INCOME TAX: Definitions under Section 2 of the Income Tax Act, 1961

The Income Tax Act is a self-contained Act. Sections 2 and 3 define the terms/expressions used in the Income Tax Act. The word ‘means’, ‘includes’ are used in the definitions and the significance of these terms needs to be understood.

When a definition uses the word ‘means’

When a definition uses the word ‘means’, the definition is self-explanatory, restrictive and in a sense, exhaustive. It implies that the term or expression so defined means only as to what it is defined as and nothing else. For example, the terms ‘Agricultural Income’, “Assessment year”, ‘Capital Asset’ is exhaustively defined.

When a definition uses the word ‘includes’ in the definition

When the legislature wants to widen the scope of the term or expression and where an exhaustive definition cannot be given, it uses the word ‘includes’ in the definition. Hence, the inclusive definition provides an illustrative meaning and not an exhaustive meaning. In practical application, the definition could include what is not specifically stated or mentioned in the definition as long as the stipulated criteria are satisfied. To illustrate, reference is drawn to the definition of the terms ‘Inclines,’ ‘Person’, ‘Transfer’.

When a definition uses both the words ‘means’ as well as ‘includes’ in the definition

When the legislature intends to define a term or expression to mean something and also intends to specify certain items to be included, both the words ‘means’ as well as ‘includes’ are used. Such a definition is not only exhaustive but also illustrative. Example: the terms ‘assessee’, ‘Indian company’, “Recognised Provident Fund”.

There are two forms of interpretation clause

There are two forms of interpretation clause. In one, where the word defined is declared to 'mean' so and so, the definition is explanatory and prima facie restrictive. In the other, where the word defined is declared to 'include' so and so, the definition is extensive (Craies on Statute Law, 7th edn., p. 213).

How to understand the provisions of the Act

· In order to understand the provisions of the Act, one must have a thorough knowledge of the meanings of certain terms like person, assessee., income., etc.

· To understand the meanings of these terms we have to first check whether they are defined in the Act itself.

· If a particular definition is given in the Act itself, we have to be guided by that definition.

· If a particular definition is not given in the Act, reference can be made to the General Clauses Act or dictionaries.

The General Clauses Act, 1897

· The General Clauses Act, 1897, contains definitions, which are applicable to all common laws including tax laws, unless and until any repugnant or different definition is contained in the definition section of the tax laws.

· It also contains general rules of construction, which are applied on common law as well as tax laws.

· Provisions of Civil Law, Criminal Law, Hindu Law, Evidence Act, Transfer of Property Act, Partnership Act, Companies Act and other specific, relevant and ancillary laws equally apply unless until a different provision is enacted in tax statute and such laws expressly excluded.

· As analysed, about 108 Acts other than tax statutes need be read, referred and relied upon to make an effective representation, knowledge whereof is imperative.

In the absence of any definition of the word ‘month’ in the Act, the definition of the General Clauses Act, 1897 will be applicable

In terms of General Clauses Act, 1897, period of six month mentioned in section 54EC has to be regarded as six British calender months. The Special Bench of ITAT in the case of Alkaben B. Patel v. ITO adopting the reasoning which found favour with ITAT Mumbai Bench in the case of Yahya E. Dhariwala v. DCIT (2012) 49 SOT 458 : 17 taxmann.com 159 (ITAT Mumbai) that in the absence of any definition of the word 'month' in the Act, the definition of the General Clauses Act,1897 will be applicable, held that time limit of ‘six months’ in sec 54EC of the Act means ‘six British Calendar months’ in view of the General Clauses Act, 1897. The Special Bench also observed that “Legislature in its wisdom has chosen to use the word 'month' and this was done keeping in view the definition in section 3(35) of the General Clauses Act, 1897.” The Special Bench rejected the Revenue’s interpretation that 'month' should be understood in the ordinary sense-i.e., the month is a period from a specified date in a month to the date numerically corresponding date in the following month. - [Alkaben B. Patel v. ITO (2014) 161 TTJ 417 : 148 ITD 31 : 43 taxmann.com 333 (ITAT Ahmedabad) (SB)]

Words not defined in the Income-tax Act

• The word not defined in the Income-tax Act, would certainly be permissible to look to the meaning of the word as given in the dictionary.

