10 Income tax Act Provisions You must know

Introduction

The law of income tax is enriching. As intriguing as it is, the more one learns, the more he seeks to learn.

In my previous articles, I have focused upon key concepts in income tax law and have now decided to pen an article dealing with ancillary provisions as contained in the Income Tax Act, 1961 itself(which to my mind are equally important and deserve attention). Many of us are aware that the Act is a voluminous document containing various provisions and most of the tax community is well aware of a substantial part of these provisions. However, the law is so vast and so developed that there are many such ancillary or incidental provisions which many of us in the quest for development of knowledge of tax laws may want to know and grasp, and add to our arsenal. This article is conceived at highlighting some of these incidental provisions which are essential for developing an all round knowledge and understanding of tax laws.

Did You Know?

1. Appeal under Section 260A to the High Court and under Section 261 to the Supreme Court

A. An appeal lies to the High Court under Section 260A(1) of the Act only against an order passed in appeal by the Appellate Tribunal and only on a substantial question of law. Hence in cases where the matter is remanded to the ITAT by the High Court, can it still be said that an appeal would lie to the High Court after the ITAT has passed an order deciding in favour of or against the assessee?

B. The provisions of the Code of Civil Procedure, 1908 relating to appeals to the High Court shall, as far as may be, apply in the case of appeals to the High Court(Section 260A(7)). This clarifies any doubts one may have as to what is the prescribed procedure before the High Court in income tax appeal proceedings.

C. An appeal shall lie to the Supreme Court under Section 261 from any judgment delivered by the High Court in an appeal against any order passed under Section 254 if the High Court certifies it to be a fit one for appeal to the Supreme Court. A certificate is therefore necessary and almost always the assessee/revenue prefers a special leave petition(SLP) if it wishes to challenge the ruling of the High Court.

2. Instructions to subordinate authorities

A. CBDT issues Circulars under Section 119(1) of the Act which are in the nature of instructions to subordinate authorities.

B. Under Section 119(2)(a), the CBDT can relax the effect of several provisions including Section 139, 143, 144, 147 etc.

C. Under Section 119(2)(b) the CBDT may to avoid genuine hardship by general or special order authorise any income tax authority to admit an application or claim for any exemption, deduction, refund or any other relief under the Act beyond the expiry of the period specified by the Act for making such claim.

3. Annual information statement and statement of financial transaction

A. By the Finance Act, 2020 w.e.f 1-6-2020, the marginal note ‘Annual information statement’ was inserted and under Section 285BB of the Act, it is the prescribed income tax authority who shall upload in the registered account of the assessee an annual information statement containing such information as may be prescribed. The relevant Rule is Rule 114-I of the Income Tax Rules, 1962. Thus, all information relating to payment of taxes, tax deducted or collected at source, pending or completed proceedings will be provided in a form known as Form No. 26AS.

B. Under Section 285BA of the Act, an inter alia assessee is required to furnish a statement of financial transaction to the income tax authority as may be prescribed. The relevant rule and form is Rule 114E and Form 61A. Certain transactions are to be reported as contained in the said form.

4. Filing of appeal or application for reference by income tax authority

A. The circulars issued by the CBDT regulating tax effect are issued under Section 268A of the Act. Thus, the various monetary limits prescribed for presenting an appeal by the Revenue before the ITAT, High Court and Supreme Court and what is ‘tax effect’ are specified in the circulars and the source of the power for issuing such circulars is the said section.

5. Assessing Officers

A. Every tax professional and even laymen have heard of the term ‘Assessing Officer’. It is defined under Section 2(7A). The definition was inserted by the Direct Tax Laws(Amendment) Act, 1987 w.e.f 1-4-1988. But did you know that the Commissioner of Income Tax is not one of the income tax authorities under Section 116 who is an assessing officer under the act.

6. Income from card games, horse races, lotteries or any other form of gambling

A. Income from the aforementioned activities is not treated as regular income. The Act neither treats such income as arising from a business or profession and instead taxes the same at a flat rate of 30% under Section 115BB of the Act. However, with an ever evolving and novel society, many professionals have turned to gambling as a profession and some concession ought to be provided to them by treating their income as business/professional income.

7. Taxability of income

A. The taxability of income of a person is based on the residence of a particular person(subject to DTAA’s). A person may be resident in India, not ordinarily resident, or a non-resident and would have to pay tax accordingly. Section 6 deals with Residence in India. Income tax liability in India does not arise based on the citizenship of a particular person. A person may be an individual, HUF, company, firm etc and is defined under Section 2(31) of the Act.

8. Permanent Account Number(PAN)

A. Many of us have heard of a permanent account number(PAN) and what it represents. But many are confused as to its source or origin. A PAN is a document deriving validity under the Income Tax Act, 1961. Section 139A of the Act defines PAN and a PAN is required by every person whose total income exceeds the amount not chargeable to tax.

9. Mode of undertaking transactions

A. Did you know that as per Section 269ST of the Act, no person shall receive an amount of Rs. 2 lac or more:

i) In aggregate from a person in a day

ii) In respect of a single transaction

iii) In respect of transactions relating to one event or occasion from a person,

otherwise than by account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Rule 6ABBA is relevant and specifies the modes of payment including debit card, credit card, UPI, Net Banking etc. Therefore, payments received  by any person above Rs.2lac in cash is prohibited.

B. If a person does not comply with Section 269ST he may be visited with a penalty under Section 271DA of a sum equal to the amount of the receipt unless he has good and sufficient reasons for the contravention.

10. Appearance by authorised representative

A. An authorised representative(AR) is not just a name given for counsels and other persons appearing before the ITAT or Commissioner(Appeals). The term is coined by virtue of Section 288 of the Act which states that a person may attend proceedings before such fora through an authorised representative. As to who can be an authorised representative is defined under sub-section 2 and includes any person related to the assessee, a lawyer, an accountant or even a person regularly employed by the assessee.

Conclusion

I hope the readers have enjoyed reading through the 10 pieces of tax trivia and hope they have found them to be interesting. I also hope that the reader has benefitted from knowing these provisions which have been specially culled out from the Act owing to their intriguing nature. I must also advise that the Act is very vast and these provisions are not exhaustive in any manner even on the ancillary side. They have just been noted for their special features.