Income which do not form part of Total Income

.    Agriculture Income
    According to Sec. 2(1A) Agriculture Income means :
a)    Any rent or revenue derived from land, which is situated in India and is used for agricultural purposes.
b)    Any income derived from such land by agricultural operations including processing of the agricultural produce raised or received rent-in-kind so as to render it fit for the market for sale of such produce; and
c)    Income attributable to a farm house subject to the condition that the building is situated on or in the immediate vicinity of the land and used as a dwelling house, store house or other out building and the land is assessed to land revenue or a local rate or in the alternative, the building is situated on or in the immediate vicinity of land which (though not assessed to land revenue or local rate) is situated outside the urban areas, i.e. any area which is comprised within the jurisdiction of a municipality or cantonment board having a population of ten thousand or more or in any area within eight kilometers from the local limits of such municipality or cantonment board.
Important :
Sec. 10(1) exempts agriculture income from income tax. But it is taken for rate purpose.
2.    Integration of agriculture income with non-agriculture income :
    The partial integration is done to compute the tax on non-agricultural income only when the following two conditions are satisfied:
(i)    The tax payer has non agricultural income exceeding the amount of exemption limits (i.e. Rs. 190000) (in the case a resident woman below 65 yrs.), Rs. 240000 (in the case of a resident seniorBusiness Income : The sale proceeds received from biscuits less the fair market value of wheat when it is utilised in the business and subsequent experses incurred for manufacturing of biscuits.
4.    Tea Business (Rule 8)
    The income in respect of the business of growing tea leaves and manufacturing tea is in the first instance computed under the Act as if it were derived from business. After making permissible deductions, 40% of the income so arrived at is treated as business income and the balance 60% is treated as agricultural income. Salary and profit received by a partner from a firm (growing leaves and manufacturing tea) is taxable only to the extent of 40% and the balance 60% is treated as agricultural income. But dividend received from a company, growing leaves and manufacturing tea, is not apportionable in the aforesaid manner.
5.    Rubber business (Rule 7A)
    Income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and 35% of such income shall be deemed to be income liable to tax. The balance 65% shall be deemed as agriculture income.
6.    Coffee business (Rule 7B)
    Income from the sale of Coffee grown and manufactured in India is dealt as under :
a)    where income is derived from the sale of coffee grown and cured, 25% shall be deemed to be business income liable to tax and the remaining 75% will be deemed as agriculture income.
b)    apart from sale of coffee grown and cured if assessee is engaged in roasting and grounding of coffee then 40% shall be deemed as business income liable to tax and remaining 60% will be deemed as agriculture income.
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SCOPE OF TOTAL INCOME AND RESIDENTIAL STATUS

1.    RESIDENTIAL STATUS :

Tax liability of an assessee varies with his residence or residential status. Hence, the first inquiry should be about residence of the assessee. Tests of residence as specified in Sec. 6 are based on his territorial connection in previous year and are different in case of different assessable units, e.g., individual, Hindu undivided family, firm and company.It is important to note that “residential status” is absolutely different from the term “citizenship”. A person may be Indian citizen but may not be resident in India. Similary, a person may be a foreign citizen, but may be resident in India.The assessee are divided into following three categories :

(i)    Resident
(ii)    Not Ordinary Resident
(iii)    Non Resident

The residential status of a person is required to be determined for each assessment year  to determine the scope of total income. Residential status will be determined on the basis of certain conditions for each person separately.

2.    INDIVIDUAL
    CONDITION NO. 1
Resident : An individual is said to be resident in India in any previous year if he fulfills any one of the following two basic conditions :
(1)    He is in India in that year for a period 182 days or more :
(2)    He is in India for a period 60 days or more during the previous year and 365 days or more during the 4 years preceding that previous year.
Exception :
Under the following circumstances the period of 60 days as mentioned above will be extended to 182 days.
accordance with sec. 6 of the Income-Tax Act, the income chargeable to tax as part of total income shall be identified as follows :—

 S.       Particulars     Resident &    Resident    Non-   ordinarily     but not    Resident  resident  ordinarily    resident

