in the occupation of an ex-ruler [section 10(19A)].

• Property income of a local authority [section 10(20)].

• Property income of an approved scientific research association [section 10(21)].

• Property income of an educational institution and hospital [section 10(23C)].

• Property income of a registered trade union [section 10(24)].

• Income from property held for charitable purposes [section 11].

• Property income of a political party [section 13A].

• Income from property used for own business or profession [section 22].

• Annual value of oneself occupied property [section 23(2)].

DETERMINATION OF ANNUAL VALUE • The annual value of house property has been
defined as 'the amount for which the property may reasonably be expected to be let out for a
year'. • However, if your property is let out for the whole or a part of the financial year, the
gross annual value will be the amount received during the year as a result of the letting out of
the house property. • This shall also exclude the rent that the taxpayer is unable to realize in
the financial year.
The following four factors have to be taken into consideration while determining the
Gross Annual Value of the property: 1. Rent payable by the tenant (actual rent) 76 2.
Municipal valuation of the property. 3. Fair rental value (market value of a similar property in
the same area). 4. Standard rent payable under the Rent Control Act.
• Actual Rent: It is the most important factor in determining the annual value of a let out
house property. It does not include rent for the period during which the property remains
vacant. Municipal Valuation: Municipal or local authorities charge house tax on
properties situated in the urban areas.
• Fair Rental Value: It is the rent normally charged for similar house properties in the same
locality. Standard Rent: Standard Rent is the maximum rent which a person can legally
recover from his tenant under a Rent Control Act.
• The Gross Annual Value is the municipal value, the actual rent (whether received or
receivable) or the fair rental value, whichever is highest. If, however, the Rent Control
Act applies to the property, the gross annual value cannot exceed the standard rent under
the Rent Control Act, or the actual rent, whichever is higher.
• If the property is let out but remains vacant during any part or whole of the year and due
to such vacancy, the rent received is less than the reasonable expected rent, such lesser
amount shall be the Annual value. • For the purpose of determining the Annual value,
the actual rent shall not include the rent which cannot be realized by the owner.
DEDUCTIONS U/S SEC 24:

Standard Deduction: 30 % of the adjusted annual value is deductible irrespective of

expenses incurred by the taxpayer
Interest on Borrowed Capital: Interest on Borrowed capital is allowed as deduction if
capital is borrowed for the purpose of purchase, construction, repair, renewal or
reconstruction of the property. It is deductible on accrual basis. It can be deductible as
yearly, it is deductible even if it is not actually paid during the previous year No
deduction for any brokerage or any expenses for arranging the loan is allowed interest of
a fresh loan taken for the repayment of the earlier loan is allowed as deduction
DEDUCTIONS WHICH ARE TAXABLE (U/S 25):

Any interest chargeable under the Act, payable out of India on which tax has not been
paid or deducted at source, and in respect of which there is no person in India who may
be treated as an agent, is not deductible, by virtue of Section 25, in computing income
chargeable under the head “Income from house property”.
Thus, the interest payable outside India, will not be allowable as deductions if No tax is
paid thereon or No tax is deducted at source there from or There is no person in India
who is liable to pay tax thereon as agent
PROPERTY OWNED BY CO – OWNER (SEC 26):

When it is applicable a house property is owned by two or more persons (co – owners)
their share in the property and its income is definite and ascertainable as per the
agreement between them.
 Procedure in case of co – owners Determine the income of the whole house property
Divide the income between the co-owners according to the shares Include the share of
each co-owner in other incomes of each of them to find his total income. Tax the co-
owner accordingly.
Conclusion:

Therefore for an income to be taxed under the head income from house property,
the above provisions should be applied.

Q6 Explain in detail provision relating to drawback under customs act

Introduction:

The term drawback is applied to a certain amount of duties of Customs and Central Excise,
sometimes the whole, sometimes only a part remitted or paid by Government on the exportation
of the commodities on which they were levied. To entitle goods to drawback, they must be
exported to a foreign port, the object of the relief afforded by the drawback being to enable the
goods to be disposed of in the foreign market as if they had never been taxed at all. For
Customs purpose drawback means the refund of duty of customs and duty of central excise that
are chargeable on imported and indigenous materials used in the manufacture of exported
goods. Goods eligible for drawback applies to
a.) Export goods imported into India as such;

b.) Export goods imported into India after having been taken for use c.)
Export goods manufactured / produced out of imported material d.)
Export goods manufactured / produced out of indigenous material
e.) Export goods manufactured /produced out of imported or and indigenous materials. The
Duty
Drawback is of two types:

(i) All Industry Rate (AIR) and (ii) Brand Rate.