• The words and expressions not defined, but defined in the specified Act, the Central Excise Act,1944, the Customs Act, 1962, the Customs Tariff Act,1975 or the Finance Act,1994, as the case may be, shall have the same meaning respectively assigned to them in that Act.

• The word “plant” has not been defined in the Income-tax Act, though, it is provided in section 10(5) that it includes certain items. Since the word is not defined, would certainly be permissible to look to the meaning of the word as given in the dictionary.

The word “consideration”

The word “consideration” is not defined in Section 56(2)(x). It is not defined even in the General Clauses Act, 1897. Indian Contract Act, 1872 defines consideration in Section 2(d) as follows:

“when at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”

In the absence of the definition of consideration in Income Tax Act, it must carry the meaning assigned to it in the Indian Contract Act. - [CGT v. Smt. C.K. Nirmala 215 ITR 156 (Ker – FB) & Chandrakant H. Shah v. ITO 121 TTJ 145 (ITAT Mumbai)]

It is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means ‘that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it’. - [CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC)]

Types of Definition under the Income Tax Act, 1961

1. Inclusive definitions

Inclusive definitions can be identified by the word ‘includes’ in the definition. An inclusive definition allows including, within its ambit, anything which is similar to the term defined.

Examples of this category are :

Ø Section 2(8) “assessment” includes reassessment.

Ø Section 2(24) “income” includes - (i) profits & gains; (ii) dividend..”

2. Exhaustive/Restrictive definitions

Exhaustive/Restrictive definitions can be identified by the word ‘means’ in the definition.

It does not allow including anything from outside to the scope of the definition.

Examples of this category are :

Ø Section 2 (33) “prescribed” means prescribed by rules made under this Act,

Ø Section 2 (42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset.

3. Adoptive definitions

Adoptive definitions in this category instead of defining the term afresh, the definitions are adopted from other Acts.

Examples of this category are :

Ø Section 2(20) “director”, “manager” & “managing agent”, in relation to a company, have the meanings respectively assigned to them in the Companies Act, 2013.

Ø Section 2(37) “public servant” has the same meaning as in section 21 of the Indian Penal Code, 1860.

4. Exclusive definitions

Exclusive definitions can be identified by the phrase ‘does not include’. In this category something is expressly excluded from the definition.

Example of this category is

Ø Section 2(14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include - (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession…”

5. Combined definitions

Combined definitions both the words i.e ‘means’ & ‘includes’ are present in the definition. In this category, on one hand it restricts inclusion, & on the other, it allows inclusion.

Example of this category is: –

Ø Section 2(7) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, & includes —

(a) every person in respect of whom any proceeding under this Act has been taken…

(b) every person who is deemed to be an assessee under any provision of this Act;

act;

In the Income Tax Act, 1961 ‘definitions’ are not only provided in section 2, but also in various other sections like 3, 17, 27, 43, 55.

Text of Section 3

“Previous year” defined.

3. For the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year :

PROVIDED that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.

Text of Section 17

“Salary”, “perquisite” and “profits in lieu of salary” defined.

17. For the purposes of sections 15 and 16 and of this section,—

(1) “salary” includes -

(2) “perquisite” includes -

(3) “profits in lieu of salary” includes -

Text of Section 27

“Owner of house property”, “annual charge”, etc., defined.

27. For the purposes of sections 22 to 26 –

Text of Section 43

Definitions of certain terms relevant to income from profits and gains of business or profession.

43. In sections 28 to 41 and in this section, unless the context otherwise requires -

(1) “actual cost” means ………

Text of Section 55

Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.

55. (1) For the purposes of sections 48 and 49, -

These parts are independent of each other & also are not co-related to project a whole provision therefore these are clauses. Similar is the case with sections 6, 43, 47 & so on

Definitions [Section 2]

[1] “advance tax” [clause (1) to section 2]

(1) “advance tax” means the advance tax payable in accordance with the provisions of Chapter

XVII-C;

Text of Chapter XVII-C

C – Advance payment of tax

Section 207 to 219

[2] “agricultural income” means [clause (1A) to section 2]

(1A) “agricultural income” means -

As per section 2(1A), agricultural income generally means:

(a) Any rent or revenue derived from land which is situated in India and is used for

agricultural purposes.

