CONTENTS

p,efate
._,.Juction
JnfTII"'

CJt4FfER 1
. .•••···•··•······•···•·•·· .............................................. .1
Bast·c.Concepts ·············.......... ,..........................

CsAJ'TER 2
Residential Status and Chargeability ................................................................................89

CJJAPTER 3
Heads of Income ........................................... ····· ...............................................................165

CHAPTER4
Residual Income and Procedure for Assessment ................ ~ ........................... ~ ................216

ANNEXURES
\

ITR-1 Sahaj ······~················ .. ··~··· ..........·............................................................................ 244 ·

IlR-2 ................................................ ~ ............................................... ~ ........... ~ ... ~ ....... ~ ......... 245
IlR-4 Sugam ····~····~············· .. ·········.············· . ········· .................. .-. .....................................266
 Case Study Manual Se
ri ts • IncomC' Tax L.tw /
I
CHAPTER 1 I
I
\
B A S IC C O N C E P \
TS
'
i

. the jn tr 0d uc to ry un
,....1,-.ap te-r 1 15 th e co nc t it for th is co ur se on
ep f 't
tax law . Th e U ni t hl 'g
' · H er em in s w ith a
disCllS:1.onofonta xe s in Ind. . . ax
v• O -· a ci'1scuss1o
. . · n on th e tax
. ia .is irutiate d · In th st ru ct ur e levy and
coueett~0 te ne ts an d is U ni t, th e st ud en ts
pr in ci pl es of In co m ar c ac qu ai,nt ed w ith
e basic . ds of le vy vi e tax la w . A di st in
th z. ta x, ce ss , fee etc. an ct io n is dr aw n be tw
tk ill d be tw ee n ee n
differell di re ct an d in di re ct taxes
t w ou ld be to_. f ar m·1· . th
Art att~fi.J.lcorne', 'p 1a nz ~ e st ud en ts ·
re vi ou s ye ar ', as se w it h th e de fi ni tio ns
ss m en t ye ar ', 'a ss es of 'a ss cs se e,'
'pers0 Il,'as pr ov id ed un sm en t' an d 'a gr ic ul tu
de r th e In co m e Tax A ct , 19 re
ioco11le - 61.

I. AT A GLANCE
. .
· es of Taxes an d D is ti
o.1 · ryp nc ti on be tw ee n Direc
t and Indirect Tax
Definitions- Se ct io n
2_
-
0.2
_ j A ss es se e [S ec ti on
02 2(7)]
_ _ • Person [S ec ti on
0 .2 2 . 2(31)]
.
· _ • Income [S ec ti . ~
. . . . ' .
0 2-. 3 on 2(24)] · . .

- .. Commsr. of Inco_me.Ta . .-
x v. _Shaw, Wallace and Co
f. . . (1932) 34 Born.LR .
10
_,,,, Commsr. of Income Ta 33 ·
x v. The Panbari Tea Co.
A IR 1965 SC 1871 _ Ltd.
. .
Commsr. of Income Tax
/. A IR 1993 SC 1671 v. G. R. Karthikeyan
. ·. ,. - . .
CIT v; Troilakya Chandra
Bora · ·
5 Fe br ua ry , 2003 128 ~A X M A N
_344 _G au .
0·.2.4 A ss es sm en t Year-[ Se ct io ns 2(9)1
·o.2.5 Pr ev io us Year
[S ec ti on 2(34) re ad w
it h Se ct io n_3]
.
.
0.2.6 A ss es sm en t[ Se
ct io n 2(8)] .
0.3 Capital R ec ei pt
an d R ev en ue R ec ei pt
. Commissioner .
of Income Tax v ..Vazir Su
A IR 1959 SC 814 ltan
 2 / Case Study Manual Series - Income Tax Law _
Empire Jute Co. Ltd. v. Commsr. of Income Tax
AIR 1980 SC 1946.
Commissioner of Income Tnx v. Madras Auto Service (P) Ltd.
(1998) 6 sec 404 th
C
. Cadell Weaving Mill Co. P. Ltd. v. Commissioner of Income Tax
2001 249 ITR 265 Born. ·
~bE
0.4 Application of Income and Diversion of Income by Overriding Titles
Commsr. of Income Tax v. SitaldasTirathdas of
AIR 1961 SC 728 Jll
pt
Raja Bejoy Singh Dudhuria v. The (ommissioner of Income Tax p
(1933) 35 BOMLR 811 F1
a:
0.5 Rates of Income Tax: Proportional and Progressive Rate of Taxation
r•
0.6 Agricultural Income [Section.2(1A)] }

