Q.1- Explain the meaning of income and identify its features.

Answer: Income is the consumption and savings opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time." In the field of public economics, the term may refer to the accumulation of both monetary and non-monetary consumption ability, with the former (monetary) being used as a proxy for total income. Money or other forms of payment (received periodically or regularly) from commerce, employment, endowment, investment, royalties, etc. Features of Income: The following features of income can help person to understand the concept of income: 1) Definite Source: Income has been compared with a fruit of tree or a crop from the field. Fruit comes from a tree and crop from field. 2) Income must come from outside: No one can earn income from himself. There can be no income from transactions between head office and branch office. 3) Tainted income: income earned legally or illegally remains income it will be taxed according to the provision of Act. 4) Diversion of income vs. application of income: Diversion of income means that a part of the income or whole of such income does not reach the assessee. It is diverted to some other person due to some legal obligation. 5) Temporary or permanent: Whether the income is permanent or temporary, it is immaterial from the tax point of view. 6) Dispute regarding the title: In case a person is receiving some income but his title to such receipts is dispute, it will not free him from tax liability. 7) Voluntary Receipts: The receipts which do not arise from the exercise of a profession or business or do not amount to remuneration and are made for reasons purely of personal nature are not included in the scope of total income. 8) Income in money or moneys worth: The income may be in cash or in kind. It is taxable in both cases. 9) Income of an assessee: Priest, from offering made by the devotes from time to time has been held as income but any spontaneous offering made out of respect, love and affection is of personal nature, hence not included in income. 10) Gifts to constitute income: An amount of gift received in cash or by cheque from a person or person other than a relative shall be deemed as income from other sources.

Q.2 - Explain how the residential status of Hindu Undivided Family (HUF), and Firm or Association of Persons (AOP) is determined for the purpose of calculating income . Answer: RESIDENTIAL STATUS OF A HINDU UNDIVIDED FAMILY As per section 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 or not ordinarily resident. HUF- 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 nonresident in India if control and management of its affairs is wholly situated outside India. Control and management means de facto control and management and not merely the right to control or manage. Control and management is situated at a place where the head, the seat and the directing power are situated. HUF- When ordinarily resident in India A resident Hindu undivided family is an ordinarily resident in India if the 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 (i) Karta has been resident in India in at least 2 out of 10 previous years [according to the basic condition mentioned in Para 12.1-1] immediately preceding the relevant previous year Additional condition (ii) Karta has been present in India for a period of 730 days or more during 7 years immediately preceding the previous Year If the karta or manager of a resident Hindu undivided family does not satisfy the two additional conditions, the family is treated as resident but not ordinarily resident in India. When a resident Hindu undivided family is ordinary resident or Not ordinary resident: A resident Hindu undivided family is an ordinary resident in India if Karta or manager of the HUF satisfies the following two additional conditions 1. Karta has been resident in India at least 2 out of 10 previous years immediately preceding the relevant previous year 2. Karta has been present in India for 730 days or more during 7 years immediately preceding the previous year

If Karta of HUF does not satisfy the two additional conditions, the HUF is treated as resident but not ordinary resident RESIDENTIAL STATUS OF FIRM AND ASSOCIATION OF PERSONS As per section 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.

Q.3 - Explain the scope of salary. Answer: Salary, in simple words, means remuneration of a person, which he has received from his employer for rendering services to him. But receipts for all kinds of services rendered cannot be taxed as salary. The remuneration received by professionals like doctors, architects, lawyers etc. cannot be covered under salary since it is not received from their employers but from their clients. So, it is taxed under business or profession head. In order to understand what is included in salary, let us discuss few characteristics of salary. Scope of Salary:1) The relationship of payer and payee must be of employer and employee for an income to be categorized as salary income. For example: Salary income of a Member of Parliament cannot be specified as salary, since it is received from Government of India which is not his employer. 2) The Act makes no distinction between salary and wages, though generally salary is paid for non-manual work and wages are paid for manual work. 3) Salary received from employer, whether one or more than one is included in this head. 4) Salary is taxable either on due basis or receipt basis which ever matures earlier: a) Due basis when it is earned even if it is not received in the previous year. b) Receipt basis when it is received even if it is not earned in the previous year. c) Arrears of salary- which were not due and received earlier are taxablewhen due or received, which ever is earlier. 5) Compulsory deduction from salary such as employees contribution to provident fund, deduction on account of medical scheme or staff welfare scheme etc. are examples of instances of application of income. In these cases, for computing total income, these deductions have to be added back.

INCOMES FORMING PART OF SALARY: Section 17 of the Act gives an inclusive definition of salary. Broadly, it includes: 1. Basic salary 2. Fees, Commission and Bonus 3. Taxable value of cash allowances 4. Taxable value of perquisites 5. Retirement Benefits Although, all the components of salary income are included in salary, there are certain incomes in each of these categories, which are either fully exempt or exempt upto a certain limit. The aggregate of the above incomes, after the exemption(s) available, if any, is known as Gross Salary. From the Gross Salary, the following three deductions are allowed under Section 16 of the Act to arrive at the figure of Net Salary: 1) Standard deduction - Section 16 (i) 2) Deduction for entertainment allowance Section 16 (ii) 3) Deduction on account of any sum paid towards tax on employment Section 16(iii).

