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Wednesday, November 06, 2019

Direct Tax - I Solved Papers: Nov' 2015


2015
(November)
COMMERCE (Speciality)
Course: 504
The figures in the margin indicate full marks for the questions
1. (a) Write True or False:             1x4=4
1.       A resident in India cannot become a resident in any other country for the same assessment year.  False
2.       An income under the head ‘Capital Gains’ to a trade union is taxable.                             True
3.       If rent is paid for a house situated in New Delhi, the house rent allowance shall be exempted to the maximum extent of 40% of salary.                False, 50%
4.       The circulars issued by the CBDT are binding on the income-tax authorities.         True
(b) Choose the correct answers to the following:              1x4=4

1.       Income which accrues or arises outside India and also received outside India is taxable in case of
a.       Resident only.
b.      Not ordinarily resident.
c.       Both ordinarily resident and not ordinarily resident.
2.       Rent received from agricultural land is
a.       Fully exempted. Because it is an agricultural income
b.      Partially exempted.
c.       Not exempted.
3.       Leave travel concession is a tax-free perquisite.
a.       For one journey per year.
b.      For one journey in a block of 4 years.
c.       For two journeys in a block of 4 years.
4.       An assessee has borrowed money for purchase of a house, and interest is payable outside India. Such interest shall
a.       Be allowed as deduction.
b.      Not be allowed as deduction.
c.       Be allowed as deduction, if the tax is deducted at source.
2. Write short notes on any four of the following:                             4x4=16
a)      Assessee.
Ans: Assessee [Section 2 (7)]: To mean a person by whom any tax or any other sum of money payable under the Act and include:
i)        Every person in respect of whom any proceeding has been initiated under the act for the assessment of his income or the income of any other person.
ii)       A person who is deemed to be assessee under any provision of the Act.
iii)     A person who is deemed to be an assessee in default in any of the provision of the Act.
Persons Liable to Pay Income Tax :
A. Following persons are liable to pay income-tax if their taxable income’ in a year exceeds the basic exemption limit for the year:
1.       Individuals (including non-residents),
2.       Hindu Undivided Families (HUFs)
3.       Association of Persons (AOPs)/Bodies of Individuals (BOIs) (where the individual shares of the members are known)
4.       Artificial juridical persons, such as, deities of temples
5.       Societies and charitable/religious trusts
B. Following persons are liable to pay income-tax irrespective of their income :
1.       All partnership firms (including limited liability partnership firms)
2.       Co-operative societies
3.       Companies
4.       Local authorities
5.       AOP/BOI where shares of the members are indeterminate or unknown.

b)      Person.
Ans: Person [Section 2(31)]: Person includes seven types of persons namely:
a.       An individual;
b.      An Hindu undivided family (HUF);
c.       A company;
d.      A firm;
e.      An association of persons (AOP) or a body of individuals (BOI);
f.        A local authority;
g.       Every artificial juridical person not falling within any of the preceding sub clauses.
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.
An Association of person or body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person was formed or established or incorporated with object of deriving income, profits and gains.
c)       Concept of Tax.
Ans: Meaning and Definition of Tax
A tax is a fee charged (levied) by a government on a product, income or activity. If tax is levied directly on person or corporate income, it is called direct tax. If tax is levied on the price of a good or service, it is called indirect tax. The purpose of taxation is to finance government expenditure.
According to Hugh Dalton, “A tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the tax payer in return and not imposed as penalty for any legal offences.” In general, tax is a levy or other type of a financial charge or fee imposed by state or central governments on legal entities or individuals. Local authorities like local governments, like panchayats or municipal corporations also have right to impose taxes.
In India, Income tax was introduced for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857. Thereafter; several amendments were made in it from time to time. In 1886, a separate Income tax act was passed. This act remained in force up to, with various amendments from time to time. In 1918, a new income tax was passed and again it was replaced by another new act which was passed in 1922.This Act remained in force up to the assessment year 1961-62 with numerous amendments. The Income Tax Act of 1922 had become very complicated on account of innumerable amendments. The Government of India therefore referred it to the law commission in1956 with a view to simplify and prevent the evasion of tax. The law commission submitted its report-in September 1958, but in the meantime the Government of India had appointed the Direct Taxes Administration Enquiry Committee submitted its report in 1956.In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed.
d)      Charge of Income-Tax.
Ans: Section 4 is the charging section for the Income tax Act, 1961 (the Act). It provides for the charge and collection/ payment of Income Tax India. The important Provisions of this section are:
Ø  Where any Central Act enacts for any Assessment Year that income-tax shall be charged at any rate or rates,
Ø  Income-tax at that rate or rates (including additional tax) shall be charged for that year in accordance with and subject to all the provisions of the Act.
Ø  In respect of the Total Income of the Previous Year of every Person
Ø  However, if by virtue of any provision of the Act, Income Tax India is to be charged in respect of the income of a period other than the previous year, then it shall be charged accordingly.
Ø  The Income-tax chargeable as above shall be deducted at source or paid in advance, if so required under any provision of the Act.