Brihan Maharashtra Sugar Syndicate Ltd. v. Commsr. of a

I
Income Tax AIR 1947 Born. 166
t
Commsr. of Income Tax v. Maddi Venkatsubbayya (
AIR 1951 Mad 1007
Bacha F. Guzdar v. Commsr. of Income Tax, B_ombay
AIR 1955 SC 74
Commsr. of Income Tax v. Benoy Kumar Sahas Roy
AIR 1957 SC 768
K. Lakshmanan & Co. v. Commsr. of Inc~~e T~
(1999) 239 ITR 597 (SC)
Commsr. of Income Tax v. Soundarya Nursen1
(2000) 241 ITR 530 (Mad) .
Commissioner of Income-Tax, ... v. H.G. bate
1971 82 ITR 71 Born.

II. DECIDED CASES

Co~missioner of Income-t~ v. The ~anb_ariTea Co. Ltd

AIR 1965 SC 1871"'
Subba Rao, J.:
1. By a registered lease deed dated March 31, 1950, the asses~~e-cornpany, respondent
r
herein, leased out two tea estates named "Panbari ea Estate" and "Barchola Tea
Estate", along with machinery and buildings owned and held by it, in Darrang, in
• K. Subba Rao, J.C. Shal\ S. M. Sikri, D,
 Case Study Manual St- ·
ran. Income Tu uw I 8')
CHAPTER 2

pENTIAL STATUS, CHARG EAB

itES l · ILITY

tudents a re familiarizeJ abo u t the con~pt of cha ..

ter2t tJ,e s rne Tax Act, 1961. For und~rstanding the char r~e~b,ltty of income
ot3~ r the In~ . come and the residential status of the gcabala~y nf incomer.ix.
:e
\)1' of tota ti~nal status for different kinds of assesscesaisse~S{'ds. ~•11 be dic.cusst•d.
•""r- ·den . d Th' U · .e. an l lUF 1·
~-tor rest ill be explame . is mt also covers a brief discuavadual
eS 11,panY
d cO .-.,e and
;e justification for segregation of incomes und
b 'lity of salary income.
. , , arm
s~~n on the head s
er sue cads. The Unit
ifl"°"" vets taxa 1
rdter cO
I. AT A GLANCE
f Income Tax (Section 4)
Cbarge o . .
scope Of Total Income and ResidentialStatus of an Assessee (Se Ct·tons 5-9)
Rules for Determining Residential Status of an Assessee (Sectio 6)
z.Z.l · V.V.R.N.M. SubbayyaChettiar v. Commsr. . n
of Income Tax AIR 1951 SC 101
Narottamand Parekh Ltd. v. Commsr.
of Income Ta: ~IR 1954 Born. 6~ . _
Guiding Pnnoples for determination of Place of Effective
Management(POEM) of a Company
Circular No. 06 of 2017 dated 24.01.2017
In ome Deemed to Accme arise in India (Section 9)
c Commsr. of Income Tax v. Eli Lilly · . ·
and Co.(India) Pvt. Ltd. (2009) 312 ITR 225 (SC)
Vodafone Intl. Holdings B.V. v. Union of India
(2012) 6 sec 613 ·
Formula One World Championship Ltd. v. Commsr.
of Income Tax (2017) 15 SCC 602