(b) Any income derived from such land by agriculture operations including processing of

agricultural produce so as to render it fit for the market or sale of such produce.

specified in this regard in section 2(1A).

[3] “amalgamation”, in relation to companies, means [clause (1B) to section 2]

(1B) “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—

(i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;

(ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

(iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company;

[4] “Additional Commissioner” means [clause (1C) to section 2]

(1C) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[5] “Additional Director” means [clause (1D) to section 2]

(1D) “Additional Director” means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[6] “annual value”, in relation to any property, means [clause (2) to section 2]

(2) “annual value”, in relation to any property, means its annual value as determined under section 23;

Text of Section 23

Annual value how determined.

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be - ………

Clause (3) to section 2 omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.

[7] “Appellate Tribunal” means [clause (4) to section 2]

(4) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252;

Text of section 252

Appellate Tribunal.

252. (1) The Central Government shall constitute an Appellate Tribunal consisting of as many judicial and accountant members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act.

(2) A judicial member shall be a person who has for at least ten years held a judicial office in the territory of India or who has been a member of the Indian Legal Service and has held a post in Grade II of that Service or any equivalent or higher post for at least three years or who has been an advocate for at least ten years.

……………………………………………………….

[8] “approved gratuity fund” means [clause (5) to section 2]

(5) “approved gratuity fund” means a gratuity fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part C of the Fourth Schedule ;

PART C of the Fourth Schedule

Approved gratuity funds

[See sections 2(5), 17(1)(iii), 36(1) (v)]

[9] “approved superannuation fund” means [clause (6) to section 2]

(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule ;

PART B of the Fourth Schedule

Approved Superannuation Funds

[See Sections 2(6), 10(13), 10(25)(iii), 36(1)(iv), 87(1)(e), 192(5), 206(2)]

[10] “assessee” means [clause (7) to section 2]

(7) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes—

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act ;

………………….

[11] “Assessing Officer” means [clause (7A) to section 2]

(7A) “Assessing Officer” means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;

[12] “assessment” includes [clause (8) to section 2]

(8) “assessment” includes reassessment;

[13] “assessment year” means [clause (9) to section 2]

(9) “assessment year” means the period of twelve months commencing on the 1st day of April every year;

[14] “Assistant Commissioner” means [clause (9A) to section 2]

(9A) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax or a Deputy Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to

be income-tax authorities.

[15] “Assistant Director” means [clause (9B) to section 2]

(9B) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[16] “average rate of income-tax” means [clause (10) to section 2]

(10) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income;

[17] “block of assets” means [clause (11) to section 2]

(11) “block of assets” means a group of assets falling within a class of assets comprising -

(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession,

in respect of which the same percentage of depreciation is prescribed;

Where income from letting out of buildings is already assessed as income from house property, such let out buildings cannot be part of block of assets as defined under section 2(11)

Assessee owned several buildings, i.e., factory building, building used for business purposes (called building ‘D’) and buildings let out on rent and these were grouped to be part of block of assets. Depreciation on factory building and building ‘D’ was duly claimed. During assessment year 2011-12 assessee sold building ‘D’ and did not claim depreciation on it. It adjusted sale value of building ‘D’ against value of block of assets in accordance with section 32. Assessing Officer held that sale value of building ‘D’ could not be adjusted against value of block of assets. Commissioner (Appeals) held that building ‘D’ sold was no longer part of block of assets as no depreciation was claimed on it and hence gain arising out of sale of asset was taxable as short-term capital gain under section 50. Fact that no depreciation was claimed during year for building ‘D’ did not remove it from block of assets. Since Value of block of assets under class of assets ‘building’ was more than sale value of building ‘D’, assessee was right in reducing sale value of building ‘D’ from value of block of assets under section 32 and thus, no short-term capital gain arose on sale under section 50. Further from the definition it is clear that all the assets falling under the same class and for which the same rate of depreciation is prescribed, constitute one block of asset. In assessee’s case, the let out building against which no depreciation is claimed i.e. the building with NIL depreciation is grouped under the block. The income from letting out of these buildings is already assessed as income from house property against which statutory deduction under section 24 of the Act is already allowed. Hence in our considered view buildings that are let out cannot be part of the block of assets as defined under section 2(11) of the Act. [In favour of assessee] (Related Assessment year : 2011-12) – [Kemwell (P) Ltd. v. DCIT (2022) 139 taxmann.com 544 (ITAT Bangalore)]