e)      Return of Tax.
Ans: The tax form or forms used to file income taxes with the Internal Revenue Service (IRS). Tax returns often are set up in a worksheet format, where the income figures used to calculate the tax liability are written into the documents themselves. Tax returns must be filed every year for an individual or business that received income during the year, whether through regular income (wages), interest, dividends, capital gains, or other profits. A return of excess taxes paid during a given tax year; this is more accurately known as a "tax refund".
f)       Gross Total Income.
Ans: Section 14: As per section 14, all income, for purposes of income-tax, will be classified under the following heads of income.
(i)      Salaries,
(ii)    Income from House Property,
(iii)   Profits and gains of business or profession
(iv)  Capital gains
(v)    Income from other sources
Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known, as gross total income (GTI) [Sec. 80B]
3. (a) Explain in brief various incomes which are exempted u/s 10 of the Income-tax Act, 1961.  14
Ans: Income Exempted from tax under Sec. 10:
1. Agricultural Income: Income from agriculture is exempt. However, if the net agricultural income exceeds Rs.5,000, it is taken into account for determining the rates of income-tax on incomes liable to tax. [Sec.10 (1)]
2. Receipt from Hindu Undivided Family: Any sum received by an individual as a member of Hindu Undivided Family where such sum has been paid out of the income of the family or in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family, irrespective of whether tax is payable or not by the HUF on its total income. However, certain receipts from HUF are liable to be clubbed in the hands of an individual member u/s 64(2). [Sec.10 (2)]
3. Partner’s Share in the Firm’s Income: In the case of a person being a partner of a firm which is separately assessed as such, partner’s share in the total income of the firm is exempt. Share of a partner of the firm shall be computed by dividing the total income of the firm in the profit sharing ratio mentioned in the Partnership Deed. [Sec.10 (2A)]
4. Value of Leave Travel Concession: Value of any leave travel concession or assistance received by or due from the employer to employee (including noncitizens) and his family (spouse, children and dependent- father, mother, brother, sister dependent on him) in connection with his proceeding on leave or after retirement or termination of his service to any part of India. [Sec.10(5)]
5. Leave Encashment : Any payment received by a Central/State Govt. employee, as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of his retirement whether o superannuation or otherwise. However, in case of other employees the exemption is available subject to specified limits. For details see ‘Receipts Exempt from Income Tax’ in the chapter ‘Salary’. [Sec.10(10AA)]
6. Compensation to Employee: Any compensation received by a workman under Industrial Disputes Act or under any other Act or rules, order or notification issued there under or under any standing order or under any award, contract of service or otherwise at the time of his retrenchment is exempt to the extent such compensation is in accordance with Section 25F (b) of Industrial Disputes Act, subject to a maximum of Rs.5,00,000.
7. Payment from Provident Fund: Any payment (including interest) from a provident fund under Provident Fund Act, 1925 or Public Provident Fund Scheme, 1968. [Sec.10(11)]
8. Payment from Sukanya Samriddhi Account: Any payment from an account under the Sukanya Samriddhi Account Rules, 2014 [Sec.10(11A)]
9. Accumulated Balance of Recognised Provident Fund: Any accumulated balance due and becoming payable to an employee from a recognised provident fund, on fulfillment of any of the following conditions:
(i) If he has rendered a continuous services of five years or more; or