The All Industry Rate (AIR) is essentially an average rate based on the average quantity and
value of inputs and duties (both Excise & Customs) borne by them and Service Tax suffered by a
particular export product. The All Industry Rates are notified by the Government in the form of a
Drawback Schedule every year and the present Schedule covers 2837 entries. The legal
framework in this regard is provided under Sections 75 and 76 of the Customs Act, 1962 and the
Customs and Central Excise Duties and Service Tax Drawback Rules, 1995.
The Brand Rate of Duty Drawback is allowed in cases where the export product does not have
any AIR of Duty Drawback or the same neutralizes less than 4/5th of the duties paid on materials
used in the manufacture of export goods. This work is handled by the jurisdictional
Commissioners of Customs & Central Excise. Exporters who wish to avail of the Brand Rate of
Duty Drawback need to apply for fixation of the rate for their export goods to the jurisdictional
Central Excise Commissionerate. The Brand Rate of Duty Drawback is granted in terms of Rules
6 and 7 of the Drawback Rules, 1995.
The Duty Drawback facility on export of duty paid imported goods is available in terms of
Sec. 74 (It is discussed in more detail in under mention para) of the Customs Act, 1962. Under
this
scheme part of the Customs duty paid at the time of import is remitted on export of the imported
goods, subject to their identification and adherence to the prescribed procedure.
Background:

All Industry Rate (AIR) of Duty Drawback:

The All Industry Rate (AIR) of Duty Drawback are notified for a large number of export products
every year by the Government after an assessment of average incidence of Customs, Central
Excise duties and Service Tax suffered by the export products. The All Industry Rate (AIR) are
fixed after extensive discussions with all stake holders viz. Export Promotion Councils, Trade
Associations, and individual exporters to solicit relevant data, which includes the data on
procurement prices of inputs, indigenous as well as imported, applicable duty rates, consumption
ratios and FOB values of export products. Corroborating data is also collected from Central
Excise and Customs field formations. This data is analysed and forms the basis for the All
Industry Rate (AIR) of Duty Drawback.
The All Industry Rate (AIR) of Duty Drawback is generally fixed as a percentage of FOB price of
export product. Caps have been imposed in respect of many export products in order to obviate the
possibility of misuse by unscrupulous exporters through over invoicing of the export value.

The scrutiny, sanction and payment of Duty Drawback claims in major Custom Houses is done
through the EDI system. The EDI system facilitates credit/disbursal of Drawback directly to the
exporter’s bank accounts once the EGM has been filed by respective airlines / shipping lines. The
correct filing of EGM is essential for speedy processing and disbursal of Drawback claims.

Notification No. 84/2010-Cus (N.T.), dated 17-9-2010 is relevant for ascertaining the current
All Industry Rate (AIR) of Duty Drawback for various export products.

Brand Rate of Duty Drawback:

Where the export product has not been notified in All Industry Rate (AIR) of Duty Drawback or
where the exporter considers the All Industry Rate (AIR) of Duty Drawback insufficient to fully
neutralize the duties suffered by his export product, he may opt for the Brand Rate of Duty
Drawback. Under this scheme, the exporters are compensated by paying the amount of
Customs, Central Excise duties and Service Tax incidence actually incurred by the export
product. For this
purpose, the exporter has to produce documents/proof about the actual quantity of inputs /
services utilized in the manufacture of export product along with evidence of payment of duties
thereon.
The exporter has to make an application to the Commissioner having jurisdiction over the
manufacturing unit, within 3 months from the date of the ‘Let Export’ order. The application
should include details of materials/components/input services used in the manufacture of goods
and the duties/taxes paid on such materials/ components/input services. The period of 3 months
can be extended upto 12 months subject to conditions and payment of requisite fee as provided in
the Drawback Rules, 1995.
In terms of Rule 6 of the Drawback Rules, 1995 on receipt of the Brand Rate application, the
jurisdictional Commissioner shall verify the details furnished by the exporter and determine the
amount/rate of Drawback. Where exporter desires that he may be granted Drawback
provisionally, the jurisdictional Commissioner may determine the same, provided the exporter
executes a general bond, binding himself to refund the Drawback amount granted to him, if it is
found later that the Duty Drawback was either not admissible to him or a lower amount was
payable. The Brand Rate letter is thereafter issued to the exporter. The Custom House of the
port of export is also given a copy to facilitate payment of Drawback to the exporter.

