Income Tax
Content
CHAPTER 1-BASIC CONCEPTS What is assessment year? ³Assessment year´means the period starting from April 1 and ending March 31 of the next year. What is previous year? Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year and the next year in which income is taxable is known as assessment year.
Previous Year In The Case Of Newly Set-Up Business/ Profession- In the case of newly set-up business/ profession or in the case of a new source of income, the previous year is determined as followsFirst previous Year Starting point It commences on the date of setting up of the business/profession or on the date when the new source of income comes into existence Immediately following March 31 Second and subsequent previous years April 1
Ending point
Duration of Previous Year 12 months or less
March 31 of the following year 12 months
Who are included in ³person´ The term ³person´ in cludes: a. An individual; b. A Hindu undivided family; c. A Company; d. A Firm; e. An association of persons or a body of individuals, whether incorporated or not; f. A Local authority; and g. Every artificial juridical person not falling within any of the preceding categories. \Who is regarded as assessee ³ Assessee´ means a person by whom income-tax or any other sum of money is payable under the Act. It includes every person in respect of whom any proceeding under the Act has been taken for the assessment of his income or loss or the amount of refund due to him. It
also includes a person who is assessable in respect of income or loss of another person or who is deemed to be an assessee, or an assessee in default under any provision of the Act. Tax rate of assessment year- Income of previous year is chargeable to tax in the next following assessment year at the tax rates applicable for the assessment year. This rule is, however, subject to some exception.
Rates fixed by Finance Act- Tax rates are fixed by the annual Finance Act and not by the Income-tax Act. For instance, tax rates for the assessment year 2005-06 are fixed by the Finance Act, 2005. If, however, on the first day of April of the assessment year, the new Finance Bill has not been placed on the statue book, the provisions in force in the prevailing assessment year or the provisions proposed in the Finance Bill before parliament, whichever is more beneficial to the assessee, will apply until the new provision becomes effective.
Provisions as on April 1 of the assessment year applicable for computing income for the assessment year. Rule One ± For computing income- Total income is calculated in accordance with the provisions of the income-tax Act, as they stand on the first day of April of the assessment year.
Rule Two- For other purposes- The above rule is applicable only for the purpose of computing taxable income. To put it differently, it can be said that the provisions applicable on April 1 of the assessment year are relevant only for determining the taxable income for the assessment year.
Meaning of income: Income is a periodically monetary returns with some sort of regularity. It maybe recurring in nature. It may be broadly defined as the true increase in the amount of wealth, which comes to a person during a fixed period of time.
Regular and definite source ± The term ³ income ³ connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. The statement must, however, be read with reference to the facts of each case.
Different forms of income- Income may be received in cash or in kind. When income is received in kind, its valuation is to be made according to the rules.
If, however, there is no prescribed rule, valuation thereof is made on the basis of market value.
Receipt vs. Accrual- Income arises either on receipt basis or an accrual basis. Income may accrue to a taxpayer without its actual receipt. Moreover, in some cases, income is deemed to accrue or arise to a person without its actual accrual or receipt.
Illegal income- The income-tax law does not make any distinction between income accrued or arisen from a legal source and income tainted with illegality.
Disputed title- Income-tax assessment cannot be held up or postponed merely because of existence of a dispute regarding the title of income.
Relief or reimbursement of expenses not treated as income- Mere relief or reimbursement of expenses is not treated as income. For instance, reimbursement of actual traveling expenses to an employee is not an income.
Diversion of income by overriding title vs. Application of income- Where by an obligation, income is diverted before it reaches the assessee, it is ³ diversion of income´ and not taxable. Conversely, after earning the income, if it is required to be applied to discharge an obligation, it is merely an ³ application of income´ and income is chargeable to tax. In order to decide a result of fulfillment of an obligation on him to discharge an obligation after it reaches the assessee.
Surplus from mutual activity- A person cannot make taxable profit out of a transaction with himself. Income must, therefore, come from outside.
Tax-free income- If a person receives tax-free income on which tax is paid by the person making payment on behalf of the recipient, it has to be grossed up for inclusion in his total income.
Income includes loss- Income includes loss. While income, profits and gains represent ³ plus income´, losses represent ³ minus income´
Incomes should be real and not fictional- Income means real income and not fictional income. A person cannot make a profit by trading with himself or out of transfer of funds/ asset from one pocket to another pocket. Similarly, income does not arise in a transaction between head office and branch office even if goods are invoiced at a price higher than the cost price. Likewise, income does not accrue or arise at the time of revaluation of asset.
Source of income need not exist in the assessment year- It is not necessary that a source of income should exist in the assessment year. If there is an income during the previous year , it is chargeable to tax for the following assessment year even if the source of income does not exist during the assessment year.
Pin money- Pin money received by wife for her dress/ personal expenses and small savings made by a woman out of money received from her husband for meeting household expenses is not treated as her income
Award received by a sportsman ± In the case of a sportsman, who is a professional, the award received by him is in the nature of a benefit in exercise of his profession and, therefore, it is chargeable to tax
What is a gross total income As per section 14, income of a person is computed under the following five heads: 1. Salaries. 2. Income from house property. 3. Profits and gains of business or profession. 4. Capital gains. 5. Income from others sources.
Types of accounting methods- Mainly there are two types of accounting methods ± mercantile system and cash system
Mercantile System- Under mercantile system, income and expenditure are recorded at the time of occurrence during the previous year. For instance, income accrued during the year is recorded whether it is received during the previous year or during a year preceding or following the previous year.
Similarly, expenditure is recorded if it becomes due during previous year, irrespective of the fact whether it is paid during the previous year or not. The profit calculated under mercantile system is, thus, profit actually earned during the previous year, though not necessarily realized in cash.
Cash system- Under cash system of accounting, revenue and expenses are recorded only when received or paid. For instance, income received during the previous year is included in taxable income whether it is earned during the previous year or it is earned during the year preceding or following the previous year. Similarly, expenditure is deductible from the taxable income only if it is paid during the previous year, irrespective of the fact whether it relates the previous year or not. Income under cash system of accounting is, therefore, excess of receipts over disbursements during the previous year.