(ii) If his service, though not as stated in (i) above, has been terminated due to his ill-health or by the contraction or discontinuation of his employer’s business or any other cause beyond his control; or
(iii) If on cessation of his employment, his accumulated balance is transferred to recognised provident fund maintained by his new employer;
10. House Rent Allowance: Any special allowance granted to an assessee by the employer to meet expenditure incurred on payment of rent for residential accommodation subject to prescribed limits and conditions. [Sec.10(13A)]
11. Allowances of MPS and MLAs:
(a) Any daily allowance received by Members of Parliament or any State Legislature.
(b) Any allowance received by any Member of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986.
(c) Any constituency allowance received by any member of any State Legislature under any Act or rules made by it. [Sec.10(17)]
12. Income of a Professional Association set up for the control, supervision, regulation or encouragement of the professions of law, medicine, accountancy, engineering, architecture or other notified profession (i.e. Company Secretary, Chemistry, Materials Management and Town Planning), subject to specified conditions. [Sec.10(23A)]
13. Income of a New Agency [i.e. Press Trust of India Ltd.] set up in India, which applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members. [Sec.10(22B)]
14. Income of a Minor Child liable to be included in income of his parent u/s 64(1A) is a exempt up to a maximum of Rs.1,500 per minor child. [Sec.10(32)]
15. Any Capital gain arising to an individual /HUF on compulsory acquisition of an agricultural and in urban areas (i.e. situated within the jurisdiction of a municipality or a cantonment board having population of 10,000 or more or within specified distance from the local limits of such municipality/board), provided the compensation/consideration is received on or after 1.4.2004 and the land was being used for agricultural purposes by the HUF/individual or his parent(s), during the period of two years immediately before acquisition. [Sec.10(37)]
Or
(b) Write an explanatory note on ‘Tax Holiday’ for newly established units in SEZ.        14
Ans: Out of Syllabus
4. (a) From the following information, compute the taxable income for the assessment year 2014 – 15 under the head ‘Salaries’ of Shri Krishna who is working at Guwahati:                                      14
(i) Basis salary – Rs. 20,000 p.m.
(ii) Dearness allowance – Rs. 6,000 p.m.
(iii) He gets house rent allowance @ 3,000 p.m. He pays a rent of Rs. 4,000 p.m.
(iv) The employer provided him the facility of a gardener and a cook, each of whom is being paid a salary of Rs. 600 p.m.
(v) He is provided with a motor car of 1.8 ltr. capacity engine with a driver which was used partly for official purpose and partly for private.
(vi) Employer’s contribution to a recognized provident fund is @ 15% of salary and interest credited to this fund @ 13% amounted to Rs. 13,000.
(vii) Medical expenses paid by employer is Rs. 20,000 for medical treatment in a private hospital.
(viii) He took an advance salary for two months.
(ix) A lunch allowance @ Rs. 100 per day was given for 300 days during the previous year.
(x) He paid professional tax of Rs. 3,500 per annum.
Ans: Computation of salary of Mr. X for the Assessment Year (2018-2019)
Particulars
Amount
Amount
a) Basic Salary
b) Dearness Allowance
c) Lunch Allowance (300*100)
d) Advance salary
e) House Rent Allowance
Less: Exempted upto minimum of the following three points:
a) Actual HRA
b) 40% of Salaries (Salaries = 2,40,000)
c) Rent paid in excess of 10% of salaries (48,000-24,000)
f) Employer’s Contribution to RPF
Less: Exempted  upto 12% of salary [2,40,000*12%]
g) Interest on RPF
Less: Exempted upto 9.5% (13,000*9.5/13)
h) Salary of gardener (600*12)
i) Salary of cook (600*12)
j) Value of car (2,400*12)
Add: Driver’s salary (900*12)
k) Reimbursement of medical expenses
Less: Exempted of Rs. 15,000 (Now Scrapped/Not applicable)




