The Charge of Income Tax

Introduction:

Though income tax as a concept was already existent in India, it was James Wilson who foremostly introduced the Income Tax Act, 1860. Income tax signifies a tax that is paid to the government based on the income obtained or in the case of companies the profits accrued. This tax amount received by the government is used to perform welfare functions such as developing infrastructure, advancing the defensive prowess and public services as well as spent on subsidies. Beyond a certain limit (of income earned), the payment of tax each year becomes imperative.

Persons required to pay Income Tax

The following persons or bodies are necessarily required to pay income tax:

i. Individuals

ii. Hindu Undivided Family (HUF)

iii. Body of Individuals (BOI)

iv. Association of persons (AOP)

v. Corporate firms

vi. Companies

vii. Local Authorities

viii. Artificial Juridical Persons

The Various types of Taxable Income

Under the Income Tax Act, 1961(ITA,1961) the following are the kinds of income which are subject to taxation:

i. Income from Salary

ii. Income from Business

iii. Income from Capital Gains

iv. Income from House Property

v. Income from other sources for instance lottery.

Charge of Income Tax

Tax cannot be imposed and solicited except through the authority of law as stated u/a 265 of the Indian Constitution. Therefore, it follows that without specifically authorized by legislation, tax cannot be imposed or solicited in India. This led to the ratification of the Income Tax Act,1961 (ITA,1961).

U/s 2(24) of the act a comprehensive definition of the term ‘income’ has been laid down. In order to determine whether a receipt of money is taxable, it is pertinent to ascertain whether it amounts to income under the ITA, 1961.

Chapter II of the ITA, 1961 deals with the basis of charge, it encompasses several sections (from section 4 – section 9A).

S.4 of the Act elucidates how income tax must be charged. U/s 4, In the assessment year income tax is charged at rates which are enumerated in the Finance Act applicable on 1^st April of the particular assessment year. The total income of each person of the previous year is the basis on which it is charged. In accordance with the provisions of the act, the total income must be determined. If required by the provisions of the Act, income tax must be deducted at the source or paid priorly.

Some important definitions which aid in understanding the aforementioned section are:

i. Assessment Year: U/s 2(9) of the act constitutes the term of twelve months which begins on the 1^st of April each year. In this year the income that has been earned is charged.

ii. Previous Year: U/s 3 of the act refers to the year in which the income was earned.

iii. Gross Total Income (GTI): The five types of taxable income (salary, business, house property, capital gains, and income from other sources) when added forms the gross total income.

iv. Total Income (TI): On subtracting deductions (S.80C-80U) from the GTI what is obtained is the total income.

The Tax Rates

As aforementioned, the income tax is charged on the income obtained each year. New tax rates had been presented which would come into force from the year 2020-2021 by the Budget 2020 put forth by the Finance Minister of the government.

These new tax slab rates for individuals (other than senior citizens as well as super senior citizens) are as follows:

Net Income Range	Income Tax Rates (For assessment year 2020-2021)
Up to Rs.2.5 Lakhs	Exempt
Between Rs. 2.5 Lakhs and 5 Lakhs	5%
Between Rs. 5 Lakhs and 10 Lakhs	20 %
Above Rs. 10 Lakhs	30%

The tax rates for senior citizens (who at any time during the previous year are 60 years of age or more) are:

Net Income Range	Income Tax Rates (For assessment year 2020-2021)
Up to Rs.3 Lakhs	Exempt
Between Rs. 3 Lakhs and Rs.5 Lakhs	5%
Between Rs. 5 Lakhs and Rs.10 Lakhs	20%
Above Rs. 10 Lakhs	30%

The tax rates for super – senior citizens (who at any time during the previous year are 80 years of age or more) are:

Net Income Range	Income Tax Rates (For assessment year 2020-2021)
Up to Rs. 5 Lakhs	Exempt
Between Rs. 5 Lakhs to Rs. 10 Lakhs	20%
Above Rs. 10 Lakhs	30%

The tax rates for HUF (as well as AOP, BOI, Artificial Juridical Person):

Net Income Range	Income Tax Rates (For assessment year 2020-2021)
Up to Rs. 2.5 Lakhs	Exempt
Between Rs. 2.5 Lakhs and 5 Lakhs	5%
Between 5 Lakhs and 10 Lakhs	20%
Above Rs. 10lakhs	30%

Tax-payers have been allowed to choose between the old tax regime and the new one from the Financial year of 2020-2021. The tax slabs have been altered and tax rates have been lessened by the new tax regime. Additionally, many of the deductions and exemptions which had been available under the old regime have now been removed by the new one. The taxpayers have the option to choose between the old and new tax regime by doing a comparison of the both in order to ascertain which one would be more advantageous to them. Taxpayers could claim all the then existing deductions when they were governed by the old regime in the financial year 2019-2020

Case Laws

Justice K.S. Puttuswamy (RETD.) v. Union of India and Others[1]

In this case,  the validity of S.139 AA(which required the linking of the adhaar number with PAN and required this number to be stated in the Income-tax return) of the Income Tax Act,1961 was challenged since it was contended that it was violative of the right to privacy available u/a 21. It was opined by the Supreme Court that although the right to privacy is a fundamental right u/a 21, it has limitations and cannot be made applicable absolutely. It also was of the view that this section satisfied the triple test which was devised wherein, privacy could be violated and hence this section was held to be valid.