Income of a previous year is chargeable to tax in the immediately following assessment year. Is there any exception to this rule? Generally income generated during a previous year is taxable in the immediately following assessment year. In the five cases, given below , income is taxed in the year in which it is earned. Shipping business of non-residents [Sec. 172]- Section 172 is applicable if the following conditions are satisfiedCondition 1 Condition 2 Condition 3 Condition 4 The assessee is a non-resident He owns a ship or ship is chartered by the non-resident The ship carries passengers, livestock, mail or goods shipped at a part in India The non-resident may (or may not) have an agent/representative in India
If all the aforesaid conditions are satisfied, 7.5 percent of amount received (or receivable) on account of such carriage (including demurrage charge or handling charge or similar amount) by the non-resident shall be deemed to be the income of the non-resident. For this purpose, the master of the ship shall submit a return of income before the departure of the ship from the Indian port (such return may be submitted within 30 days of the departure of the ship, if the assessing officer is satisfied that it will be difficult to submit the return before departure and if satisfactory arrangement for payment of tax has been made).Unless tax has been paid (or satisfactory arrangements have been made for payment thereof), a part clearance shall not be guaranteed by the collector of customs.
Under the above noted provisions of section 172, 7.5 percent of amount of freight, fare, etc., is collected and not in the immediately following assessment year. Persons leaving India [Sec.174]-Section 174 is applicable as follows1. It appears to the assessing officer that an individual may leave India during the current assessment year or shortly after its expiry. 2. He has no present intention of returning to India. 3. The total income of such individual up to the probable date of his departure from India shall be chargeable to tax in that assessment year. Provision illustrated- X, a foreign citizen, is residing in India since 2000.While completing assessment for the assessment year 2005-06, on February 14,2006, the assessing officer comes to know that X will leave India on April 12,2006 with no intention of returning. In this case, the assessing officer will make three assessments for the assessment year 2005-06: a. regular assessment for the previous year 2004-05 (i.e., income of the period April 1, 2004 to March 31, 2005) b. assessment for the income of the period April 1, 2005 to March 31,2006; and c. assessment for the income of the period April 1, 2006 to April 12,2006. The above three income assessments shall be completed separately. For the first assessment , tax shall be chargeable at the rates applicable for the assessment year 2005-06. For the second and third assessments, tax shall be chargeable at the rates applicable for the assessment year 2006-07 which are given in part 3 of the First schedule to Finance Act, 2005.
Associations/ bodies formed for short duration [Sec 174A]- The provisions of Section 174A are given below1. There is an association of persons or a body of individuals or an artificial juridical person, formed or established or incorporated for a particular event or purpose. 2.It appears to the Assessing Officer that the above-mentioned association, body, etc., is likely to be dissolved in the assessment year (i.e.. April to March) in which such association of persons or body of individuals or artificial juridical person was formed are established or incorporated are immediately after such assessment year.
3. The total income of such association or body or juridical person for the period from the expiry of the previous year for that assessment year upto the date of its dissolution shall be chargable to tax in that assessment year.
Provisions illustrated- X Co. is an association of two individuals X and Y.It is formed on April 10,2004 for the purpose of completing a contract of given by a French company in India. It is likely to be dissolved on September 10, 2005. While processing the return submitted by the association for the assessment year 2005-06, the assessing officer comes to know on August 6, 2005 about the probable date of dissolution. In this case, the assessing officer will make two assessments for the assessment year 2005-06. a. Regular assessment for the previous year 2004-05 (i.e. income for the period April 10, 2004 to march 31,2005 ) ;and b. Assessment for the income of the period April 1 , 2005 to September 10,2005.
The above two income assessments shall be completed separately. For the first assessment, tax shall be chargeable at the rates applicable for the assessment year 2005-06. For the second assessment, tax shall be chargeable at the rates applicable for the assessment year 2006-07 which are given in part-3 of the first schedule to Finance Act, 2005. Persons like to transfer property to avoid tax (Section 175)- The salient features of Section 175 are given below.
1. It appears to the assessing officer during any assessment year that a person is likely to charge, sell, transfer, dispose of (or otherwise part with) any of his asset . 2. Such asset may be movable or immovable. 3. The tax payer is likely to part with asset with a view to avoiding payment of any liability under the Income-tax Act. 4. The total income of such person from the first day of the assessment year to the date when preceding is started under Section 175 is taxable in that assessment year. Provisions illustrated- On December 19, 2005, the assessing officer comes to know that X Ltd. Is likely to dispose of a house property during January 2006 with a view to avoiding payment of income- tax. A notice is issued by the assessing officer on December 28, 2005 to X.Ltd.Under Section 175 to submit return of income of the period commencing on April 1, 2005 to December 28, 2005.
In this case , income from April 1, 2005 to December 28,2005 is chargable to tax in the assessment year 2005-06 and tax will be calculated at the rate applicable for the assessment year 2006-07 given in part 3 of the first schedule to Finance Act, 2005. Discontinued Business(Section.176)- The salient features of Section 176 are given below.
1. A business or profession is discontinued in any assessment year. 2. Income of the business/profession from April 1 of the assessment year (in which the business/profession is discontinued to the date of discontinuation may be taxable in the assessment year in which the business profession is discontinued. 3. The above income is taxable at the discretion of the assessing officer in the assessment year in which business is discontinued or it may be taxed in the normal assessment year(i.e assessment year immediately following the previous year)
Provisions illustrated- X discontinues his business on August 10, 2005 in this case, income will be taxable as followsa. For the assessment year 2005-06 income of the previous year 2004-05 will be taxable; and b. Income of the period commencing on April 1, 2005 and ending on August 10, 2005 may be taxable at the discretion of the assessing officer in the assessment year 2005-06 at the rate applicable to the assessment year 2006-07 given in part 3 of the first schedule to Finance Act, 2005(on the other hand , the assessing officer may wait till the commencement of the normal assessment year and then income of the period : April 1,2005 to August 10, 2005 shall be taxed in the assessment year 2006-07 at the rate applicable to the assessment year 2006-07 which will be given in the part 1 of the first schedule to Finance Act, 2006.
