BASIC CONCEPTS AND DEFINATIONS

1.The Income-tax Act, 1961 came into force with effect from 1/4/1962. It has XXIII chapters and 298 sections in all.
2. India: Section 2(25A) India means the territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other maritime Zones Act, 1976 and the air space above its territory and territorial waters.
3. Person: Section 2(31) includes seven types of persons namely an individual, a Hindu undivided family (HUF), A company, A firm, An association of persons (AOP) or a body of individuals (BOI), A local authority, Every artificial juridical person not falling within any of the preceding sub clauses.

4. The 2 basic differences between AOP and BOI are:

a) In BOI there are only individuals but in AOP there can be any type of persons.

b) BOI is creation of law whereas AOP can be created by different persons coming together for doing some income producing activity on the voluntary basis.

5.Assessee: Section 2(7) means any person by whom tax, interest or penalty is payable under any provision of this act and includes:
1.deemed assessee
2.assessee in default
3.Person against whom any income tax proceedings have been started for the assessment of his income or loss or the income of some other person or the loss for whom he is liable.
6.Assessment year: Section 2(9) means the period of 12 months starting from 1st April every year and ending on 31st march of the succeeding year.
7. Previous year: Section 2(34) means the year immediately preceeding to assessment year. Income for the previous year is always taxed in the assessment year. The following are the exceptions to the general rule that income of every previous year is chargeable to tax in the relevant assessment year.

Section 172: Shipping business of a non-resident;

Section 174: Person leaving India;

Section 174A: An AOP formed for the purpose of a particular event.

Section 175: Persons likely to transfer property to avoid tax;

Section 176: Discontinued business or profession

8.Income includes the gifts received in excess of Rs.50000. If anyone has received gift in cash exceeding Rs.50000 from a non-relative then whole of such amount received shall be considered his income.
9. However gifts received from relatives shall not be covered in the said 8) point above.
10. Section 14: Gross total income is the aggregate of income from all five heads of Income, namely

Income under the head salary

Income under the head house property

Income under the head business and profession

Income under the head capital gains

Income under the head other sources

11. Section 14A: while computing total income no deduction shall be allowed for that expenditure which has been incurred to earn exempted income.
12. Section 2(45): Total income is income after reducing the deduction under chapter VI-A from the gross total income. This income is also called taxable income on which tax has to be imposed.
13. Section 288A: The total income shall be rounded off in the multiples of Rs. 10.
14.APPLICATION OF INCOME V/S DIVERSION OF INCOME: Application of income means spending the money after it has been earned by the assessee. Such an amount is always included while computing taxable income in the hands of assessee. In other words once an income has been earned it could not be excluded on the grounds that it has been applied for some purpose. On the other hand diversion of income is the process of diverting the income before it is earned by the assessee.


FOR EXAMPLE: J Ltd sells a unit of a product at Rs.100 with very clear message to customer that out of Rs.100 Rs.5 will go to the charitable institution. Now only Rs.95 shall be regarded as the income in the hands of company and Rs.5 will be known as diversion of income.


FOR EXAMPLE: Mr. J inherited property from his father but subject to the right of residence in favour of mother of Mr. J. This means that Mr. J has the right over the ownership of the property but mother has right over residence in the house. If the house is to be sold then for the effective sale of house both should transfer their rights in house. From the total sales consideration Mr. J can not be held liable for the tax on that portion which represents the right of his mother.


15.REVENUE VS CAPITAL: Any receipt of money can either be categorized as revenue or capital. Revenue receipts are always fully taxable unless specific exemption has been provided for that. Capital receipts are never taxable. That’s why amount received from insurance company at the time of maturity is not taxed u/s 10(10D). Similarly loan taken is also not taxed. However, some of the capital receipts are taxable since they have been specifically provided in the definition of Income such as tax on Capital gains on sale of Capital asset.