Introduction to Income Tax Long Answer Type Questions
Question 1.
What are the types of assessment? Briefly discuss self-assessment?
Answer:
Types of assessment – Various types of assessment are:
1. Self-assessment: The assessee is required to make a self-assessment and pay the tax on the basis of the returns furnished. Any tax paid by the assessee under self-assessment is deemed to have been paid towards regular assessment.
2. Regular assessment: On the basis of the return of income chargeable to tax furnished by the assessee, intimation shall be sent to the assessee informing him about the tax or interest payable or refundable to him.
3. Best judgement assessment: In a best judgement assessment the assessing officer should really base the assessment on his best judgement i.e. he must not act dishonestly or vindictively or capriciously. There are two types of judgement assessment:
(i) Compulsory best judgement assessment made by the assessing officer in cases of non-co-operation on the part of the assessee or when the assessee is in default as regards supplying informations.
(ii) Discretionary best judgement assessment is done even in cases where the assessing officer is not satisfied about the correctness or the completeness of the accounts of the assessee or where no method of accounting has been regularly and consistently employed by the assessee
4. Income escaping assessment or re-assessment: If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year assess or reassess such income and also nay other income chargeable to tax which has escaped assessment and which comes to his notice in course of the proceedings or any other allowance, as the case may be.
5. Precautionary assessment: Where it is not’ clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.
Question 2.
List some examples of agricultural income and non-agricultural income.
Answer:
Agricultural Income:
- Share of profit or salary received by partner from a firm involved in agricultural operation.
- Rent received for agricultural land from tenant or sub-tenant.
- Interest received by partner for his capital in a firm which is involved in agricultural operation
- Income from sale of replanted trees and from growing flowers and creepers.
- Fees collected for allowing cattle to graze on forest land of spontaneous growth.
- Compensation received from insurance company due to damage of tea garden from hailstorm.
Not an agricultural income:
- Income received from dairy or poultry farming
- Dividend paid by a company out of its agricultural income
- Income from mining
- Income from sale of earth for brick making
- Income from forest trees of spontaneous growth of wood bark, leaves, fruits etc.
- Income from marketing process, fisheries, etc.
- Income from supply of water for irrigation purpose
- Income from stone quarries
- Income of salt produced by flooding of land with sea water
- Interest on arrears of rent payable in respect of agricultural land
- Interest received by a money lender In form of agricultural produce.
- Transfer of urban agricultural land
- Rental income from a farm house given for non agricultural purpose is not treated as agricultural income.
Question 3.
What are the rates of tax applicable for the Assessment Year 2020-2021?
Answer:
Tax Rate for any Individuals, HUF, AOP, BOI & Artificial Persons
1. Resident senior citizen, l.e., every individual, being a resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:
| Net income range | Income-tax rates |
| Up to – 3,00,000 | Nil |
| 3,00,000 – 5,00,000 | 5% |
| 5,00,000 – 10,00,000 | 20% |
| above – 10,00,000 | 30% |
2. Resident super senior citizen, i.e., every individual, being a resident in India, who is of the age of 80 years or more at any time during the previous year:
| Net income range | Income-tax rates |
| Up to – 5,00,000 | Nil |
| 5,00,000 – 10,00,000 | 20% |
| above – 10,00,000 | 30% |
3. Individual (resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year:
| Net income range | Income-tax rates |
| Up to – 2,50,000 | Nil |
| 2,50,000 – 5,00,000 | 5% |
| 5,00,000 – 10,00,0.00 | 20% |
| above – 10,00,000 | 30% |
Plus:
Surcharge: 10% of tax where total income exceeds 50 lakh
15% of tax where total income exceeds 1 crore
25% of tax where total income exceeds 2 crore
37% of tax where total income exceeds 5 crore
Health and Education cess 4%
Rebate U/S 87A: A resident individual is entitled for rebate u/s 87A if his total income does not exceed 5,00,000. The amount of rebate shall be 100% of income- tax or 12,500, whichever is less.
Question 4.
What are the powers of assessing officer?^ OR Briefly explain the powers and functions of Income Tax Officer.
Answer:
| Section | Powers |
| 38 | Determine the proportion of expenses for allowing deduction in respect of premises used partly for the purpose of business or profession. |
| 89 | Grant relief U/s 89(1) for arrears of salary received |
| 131 | Discovery, production of evidence etc. |
| 132 | Search and seizure |
| 132A | Requisition books of accounts |
| 132B | Apply the assets seized and retained U/s 132 in satisfaction of existing liabilities under the Act. |
| 133 | Call for information |
| 133B | Collect certain information |
| 134 | Inspect register of companies |
| 139A | Allot PAN |
| 140A | Impose penalty for non-payment of self-assessment tax |
| 142(2A) | Direct an assessee to get his accounts audited |
| 143,144 | Make assessment |
| 147 | Reassess income which escaped assessment |
| 154 | Rectify mistakes apparent from the records |
| 194,195,197 | Grant certificate to an assessee to receive a payment without deduction of tax at source or deduction of tax at source at a lower rate than prescribed. |
| 221 | Impose penalty for default in payment of tax |
| 237,240 | Grant refund |
| 241 | Withhold refund in certain cases |
| 245 | Adjust refund against any demand of tax etc. outstanding against the assessee |
Question 5.
