Question 1: Define tax, classify it, and explain its main characteristics.

Elaborate on the
principles, objectives, and characteristics of tax imposition, and explain the importance and
impact of tax, tax imposition, and taxation on economic development.

Ans. Definition of Tax:

Mandatory financial charge or levy by the government.

Used to fund public expenditures.

Non-payment is punishable by law.

Classification of Taxes:

Direct Taxes:

Levied directly on individuals/organizations (e.g., income tax, corporate tax).

Main Characteristics of Tax:

Compulsory Payment: Mandatory with no direct benefit to payer.

Legal Obligation: Enforced by law.

No Direct Quid Pro Quo: No equivalent specific benefit for tax payment.

Purpose: Funds government activities and public goods.

Principles of Taxation:

Equity: Fairness, based on the ability to pay.

Certainty: Clear amount, time, and method of payment.

Convenience: Easy compliance for taxpayers.

Efficiency: Minimal negative impact on economic behavior, low collection costs

Objectives of Taxation:

Revenue Generation: Funds public services and infrastructure.

Redistribution: Reduces economic inequalities.

Regulation: Discourages harmful activities, promotes beneficial ones.

Economic Stability: Influences economic activity, controls inflation/recession

Importance of Taxation on Economic Development:

Funds Public Services: Essential for education, healthcare, infrastructure.

Wealth Redistribution: Reduces income inequality, improves social stability.

Economic Regulation: Encourages investment, saving, spending.

Investment in Infrastructure: Critical for economic growth.

Supports Sustainable Development: Funds environmental and social programs.

Impact on Economic Development:

Promotes Growth: Well-structured taxes encourage investment and innovation.

Risk of Inefficiency: High or poorly designed taxes can discourage investment and work.

Question 2: What do you understand by direct tax and indirect tax? Explain them in detail.

Ans.

Direct Tax:
Definition: A tax directly imposed on individuals or organizations, paid directly to the
government.

Examples: Income tax, corporate tax, property tax.

Key Point: The burden of the tax cannot be shifted; the taxpayer pays it directly

Indirect Tax:

Definition: A tax on goods and services, collected by intermediaries (like retailers) from
consumers, and then paid to the government.

Examples: GST, VAT, sales tax.

Key Point: The burden can be shifted from the seller to the consumer, who ultimately pays the
tax.

Question 3: What do you understand by income tax? Explain its characteristics, objectives,
principles, tax determination, and payment process.

Ans- Income Tax:

A government levy on income or profits of individuals, businesses, and other entities.

Primary source of revenue for governments.

Amount owed depends on income level and applicable tax rates.

Characteristics of Income Tax:

Compulsory Payment: Mandatory financial charge, with legal consequences for non-payment.

Progressive Nature: Tax rate increases as income increases.

Based on Income: Levied on income earned during a specific period (usually a fiscal year).
Personal Obligation: The taxpayer is responsible for paying the tax on their income.

Direct Tax: Paid directly by the individual or entity on whom it is imposed

Objectives of Income Tax:

Revenue Generation: Funds public services, infrastructure, and welfare programs.

Wealth Redistribution: Reduces income inequality by taxing higher income brackets more.

Economic Stabilization: Regulates spending power and stabilizes the economy.

Resource Allocation: Guides economic resource allocation through tax incentives or

disincentives.

Control of Inflation: Adjusts disposable income to control inflation.

Principles of Income Tax:

Equity: Ensures fairness, with higher earners paying more (progressive taxation).

Certainty: Tax system should be clear and predictable.

Convenience: Easy calculation and payment process for taxpayers.

Efficiency: Minimizes economic distortions and administrative costs.

Tax Determination:

Gross Income: Includes wages, business income, dividends, interest, etc.

Deductions and Exemptions: Subtracted from gross income to determine taxable income.

Tax Rate Application: Applied to taxable income based on income bracket.