36,000

36,000
96,000
24,000   24,000
36,000
28,800
13,000
9,500


28,800
10,800


2,40,000
72,000
30,000
40,000




12,000

7,200

3,500
7,200
7,200

39,600
20,000
Gross Salary
Less: Deduction U/S 16
(ia) Standard Deduction
(iii) Professional Tax


40,000
3,500
4,78,700


43,500
Income from Salary

4,35,200

Or
(b) Name the different kinds of provident fund, of which a salaried person may be a member, and state the income-tax provisions regarding each.                           7+7=14
Ans: A Provident fund is a compulsory retirement saving schemes for the government as well as non-government employees in which contribution is made both by the employer and the employees. It is a saving tool for the employees. This scheme is managed by under the Employee’s Provident Funds and Miscellaneous Provision Act, 1952. Under this scheme, employee has to pay a certain percentage from his salary and an equal amount is contributed by the employer. The employee gets a lump sum amount with interest at the time of his retirement.
Types of Provident Fund
At present there are 4 types of provident funds:
a)      Statutory Provident Fund (SPF): This Fund is mainly meant for Government/University/Educational Institutes (affiliated to university) employees.
b)      Recognized Provident Fund (RPF): This scheme is applicable to an organization which employs 20 or more employees. An organization can also voluntarily opt for this scheme. All RPF schemes must be approved by The Commissioner of Income Tax. Here the company can either opt for government approved scheme or the employer and employees can together start a PF scheme by forming a Trust. The Trust so created shall invest funds in specified manner. The income of the trust shall also be exempt from income taxes.
c)       Unrecognized Provident Fund (URPF): Such schemes are those that are started by employer and employees in an establishment, but are not approved by The Commissioner of Income Tax. Since they are not recognized, URPF schemes have a different tax treatment as compared to RPFs.
d)      Public Provident Fund (PPF): This is a scheme under Public Provident Fund Act 1968. In this scheme even self-employed persons can make a contribution. The minimum contribution is Rs.500 per annum and the maximum contribution is Rs.1, 00,000 per annum. The contribution made along with interest earned is repayable after 15 years, unless extended.
Taxability of Provident Funds
Particulars
SPF
RPF
URPF
PPF
1. Employee's/ assessee's contribution
Deduction u/s 80C is available from gross total income subject to the limit specified therein
Deduction u/s 80C is available from gross total income subject to the limit specified therein
No deduction u/s 80C is available
Deduction u/s 80C is available from gross total income subject to the limit specified therein
2.Employer's contribution
Fully exempt from tax
Exempt up to 12% of salary. Amount in excess of 12% is included in gross salary.
Not exempt but also not taxable every year. For taxability see point 4 below
Not applicable as there is only assessee's own contribution
3. Interest on Provident Fund
Fully exempt from tax
Exempt u/s 10 up to 9.5% p.a. Interest credited in excess of 9.5% p.a. is included in gross salary
Not exempt but also not taxable every year. For taxability see point 4 below
Fully exempt
4.Repayment of lump sum amount on retirement / resignation /termination
Fully exempt u/s 10(11)
Exempt if the employee has rendered minimum 5 years of continuous service
Accumulated employee's contribution is not taxable Accumulated employer's contribution + interest on employer's contribution (till date) is taxable as profit in lieu of salary. Interest on employees contribution (till date) is taxable as income from other sources
Fully exempt. u/s 10(11)
Transferred Balance of Provident Fund: The balance of unrecognised fund which is transferred to recognised fund is called transferred balance.
Points to remember:
Ø  The fund will be treated as RPF from the date fund was instituted
Ø  The employer’s contribution to URPF shall qualify for exemption upto 12% of salary and excess shall be taxable.
Ø  Interest upto 9.5% is exempted, excess taxable
Ø  Salary means: basic + DP + DA (Which enters) + Commission on turnover