Imported goods re-exported-Drawback under Sec. 74

In case of goods which were earlier imported on the payment of duty and are later sought to be
exported within a specified period, Customs Duty paid at the time of import of the goods, with
certain cuts, can be claimed as Duty Drawback at the time of export of such goods. Such Duty
Drawback is granted in terms of Sec. 74 of the Customs Act, 1962 read with Re-export of
Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, the identity of
export goods is cross verified with the particulars furnished at the time of import of such goods.
Where the goods are not put into use after import, 98% of Duty Drawback is admissible
under Sec.
74 of the Customs Act, 1962. In cases the goods have been put into use after import, Duty

Drawback is granted on a sliding scale basis depending upon the extent of use of the goods. No
Duty Drawback is available if the goods are exported 18 months after import. Application for
Duty Drawback is required to be made within 3 months from the date of export of goods,
which can be extended upto 12 months subject to conditions and payment of requisite fee as
provided in the Drawback Rules, 1995.
Scope:

In this category, two types of cases are covered viz.,

1. Imported goods exported as such i.e. without putting into use – 98% of duty is refunded and

2. Imported goods exported after use – the percentage of duty is refunded according to the
period between the date of clearance for home consumption and the date when the goods are
placed under Customs control for exports. The percentage of duty drawback is notified under
Notification. No
19 Custom, dated 6th Feb, 1965 as amended from time to time.

Elements necessary for drawback under Sec. 74:-

The elements necessary to claim drawback are;

1. The goods on which drawback is claimed must have been previously imported;

2. Import duty must have been paid on these goods when they were imported;

3. The goods should be entered for export within two years from the date of payment of duty on
their importation (whether provisional or final duty). The period can be further extended to
three years by the Commissioner of Customs on sufficient cause being shown.
4. The goods are identified as the goods imported.

5. The goods must be capable of being identified as imported goods.

6. The goods must actually be re-exported to any place outside India.

7. The market price of such goods must not be less than the amount of drawback claimed.

8. The amount of drawback should not be less than Rs. 50/- as per Sec. 76-(1) (c) of the Customs
Act.

Recent Event:
The Union ministry of finance has notified an increase in the All Industry Rates (AIR) of duty
drawback and higher value caps for many items. The major beneficiaries are exporters of
textiles, vehicles and automobile components. When the All Industry Rate (AIR) for 2013-14
were notified on September 14, 2013, exporters had expressed disappointment over the reduction
in rates for many items, as well as the value caps that limited the drawback amount payable.
Exporters of electronics goods had expressed concern on the sharp decline in drawback rates on
their items. Exporters of engineering goods had reacted strongly and said the reduction would
negate the positive impact of rupee depreciation. The exporters of textiles represented that
averaging the duty incidence of many items at the four-digit levels resulted in anomalies. The
latest increase in drawback rates through the notification dated January 21, 2014, responds partly
to the complaints of exporters of textiles, vehicles and auto components but ignores concerns of
the electronics sector.
Salient features of AIR Duty Drawback of 2013 are as follows:

i) As in previous years, the drawback rates have been determined on the basis of certain broad
average parameters including, prevailing prices of inputs, standard input output norms, share of
imports in input consumption, the applied rates of central excise and customs duties, the
factoring of incidence of service tax paid on taxable services which are used as input services in
the manufacturing or processing of export goods, factoring incidence of duty on HSD/Furnace
Oil, value of export goods, etc.
ii) The residuary All Industry Rate (AIR) of 1% (composite) and 0.3% (customs) is being
provided to hitherto “Nil” rated items under chapters 4, 15, 22, few items in chapter 24
and Casein and its derivatives in chapter 35.
iii) The higher residuary rates are being reduced from 1.5% to 1.3% (customs) or from 2%
to 1.7% (customs), as the case may be.
iv) In the case of most tariff items with ad valorem all industry rates above 2%, the rates are
being supplemented with drawback caps (Drawback Caps means the ceiling of the rate of duty
drawback of a product to that level).
v) Wherever the wordings, “Drawback when CENVAT facility has not been availed” have been
used, it means that the exporter is eligible to claim the components of Customs, Excise and
Service
tax. Wherever the wordings, “Drawback when CENVAT facility has been availed” are used, it
means that the exporter is eligible only for the Customs portion of duty drawback, so as to
curb the exporters from taking double benefit
vi) Wherever the wordings, “Drawback when CENVAT facility has not been availed” have been
used, the exporter shall declare, and if necessary, establish to the satisfaction of Assistant
Commissioner of Customs or Assistant Commissioner of Central Excise as the case may be, that
no CENVAT facility has been availed for any of the inputs or input services used in the
manufacture of the export product and if required provide non-availment of CENVAT
Certificate. Such Certificate is not required for products which are unconditionally exempted
from Central Excise duty like handloom and handicrafts products.
vii) Wherever specific rates have been provided against tariff item in the said Schedule, the
drawback shall be payable only if the amount is one per cent or more of free on board value,
except where the amount of drawback per shipment exceeds five hundred rupees.
viii) The AIR of Duty Drawback is not applicable to export of product manufactured in
Warehouse under Section 65 of Customs Act, 1962, Special Economic Zones, Export
Oriented Units (EOUs) etc.
The new notification introduces 18 new entries at the six-digit levels and seven at the eight-digit
level for textile exporters, for items covered under the four-digit classifications 6002, 6004, 6116
and 6307. About 120 entries at the six-digit level covered under Chapter 87 (vehicles and auto
components) get their customs allocation of drawback raised from 1.7 per cent to two per cent.
About 80 of these entries also see a marginal increase in the value caps; three others see a
marginal drop.
The other changes include a marginal increase in value caps for six entries in the leather sector,
four in paper products and six in textiles. Besides, there are some corrections of obvious errors
in description and value caps. Hopefully, the representations from other sectors will also receive
due attention.
Conclusion:-
The main worry of exporters now is the delay in getting duty drawback. They apprehend that the
government’s efforts to keep the fiscal deficit down will result in blocking the disbursal of their
legitimate dues. Such delays will not only disrupt their cash flow but result in additional costs in
raising finance to fund their operations. The increase in repo rates by the Reserve Bank can make
funds costlier and, to that extent, make them relatively uncompetitive. Their sources of comfort
are prospects of better growth in developed economies and weakening of the rupee against the
dollar.

Answer any four of the following:

Q. No. (a)

Purpose of taxation.

Meaning:

Tax is entirely different from fee. Tax is collected on the personal income, assets, property,
wealth, transactions. Etc. Tax is collected by the central government or by the state government.
The state government collects tax and hands over the same to the central government.

Tax is of two types;

 • Direct tax

• Indirect tax.

Tax is a means of generating revenue to the government. Money collected by way of tax is
used for variou8s developmental projects and other aspects.

Taxation has four main purposes or effects:

Revenue, Re-distribution, Re-pricing, and Representation. The main purpose is revenue:

taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect
government functions like market regulation or legal systems.

• A second is redistribution. Normally, this means transferring wealth from the

richer sections of society to poorer sections.

• A third purpose of taxation is repricing. Taxes are levied to address externalities; for
example, tobacco is taxed to discourage smoking, and a carbon tax discourages use of
carbon-based fuels.

• A fourth, consequential effect of taxation in its historical setting has been representation.
The American revolutionary slogan "no taxation without representation" implied this:
rulers tax citizens, and citizens demand accountability from their rulers as the other part
of this bargain. Studies have shown that direct taxation (such as income taxes)
generates the greatest degree of accountability and better governance, while indirect
taxation tends to have smaller effects.

Therefore, these are the essential features of taxation.

2 HSN
What is HSN Code?

The Harmonized Commodity Description and Coding System generally refers to “Harmonized
System of Nomenclature” or simply “HSN”. It is a multipurpose international product
nomenclature developed by the World Customs Organization (WCO). It first came into effect
in
1988.

How does HSN code work?

It has about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and
logical structure. It is supported by well-defined rules to achieve uniform classification.

Why is HSN important?

The main purpose of HSN is to classify goods from all over the World in a systematic and logical
manner. This brings in a uniform classification of goods and facilitates international trade.

HSN Worldwide

The HSN system is used by more than 200 countries and economies for reasons such as:

• Uniform classification
• Base for their Customs tariffs
• Collection of international trade statistics

Over 98% of the merchandise in international trade is classified in terms of the HSN.

Harmonized System of Nomenclature number for each commodity is accepted by most of the
countries. The HSN number remains same for almost all goods. However, HSN number used
in some of the countries varies little, based on the nature of goods classified.