Tax Credits: Reduces overall tax owed, potentially resulting in a refund

Payment Process:

Filing a Tax Return: Annual declaration of income and tax calculation.

Withholding Taxes: Taxes withheld from wages or other income and remitted to the
government.

Estimated Payments: Quarterly payments required for income not subject to withholding.

Payment of Tax Liability: Pay any remaining tax by the deadline.

Refund or Additional Payment: Overpayment results in a refund; underpayment requires

additional payment.

Que 4 - Explain -

1.Assessment Year: The year in which income earned in the previous financial year is assessed
and taxed.

2.Taxpayer or Assessee: An individual or entity obligated to pay taxes.

3.Person: Includes individuals, companies, and other entities liable for taxes.

4.Capital Asset: Property held for investment or long-term use, like land or shares, subject to
capital gains tax upon sale.

5.Dividend: A share of a company's profits distributed to its shareholders.

6.Appeal to High Court: Legal challenge of a lower court's decision, seeking review by a higher
court.

7.Revision by Commissioner: The tax commissioner’s authority to correct erroneous orders from
lower tax officials.

8.Penalty: A financial charge for non-compliance with tax laws, such as late filing.
9.Advance Payment of Tax: Paying taxes periodically throughout the year based on estimated
income

Question 5: Explain the financial relations between the Centre and the States in the federal
constitution, the power of Parliament to legislate on matters in the State List, and the powers of
the State Government to levy taxes and the restrictions thereon.?

Ans - Financial Relations Between Centre and States:

Taxation Powers:

Union List: Centre levies taxes like customs, income tax (excluding agricultural income), and
central excise.

State List: States levy taxes like land revenue, state excise, and taxes on goods and services
within the state.

Concurrent List: Both can tax on subjects like stamp duties.

Revenue Sharing:

The Constitution provides for revenue sharing and grants-in-aid from the Centre to the States
based on the Finance Commission's recommendations.

States need Centre’s consent for external borrowings and borrowing within the country in
certain cases

Parliament’s Power on State List Matters:

National Interest: Can legislate on State List if Rajya Sabha passes a resolution.

Emergency: Can legislate during national emergencies.

International Treaties: Can legislate to fulfill international agreements.

States' Request: Can legislate if States request it.

President’s Rule: Can legislate when President’s Rule is imposed.

State Government Powers and Restrictions:

Powers: States can levy taxes on subjects in the State List (e.g., land revenue, state excise).

Restrictions:

Cannot tax subjects in the Union List.

Restrictions on taxing interstate trade and commerce.

Tax laws must comply with constitutional provisions and ensure no undue burden on interstate
commerce.

Question 6: The tax burden depends on the taxpayer's residential status. Briefly describe this
rule and explain under what circumstances a person becomes a non-resident under the Income
Tax Act. Describe the basic and additional conditions with examples.

Ans - Under the Income Tax Act:

Resident: A person is a resident if they meet at least one of these conditions:

Present in the country for at least 182 days in a financial year, or

Present for at least 60 days in the current financial year and 365 days in the past four years.

Non-Resident: If none of these conditions are met, the individual is considered a non-resident.

Additional Conditions: If basic conditions are not met, a person can still be a resident if they
have a home in the country and meet additional presence requirements.
Residents are taxed on global income, while non-residents are taxed only on income earned
within the country.

Question 7: What do you understand by an appeal? Mention the orders of the Assessing Officer
against which an appeal can be filed before the Commissioner (Appeals). Classify the appellate
authorities and explain how an appeal is made in the tribunal and against which orders. What is
the procedure in the tribunal and explain the entire process of appeal before the Commissioner
(Appeals)?

Ans - An appeal is a request to a higher authority to review and change a decision made by a
lower authority.

Appeals Before the Commissioner (Appeals):

Orders: Appeals can be made against assessment orders, penalty orders, reassessment orders,
refund orders, and demand orders issued by the Assessing Officer.