5. (a) Define annual value. How is it determined? What deductions are allowed from annual value in computing taxable income from house property?                   4+4+6=14
Ans: Ans: Annual Value (Section 23)
The Annual Value of a house property is the inherent capacity of the property to earn income and  it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out.
Computation of annual value: Computation of Annual Value for the determination of Income from House property requires three steps.
Ø  STEP 1 Determine the Gross Annual Value(GAV)
Ø  STEP 2 Determine the value of Municipal taxes
Ø  STEP 3 Compute the Net Annual Value
STEP 1- Determine the Gross Annual Value (GAV):
Calculation of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar to the house property the GAV of which is to be determined) in the same locality would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration as determined by the Municipal authorities for the purpose of levying Municipal taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is higher, subject to the Standard rent.
5) Unrealised rent: The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in the actual amount of rent receivable from the house property if all the following for conditions are satisfied:
a) Tenancy is in good-faith.
b) The defaulting tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting tenant doesn't continue to occupy any other property of the assessee.
d) Assessee has taken all the reasonable steps to proceed against the defaulting tenant legally or he must satisfy the assessing officer that if such steps are taken, it will be of no use. 
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference between the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of his employment, business or profession being in some other place and he resides at that place in a property not owned by him.
It should be noted that the procedure for determination of Gross Annual Value is not same in all the cases. It varies according to the given situation. Various situations and the respective procedures for computation of GAV are given below:
1) Property is let out throughout the previous year (Section 23(1) (a)/ (b)): GAV = ERV or ARR, whichever is higher.
2) Let out property is vacant for a part of the year (Section 23(1) (c)):  If the ARR < ERV only because the property was vacant for a part of the year, GAV = ERV.  If the ARR < ERV for any other reason, GAV = ERV.  If the ARR > ERV even though it was vacant for a part of the year, GAV = ARR. In all the cases, ARR is computed for the let out period only and the ERV is for whole year as usual.
3) Self-occupied or Unoccupied property (Section 23(2)): GAV = Nil 
4) Let out for a part of the year and self-occupied for a part of the year (Section 23(3)):  GAV = Higher of ERV (calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)):  This case arises when the assessee has more than two Self-occupied properties in a previous year. In such case, only two of such properties is treated as self-occupied and the remaining shall be treated as Deemed to be let out properties. Here, GAV = ERV.
6) A portion of the property is let out and the remaining portion is self-occupied:  GAV is calculated separately for self-occupied part and the let out part. The values of FR, MV, SR and Municipal taxes are apportioned on the given basis.
Thus, there is a scope for charging tax on Notional rent too. This happens when the GAV determined according to the above steps is the ERV.