[18] “Board” means [clause (12) to section 2]

(12) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);

[19] “books or books of account” includes [clause (12A) to section 2]

(12A) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device;

[20] “business” includes [clause (13) to section 2]

(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;

[21] “business trust” means [clause (13A) to section 2]

(13A) “business trust” means a trust registered as, -

(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

[22] “capital asset” means [clause (14) to section 2]

(14) "capital asset" means —

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,

but does not include—

(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

……….

[23] “charitable purpose” includes [clause (15) to section 2]

(15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

PROVIDED that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

[24] “Chief Commissioner” means [clause (15A) to section 2]

(15A) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax or a Director General of Income-tax or a Principal Chief Commissioner of Income-tax or a Principal Director General of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[25] “child”, in relation to an individual [clause (15B) to section 2]

(15B) “child”, in relation to an individual, includes a step-child and an adopted child of that individual;

[26] “Commissioner” means [clause (16) to section 2]

(16) “Commissioner” means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal Commissioner of Income-tax or a Principal Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[27] “Commissioner (Appeals)” means [clause (16A) to section 2]

(16A) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[28] “company” means [clause (17) to section 2]

(17) “company” means —

(i) any Indian company, or

(ii) any body corporate incorporated by or under the laws of a country outside India, or

(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922) or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or

(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company :

PROVIDED that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration ;

[29] “company in which the public are substantially interested” [clause (18) to section 2]

(18) “company in which the public are substantially interested” — a company is said to be a company in which the public are substantially interested —

Following companies are said to be a company in which public are substantially interested:

1. Government Company;

2. A company under section 8 of the Companies Act, 2013;

3. Mutual benefit finance company;

4. Listed company;

5. Company in which shares are held by co-operative societies;

6. Company which is prescribed by CBDT

[30] “co-operative society” means [clause (19) to section 2]

(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;

[31] “Deputy Commissioner” means [clause (19A) to section 2]

(19A) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[32] “demerger”, in relation to companies, means [clause (19AA) to section 2]

(19AA) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that -

Demerger is an arrangement whereby some part /undertaking of one company is transferred to another company which operates completely separate from the original company. Shareholders of the original company are usually given an equivalent stake of ownership in the new company.

[33] “demerged company” means [clause (19AAA) to section 2]

(19AAA) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;

[34] “Deputy Commissioner (Appeals)” means [clause (19B) to section 2]

(19B) “Deputy Commissioner (Appeals)” means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[35] “Deputy Director” means [clause (19C) to section 2]

(19C) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[36] “director”, “manager” and “managing agent”, [clause (20) to section 2]

(20) “director”, “manager” and “managing agent”, in relation to a company, have the meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956);

[37] “Director General or Director” means [clause (21) to section 2]

(21) “Director General or Director” means a person appointed to be a Director General of Income-tax or a Principal Director General of Income-tax or, as the case may be, a Director of Income-tax or a Principal Director of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be an Additional Director of Income-tax or a Joint Director of Income-tax or an Assistant Director or Deputy Director of Income-tax;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[38] “dividend” includes [clause (22) to section 2]

(22) “dividend” includes -

(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;

(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not ;

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ;

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

but "dividend" does not include –

…………………………

[39] “domestic company” means [clause (22A) to section 2]

(22A) “domestic company” means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income;

Domestic Company

Domestic Companies are those which are registered under the Companies Act of India. A company can be a Public Company or a Private Company.

Also include those companies which are situated or registered outside India but having control and management completely in India.