Shri Gyanchand M. Bardia, Ahmedabad v. The Income Tax Officer Ward-122[2]

In this case, it was contended by the assessee that some amount that was obtained as a gift by the HUF must be exempted from being taxed u/s 56 (2)(vii). However, the assessing officer rejected that contention on the ground that HUF as a donor is not a part of the definition of relative u/s 56(2)(vii) and thereafter, the gift amount was added to the income of the assessee u/s 68. A subsequent appeal was made to the Income Tax Appellate Tribunal (ITAT) which upheld the decision of the assessing officer.

Godaddy.com LLC v. Assistant Commissioner of Income Tax (ACIT)[3]

In this case, an income of the assessee from domain registration was contended not to be taxable in India. This, however, was assessed as a royalty by the assessing officer. The Dispute Resolution Panel in turn confirmed it. The ITAT opined in favor of the AICT since providing services for domain registration was equal to providing services in relation to intangible property which was identical to a trademark and thus the domain registration fees were royalty u/s 9(1)(vi)’s explanation 2. Hence, it dismissed the appeal of the assessee.

Jay Engineering Works Ltd. v. Commissioner of Income Tax (CIT)[4]

In this case, a sum of Rupees 1,16,240 of unclaimed balances had been written by the assessee in his accounts. This amount was put back in the income of the assessee by the assessing officer. It was contended on the behalf of the assessee that writing off of a liability unilaterally would not be regarded as the assessee’s income. The court however did not agree with this contention and regarded it as income by stating that this question has been previously settled in the case of Commissioner of Income Tax, Madurai v. T.V. Sundaram Iyengar[5].

Conclusion

Income Tax has been existent in India as a concept but it was only in 1860 that the Income Tax Act was introduced by James Wilson. The various kinds of taxable income are income from salary, business, capital gains, house property, income from other sources for example lottery. Income tax is charged in the assessment year in accordance with the rates mentioned in the Finance Act on the income obtained in the previous year. It can be deducted at source or paid priorly if the provisions of the act require it. The tax rates had been reduced by the Budget 2020 for various income slabs. Lessening the tax liability on a large portion of the Indian population and at the same time advocating among persons earning income the importance of payment of income tax was the purpose behind the same.

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References:

[1] Justice K.S. Puttuswamy (RETD.) v. Union of India and others, on 24^th Aug., 2017 (India).

[2] Shri Gyanchand M. Bardia, Ahmedabad v. The Income Tax Officer Ward-122, on 21^st Feb., 2018 (India).

[3] Godaddy.com LLC v. Assistant Commissioner of Income Tax, on 3^rd Apr., 2018 (India).

[4] Jay Engineering Works Ltd. v. Commissioner of Income Tax (CIT), (2007) 212 C.T.R Del. 562 (India).

[5] Commissioner of Income Tax, Madurai v. T.V. Sundaram Iyengar, [1996] 222 I.T.R 344 (India).

Other Sources:

1. Introduction to Income Tax Act, AEGON Life (29^th Oct.,2020, 8 PM), https://www.google.com/amp/s/www.aegonlife.com/insurance-investment-knowledge/income-tax-act-1961/amp/.

2. Income Tax in India – Tax Guide, Types & ITR Filing, Paise Bazzar.com (30^th Oct.,2020,3 PM), https://www.google.com/amp/s/www.paisabazaar.com/tax/income-tax/amp/.

3. Income Tax Act,1961, Income Tax Department, Government of India (30^th Oct.,2020, 6 PM), https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx.

4. Tax Rates, Income Tax Department, Government of India (30^th Oct.,2020, 8 PM), https://www.incometaxindia.gov.in/_layouts/15/dit/mobile/viewer.aspx?path=https://www.incometaxindia.gov.in/charts++tables/tax+rates.htm&k&IsDlg=0.

5. D Y Chandrachud, Justice K.S. Puttuswamy (RETD.) v. Union of India and Others on 24^th August, 2017, Indian Kanoon (31^st Oct.,2020, 7:15 PM), https://indiankanoon.org/doc/91938676/.

6. Shri Gyanchand M. Bardia, Ahmedabad v. The Income Tax Officer Ward-122, on 21^st February, 2018, Indian Kanoon (31^st Oct.,2020,8 PM), https://indiankanoon.org/doc/59654243/.

7. Godaddy.com LLC v. Assistant Commissioner of Income Tax, on 3^rd Apr., 2018, Indian Kanoon (31^st Oct.,2020,8:20 PM), https://indiankanoon.org/doc/172029235/.

8. Jay Engineering Works Ltd. v. Commissioner of Income Tax, CASE MINE (30^th Oct.,2020, 9:40 PM), https://www.casemine.com/judgement/in/56090c4ce4b0149711176d27.