CHAPTER 2- RESIDENTIAL STATUS AND ITS EFFECT ON TAX INCIDENCE How to determine residential status of an individual [Sec .6] An individual may be (a) Resident and ordinarily resident in India. (b) Resident but not ordinarily in India. (c) Non-resident in India Basic Conditions To Test As To When An Individual Is Resident In India- Under section 6(1) an individual is said to be resident in India in any previous year, if he satisfies atleast one of the following basic conditionsBasic condition (a) Basic condition (B) He is in India in the previous year for a period of 182 days or more. He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year
Exceptions: Exception one Who can take the benefit of extended period An Indian citizen who leaves India during the previous year for the purpose of employment outside India or an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship Extended period 182 days
Exception two Who can take the benefit of extended period Indian citizen or a person of Indian origin who comes on a visit to India during the Extended period
previous year Indian citizen or a person of Indian origin who comes on a visit to India during the previous year
182 days
150 days
Additional Conditions To Testas To When A Resident Individuals Is Ordinarily Resident In India- Under section 6(6) , a resident individual is treated as´ resident and ordinarily resident´ in India if he satisfies the following two additional conditionsAdditional condition (1) He has been resident in India in at least 2 out of 10 previous years [according to basic condition noted above] immediately preceding the relevant previous year He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
Additional condition (2)
It is not essential that the stay should be at the same place Where a person is in India only for a part of a day, the calculation of physical presence in India in respect of such broken period should be made on an hourly basis. Data is not available to calculate the period of stay of an individual in India in terms of hours, then the day on which he enters India as well as the day on which he leaves India shall be taken into account as stay of the individual in India
Resident but not ordinarily resident[Sec.6(1),6(a)]- An individual who satisfies at least one of the basic conditions but does not satisfy the two additional conditions is treated as a resident but not ordinarily resident in India. Non-resident-An individual is a non-resident in India if he satisfies none of the basic conditions. How to find out residential status of a Hindu Undivided Family [Sec.6 (2)] A Hindu undivided family (like an individual) is either resident in India or non-resident in India. A resident Hindu undivided family is either ordinarily resident. When a Hindu undivided family is resident or non-resident- A Hindu undivided family is said to be resident in India if control and management of its affairs is
wholly or partly situated in India.A Hindu undivided family is non-resident in India if control and management of its affairs wholly situated outside India. When a resident Hindu undivided family is ordinarily resident in India- A resident Hindu undivided family is an ordinarily resident in India if karta or manager of the family (including successive kartas) satisfies the following two additional conditions as laid down by section 6(6)(b): ]
Additional condition (1)
Additional condition (2)
Karta has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year Karta has been present in India for a period of 730 days or more during 7 years immediately preceding the previous year
How to determine residential status of firm and association of persons [Sec .6(2)] A partnership firm and an association of persons are said to be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are however, treated as non-resident in India if control and management of their affairs are situated wholly outside India. How to find out residential status of company [Sec.6 (3)] An Indian company is always resident in India. A foreign company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India.A foreign company is treated as non-resident if, during their previous year, control and management of its affairs is either wholly or partly situated out of India,
What is control and management- Usually control and management of a company¶s affairs is situated at the place where meetings of its board of directors are held. How to determine residential status of every other person [Sec.6 (4)] Every other person is resident in India if control and management of his affairs is, wholly or partly, situated within India during the relevant previous year.
What is the relationship between residential status and incidence of tax [Sec.5]
Under the Act, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. Indian income and foreign income- In order to understand the relationship between residential status and tax liability, one must understand the meaning of ³India income´ and ³ Foreign income´. Indian Income- Any of the following three is an Indian income 1. If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year. 2. If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year. 3. If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year.
Foreign income- If the following two conditions are satisfied, then such income is ³Foreign income´. a. Income is not received (or not deemed to be received) in India: and b. Income does not accrue or arise (or does not deemed to accrue or arise) in India. Connotation of receipt of income ±How is it understood. Income received in India is taxable in all cases irrespective of residential status of an assessee. The following points are worth mentioning in this respect: Receipt vs. Remittance- The ³receipt´ of income refers to the first occasion when the receipient gets the money under his control.Once an amount is received as income , any remittance or transmission of the amount to another place does not result in ³ receipt´ at the other place. Actual receipt vs. deemed receipt- It is not necessary that an income should be actually received in India in order to attract tax liability. An income deemed to be received in India in the previous year is also included in the taxable income of the assessee. Connotation of income deemed to accrue or arise in India-how is it understood: Nature of income Whether income For detailed is deemed to discussion, see accrue or arise para given below in India Income from business connection in India Sec a(1)(1) Yes 27.1 Income from any property, asset are source of income in Yes 27.2 India Sec a (1)(1)
Capital gain on transfer of a capital asset situated in India Sec a (1)(1) Income from salary if service Is rendered in India Sec a(1)(2) Income from salary(not being perquisite/allowance) if service is rendered outside India(provided the employer is government of India and the employee is a citizen of India) Sec a(1)(3) Income from salary if service is rendered outside India (not being a case stated above) Sec a(1)(2) Dividend paid by the Indian company Sec a(1)(4) Nature of income Interest Interest From whom income is received Government of India A person resident in India Payer¶s source of income Any Borrowed capital is used by the payer for carrying on business/profession outside India or earning any income outside India Borrowed capital is used by the payer of any other purpose
