Basic Definition Under Income Tax Laws
What
is PREVIOUS YEAR [SEC.3]
For the purpose of this Act ‘Previous Year’
means the financial year immediately preceding the Assessment Year. Income
earned in a year is assessed in the next year. The year in which income is
earned is known as Previous Year and the next year in which income is assessed
is known as Assessment Year. It is mandatory for all assessee to follow financial
year (from 1st April to 31st March) as previous year for Income-Tax purpose.
Financial Year
According to sec. 2(21) of the General Clauses Act, 1897, a Financial Year
means the year commencing on the 1st day of April. Hence, it is a period of 12 months
starting from 1st April and ending on 31st March of the next year. It plays a
dual role i.e. Assessment Year as well as Previous Year. Example: Financial
year 2020-21 is –
• Assessment year for the Previous Year
2019-20; and
• Previous Year for the Assessment Year
2021-22.
What
is Financial year
A Financial year (FY)
is a period between 1 April and 31
March- the year in which you earn an Income.
What
is Assessment Year (AY) Section 2(9)
Assessment year means
the period of 12 months commencing on the 1st day of April every year. It is
the year (just after the previous year) in which income earned in the previous
year is charged to tax. E.g., A.Y.2020-21 is a year, which commences on April
1, 2020 and ends on March 31, 2021. Income of an assessee earned in the
previous year 2019-2020 is assessed in the A.Y. 2020-21.
Tax point:
■Duration: Period of 12
months starting from 1st April.
■ Relation with Previous Year: It falls
immediately after the Previous Year.
■ Purpose: Income of a previous year is
assessed and taxable in the immediately following Assessment Year
What
is difference between Assessment Year and Financial Year,
From an Income Tax
perspective FY is the year in which we earn Income. AY is the year following FY
in which we have to evaluate the previous year’s income and pay taxes on it.
Exceptions
to the general rule that income of a Previous Year is taxed in its Assessment
Year
This is the general rule that income of the
previous year of an assessee is charged to tax in the immediately following
assessment year. However, in the following cases, income of the previous year
is assessed in the same year in order to ensure smooth collection of income tax
from the taxpayer who may not be traceable, if assessment is postponed till the
commencement of the Assessment Year:
1. Income of a non-resident assessee from
shipping business (Sec. 172)
2. Income of a person
who is leaving India either permanently or for a long period (Sec. 174)
3. Income of bodies, formed for a short
duration (Sec. 174A)
4. Income of a person
who is likely to transfer property to avoid tax (Sec. 175)
5. Income of a discontinued business (Sec.
176). In this case, the Assessing Officer has the discretionary power i.e. he
may assess the income in the same previous year or may wait till the Assessment
year.
ASSESSEE
[SEC 2(7)]
“Assessee” means,
(a) a person by whom any tax or any other sum of
money (i.e., penalty or interest) is payable under this Act (irrespective of
the fact whether any proceeding under the Act has been taken against him or
not);
(b). every person in
respect of whom any proceeding under this Act has been taken (whether or not he
is liable for any tax, interest or penalty) for the assessment of his income or
loss or the amount of refund due to him;
(c). a person who is
assessable in respect of income or loss of another person;
(d). every person who
is deemed to be an assessee under any provision of this Act; and
(e). a person who is
deemed to be an ‘assessee in default’ under any provision of this Act.
E.g. A person, who was liable to deduct tax
but has failed to do so, shall be treated as an ‘assessee in default’
PERSON
[SEC. 2 (31)]
The term person
includes the following:
(i)
an
Individual;
Individual
The word ‘individual’ means a natural person, i.e. human being. “Individual”
includes a minor or a person of unsound mind. However, Deities are assessable
as juridical person. Trustee of a discretionary trust shall be assessed as an
individual
(ii)
a Hindu Undivided Family (HUF);
Hindu
Undivided Family (HUF) A Hindu Undivided Family (on which Hindu law applies)
consists of all persons lineally descended from a common ancestor &
includes their wives & unmarried daughters.
■
Only those undivided families are covered here, to which Hindu law applies. It
also includes Jain and Sikh families.
■
Once a family is assessed as Hindu undivided family, it will continue to be
assessed as such till its partition
(iii)
a
Company
Company
means:
(a). any Indian company; or
(b
) any body corporate, incorporated under the laws of a foreign country; or
(c.) any institution, association or body which is
or was assessable or was assessed as a company for any assessment year on or
before April 1, 1970; or
(d.) any institution, association or body, whether
incorporated or not and whether Indian or non-Indian, which is declared by
general or special order of the Central Board of Direct Taxes to be a company
Indian Company [Sec.