Income Exempted from Tax and Deduction under Income Tax Law
(Section 10, l0AA, 11-13B and Sections 80 C to 80 U)
Filing of returns by political parties/its units at
Stat~ or district level in terms of sub-section (4B)-
Obligation therefor
 90 / Case Study Manual Series - Income-Tax Law
.
Circu lar No . 412 [F· No. 200/84/79-IT(A-I)J, dated 2 3
· -19as
Clarification on allowability of deducti_on under
. n l0N l0A A on transfer of technical manpow
Sectio
case of software indu stry- · eril)
. lar No • 12/2014 [F·NO.178/84/2012-ITA.IJ, dated 18
circu .07
- 1.5 Heads of Income and its Justification (Sectio 2
n 14) . 014

II. DECIDED CASES

SubbayyaChettiar v. Commissioner of Income-ta

x
AIR 1951 SC 101 *
1. Fazl Ali, J.: This is an appe~l from ·a judgm
ent of the High Court of Madr it\ t
reference made to it under Section 66(1 ), Income-
tax Act, by th~ Income-tax Aas 1 the
Tribunal in connection with the assessment of the
appellant to mcome-tax f P nel
1942-43. The question of law referred to the H .. h C
1g ourt was as follows: or~e 1nc tnl.l

Whether in the circumstances of the case, the

,assessee (a Hindu Bi!
undivided family) is 'resident' in British India
under Section 4A~), 5.~
Income-tax Act.
. The circumstances of the case may be briefly stat
ed as follows. The appellant~ .
arta of a joint Hindu family and ha~ been living
in Ceylon with his wife, son
three daughters, and they are stated to be dom
iciled in that country. He carri~
business in Colombo under the name and style
of the General Trading Corpora·
and he owns a house, some immovable proper 6
ty and investments in British ·
He has also shares in two firins situated at Vijaya i!
.

puram and Nagapatnam inB' oanf:

India. In the year of account, 1941-42, which is the
basis of the present assessm~\ tes
appellant is said to have visited British India on sev
en occasions and the total pen~ ap:
his stay in British India was 101 days. What he did
during this period is summ , ca~
in the judgment of one of the learned Judges of
the High Court in these wo rds: De
Dur~g such stays, he personally attended to a
litigation relating to the
family lands both in the trial Court and in the Cou
rt of appeal. He was
also attending the income-tax proceedings rela
ting to the asses511_1~nt
of the ·family income, appearing before the
Income-tax authonnes
at Karaikudi and Madras. On one of these occ
asions, he obtained ~
extension of time for payment of the tax after inte
concerned... rviewing the authont)'
• -
• s. Murt~7:I ~:n
 - ---==--c
.;...- ~- s • lnco
_a_se_s_tu_d..:,y..:M~a~n:ua~l~srn,
rn n.. ~.,., , 16s
l
CH AP TE R 3

Jlf:J\vs OF IN CO M E ANO RULES OF T AX

e
o the hea ds of income·, v·iz. 5alary I
further intB .
I

I,
I
. ·11 .de Iv d Gains of usm ess and Profession d Capital .' ncome from H
\ ·t wi . . an gains. ouse
Vfll, profits an
.,err/ f the se heads of blinc om e, a discussion wou Id be c . d
. ""' od duc tio ns ava1·1 a e un d er the sai d hea d of mco
r ea" .
m
arne out of th e
d
et . ·w e e an the judicial
abil~~,' of the same.
rpretatJOll .

I. AT A GLANCE
. ,_,ent to .Salary, Perquisites, etc. (Sections 15_17)
. .
r~ rrea~• . . . .
;, . _ ;
. Elllployer - Employee Relations hip 1
it,1 . . ..
2' Basis of Charge
2.1, .
_ j .Meaning of Salary
21
., . ·1 4 Meaning and Types of Allow
ances
2. .
. _2.1.S Perquisites
.t6 Pen s_ion, Provident Fund aitd Gratuity
2
· Commsr. of In_come Tax y. L-. W. _Russel
r
~ . AIR 1965 SC 49
a
Justice _Deaoki Nandan Agarwalav. Union of Indi
I · (1999) 237 ITR 872 (SC) . .
s of United Nations -
Pen sio n rec eiv ed by ers twh ile official
Section 2 of
· Wh eth er exe mp t fro m tax in vie w of
1947
UN (Pr ivil ege s and Im mu niti es) Act,
, dated 10-2-1981.
Circular No. 293 [F. No. -200/140/80-IT(A-I)J
perty
Tax Treatment to Inc.onie from House Pro
(Sections 22-27)
· 3.1.1 Chargeability