Yes Yes Yes
27.3 27.4 27.5
No Yes 27.6
Yes No
27.7 27.7
Interest
A person resident in India
Yes
27.7
Nature of income
Interest
A person nonresident in India
Interest
A person nonresident in India Government of India A person resident in India
Royalty/Fees for technical service Royalty/Fees for technical service
Borrowed capital is used by the payer for carrying on business/profession in India Sec a(1)(6) Sec a(1)(7) Borrowed capital is used by the payer of any other purpose Sec a(1)(6) Sec a(1)(7) Any Sec a(1)(6) Sec a(1)(7) Payment is relatable to a business or profession or any other source carried by the payer outside India Sec a(1)(6) Sec a(1)(7) Payment is relatable to any other source of income Sec a(1)(6) Sec a(1)(7) Payment is relatable to a business or profession or any other source carried by the payer outside India Sec a(1)(6) Sec a(1)(7) Payment is relatable to any other source of income Sec a(1)(6) Sec a(1)(7)
Whether income is deemed to accrue or arise in India Yes
For detailed discussion, see para given below 27.7
No
27.7
Yes
27.8 and 27.9
No
27.8 and 27.9
Royalty/Fees for technical service Royalty/Fees for technical service
A person resident in India A person nonresident in India
Yes
27.8 and 27.9
Yes
27.8 and 27.9
Royalty/Fees for technical service
A person nonresident in India
No
27.8 and 27.9
WEALTH TAX ACT, 1957. 1. 2. 3. 4. 5. Applicability of Wealth Tax Act Section 3(2) Individual HUF Company AOP chargeable u/s 21AA
Wealth Tax is not applicable Section 45 1. Company registered u/s 25 of Companies Act 2. Any Co-operative Society 3. Any social club 4. Any political party 5. Any Mutual Fund u/s 10(23D) The term ³individual´ includes the following persons: 1. Legal Heirs 2. Holder of an impartible estate 3. AOP u/s 21AA where the member¶s share is not definite. 4. Hindu deities 5. Trustees of a trust who are liable u/s 21A 6. Trade unions INCIDENCE OF TAX In the case of individual / HUF/ or Company Individual who is an Indian National or HUF a. ROR b. RNOR c. NR Assets located in India Taxable Taxable Taxable Assets located India Taxable Taxable Not Taxable Not Taxable Taxable Not Taxable outside
Individual who is a Taxable foreign national Resident Company Taxable Non ±resident Company Taxable
Individual who is an Debts incurred on assets Debts incurred on assets Indian National or HUF located in India located Outside India a. ROR b. RNOR c. NR Individual who is Deductible Deductible Deductible a Deductible Deductible Not deductible Not deductible Not deductible
foreign national Resident Company Non ±resident Company
Deductible Deductible
Deductible Not deductible
Definition of ³Asset´ under section 2(ea) of the Wealth Tax Act. Asset includes the following 1. Building or land appurtenant thereto: House used for a. Residential purpose b. Commercial purpose c. Guest house d. Farm house situated within 25 kms. From local limits of municipality. But the Asset does not include the following : a. Residential house allotted by a company to its employees/officer/executive who is in whole time employment and their gross salary is less than Rs.5lakhs. b. Residential or commercial house forming part of stock- in- trade. c. House occupied by the assessee for his own business or profession. d. Residential house let-out for a period of 300 days or more during the previous year. e. Property in the nature of commercial establishments or complexs. 2. Motor- cars But ³assets´ does not include the following: a. Motor-car used in the business of running on hire. b. Motor-car held as stock- in- trade. 3. Yachts, boats and aircrafts But ³assets´ does not include Yachts/boats/aircrafts used for commercial purpose and Ships.
4. Urban land. But ³assets´ does not include the following: a. Urban land on which construction of a building is not permissible under any law. b. Land occupied by any building constructed with the approval of appropriate authority. c. Land held for industrial purposes for a period of 2 years from the date of acquisition. d. Land held by the assessee as stock-in ± trade for a period of 10 years from the date of acquisition.
Meaning of urban land: is a land situated in a specified area u/s 2(1A) of the Income Tax Act i.e. a. Situated within municipality etc which has a population of not less than 10,000 as per the latest census on the first day of the previous year. b. Situated within 8 kilometers from the notified local limits.
5. Cash in hand In case of individual or HUF any amount in excess of Rs.50,000. For others, any amount not recorded in the books of accounts 6. Jewellery, bullion, furniture, utensils and any other article mmade wholly or partly of gold, silver, platinum or other precious metals But ³assets´ does not include the following: a. Jewellery,bullion furniture and utencils held as stock-in- trade in the business of the assessee. b. Gold deposit Bonds scheme,1999.
Other relevant points to be observed: Building owned by partners but used in firm¶s business chargeable to tax. - not an asset
The asset may be located anywhere but must belong to the assessee and held by him on the valuation date. For the purpose of taxability, the assessee must have the right of ownership over the property and not mere possession. Motor- cars cover all motor vehicle other than heavy vehicle. Hence buses, trucks, tempos are not considered as motor cars. However, jeep sport utility vehicle (SUV), multi utility vehicle (MUV) are classified as Motor-car. Aircrafts used by the assessee for its own business is not treated as commercial purpose. For example, aircrafts used for transporting goods of the assessee, or carrying its directors or executives or employees shall not be treated as used for commercial purposes. Valuation date: It refers to 31st March immediately preceding the assessment year. Wealth Tax is charged on the amount of net wealth as on the valuation date. The law in force on the first day of the assessment year, and not that on the valuation date, is applicable.
Chargeability of net wealth: Wealth Tax is chargeable @ 1% on the net wealth in excess of Rs.15 lakhs The amount of wealth tax, interest, penalty, fine or any other sum payable under the Wealth Tax Act shall be rounded off to the nearest rupee.
Exercise
1. 2. 3. 4. 5. 6. 7.
8.
X Ltd is engaged in the construction of residential flats. For the valuation date 31.3.2009, it furnishes the following data and requests you to compute the taxable wealth and wealth tax also. Land in urban area(construction is not permitted as per Municipal Laws in force) Rs.35,00,000 Motor-cars(used on hire by the company) Rs.7,00,000 Jewellery (investment) Rs.15,00,000. Loan taken for purchasing the same Rs.10,00,000 Cash balance(as per books) Rs.1,75,000 Bank balance Rs.2,50,000 Guest house (situated in a place which is 30 kms away from the local limits of municipality Rs.6,00,000 Residential flats occupied by the managing director Rs.10,00,000. The managing director is on whole time appointment and is drawing remuneration of Rs.2,00,000 p.m. Residential house were let on hire for 200 daysRs.8,00,000.