Process: File an appeal within 30 days of the order, using the prescribed form. The CIT(A)
reviews the appeal, holds hearings if needed, and issues a decision.

Appellate Authorities:

Commissioner of Income Tax (Appeals):

Jurisdiction: Handles appeals against Assessing Officer's orders.

Procedure: File within 30 days, the CIT(A) issues a ruling

Income Tax Appellate Tribunal (ITAT):

Jurisdiction: Handles appeals against CIT(A) orders.

Procedure: File within 60 days of CIT(A) order, the ITAT reviews and rules on the appeal. Further
appeals can be made to higher courts
Question 8: What do you understand by payment of tax? What provisions have been made
under the Income Tax Act concerning advance payment of tax? What do you understand by
advance tax? How is it calculated? Explain the provisions of the Income Tax Act, 1961,
concerning agricultural income and refund.

Ans - Payment of Tax:

Obligation to pay taxes on income, profits, or taxable activities.

Essential for funding public services and infrastructure.

Advance Tax Provisions (Income Tax Act):

Advance Tax:

Tax liability exceeding ₹10,000 requires advance payment.

Installments:

For individuals/non-corporate taxpayers:

Same as above

Calculation of Advance Tax:

Estimate total income.

Deduct exemptions and deductions.

Apply tax rates to determine liability.

Subtract TDS and tax credits.

Pay in installments as due.

Agricultural Income Provisions:

Definition:

Income from land used for agricultural purposes in Indian

Exemption:

Exempt from tax under Section 10(1).

Impact on Non-Agricultural Income:

Affects tax rates on non-agricultural income if combined.

Refund Provisions:

Eligibility:

Refund for excess tax payment.

Process:

Based on the filed return, refunded to the taxpayer’s bank account.

Interest on Refund:

Interest may be paid under Section 244A if delayed.

Question 9: Discuss the following:

Deduction related to medical insurance premiums

Deduction related to donations given to certain funds, charitable institutions, etc.

Deduction related to loans taken for higher education

Deduction related to physical disability

Deduction related to specific diseases, etc.

Ans- Medical Insurance Premiums (Section 80D):

Up to ₹25,000 for individuals below 60 years (₹50,000 for senior citizens).

Additional ₹25,000 (₹50,000 for senior citizens) for premiums paid for parents.

Donations to Charitable Institutions (Section 80G):

Deductions range from 50% to 100% of the donation, depending on the organization.

Loans for Higher Education (Section 80E):

Deduction on interest paid on loans taken for higher education.

Available for up to 8 years or until interest is paid.

Physical Disability (Section 80U):

₹75,000 for individuals with a disability.

₹1,25,000 for individuals with severe disability.

Specific Diseases (Section 80DDB):

₹40,000 (₹1,00,000 for senior citizens) for treatment expenses of specified diseases.

Question 10: Explain the facts, decision, and principles propounded in any one leading case
prescribed in your syllabus.

Ans - Income Tax Commissioner vs. B.C. Srinivas Shetty (1981)

Issue: Whether the goodwill of a newly started business can be taxed as capital gain under
Section 45 of the Income Tax Act, 1961.

Facts:

Assessee was a firm manufacturing incense sticks.

Partnership deed stated that goodwill was not valued until dissolution.

Upon dissolution, goodwill was valued, and a new firm took over assets and liabilities.

Income Tax Officer did not include goodwill in capital gains tax; Commissioner revised the
assessment.

Tribunal and High Court:

The Tribunal ruled in favor of the assessee, stating goodwill was not taxable under Section 45.

The Karnataka High Court upheld this decision.

Supreme Court Decision:

Goodwill of a newly started business is not an "asset" under Section 45.

Gains from the transfer of such goodwill are not liable for capital gains tax.

Principles:

Goodwill in a new business is not a taxable asset.

The term "capital asset" under Section 45 excludes such goodwill