I 3._1.2 Annual Value of a Ho use Proper

ty
3.1.3 Deductions from inc om e from House Property
3
_ •2•4 Deemed Ow ner shi p
 1661 Case
Study Manual Series - Income Tax Law
R. 8. Jodhama/Kuthiala _v. Comn,~ 0
AIR 1972 SC 126 .. '· / b1co,,,e 1.
Chennai Properties and Investments Lt ,q
ofIncome Tax 2015 AIR SCW 3788 d. v.co,,,
Ra,valaCorpn. (P) Ltd. v.Commsr. of 1 "'s,.
(2016) 15 SCC 201 nco,,,e Ta~

. Profits and Gains of Business and Profession

3.3
(Sections 28-44)
. .1 Meaning of Business and Profession
33
Barendra Prasad Roy v. ITO
AIR 1981 SC 1047

3.3.2 Chargeability ~ . . .

ssly Allowed as Deduction from

3.3.3 Expenses Expre . ~~,
Income from Business and Profession
Commsr. ofIncome Tax v. Sarangpur Cotton
lc0~
Mfg. Co. Ltd. (2017) 393 ITR 108 (SC) · ~f~
~1)0
Commsr. of Income Tax v. Amalgmation Pvt. Ltd. 111e t€

(1997) AIR sew 2316 . i f'ar

Crfl jtlcC
BadridasDaga v. Commissioner of Income ·Tai •¢ J1E
AIR 1958 SC 783 tpe bf .
I ceytoJ1 I
3.4 Capital Gain Taxation (Sections 45-55A)
tt10l
~co,r
cpjetl
3.4.l Chargeability_of Capital Gains Under t
~Sf
3.4.2 Capital Assets [Section 2(14)1 · ·
age of!
Short-term and Long-term assets rontrib1
.. [Sections .2(42A) and 2(42B)J . me~
Maharaja Rana·Hemanth Singhji v. Commsr. Toe 1n,
ofIncome Tax[(1976)103 ITR 61 (SC)] inCOlllE
· Issue of taxability of surplus on sale of shares and securities clause 1

- Capital Gains or Business Income to the .

· - Instruction~ in order to reduce litigation -reg.- . The fu
Circular No.6/2016 dated 29.2.2016 · · ·· · · fate. T
lncom
3.4.3 Transfer [Section 2(47)1
Decen
Transactions not regarded as transfer three
Vania Silks P. Ltd. v. Cdmmsf. --, ·.
ofIncome Tax (1991) 4 SCG 22 .
Commsr. ofIncome Tax v. Grace Collins
AIR 2001 SC 1133
 S1ut.1" 'I
__ _ _c=-·..ase 1
___ ' ' •n u. I s,,i
C ap1't a I A s s e ts a n d l 011 <(,,,. t1 • '" ., l•c 14_
a Terrtt R ·lerrn • ; l•, 7
( 1 \)
i.o•'coa p it a l G a in (Section 2 29 arid 2(29b
,. ,. , • )J
C o n s id e r a ti o n C Ost of A
JI Value o l ,
o cqui!ilio n.
fu q u is f U
5
Indexed Co
st o l A c n, Cost I 111 Prov, ...,,
o f
,. ,. n ent ., 01,
l Im p r o v er
st o
Jndexed C o