Now that the Gross Annual Value of the house property is determined, the next step is to determine the value of Municipal taxes paid that is deductible from the Gross Annual Value.
STEP 2 - Determine the value of Municipal taxes:
The municipal tax or the property tax paid is allowed as deduction from the Gross Annual Value if the following two conditions are satisfied.
(a)    The property is let out during the whole or any part of the previous year,
(b)   The Municipal taxes must be borne by the landlord. If the Municipal taxes or any part thereof are borne by the tenant, it will not be allowed.
(c)    The Municipal taxes must be paid during the year. Where the municipal taxes become due but have not been actually paid, it will not be allowed.
STEP 3 - Compute the Net Annual Value:
Gross Annual Value                                        ++++++
Less: Municipal Taxes                                     ++++++
Net Annual Value                                            ++++++
Deductions allowable under section 24 of the income tax act
Following two deductions will be allowable from the net annual value to arrive at the taxable income under the head ‘income from house property’:-
(a)    Statutory deduction: 30 per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred.
(b)   Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. It is immaterial whether the interest has actually been paid during the year or not. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction.
Limit of deduction u/s 24(b)
A. In case of Let out/ deemed to be let out house property: Interest on Money borrowed is allowed as deduction without any limit. Here interest on money borrowed = interest of P/Y + 1/5 of Pre-construction period (PCP) interest. PCP started from the date of borrowing and ended on 31st mar immediately preceding (Before) the year of completion.
B. In Case of Self Occupied House Property:  Max. Rs. 2,00,000 is allowed as deduction if the following conditions are satisfied:
Ø  Loan taken after 1 – 4 – 99
Ø  For construction/purchase (Capital expenditure) of house
Ø  Construction completed within 5 years from the end of financial year in which loan is borrowed.
Ø  Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000
Or
(b) Sri Ram has two house properties situated in Kolkata. House 1 is self-occupied from the first 6 months, i.e., from 01-04-2013 to 30-09-2013 and w.e.f. 01-10-2013 it is let out for Rs. 25,000 per month. House II is let out w.e.f 01-04-2013 at a rent of Rs. 20,000 p.m. and w.e.f 01-10-2013 it was self-occupied as Sri Ram shifted his residence from House I to House II. The other details of the above two house properties are as follows:
House – II (Rs.)
House – II (Rs.)
Municipal tax paid
Insurance premium paid
Interest on money borrowed for purchase of house property
35,000
5,000
45,000
30,000
6,000
50,000
Compute the income from house property of Sri Ram for the assessment year 2014 – 15.                                    14
Ans: Computation of Income from house property of Mr. Ram for the assessment year 2014-15 (Previous Year 2013-14)
Particulars
House – A
House – B
1. Expected Rental Value
2. Actual Rent received or receivable (6 MONTHS)
3. Gross Annual Value (higher of 1 OR 2)
7. Less: Municipal taxes paid
3,00,000
1,50,000
3,00,000
35,000
2,40,000
1,20,000
2,40,000
30,000
8. Net Annual value (6-7)
Less: Deduction under section. 24
(a) Standard Deduction @ 30%
(b) Interest on money borrowed
2,65,000