2. Y Ltd. is engaged in the construction of residential flats. For the valuation date 31.3.2009, furnishes the following date and requests you to compute the taxable wealth. a. land in urban area (construction is not permitted as per municipal laws in force) Rs. 20 lakhs b. motor cars ( in the use of the company) Rs.5 lakhs c. jewellery(investment) Rs.10 lakhs d. cash balance(as per books)Rs.2 lakhs e. bank balance(as per Books) Rs.3 lakhs f. guest House (situated in rural area)Rs.4 lakhs g. residential flat occupied by the managing director( annual remuneration of whom is Rs.6 lakhs excluding perquisites)Rs.8 lakhs h. residential house let-out 100 days in the financial years.7 lakhs i. loan obtained for purchase of motor car Rs.2 lakhs j. loan obtained for purchase of jewellery Rs.2 lakhs
Previous Year In The Case Of Newly Set-Up Business/ Profession- In the case of newly set-up business/ profession or in the case of a new source of income, the previous year is determined as followsFirst previous Year Starting point It commences on the date of setting up of the business/profession or on the date when the new source of income comes into existence Immediately following March 31 Second and subsequent previous years April 1
Ending point
Duration of Previous Year 12 months or less
March 31 of the following year 12 months
Who are included in ³person´ The term ³person´ in cludes: a. An individual; b. A Hindu undivided family; c. A Company; d. A Firm; e. An association of persons or a body of individuals, whether incorporated or not; f. A Local authority; and g. Every artificial juridical person not falling within any of the preceding categories. \Who is regarded as assessee ³ Assessee´ means a person by whom income-tax or any other sum of money is payable under the Act. It includes every person in respect of whom any proceeding under the Act has been taken for the assessment of his income or loss or the amount of refund due to him. It
also includes a person who is assessable in respect of income or loss of another person or who is deemed to be an assessee, or an assessee in default under any provision of the Act. Tax rate of assessment year- Income of previous year is chargeable to tax in the next following assessment year at the tax rates applicable for the assessment year. This rule is, however, subject to some exception.
Rates fixed by Finance Act- Tax rates are fixed by the annual Finance Act and not by the Income-tax Act. For instance, tax rates for the assessment year 2005-06 are fixed by the Finance Act, 2005. If, however, on the first day of April of the assessment year, the new Finance Bill has not been placed on the statue book, the provisions in force in the prevailing assessment year or the provisions proposed in the Finance Bill before parliament, whichever is more beneficial to the assessee, will apply until the new provision becomes effective.
Provisions as on April 1 of the assessment year applicable for computing income for the assessment year. Rule One ± For computing income- Total income is calculated in accordance with the provisions of the income-tax Act, as they stand on the first day of April of the assessment year.
Rule Two- For other purposes- The above rule is applicable only for the purpose of computing taxable income. To put it differently, it can be said that the provisions applicable on April 1 of the assessment year are relevant only for determining the taxable income for the assessment year.
Meaning of income: Income is a periodically monetary returns with some sort of regularity. It maybe recurring in nature. It may be broadly defined as the true increase in the amount of wealth, which comes to a person during a fixed period of time.
Regular and definite source ± The term ³ income ³ connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. The statement must, however, be read with reference to the facts of each case.
Different forms of income- Income may be received in cash or in kind. When income is received in kind, its valuation is to be made according to the rules.
If, however, there is no prescribed rule, valuation thereof is made on the basis of market value.
Receipt vs. Accrual- Income arises either on receipt basis or an accrual basis. Income may accrue to a taxpayer without its actual receipt. Moreover, in some cases, income is deemed to accrue or arise to a person without its actual accrual or receipt.
Illegal income- The income-tax law does not make any distinction between income accrued or arisen from a legal source and income tainted with illegality.
Disputed title- Income-tax assessment cannot be held up or postponed merely because of existence of a dispute regarding the title of income.
Relief or reimbursement of expenses not treated as income- Mere relief or reimbursement of expenses is not treated as income. For instance, reimbursement of actual traveling expenses to an employee is not an income.
Diversion of income by overriding title vs. Application of income- Where by an obligation, income is diverted before it reaches the assessee, it is ³ diversion of income´ and not taxable. Conversely, after earning the income, if it is required to be applied to discharge an obligation, it is merely an ³ application of income´ and income is chargeable to tax. In order to decide a result of fulfillment of an obligation on him to discharge an obligation after it reaches the assessee.
Surplus from mutual activity- A person cannot make taxable profit out of a transaction with himself. Income must, therefore, come from outside.
Tax-free income- If a person receives tax-free income on which tax is paid by the person making payment on behalf of the recipient, it has to be grossed up for inclusion in his total income.
Income includes loss- Income includes loss. While income, profits and gains represent ³ plus income´, losses represent ³ minus income´
Incomes should be real and not fictional- Income means real income and not fictional income. A person cannot make a profit by trading with himself or out of transfer of funds/ asset from one pocket to another pocket. Similarly, income does not arise in a transaction between head office and branch office even if goods are invoiced at a price higher than the cost price. Likewise, income does not accrue or arise at the time of revaluation of asset.
Source of income need not exist in the assessment year- It is not necessary that a source of income should exist in the assessment year. If there is an income during the previous year , it is chargeable to tax for the following assessment year even if the source of income does not exist during the assessment year.
Pin money- Pin money received by wife for her dress/ personal expenses and small savings made by a woman out of money received from her husband for meeting household expenses is not treated as her income
Award received by a sportsman ± In the case of a sportsman, who is a professional, the award received by him is in the nature of a benefit in exercise of his profession and, therefore, it is chargeable to tax
What is a gross total income As per section 14, income of a person is computed under the following five heads: 1. Salaries. 2. Income from house property. 3. Profits and gains of business or profession. 4. Capital gains. 5. Income from others sources.
Types of accounting methods- Mainly there are two types of accounting methods ± mercantile system and cash system
Mercantile System- Under mercantile system, income and expenditure are recorded at the time of occurrence during the previous year. For instance, income accrued during the year is recorded whether it is received during the previous year or during a year preceding or following the previous year.
Similarly, expenditure is recorded if it becomes due during previous year, irrespective of the fact whether it is paid during the previous year or not. The profit calculated under mercantile system is, thus, profit actually earned during the previous year, though not necessarily realized in cash.
Cash system- Under cash system of accounting, revenue and expenses are recorded only when received or paid. For instance, income received during the previous year is included in taxable income whether it is earned during the previous year or it is earned during the year preceding or following the previous year. Similarly, expenditure is deductible from the taxable income only if it is paid during the previous year, irrespective of the fact whether it relates the previous year or not. Income under cash system of accounting is, therefore, excess of receipts over disbursements during the previous year.