(i)    Income received or deemed to be    Taxable    Taxable    Taxable  received in India.
(ii)    Income accruing or arising or    Taxable    Taxable    Taxable deemed to accrue or arise in India. 
(iii)    Income accruing or arising outside
    India from—
    a)    Business controlled in India     Taxable    Taxable    Not Taxable
        or Profession set up in India.                
    b)    Any other source    Taxable    Not Taxable    Not Taxable
(iv)    Income which accrue or arises    Not Taxable    Not Taxable    Not Taxable
    outside India and received outside
    India during the year preceding the
    previous year and remitted to India
    during the previous year
7.    INCOME DEEMED TO BE RECEIVED (Sec. 7) :
    The following income shall be deemed to be received in the previous year :
(i)    Employer’s contribution to recognized provident fund in excess of 12% of salary.
(ii)    Interest credited to the recognized provided fund balance at the credit of the assessee in excess of 9.5%.
(iii)    The taxable transferred balance from unrecognized to recognized provident fund.
(vi)    Contribution made by the Central Govt. in the previous year, to the account of employee under pension scheme referred to in section 80CCD (w.e.f. A.Y. 2005-06).
(v)    Tax deducted at source.
(vi)    Investment, expenditure, cash credit, cash, gold etc. detected during the previous year which are unexplained [Sec. 68, 69, 69A, 69B and 69C]
8.    DIVIDEND INCOME (Sec. 8) :
    Dividend is includible in the total income of the assessee on the following basis :
    S. No.    Type of dividend    Year of chargeability in the hands of the assessee
    (i)    Final dividend    Previous year in which the dividend is declared by the company
    (ii)    Interim dividend    Previous year in which the dividend is unconditionally made available by the company.
    (iii)    Deemed dividend    Previous year in which such dividend is distributed or
        u/s 2(22)    paid.
Important :
The taxability of dividend income declared by domestic companies are exempted in the hands of shareholders u/s 10(34). According to Sec. 115-O, every domestic company is liable to pay dividend distribution tax of 12.5%. It is important to mention that Sec. 115-O does not apply to a foreign company and deemed dividend covered by Sec.2(22)(e). Therefore, a shareholder continues to be liable to tax in respect of such dividends.
9.    INCOME DEEMED TO ACCRUE OR ARISE IN INDIA (Sec. 9) :
    The following incomes shall be deemed to accrue or arise in India :
(i)    Income accruing or arising through or from any business connection in India. If all the operations of a
business are not carried out in India, only a reasonable part of the Income from such business shall be deemed to accrue or arise in India.
(ii)    Income through or from any property, any asset or source of income in India.
(iii)    Income through the transfer of a capital asset situated in India.
(iv)    Income chargeable under the head “Salaries” earned for services rendered in India. Income which falls under the head “Salaries” shall be regarded as income earned in India if the income is payable for :
a.    Service rendered in India; and
b.    the rest period or leave period which is preceded and succeeded by service rendered in India and forms part of the service contract of employment.
    This provision should be read along with sec. 10(6) which grants exemption in respect of salary earned by Foreign Nationals under certain circumstances and subject to certain conditions.
(v)    Salary paid by the Government to a citizen of India for service rendered outside India. It may be noted that allowances and perquisites paid outside India by the Government is exempt by virtue of sec. 10(7).
(vi)    Dividend paid by an Indian company outside India.
(vii)    Interest, Royalty and fees for technical services as indicated below :


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Introduction, Scheme And Definitions

INCOME TAX is the major source of revenue for the government, entry 82 of the union list of the Seventh Schedule read with Article 246(i) of THE CONSTITUTION OF INDIA empowers the parliament to make law with respect to taxes on income other than agriculture income Although administration and collection of taxes rest with the central government but net proceeds of the taxes are shared by state government on the basis of recommendation of the Finance Commission appointed by the president of India every five years.           
1.    Income Tax Law :
    Proper understanding of the Income – Tax law requires a study of the following.
(A)    The Income-Tax Act, 1961
(B)    The Finance Act (Annual)
(C)    The Income-Tax Rules, 1962
(D)    Circulars and Clarification by CBDT
(E)    Judicial decisions
(A)    The Income - Tax Act, 1961 :
    The provisions of income tax are contained in the Income-Tax Act, 1961 which extends to the whole of India and became effective from  1.4.1962. The Income-Tax Act contains provisions for determination of total income, determination of tax on total income procedure for return and assessment, appeals, penalties and prosecutions, powers and duties of various income-tax authorities. It is important to note that since Income-Tax Act, 1961 is a revenue law, there are bound to be amendments from time to time by the Annual Finance Act. Various provisions made at a glance under Income Tax Act, 1961 chapter wise and section wise are given at the beginning of this book for the benefit of reader.

(B)    The Finance Act (Annual) :
    Basically Finance Act contains two important functions :
(i)    Amendments which are required to be made in the area of direct and indirect taxes by the Central Government.

(ii)    Rates of Income-tax and other taxes
    It is important to note that Finance bill is presented before the parliament by the Finance Minster and after approval, it becomes Finance Act.