79,500
45,000
2,10,000

63,000
50,000
Income/ (Loss from house property)
1,40,500
97,000
Note:
1. In the given question both the properties are partly let out and partly self occupied. No benefit is allowed for partly let-out and partly self occupied house property.
2. In this question ERV is the 12 months rent of the house which both house property can generate.

6. (a) Write short notes on the following:                              5+5+4=14
1.       Central Board of Direct Taxes.
2.       Commissioner of Income Tax.
3.       Deputy Commissioner of Income Tax.
Ans: 1. Central Board of Direct Taxes: The Central Board of Direct Taxes (CBDT) is the highest executive authority. It is sub­ject to the overall control of the Central Government. It is authorized to discharge all those functions prescribed in the Act and those which are entrusted to it by the Central Government. The Central Board of Direct Taxes consists of a Chairman and following six Members:
a)      Chairman
b)      Member (Income-tax)
c)       Member (Legislation & Computerisation)
d)      Member (Personnel & Vigilance)
e)      Member (Investigation)
f)       Member (Revenue)
g)      Member (Audit & Judicial)
Powers of the Board:
Powers of Central Board of Direct Taxes:
Income tax department are totally operated under the control of central board of direct taxes (CBDT). It performs the function of administration, supervision and control of entire income-tax structure in our country. The Income tax Act provides the following specific power to the CBDT:
(a)    It can declare any association whether incorporated or not and whether Indian or Non-Indian, as company.
(b)   The CBDT has the powers to determine the jurisdiction of various authorities mentioned in this Act.
(c)    The CBDT after considering territorial area, person or classes of person, incomes or classes of incomes, may issue directions to exercise the powers by any or all of these authorities.
(d)   The CBDT by general or specific order may authorise director or director general to perform the functions of any of the income tax authorities.
2. Commissioner of Income Tax: The Central Government may appoint such persons as it thinks fit to be the Commissioners of Income-tax. The jurisdiction of Commissioners is to be determined by the Central Board of Direct Taxes keeping in view the area, person, income or cases. The Board may, be general or specific order and subject to such conditions, restrictions or limitations, authorize any commissioner to perform such functions of any other income tax authority as may be assigned to him in such order.
Powers:
a)      Under the directions of the Board, a Commissioner may exercise the powers of an Assessing Officer.
b)      A Commissioner has the power to transfer any case from one or more Assessing Officers subordinate to him to any other Assessing Officer or Officers also subordinate to him. He can do so only after giving the assessee an opportunity of being heard and after recording the reasons for doing so.
c)       The Commissioner has been empowered to grant approval for an order issued by the Assessing Officer asking a non-company assessee to get its accounts audited from a Chartered Accountant.
d)      The prior approval of the Commissioner is required for reopening of an assessment beyond the time limit of 4 years.
e)      The Commissioner has the power to revise an order passed by Assessing Officer, if in his opinion it is erroneous or prejudicial to the interests of the revenue. He can do so only after giving the assessee an opportunity of being heard.
ASSESSING OFFICER (DEPUTY COMMISSIONER / ASSISTANT COMMISSIONER / INCOME-TAX OFFICER ) AND THEIR POWERS
"Assessing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;
Importance of Assessing Officer: The Assessing Officer is the most important authority in the organisation structure of Income-tax department. He is the primary authority to initiate assessment proceedings and make assessment. He is the only authority to collect tax. The jurisdiction of income-tax authorities shall be determined by the Central Board of Direct taxes after considering the Territorial area, Persons or classes of persons, Incomes or classes of incomes and Cases or classes of cases. The Assessing Officer shall perform his functions in respect of such area or such classes of persons or incomes as the above mentioned authorities may instruct. The Assessing Officer shall have jurisdiction within the area assigned to him and in respect of any person who is carrying of business or profession in his area.
If two or more persons are appointed as Assessing Officers in same area, each one will perform such functions as are directed by the Commissioner. If there is dispute regarding the jurisdiction of an Assessing Officer, it will be decided by the Director / Chief Commissioner or Commissioner of Income-tax.
Or
(b) What are the authorities provided by the Income-tax Act for the administration of tax? Discuss briefly the powers of an Income-tax officer.                         4+10=14
Ans: Income Tax Authorities
Section 116 of the Income Tax Act, 1961 provides for the administrative and judicial authorities for administration of this Act. The Direct Tax Laws Act, 1987 has brought far-reaching changes in the organizational structure. The implementation of the Act lies in the hands of these authorities. The change in designation of certain authorities and creation of certain new posts in the structure are the main features of amendments made by The Direct Tax Laws Act, 1987. These authorities have been grouped into three main wings:
(i)  Administrative [Income Tax Authorities] [Sec. 116]
(a)    the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963),