D c SEs
llDECIDE A

o n e r o f Income -ta x v i w . .
com m i s s i • Rus e/
s • •
A I R 1965 sc 49
,.
f
p e a l b y s p e cial leave p.re er red against th .
11 a o ].: Th
is ap ra ises the
.
;j ta dt·gment oeCf tith· e
r n a k u la m o f th e in te rp
bba Jr t' o f Kerala a t E
'
2
ionl
2, herein~~eestr ca led the Act. ion of S on
Stl a x A c t, 19
·gh{Ctl~~ India
n Income-t . .
e m plo ~ t h .
) o
L . W . R u ss e t, 1 s a n ~h . eE nglish a.nd 5coltish Jo ·
~ponden t, e
·e ty Ltd., Kozhikod , ere1naft called the Society h_1c int
o a e r , w h
~~\re Wholesale S o c ie ty e s ta b lish ed a sup o n sc hem f
. ng1and. The . S ua ti
erah
00p·ncorporated in 1 E b e rs o f th e Soc1. ety' 8 8etraffnn y e d in
e or
In d·
E r o p e a n mem . a e m p lo ta,
s 1 fit o f the m a e u n n u it ie s •· T h terms f w er e
o f deferred a . e Eur o such benefit s
ene
e and A fr ic a by d d
b m e a n s 4. Ev er
n e d a te d J u ly 27, 193 y
0
? ~ a n ·employe1e of the
ey1o orated in a trust e as
corp e m b e r o f that scheme a cond.ition .0 f emp oyfment.
me a m effect a po1icy of msu n~e . or the
·ety shall beco 1 s ch e m e the trustee has to ra
e Soc·iety on hi s attauung .the
Cl n n s o f t 1 e . m e m b e r o f th
er the te . n u it y .toh every . o n t·mgency. Th e Soaetv
nd r in g a n a n s pe cif ie d c
urpose o f e n s u . . o r o n t11e appen1ng of a y e e. D uri n g the year 1956_57
:!Jue of sup
eraiu1uation . .
p a y a b le by such emplo le b y the respondent.
r e m i u m m p ay a b
Po f th e p e premiu
contributes 1/3 o te d Rs. 3,333/- towards th ded the said amount in the taxab
le
tr ib u Circle, inclu lanation 1, sub·
the Society c o n K o z h ik o d e c tio n 7 (1 ), E x p
The Incom·e-tax
Officer,
th e y e a r 1 9 5 6-57 under Se g a in st the said inclusio1
e n t f o r po n d e n t a
income of the
respond e f e r r e d b y the res e , w as '<lismissec
p e a l p r z h ik o d
Act. T h e ap , K o
clause (v) of the m is s io n e r of Income-tax a l re c eived the sarr
t C o m T ri b u n
A s s is ta n e-tax Appella
te
to the Appellate r r e d to th e I n c o m
S e c tio n 6 6 (1 ) of the Act toat!t
er d .
eal prefe er
plication ·und · h· c rt· BY1·t s ord
The further a p p e reupon · f il e d a n a p
H 1 g ou e
.
follow1
s s e ss e e t h · c a s e to f · th
fate. The a r ib u n a l f o r statin
g a
t of case re err
mg
A pp e ll a te T a s ta te m e n
In come-tax T r ib u n al s u b m it te d rn akulam:
1 , 1 9 5 8 , t h e K e ra la a t E
December
w to t h e H ig h Court of lo e r to the assessee
f la
three questions o a
.
id b y the emp Y
ti o n s p
) W h e th e r
the contribu
 2161 Case Study Manual Series • Income Tax Law