HSN in India

India is a member of World Customs Organization(WCO) since 1971. It was originally using 6-
digit HSN codes to classify commodities for Customs and Central Excise. Later Customs and
Central Excise added two more digits to make the codes more precise, resulting in an 8 digit
classification.
Understanding the HSN Code

The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224

subheadings.

• Each Section is divided into Chapters. Each Chapter is divided into Headings. Each

Heading is divided into Sub Headings.

• Section and Chapter titles describe broad categories of goods, while headings and
subheadings describe products in detail.

Depriciation allowance

Companies all over the world allow for depreciation on their assets. This is essential, as the
value of the assets tends to diminish over time due to usage. When the company has a
depreciation allowance in place, it is able to ward off the losses it would have incurred when the
asset actually stops functioning. Every year, the company depreciates the asset and then transfers
the money to the depreciation allowance. Each year, money keeps accruing in the account until
the end of the asset's productive life.

Depreciation Allowance Account

Every year, the company reduces the value of the asset as per the depreciation method it chose
at the time the asset was bought. The methods chosen could be "the straight line method," "the
written-down value method," "the sum-of-years method" or "the double-declining method." The
sum reduced from the asset's value is added to the deprecation allowance account. The money
keeps accumulating there until the asset becomes obsolete and can no longer be used.

Purchase of New Asset

The money collected in the account enables the purchase of a new asset when the old one can longer
be used. Each asset of the company has its own depreciation and allowance for depreciation accounts.
The depreciation allowance account is also referred to as the "accumulated depreciation account."
This account contains the sum total of the entire amount that has already been written off on the
asset. The asset's value contained in the company's balance sheet is the price for which the asset was
purchased minus the depreciation allowance until date.
Financial Statements and Depreciation Allowance

The depreciation allowance account usually does not appear on the company's balance sheet.
The value of every asset is shown as its "Net Value." The net value of the asset is the value of
the asset at the beginning of the year from which the depreciation amount for this year has been
deducted. The depreciation allowance account is shown in the company's annual reports and not
on its balance sheet.

Benefits of Depreciation Allowance

By using depreciation allowance, the company at all times is able to project a true picture of its
finances. The assets are neither over-priced nor under-priced owing to the depreciation
allowance. Also, the company is able to enjoy tax benefits due to depreciation allowance. The
government does not charge taxes on the depreciation that companies provide on their assets. The
money saved by the company is either paid to its shareholders as dividends or put back into the
company for further expansion.
4 Tax evasion and tax avoidance
What Is Tax Avoidance?
Definition of Tax Avoidance
An arrangement made to beat the intent of the law by taking unfair advantage of the
shortcomings in the tax rules is known as Tax Avoidance. It refers to finding out new methods
or tools to avoid the payment of taxes which are within the limits of the law.
This can be done by adjusting the accounts in a manner that it will not violate any tax rules as
well as the tax incurrence will also be minimised. Formerly tax avoidance is considered as
lawful, but now it comes to the category of crime in some special cases.
The only purpose of tax avoidance is to postpone or shift or eliminate the tax liability. This can
be done investing in government schemes and offers like the tax credit, tax privileges,
deductions, exemptions, etc., which will result in the reduction in the tax liability without making
any offence or breach of law.
Definition of Tax Evasion

An illegal act, made to escape from paying taxes is known as Tax Evasion. Such illegal
practices can be deliberate concealment of income, manipulation in accounts, disclosure of
unreal expenses for deductions, showing personal expenditure as business expenses,
overstatement of tax credit or exemptions suppression of profits and capital gains, etc. This will
result in the disclosure of income which is not the actual income earned by the entity.
Tax Evasion is a criminal activity for which the assessee is subject to punishment under the law.
It involves acts like:
• Deliberate misrepresentation of material facts.

• Hiding relevant documents.

• Not maintaining complete records of all the transactions.

• Making false statements.

Conclusion

Tax Avoidance and Tax Evasion both are meant to reduce the tax liability ultimately but what
makes the difference is that the former is justified in the eyes of the law as it does not make any
offence or breaks any law. However, it is biased as the honest tax payers are not fools, but they
can also make arrangements for postponing unnecessary tax. If we talk about the latter, it is
completely unjustified because it is a fraudulent activity, because it involves the acts which are
forbidden by the law and hence it is punishable.