Income of a previous year is chargeable to tax in the immediately following assessment year. Is there any exception to this rule? Generally income generated during a previous year is taxable in the immediately following assessment year. In the five cases, given below , income is taxed in the year in which it is earned. Shipping business of non-residents [Sec. 172]- Section 172 is applicable if the following conditions are satisfiedCondition 1 Condition 2 Condition 3 Condition 4 The assessee is a non-resident He owns a ship or ship is chartered by the non-resident The ship carries passengers, livestock, mail or goods shipped at a part in India The non-resident may (or may not) have an agent/representative in India
If all the aforesaid conditions are satisfied, 7.5 percent of amount received (or receivable) on account of such carriage (including demurrage charge or handling charge or similar amount) by the non-resident shall be deemed to be the income of the non-resident. For this purpose, the master of the ship shall submit a return of income before the departure of the ship from the Indian port (such return may be submitted within 30 days of the departure of the ship, if the assessing officer is satisfied that it will be difficult to submit the return before departure and if satisfactory arrangement for payment of tax has been made).Unless tax has been paid (or satisfactory arrangements have been made for payment thereof), a part clearance shall not be guaranteed by the collector of customs.
Under the above noted provisions of section 172, 7.5 percent of amount of freight, fare, etc., is collected and not in the immediately following assessment year. Persons leaving India [Sec.174]-Section 174 is applicable as follows1. It appears to the assessing officer that an individual may leave India during the current assessment year or shortly after its expiry. 2. He has no present intention of returning to India. 3. The total income of such individual up to the probable date of his departure from India shall be chargeable to tax in that assessment year. Provision illustrated- X, a foreign citizen, is residing in India since 2000.While completing assessment for the assessment year 2005-06, on February 14,2006, the assessing officer comes to know that X will leave India on April 12,2006 with no intention of returning. In this case, the assessing officer will make three assessments for the assessment year 2005-06: a. regular assessment for the previous year 2004-05 (i.e., income of the period April 1, 2004 to March 31, 2005) b. assessment for the income of the period April 1, 2005 to March 31,2006; and c. assessment for the income of the period April 1, 2006 to April 12,2006. The above three income assessments shall be completed separately. For the first assessment , tax shall be chargeable at the rates applicable for the assessment year 2005-06. For the second and third assessments, tax shall be chargeable at the rates applicable for the assessment year 2006-07 which are given in part 3 of the First schedule to Finance Act, 2005.
Associations/ bodies formed for short duration [Sec 174A]- The provisions of Section 174A are given below1. There is an association of persons or a body of individuals or an artificial juridical person, formed or established or incorporated for a particular event or purpose. 2.It appears to the Assessing Officer that the above-mentioned association, body, etc., is likely to be dissolved in the assessment year (i.e.. April to March) in which such association of persons or body of individuals or artificial juridical person was formed are established or incorporated are immediately after such assessment year.
3. The total income of such association or body or juridical person for the period from the expiry of the previous year for that assessment year upto the date of its dissolution shall be chargable to tax in that assessment year.
Provisions illustrated- X Co. is an association of two individuals X and Y.It is formed on April 10,2004 for the purpose of completing a contract of given by a French company in India. It is likely to be dissolved on September 10, 2005. While processing the return submitted by the association for the assessment year 2005-06, the assessing officer comes to know on August 6, 2005 about the probable date of dissolution. In this case, the assessing officer will make two assessments for the assessment year 2005-06. a. Regular assessment for the previous year 2004-05 (i.e. income for the period April 10, 2004 to march 31,2005 ) ;and b. Assessment for the income of the period April 1 , 2005 to September 10,2005.
The above two income assessments shall be completed separately. For the first assessment, tax shall be chargeable at the rates applicable for the assessment year 2005-06. For the second assessment, tax shall be chargeable at the rates applicable for the assessment year 2006-07 which are given in part-3 of the first schedule to Finance Act, 2005. Persons like to transfer property to avoid tax (Section 175)- The salient features of Section 175 are given below.
1. It appears to the assessing officer during any assessment year that a person is likely to charge, sell, transfer, dispose of (or otherwise part with) any of his asset . 2. Such asset may be movable or immovable. 3. The tax payer is likely to part with asset with a view to avoiding payment of any liability under the Income-tax Act. 4. The total income of such person from the first day of the assessment year to the date when preceding is started under Section 175 is taxable in that assessment year. Provisions illustrated- On December 19, 2005, the assessing officer comes to know that X Ltd. Is likely to dispose of a house property during January 2006 with a view to avoiding payment of income- tax. A notice is issued by the assessing officer on December 28, 2005 to X.Ltd.Under Section 175 to submit return of income of the period commencing on April 1, 2005 to December 28, 2005.
In this case , income from April 1, 2005 to December 28,2005 is chargable to tax in the assessment year 2005-06 and tax will be calculated at the rate applicable for the assessment year 2006-07 given in part 3 of the first schedule to Finance Act, 2005. Discontinued Business(Section.176)- The salient features of Section 176 are given below.
1. A business or profession is discontinued in any assessment year. 2. Income of the business/profession from April 1 of the assessment year (in which the business/profession is discontinued to the date of discontinuation may be taxable in the assessment year in which the business profession is discontinued. 3. The above income is taxable at the discretion of the assessing officer in the assessment year in which business is discontinued or it may be taxed in the normal assessment year(i.e assessment year immediately following the previous year)
Provisions illustrated- X discontinues his business on August 10, 2005 in this case, income will be taxable as followsa. For the assessment year 2005-06 income of the previous year 2004-05 will be taxable; and b. Income of the period commencing on April 1, 2005 and ending on August 10, 2005 may be taxable at the discretion of the assessing officer in the assessment year 2005-06 at the rate applicable to the assessment year 2006-07 given in part 3 of the first schedule to Finance Act, 2005(on the other hand , the assessing officer may wait till the commencement of the normal assessment year and then income of the period : April 1,2005 to August 10, 2005 shall be taxed in the assessment year 2006-07 at the rate applicable to the assessment year 2006-07 which will be given in the part 1 of the first schedule to Finance Act, 2006.