2(26)]
An
Indian company means a company formed & registered under the Companies Act,
1956 & includes a.
(a)
company formed and registered under any law relating to companies formerly in
force in any part of India other than the state of Jammu & Kashmir and the
Union territories specified in (c) infra;
(b).
a company formed and registered under any law for the time being in force in
the State of Jammu & Kashmir;
(c.)
a company formed and registered under any law for the time being in force in
the Union territories of Dadar & Nagar Haveli, Goa, Daman & Diu and Pondicherry;
(
d). a corporation established by or under a Central, State or Provincial Act;
(
e). any institution, association or body which is declared by the Central Board
of Direct Taxes (CBDT) to be a company u/s 2(17). In the aforesaid cases, a
company, corporation, institution, association or body will be treated as an
Indian company only if its registered office or principal office, as the case
may be, is in India
Domestic
Company [Sec. 2(22A)]
Domestic
company means:
i)
an Indian company; or
ii)
ii) any other company, which in respect of its
income liable to tax under the Act, has made prescribed arrangements for the
declaration and payment of dividends (including dividend on preference share),
payable out of such income, within India.
Foreign Company [Sec. 2(23A)]
Foreign company means a company which is not a
domestic company.
Company in which public
are substantially interested [Sec. 2(18)]
Following companies are said to be a company
in which public are substantially interested:
1. Government Company;
2. A company u/s 8 of the Companies Act, 2013;
3. Mutual benefit finance company;
4. Listed company;
5. Company in which
shares are held by co-operative societies;
6. Company which is
prescribed by CBDT
(iv)
a
Firm;
As
per sec. 4 of Indian Partnership Act, 1932, partnership means “relationship
between persons who have agreed to share profits of the business carried on by
all or any one of them acting for all”. Persons, who enter into such business,
are individually known as partners and such business is known as a Firm. A firm
is, though not having a separate legal entity, but has separate entity in the
eyes of Income-tax Act
:
♦ A partnership firm is a separate taxable entity apart from its partners.
♦
In Income tax, a Limited liability partnership shall be treated at par with
firm an Association of Persons (AOP) or a Body of Individuals (BOI), whether
incorporated or not;
Association of Persons
(AOP) or Body of Individuals (BOI)
An
AOP means a group of persons (whether individuals, HUF, companies, firms, etc.)
who join together for common purpose(s). Every combination of person cannot be
termed as AOP. It is only when they associate themselves in anincome-producing
activity then they become AOP. Whereas, BOI means a group of individuals (individual
only) who join together for common purpose(s) whether or not to earn income.
Co-heirs, co-donees, etc joining together for
a common purpose or action would be chargeable as an AOP or BOI. In case of
income of AOP, the AOP alone shall be taxed and the members of the AOP cannot
be taxed individually in respect of the income of the AOP
Difference between AOP
and BOI
■ In case of BOI, only individuals can be the
members, whereas in case of AOP, any person can be its member i.e. entities
like Company, Firm etc. can be the member of AOP but not of BOI.
■
In case of an AOP, members voluntarily get together with a common will for a
common intention or purpose, whereas in case of BOI, such common will may or
may not be present
(v)
a
Local authority; &
Local
Authority As per Sec. 3(31) of the General Clause Act, a local authority means
a municipal committee, district board, body of Port Commissioners, Panchayat,
Cantonment Board, or other authorities legally entitled to or entrusted by the
Governmentwith the control and management of a municipal or local fund.
(vi)
every artificial juridical person not falling
within any of the preceding categories
Artificial
Juridical Person Artificial juridical person are entities –
●
which are not natural person;
●
has separate entity in the eyes of law;
●
may not be directly sued in a court of law but they can be sued through
person(s) managing them
E.g: Deities, Idols, University, Bar Council,
etc.
Note:
Under the Income-tax Act, such person has been provided exemption from payment
of tax under separate provisions of the Act, if certain conditions mentioned
therein are satisfied.
References:-
https://sites.google.com/site/cavikashmundhra/knowledge-share/Basic
https://shodhganga.inflibnet.ac.in/bitstream/10603/140143/10/10_chapter%203.pdf
https://www.caclubindia.com/forum/what-is-the-difference-in-aop-and-boi-50202.asp
https://icmai.in/upload/Students/MTPSyl2016Jun2020/Inter/Paper7_Set2_Ans.pdf
https://cleartax.in/s/what-is-financial-year-assessment-year
Very well defined sir
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