Enumerate the powers of Central Board of Direct Taxes under various provisions of the Act.
Answer:
| Section | Powers |
| 2(17) | Declare any institution, association or body to be a company. |
| 2(18) | Declare a company having no share capital as company in which public is substantially interest |
| 11(1)(c) | Direct that income from house property held under trust will not be included in the Total Income of the person in receipt of such income. |
| 44AA | Notify compulsory maintenance of accounts for any profession. |
| 80RRA | To prescribe the field in which the person may have specialised knowledge and experience to be called a ‘technician’ |
| 80U | Make rules and specify the permanent physical disability for deduction U/s 80U |
| 118 | Exercise control over Income-tax authorities |
| 119 | Issue orders, instructions and directions to subordinate authorities. Exceptions: (i) Order, instruct or direct any income tax authority to make assessment or to dispose a particular case in a particular manner (ii) Interfere with the discretion of the CIT (Appeals) in the exercise of appellate functions. |
| 120 | Direct Income tax authorities regarding exercise of their powers and functions. |
| 132 | Specify the income tax authorities who are empowered to issue summons for search and seizure |
| 138 | Require any authority, body or officer, to disclose information regarding the assessee |
| 246 | Transfer or to authorise the CIT to transfer any appeal pending before First Appellate Authority |
| 288 | Prescribe educational qualifications of authorised representatives |
| 293B | Condone delay in obtaining Board approval, wherever such approval is necessary |
| 295 | Make rules for carrying out the purposes of the Act, subject to Central Government control. |
Special powers u/s 119(2):
- Issue orders in certain cases by way of relaxation or otherwise
- Extend time limit to admit an application or claim
- Relax any requirement.
Practical Problems
Question 1.
Natural Company Ltd. sells both tea and rubber which are produced in the company’s own farms.
The profits earned from Tea business is ‘ 9,50,000 and from rubber is’ 8,00,000. What will be their agricultural income for the assessment year 2020-21.
Solution:
65% of income of the Tea company and rubber company should be treated as agricultural income. Therefore,
| Agricultural income | 5,70,000 |
| Tea – 9,50,000 x 60/100 | 5,20,000 |
| Rubber – 8,00,000 x 65/100 | 10,90,000 |
Question 2.
Sweet Sugar Ltd. grows sugarcane and manufactures sugar out of it.
For growing sugarcane, the cultivation cost including ploughing and manure is 60,000
The sales of sugar during the P.Y is 2,50,000
The manufacturing cost is 1,00,000
If the company would have sold sugarcane in the market without spending on manufacturing, the market value for sugarcane was 85,000.
Find out income from business and income from Agriculture for the
Question 3.
State whether the following constitute agricultural income or not.
(a) Mr. A is a partner a firm having coffee plantation and receives a monthly salary from the firm to its work. He also gets a share in the balance of profits of the firm. His annual salary was 96,000 which he claims to be agricultural income.
(b) Mr. Bharath is the manager of a mechanised agricultural firm and received a salary of 72,000, which he claims to be exempt from tax being agricultural income.
(c) Mr. Sachin is a shareholder of a plantation company and receives dividend of 20,000 from the company which he claims to be agricultural income thus exempt from
tax.
Solution:
(a) Salary of 90,000 received by Mr. A, a partner of the firm having coffee plantation is agricultural income. This is because in case of a partnership firm having agricultural income, any salary or interest received by the partner will also have the same character as the income of the firm, as the salary and interest received by the partners are only appropriations of income.
(b) The salary of 72,000 is not an agricultural income and it is income from salaries. This is because it is recovered for the services rendered as manager and not from agricultural income.
(c) Dividend received by Mr. Sachin, a shareholder of a plantation company is not an agricultural income and it is income from other sources.
Question 4.
A Sugar factory crushed 50,000 tons of sugarcane during the previous year 2019-20 out of which 10,000 tons of sugarcane was produced on its own farm at a cost of ‘ 48,00,000. The remaining sugarcane was purchased from the market at the following rates.
25.0 tons at 800 per ton
10.0 tons at 1,000 per ton
5.0 tons at 1,200 per ton.
During the previous year 2019-20, the factory earned a total profit of 1,00,00,000.
Calculate the agricultural and non agricultural income for AY 2020-21.
Question 5.
Explain the income tax provisions of ‘Agricultural Income’. The provisions of agricultural income are:
(i) Agricultural income should exceed 5,000
(ii) Nonagricultural income should exceed the maximum income excepted from gross total i.e. 1,95,000 in case of resident senior citizen, 1,45,000 in case of resident woman below 65 years and in case of other individual 1,10,000.