CHAPTER 2- RESIDENTIAL STATUS AND ITS EFFECT ON TAX INCIDENCE How to determine residential status of an individual [Sec .6] An individual may be (a) Resident and ordinarily resident in India. (b) Resident but not ordinarily in India. (c) Non-resident in India Basic Conditions To Test As To When An Individual Is Resident In India- Under section 6(1) an individual is said to be resident in India in any previous year, if he satisfies atleast one of the following basic conditionsBasic condition (a) Basic condition (B) He is in India in the previous year for a period of 182 days or more. He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year
Exceptions: Exception one Who can take the benefit of extended period An Indian citizen who leaves India during the previous year for the purpose of employment outside India or an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship Extended period 182 days
Exception two Who can take the benefit of extended period Indian citizen or a person of Indian origin who comes on a visit to India during the Extended period
previous year Indian citizen or a person of Indian origin who comes on a visit to India during the previous year
182 days
150 days
Additional Conditions To Testas To When A Resident Individuals Is Ordinarily Resident In India- Under section 6(6) , a resident individual is treated as´ resident and ordinarily resident´ in India if he satisfies the following two additional conditionsAdditional condition (1) He has been resident in India in at least 2 out of 10 previous years [according to basic condition noted above] immediately preceding the relevant previous year He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
Additional condition (2)
It is not essential that the stay should be at the same place Where a person is in India only for a part of a day, the calculation of physical presence in India in respect of such broken period should be made on an hourly basis. Data is not available to calculate the period of stay of an individual in India in terms of hours, then the day on which he enters India as well as the day on which he leaves India shall be taken into account as stay of the individual in India
Resident but not ordinarily resident[Sec.6(1),6(a)]- An individual who satisfies at least one of the basic conditions but does not satisfy the two additional conditions is treated as a resident but not ordinarily resident in India. Non-resident-An individual is a non-resident in India if he satisfies none of the basic conditions. How to find out residential status of a Hindu Undivided Family [Sec.6 (2)] A Hindu undivided family (like an individual) is either resident in India or non-resident in India. A resident Hindu undivided family is either ordinarily resident. When a Hindu undivided family is resident or non-resident- A Hindu undivided family is said to be resident in India if control and management of its affairs is
wholly or partly situated in India.A Hindu undivided family is non-resident in India if control and management of its affairs wholly situated outside India. When a resident Hindu undivided family is ordinarily resident in India- A resident Hindu undivided family is an ordinarily resident in India if karta or manager of the family (including successive kartas) satisfies the following two additional conditions as laid down by section 6(6)(b): ]
Additional condition (1)
Additional condition (2)
Karta has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year Karta has been present in India for a period of 730 days or more during 7 years immediately preceding the previous year
How to determine residential status of firm and association of persons [Sec .6(2)] A partnership firm and an association of persons are said to be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are however, treated as non-resident in India if control and management of their affairs are situated wholly outside India. How to find out residential status of company [Sec.6 (3)] An Indian company is always resident in India. A foreign company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India.A foreign company is treated as non-resident if, during their previous year, control and management of its affairs is either wholly or partly situated out of India,
What is control and management- Usually control and management of a company¶s affairs is situated at the place where meetings of its board of directors are held. How to determine residential status of every other person [Sec.6 (4)] Every other person is resident in India if control and management of his affairs is, wholly or partly, situated within India during the relevant previous year.
What is the relationship between residential status and incidence of tax [Sec.5]
Under the Act, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. Indian income and foreign income- In order to understand the relationship between residential status and tax liability, one must understand the meaning of ³India income´ and ³ Foreign income´. Indian Income- Any of the following three is an Indian income 1. If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year. 2. If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year. 3. If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year.
Foreign income- If the following two conditions are satisfied, then such income is ³Foreign income´. a. Income is not received (or not deemed to be received) in India: and b. Income does not accrue or arise (or does not deemed to accrue or arise) in India. Connotation of receipt of income ±How is it understood. Income received in India is taxable in all cases irrespective of residential status of an assessee. The following points are worth mentioning in this respect: Receipt vs. Remittance- The ³receipt´ of income refers to the first occasion when the receipient gets the money under his control.Once an amount is received as income , any remittance or transmission of the amount to another place does not result in ³ receipt´ at the other place. Actual receipt vs. deemed receipt- It is not necessary that an income should be actually received in India in order to attract tax liability. An income deemed to be received in India in the previous year is also included in the taxable income of the assessee. Connotation of income deemed to accrue or arise in India-how is it understood: Nature of income Whether income For detailed is deemed to discussion, see accrue or arise para given below in India Income from business connection in India Sec a(1)(1) Yes 27.1 Income from any property, asset are source of income in Yes 27.2 India Sec a (1)(1)
Capital gain on transfer of a capital asset situated in India Sec a (1)(1) Income from salary if service Is rendered in India Sec a(1)(2) Income from salary(not being perquisite/allowance) if service is rendered outside India(provided the employer is government of India and the employee is a citizen of India) Sec a(1)(3) Income from salary if service is rendered outside India (not being a case stated above) Sec a(1)(2) Dividend paid by the Indian company Sec a(1)(4) Nature of income Interest Interest From whom income is received Government of India A person resident in India Payer¶s source of income Any Borrowed capital is used by the payer for carrying on business/profession outside India or earning any income outside India Borrowed capital is used by the payer of any other purpose
Yes Yes Yes
27.3 27.4 27.5
No Yes 27.6
Yes No
27.7 27.7
Interest
A person resident in India
Yes
27.7
Nature of income
Interest
A person nonresident in India
Interest
A person nonresident in India Government of India A person resident in India
