B.Com. LL.B. (Five Years) Sem 7 Law of Taxation 2013 Dec Question Paper with Solutions

For full marks, cover: the concept of income tax (a tax on the income of persons, levied by the Union under entry 82 of List I, with no tax save by authority of law, article 265); its origins (24 July 1860, the 1922 and 1961 Acts, the Income-tax Act, 2025); how widely "income" is read (Navinchandra Mafatlal, Bhagwan Dass Jain, G.R. Karthikeyan); the charge (section 4 of the Income-tax Act, 1961); its nature: a direct tax, on persons, annual, on total income of the previous year, at rates set each year by the Finance Act, progressive, shared with the States (article 270); its characteristics, listed; a table; the 2025 Act.

Concept

Income tax is a tax charged on the income of persons. The Union alone levies it, under entry 82 of List I of the Seventh Schedule: "Taxes on income other than agricultural income". Tax on agricultural income is a State subject (entry 46 of List II). Article 265 adds that no tax shall be levied or collected except by authority of law. So every rupee of income tax must rest on the words of a statute.

Bhagwan Dass Jain v. Union of India, AIR 1981 SC 907, decided on 11 February 1981. An assessee argued that including the notional annual value of the house he lived in was not a tax on income at all. In his view it was a tax on buildings, which only States may levy. The Supreme Court disagreed. "Income" in entry 82 is not limited to money actually received. It includes the annual value of a self-occupied house, as the 1922 Act had always provided. The levy was valid.

Commissioner of Income Tax, Madras v. G.R. Karthikeyan, AIR 1993 SC 1671, decided on 22 April 1993. A prize won in a motor rally was held to be income. The definition in section 2(24) is inclusive, and a receipt may be income even if no sub-clause names it.

The charge (section 4)

Section 4 of the 1961 Act is the charging section. Where a Central Act fixes the rates for an assessment year, income tax is charged at those rates. It is charged for that year on the total income of the previous year of every person. This one section brings out most of the features of the tax.

Nature of income tax

1. Total income, not each receipt. Income is computed under five heads: salaries, house property, business or profession, capital gains, and other sources (section 14). The heads are pooled into total income.
2. Residence decides the reach. A resident is taxed on world income. A non-resident is taxed only on income received or arising in India (sections 5, 6).
3. Exemptions and deductions. Some incomes are wholly exempt, such as agricultural income (section 10). Deductions under Chapter VI-A reduce total income.
4. Collected in advance. Much of the tax is collected as income is earned, by deduction and collection at source and by advance tax.
5. Self-assessment. The assessee files his own return and pays the tax due on it. The Department then processes or scrutinises it.
6. Statutory and strictly read. Since tax rests only on law (article 265), the charge must be clear. A benefit, such as an exemption, must be claimed on its own terms.
7. Administered by the Central Board of Direct Taxes, with appeals to the Commissioner (Appeals), the Appellate Tribunal and the courts.

The Income-tax Act, 2025

From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. It uses a single tax year in place of the previous year and assessment year, but keeps the nature and characteristics described above.