(b)   Directors-General of Income-tax or Chief Commissioners of Income-tax,
(c)    Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals),
(d)   Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals),
(e)   Joint Directors of Income-tax or Joint Commissioners of Income-tax.
(f)     Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),
(g)    Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
(h)   Income-tax Officers,
(i)      Tax Recovery Officers,
(j)     Inspectors of Income-tax.
(ii) Judicial: Judicial section of income tax authorities includes the following:
(a) Commissioner of Income tax (Appeals)
(b) Appellate Tribunal
(c) High Court
(d) Supreme court
(iii) Assessing Officer [Sec. 2(7A)]
"Assessing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;
ASSESSING OFFICER (DEPUTY COMMISSIONER / ASSISTANT COMMISSIONER / INCOME-TAX OFFICER ) AND THEIR POWERS
"Assessing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;
Importance of Assessing Officer: The Assessing Officer is the most important authority in the organisation structure of Income-tax department. He is the primary authority to initiate assessment proceedings and make assessment. He is the only authority to collect tax. The jurisdiction of income-tax authorities shall be determined by the Central Board of Direct taxes after considering the Territorial area, Persons or classes of persons, Incomes or classes of incomes and Cases or classes of cases. The Assessing Officer shall perform his functions in respect of such area or such classes of persons or incomes as the above mentioned authorities may instruct. The Assessing Officer shall have jurisdiction within the area assigned to him and in respect of any person who is carrying of business or profession in his area.
If two or more persons are appointed as Assessing Officers in same area, each one will perform such functions as are directed by the Commissioner. If there is dispute regarding the jurisdiction of an Assessing Officer, it will be decided by the Director / Chief Commissioner or Commissioner of Income-tax.
Powers of assessing officers and others as named above: The Assessing Office shall exercise the following powers:
1.       Powers of Civil Court. These authorities shall have the same powers, as are vested in a court under the Code of Civil Procedure 1908, when trying a suit in respect of the following matters:
1)      Discovery and Inspection;
2)      Enforcing the attendance of any person including any officer of a banking company and examining him under oath;
3)      Compelling a person to produce books of accounts and other documents; and
4)      Issuing commissions.
2.       Powers of Search and Seizure of assets and books of accounts. These authorities shall have the power of searching any building, place vessel, vehicle or aircraft and seize books of accounts, other documents, money, bullion, jewellery or other valuable articles or things. Identification marks shall be put on the seized assets. The assets so seized shall be retained by the Assessing Officer in his authority to recover the existing and estimated tax liability of the assessee. The books of accounts or the other documents seized shall not be retained by the authorities for a period exceeding 180 days from the date of seizure.
3.       Power of Assessment. As Assessing Officer or any other authority acting as Assessing Officer shall have following powers while performing his functions:
1)      Power regarding self-assessment.
2)      Power of making regular assessment and Best judgement assessment.
3)      Power to reopen an assessment.
4)      Power to reopen an assessment in case income has escaped assessment.
5)      Power to treat a person as an agent.
6)      Power to assess a person leaving India and trying to alienate his assets.
4.       Power to call for information. These authorities has the power to:
(a) can call any firm to provide him with a return of the addresses and names of partners of the firm and their shares;
(b) can ask any Hindu Undivided Family to provide him with return of the addresses and names of members of the family and the manager;
(c) can ask any person who is a trustee, guardian or an agent to deliver him with return of the names of persons for or of whom he is an agent, trustee or guardian and their addresses;
(d)  can ask an assessee to furnish a statement of names and addresses of all the persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage etc. amounting to more than Rs. 1,000 or such higher amount as may be prescribed together with particulars of all such payments.
5. Power of Survey. An Income-tax authority may enter any place where business or profession is carried on, if such place is within the limits of the area assigned to him or is occupied by any person is respect of whom the Assessing Officer exercises jurisdiction. The objectives of conducting Income Tax surveys are:
 To discover new assessees;
 To collect useful information for the purpose of assessment;
 To verify that the assessee who claims not to maintain any books of accounts is in-fact maintaining the books;
 To check whether the books are maintained, reflect the correct state of affairs.
6. Power to Inspect Registers of Companies: The above-mentioned authority, may inspect, if necessary, take copies or causes copies to be taken of any register of members, debenture holders, mortgagees of company or of any entry in such register.
7. Collection of Information: For the purpose of collection of information which may be useful for any purpose, the Income tax authority can enter any building or place within the limits of the area assigned to such authority, or any place or building occupied by any person in respect of whom he exercises jurisdiction.

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