Income-Tax
    Individuals, Hindu undivided families, AOPs, BOIs - The rax rates applicable to individuals are also applicable to a Hindu undivided Family, an association of persons, body of individuals or an artificial juridical person. The rates applicable for the assessment year 2010-11 are as follows:

    •    For resident woman (who is below 65 years at any time during the previous year) -

    Net Income Range                       Income Tax Rates
    Up to Rs. 1,90,000                       Nil
    Rs. 1,90,000 - Rs. 3,00,000        10%
    Rs. 3,00,000 - Rs. 5,00,000        20%
    Above Rs. 5,00,000                     30%

•    For resident Senior Citizen (who is 65 years or more at any time during the previous year) -

    Net Income Range                           Income Tax Rates
    Up to Rs. 2,40,000                          Nil
    Rs. 2,40,000     - Rs. 3,00,000        10%
    Rs. 3,00,000 - Rs. 5,00,000            20%
    Above Rs. 5,00,000                        30%
•    For any other individual, HUF/AOP/BOI/Artificial Juridical person-

    Net Income Range                           Income Tax Rates
    Up to Rs. 1,60,000                          Nil
    Rs. 1,60,000     - Rs. 3,00,000        10%
    Rs. 3,00,000 - Rs. 5,00,000            20%
    Above Rs. 5,00,000                        30%

Notes:
1.     Surcharge - NIL
2.    Education Cess - 2%
3.    Secondary & Higher Education Cess - 1%
Firms
    A firm is taxable at the rate of 30%.
Notes:
1.     Surcharge - NIL
2.    Education Cess - 2%
3.    Secondary & Higher Education Cess - 1%
Company
    For the assessment year 2010-11 the following rates of income tax are applicable.

Company    Rate of Income Tax
In the case of a domestic company    30%
In the case of a foreign company
• Royalty received from government or an Indian Concern in pursuance of an
agreement made by it with the Indian Concern after March 31, 1961,but before
April 1st, 1976, or fees for rendering technical services in pursuance of an
agreement made by it after Feb. 29, 1964 but before April 1st, 1976 and where
such agreement has,in either case, been approved by the central Govt.    50%
• Other Income                        40%
Surcharge :
                If net income does        If net income does   
                not exceed Rs.1Crore        exceed Rs.1Crore
Domestic Company        Nil                10%
Foreign Company        Nil                2.5%
It is 2.5% or 10% of income tax. Marginal relief is available which is given below:
Marginal Relief :
In the case of a company having a net income of exceeding Rs. 1 crore, the net amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs. 1 Crore by more than the amount of income that exceeds Rs. 1 crore.
Education Cess - 2%
Secondary Higher Education Cess - 1%
Cooperative Society
Net Income Range                Rate of Income Tax   
Upto Rs. 10,000                     10%
Rs. 10,000 - Rs. 20,000                 20%   
Rs. 20,000 and above                30%   
Surcharge - Nill
Local Authorities     It is taxable at the rate of 30%.
Surcharge - Nill
(C)    Income-tax Rules, 1962 (amended upto date):
    Every Act normally gives power to an authority, responsible for implementation of the Act, to make rules for carrying out purposes of the Act. Section 295 of the Income-tax Act has given power to the Central Board of Direct Taxes (CBDT) to make such rules, subject to the control of Central Government, for the whole or any part of India. These rules are made applicable by notification in the Gazette of India. These rules were first made in 1962 and are known as Income-tax Rules, 1962. Since then, many new rules have been framed or existing rules have been amended from time to time and the same have been incorporated in the aforesaid rules. If a conflict is detected between any rule and provision of the Act, the provision of the Act shall prevail.
(D)    Circulars and Clarifications by CBDT :
    The CBDT in exercise of the powers conferred on it under section 119 has been issuing certain circulars and clarifications from time to time, which have to be followed and applied by the Income-tax Authorities. Such circulars or clarifications are binding upon the Income-tax Authorities, but the same are not binding on the assessee, although the assessee can claim benefit under such circulars. [UCO Bank v CIT (1999) 237 ITR 889 (SC)].
(E)    Judicial Decisions :
    Any decision given by the Supreme Court becomes a law which will be applicable on all the assessees. Decisions given by a High Court, Income-Tax Appellate Tribunal, etc. are binding on all the assessees as well as the Income-Tax Authorities which fall under their jurisdiction, unless it is over-ruled by a higher authority. The decision of a High Court is binding on the Tribunal and the Income-Tax Authorities situated in the area.
2.    Definitions :
    General definitions are given in section 2 of the Income Tax Act and some definitions that are related with specific heads or chapters are given in that heads or chapters. When definition uses the words “means” the definition is self explanatory & exhaustive in nature. But some time legislature wants to widen the scope of a term, so it uses the word “includes” in definition. Hence the inclusive definition provides an illustrative meaning. Hence we conclude, the definition could include what is not specifically mentioned in the definition. When legislature intends to define a term to mean something and also intend to specify certain items to be included, both the words “means” as well as “includes” are used. Such definition is not only exhaustive in nature but also illustrative. ..........

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