Royalty/Fees for technical service Royalty/Fees for technical service
Borrowed capital is used by the payer for carrying on business/profession in India Sec a(1)(6) Sec a(1)(7) Borrowed capital is used by the payer of any other purpose Sec a(1)(6) Sec a(1)(7) Any Sec a(1)(6) Sec a(1)(7) Payment is relatable to a business or profession or any other source carried by the payer outside India Sec a(1)(6) Sec a(1)(7) Payment is relatable to any other source of income Sec a(1)(6) Sec a(1)(7) Payment is relatable to a business or profession or any other source carried by the payer outside India Sec a(1)(6) Sec a(1)(7) Payment is relatable to any other source of income Sec a(1)(6) Sec a(1)(7)
Whether income is deemed to accrue or arise in India Yes
For detailed discussion, see para given below 27.7
No
27.7
Yes
27.8 and 27.9
No
27.8 and 27.9
Royalty/Fees for technical service Royalty/Fees for technical service
A person resident in India A person nonresident in India
Yes
27.8 and 27.9
Yes
27.8 and 27.9
Royalty/Fees for technical service
A person nonresident in India
No
27.8 and 27.9
WEALTH TAX ACT, 1957. 1. 2. 3. 4. 5. Applicability of Wealth Tax Act Section 3(2) Individual HUF Company AOP chargeable u/s 21AA
Wealth Tax is not applicable Section 45 1. Company registered u/s 25 of Companies Act 2. Any Co-operative Society 3. Any social club 4. Any political party 5. Any Mutual Fund u/s 10(23D) The term ³individual´ includes the following persons: 1. Legal Heirs 2. Holder of an impartible estate 3. AOP u/s 21AA where the member¶s share is not definite. 4. Hindu deities 5. Trustees of a trust who are liable u/s 21A 6. Trade unions INCIDENCE OF TAX In the case of individual / HUF/ or Company Individual who is an Indian National or HUF a. ROR b. RNOR c. NR Assets located in India Taxable Taxable Taxable Assets located India Taxable Taxable Not Taxable Not Taxable Taxable Not Taxable outside
Individual who is a Taxable foreign national Resident Company Taxable Non ±resident Company Taxable
Individual who is an Debts incurred on assets Debts incurred on assets Indian National or HUF located in India located Outside India a. ROR b. RNOR c. NR Individual who is Deductible Deductible Deductible a Deductible Deductible Not deductible Not deductible Not deductible
foreign national Resident Company Non ±resident Company
Deductible Deductible
Deductible Not deductible
Definition of ³Asset´ under section 2(ea) of the Wealth Tax Act. Asset includes the following 1. Building or land appurtenant thereto: House used for a. Residential purpose b. Commercial purpose c. Guest house d. Farm house situated within 25 kms. From local limits of municipality. But the Asset does not include the following : a. Residential house allotted by a company to its employees/officer/executive who is in whole time employment and their gross salary is less than Rs.5lakhs. b. Residential or commercial house forming part of stock- in- trade. c. House occupied by the assessee for his own business or profession. d. Residential house let-out for a period of 300 days or more during the previous year. e. Property in the nature of commercial establishments or complexs. 2. Motor- cars But ³assets´ does not include the following: a. Motor-car used in the business of running on hire. b. Motor-car held as stock- in- trade. 3. Yachts, boats and aircrafts But ³assets´ does not include Yachts/boats/aircrafts used for commercial purpose and Ships.
4. Urban land. But ³assets´ does not include the following: a. Urban land on which construction of a building is not permissible under any law. b. Land occupied by any building constructed with the approval of appropriate authority. c. Land held for industrial purposes for a period of 2 years from the date of acquisition. d. Land held by the assessee as stock-in ± trade for a period of 10 years from the date of acquisition.
Meaning of urban land: is a land situated in a specified area u/s 2(1A) of the Income Tax Act i.e. a. Situated within municipality etc which has a population of not less than 10,000 as per the latest census on the first day of the previous year. b. Situated within 8 kilometers from the notified local limits.
5. Cash in hand In case of individual or HUF any amount in excess of Rs.50,000. For others, any amount not recorded in the books of accounts 6. Jewellery, bullion, furniture, utensils and any other article mmade wholly or partly of gold, silver, platinum or other precious metals But ³assets´ does not include the following: a. Jewellery,bullion furniture and utencils held as stock-in- trade in the business of the assessee. b. Gold deposit Bonds scheme,1999.
Other relevant points to be observed: Building owned by partners but used in firm¶s business chargeable to tax. - not an asset
The asset may be located anywhere but must belong to the assessee and held by him on the valuation date. For the purpose of taxability, the assessee must have the right of ownership over the property and not mere possession. Motor- cars cover all motor vehicle other than heavy vehicle. Hence buses, trucks, tempos are not considered as motor cars. However, jeep sport utility vehicle (SUV), multi utility vehicle (MUV) are classified as Motor-car. Aircrafts used by the assessee for its own business is not treated as commercial purpose. For example, aircrafts used for transporting goods of the assessee, or carrying its directors or executives or employees shall not be treated as used for commercial purposes. Valuation date: It refers to 31st March immediately preceding the assessment year. Wealth Tax is charged on the amount of net wealth as on the valuation date. The law in force on the first day of the assessment year, and not that on the valuation date, is applicable.
Chargeability of net wealth: Wealth Tax is chargeable @ 1% on the net wealth in excess of Rs.15 lakhs The amount of wealth tax, interest, penalty, fine or any other sum payable under the Wealth Tax Act shall be rounded off to the nearest rupee.
Exercise
1. 2. 3. 4. 5. 6. 7.
8.
X Ltd is engaged in the construction of residential flats. For the valuation date 31.3.2009, it furnishes the following data and requests you to compute the taxable wealth and wealth tax also. Land in urban area(construction is not permitted as per Municipal Laws in force) Rs.35,00,000 Motor-cars(used on hire by the company) Rs.7,00,000 Jewellery (investment) Rs.15,00,000. Loan taken for purchasing the same Rs.10,00,000 Cash balance(as per books) Rs.1,75,000 Bank balance Rs.2,50,000 Guest house (situated in a place which is 30 kms away from the local limits of municipality Rs.6,00,000 Residential flats occupied by the managing director Rs.10,00,000. The managing director is on whole time appointment and is drawing remuneration of Rs.2,00,000 p.m. Residential house were let on hire for 200 daysRs.8,00,000.
2. Y Ltd. is engaged in the construction of residential flats. For the valuation date 31.3.2009, furnishes the following date and requests you to compute the taxable wealth. a. land in urban area (construction is not permitted as per municipal laws in force) Rs. 20 lakhs b. motor cars ( in the use of the company) Rs.5 lakhs c. jewellery(investment) Rs.10 lakhs d. cash balance(as per books)Rs.2 lakhs e. bank balance(as per Books) Rs.3 lakhs f. guest House (situated in rural area)Rs.4 lakhs g. residential flat occupied by the managing director( annual remuneration of whom is Rs.6 lakhs excluding perquisites)Rs.8 lakhs h. residential house let-out 100 days in the financial years.7 lakhs i. loan obtained for purchase of motor car Rs.2 lakhs j. loan obtained for purchase of jewellery Rs.2 lakhs