CH AP TE R4

RESIDUAL INCOME AND PROCEDURE Fo a

Ass£
This chai,ter attempts to illustrate the incomes falling Und
The Unit primarily focuses on the procedural aspect
er th Ss~t~
of inc: head of Clt l
concepts of set off and carry_.forward of los~es, refun
d, retume ta)( di her ,
income penalty and prosecution for Tax Evasion, power
' of rn and 1 ~Ss~ ~
tax authorities. search 8Ses ga.'
8
¾d Sei l'rlet\t''
l\tre Of tit
\
_I.AT A GLANCE
4.1 Income from Other Sources (Sections 56-59)
4.1.1 Chargeability
4.1.2 Dividend Income
4.1.3 Winnings from Lottery, Crossword, . .
Horse_Races and Card Games -
4.1.4 Interest on Securities
4.1.5 Income from Letting Out of Machinery,
_Plant or Furniture and Buildings
4.1.6 Family Pension in the Hands of Legal Heirs·
4.2 Set-off and Carry Forward of Losses
(Sections 70-80)
4.3 Refund (Sections 237-241) and Tax Authorities
(Sections 116-119)
4.4 Return of Income and Assessment
(Sections 139-154)
4.4.1 · Submission of Return of Income .
4.4.2 Belated Return ·
4.4.3 Revised Return
4.4.4 Self-assessment
4.4.5 Scrutiny Assessment
 M
_c_a=se. Study nuaJ
____ _ _ _ _ a s n.es . lnco
e
essment
rn,r~i. " l 2J 7
protective Ass
t
6
st J udg m e n t Assessmen
1,I• Be
1 J1d prosecution for Tax
Evasion
1,1- a
tlalt11r s 270A-280)
o,,~
1 0
eizur e (S ec tion 132) .
tS nd S r o f Inspe ction (I
a poo ra n Mal v. Dir ecto nvest,gation)
5e,t eh 348
AIR 1974 SC
ax O ffic er v. Seth Bros.
Income T 6 (SC)
83
(1969) 74 ITR d ge m ent(s);'. d )
to th e ju r(s
Giving effect preme Court on Aadohraaer-PAN
of H.o.n'ble Su · m . ome-regd.
c
·
r n of
for filmg retu d ate d 31.03.2019
.6/2 0 19
Circular No

ECIDED CASES
II. D

stigation) ofIncome-tax
tor o f In sp ection anve
oran Mal v. D
irec 48*
IR 1974 SC 3 A
titio n s u n d e r Article 32 of the
Pe
d in g s tw o of them Writ p a s se d b y th e Delhi High
procee ers
, ],: 1.In these h ic h a r e a p peals from ord n taken under Section 132
o others W spect of actio rch and seizure
titution and tw e f is c la im e d in re
y w
_ a y of se a
226 reli lled the ½ct')
b
were illegal.
under Article er e in a f te r c
· a r th e se a rc h
eIncome-tax
Act, 1961 (h th a t th e authorisation
fo
n al grounds. For th
e
g r o u n d o n s titu tio
on the nal and non-c ry to give h~re the de~a~ed
ain pre:c:nises c o n s ti tu ti o
based o n is not necessa ases articles cons1sting
challenge was titutiona l g r o u n d s it
a ll these c d
of th e c o n s ta te th at in w e llery aJ1
·ation ·s ns, also cas11, je
of the four c a se s.
d
It
o
is
c u
sufficient to
m ents and in
th e W r it P
u
e
th
ti
o
ti
ri
o
tie s purporting to0 ;c~un;;r
ccount books a n d
b y th e In c ome-tax a
c ti o n 132 read_ t(t) and.
seized under S e tions
valuables, were arch · and seizure issue.d d. t d againlest subA-seocn the ground
authorisation:
for se
l c h a ll e n g e 1s irec ~ st 112 t d by Articles
.
na R u
dly speakin g the constitutio cidentally also aga1m · hts guarannedes challenge 15
in
0
ction 13 2 o f the Act and e fu
g
ndamenta tin na1grouotin accordanthce
{Se , ions are violati v e o f th
on tutiuore were n
s
th ese provis n -c
C o n s ti tu tio n . T h e no
d ·z
to be c o nsidered in e
earch ~ sei
9(1)(f)(g) and 31 of th e .
l t th a t th e s
:I.d s to th e e ff e c
e lY 111 h a v e
up?n allegationh Rule 112. This challeng
Se ction -132 wit idual cases. - ati, JI.
ndiv _ .,., ...a