Q.4 - Explain ownership of property. Answer : Ownership of Property The assessee for taxation of income from house property must be the owner. An 'owner' of the property is one who can exercise the rights of the owner. The word 'owner' refers to the owner of the property and not to the owner of its annual value. The definition of the term 'owner of house property' has been extended beyond mere legal ownership to also cover the cases of deemed ownership. A person is deemed as owner in following cases: As transferor of the property to spouse or minor child for inadequate or no consideration As holder of an impartibly estate or a property in part performance of a contract under the Transfer of Property Act As share holder of a co-operative society or a company, who entitles to hold any property, etc.

Types of property Personal property Personal property is a type of property.. In the civil law systems personal property is often called movable property or movables - any property that can be moved from one location or another. This term is used to distinguish property that different from immovable property or immovables, such as land and buildings. Land ownership Real estate or immovable property is a legal term (in some jurisdictions) that encompasses land along with anything permanently affixed to the land, such as buildings. Real estate (immovable property) is often considered synonymous with real property, in contrast from personal property (also sometimes called chattel or personality). Corporations and legal entities An individual or group of individuals can own shares in corporations and other legal entities, but do not necessarily own the entities themselves. A legal entity is a legal construct through which the law allows a group of natural persons to act as if it were an individual for certain purposes. Intellectual property Intellectual (IP) property refers to a legal entitlement which sometimes attaches to the expressed form of an idea, or to some other intangible subject matter. This legal entitlement generally enables its holder to exercise exclusive rights of use in relation to the subject matter of the IP. Chattel slavery The living human body is, in most modern societies, considered something which cannot be the property of anyone but the person whose body it is. This is in contradistinction to chattel slavery. Chattel slavery is a type of slavery defined as the absolute legal ownership of a person or persons, including the legal right to buy and sell them.

Q.5 Discuss how agriculture income is exempted from income tax. Answer : 1. Continuation of Exemption of Agricultural Income under the New Code Section 10 read with Entry in Sl. No. 1 of the Sixth Schedule of the Direct Taxes Code Bill, 2010 (hereinafter DTC) exempts Agricultural Income from Income Tax. The Discussion Paper on the Direct Taxes Code explains the rationale for the exemption and I quote, On account of the assignment of the taxing powers under the Constitution to the States, agricultural income has been excluded from the scope of this Code. 2. Benefits of Exemption Extended to Urban Agricultural Land. Clause (12) of Section 284 of the DTC Bill, 2010 defines Agricultural Land as any land situated in India which is used for agricultural purposes and,(a) is assessed to land revenue in India; or (b) is subject to a local rate assessed and collected by officers of the Government as such. Under the Income Tax Act, 1961 Agricultural Land means any land situated in India which is used for agricultural purposes and,(a) is assessed to land revenue in India; or (b) is subject to a local rate assessed and collected by officers of the Government as such but does not include: (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the

Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. 3. Capital Gains on Agricultural Land Clause 284(151) of DTC Bill, 2010 defines Investment Asset as any capital asset which is not a business capital asset. Further, clause 284(46) of DTC Bill, 2010 defines Capital Asset as property of any kind held by the assessee which is not a business trading asset. 4. Agricultural Income to be taken into Consideration for Rate purposes. PART II of the First Schedule Rates of Income Tax under the DTC Bill, 2010 provide for aggregation of net agricultural income with total income from ordinary sources for rate purposes. The proposed provisions are similar in material respects to existing provisions under the Annual Finance Act.

Q.6 - Try to identify and explain the incomes chargeable to income tax under profits and gains of business or profession. Answer : Incomes Chargeable To Tax Under The Head Profits And Gains Of Business Or Profession [Section 28] 1) Profits and gains of any business or profession carried on by assessee at any time during previous year. 2) Compensation or other payment due to or received by any person a) Managing whole or substantially whole of affairs of an Indian company or any other company in India at or in connection with the termination of his management or modification of the terms and conditions relating thereto; b) On termination or modification of contract of his agency in India; c) For vesting the management of any property or business in Government or any corporation owned or controlled by the Government.

3) Income derived by trade, professional or other similar association from specific Services rendered to its members. This clause is an exception to general rule that income from mutual activity is not chargeable to tax. 4) Profits on sale of import license; or Profits on transfer of Duty Entitlement Pass Book (DEPB) or Duty Free Replenishment Certificate (DFRC) under EXIM Policy; 5) Cash assistance against exports from Government of India and Duty Drawback; 6) Value of any benefit or perquisite, whether convertible into money or not arising from exercise of business or profession; 7) Interest, salary, bonus, commission or remuneration due to or received by partner from the firm. Such income is taxable in hands of partners to the extent it is allowed as deduction in hands of firm. Any amount not allowed as deduction to firm under Section 40(b), is not taxable in the hands of partner. 8) Any sum received or receivable, in cash or in kind, under an agreement for a) Non-competition i.e. not carrying out any activity in relation to any business; or b) Exclusivity i.e. not sharing any know-how, patent, copyright, trademark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision of services. Exceptions : However, sum received for transfer of business, or transfer of right to manufacture, produce or process any article/thing, which is chargeable under Capital Gains is not taxable under this Section. 9) Any sum (including bonus) received under Key man Insurance Policy.