[40] “document” includes [clause (22AA) to section 2]

(22AA) “document” includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

Text of Section 2(1)(t) of the Information Technology Act, 2000

(t) “electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche;

[41] “electoral trust” means [clause (22AAA) to section 2]

(22AAA) “electoral trust” means a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government;

[42] “fair market value”, in relation to a capital asset, means [clause (22B) to section 2]

(22B) “fair market value”, in relation to a capital asset, means -

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and

(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act;

[43] “firm”; “partner”; “partnership” [clause (23) to section 2]

(23) (i) “firm” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(ii) “partner” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include, -

(a) any person who, being a minor, has been admitted to the benefits of partnership; and

(b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(iii) “partnership” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

[44] “foreign company” means [clause (23A) to section 2]

(23A) “foreign company” means a company which is not a domestic company;

“Foreign Company” is defined under Section 2 (42) of the Companies Act, 2013 as any company or body corporate incorporated outside India which, -

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

Foreign Companies

· Foreign Companies are those which are not registered under the Companies Act of India and having control and management completely outside India.

· Under Corporate Income Tax these both companies are liable to pay taxes.

· In the case of Domestic Company, tax is levied on universal income but for Foreign companies, only that income is taxable which is earned within India.

[45] “fringe benefits” means [clause (23B) to section 2]

(23B) “fringe benefits” means any fringe benefits referred to in section 115WB;

Chapter XII-H not to apply after a certain date.

115WM. Nothing contained in this Chapter shall apply, in respect of any assessment for the assessment year commencing on the 1st day of April, 2010 or any subsequent assessment year.

[46] “hearing” includes [clause (23C) to section 2]

(23C) “hearing” includes communication of data and documents through electronic mode;

[47] “income” includes [clause (24) to section 2]

(24) “income” includes -

The Income Tax Act does not define the term Income but section 2(24) of the Act describes the various receipts which are included under the ambit of income.

(i) Profits and gains.

(ii) Dividends

(iii) Voluntary contributions received by a charitable trusts

(iv) The value of any perquisite or profit in lieu of salary.

(v) Any capital gains.

(vi) Any winnings from lotteries,

(vii) Crossword puzzles etc.

Term “income” as defined in section 2(24) does not include “interest” referred to in section 56(2)(viii) or interest received in MACT award - Not taxable under the Income-tax Act, 1961, at all there is no question of deducting tax on the same under section 194A

The writ applicant submitted that the Finance Act, 2015 has inserted new section 194A(3)(ixa) with effect from 01.06.2015 and effect of the amendment is that no liability for TDS shall be attracted in respect of any income credited by way of interest on the compensation amount awarded by the MACT. In spite of the aforesaid amendment, the Insurance Companies are being compelled to deposit the amount with the Tribunal itself. The writ applicant accordingly prayed this Court to clarify the issue by explaining the correct position of law as regards the liability of the Insurance Company to deduct the TDS and deposit the same with the Tribunal; or with the Income-tax Department.

Compensation under the award of the MACT is not income. The expression “income” used in the Entry 82 of List I of Seventh Schedule to the Constitution can be given widest meaning. Under section 2(24), the definition is inclusive and not exhaustive. In the absence of any express provision to the contrary, income can be held to refer to something earned. What is received as compensation for loss in one or the other form may not be income.

Term “income” as defined in section 2(24) does not include “interest” referred to in section 56(2)(viii) or interest received in MACT award. Thus, interest awarded in motor accident claim cases from date of Claim Petition till passing of award, or in case of Appeal, till judgment of High Court in such appeal, would not be exigible to tax, not being an income. Therefore, the interest awarded by the Motor Accident Claim Tribunal under section 171 of the Motor Vehicles Act, 1988 is not taxable under the Income-tax Act, 1961 at all there is no question of deducting tax on the same under section 194A. [In favour of assessee] (Related Assessment year : 2017-18) – [Oriental Insurance Co. Ltd. v. Chief Commissioner of Income-tax (TDS) [2022] 138 taxmann.com 88 (Guj.)]

Definition of the word ‘income’ given in Section 2(24) of the Income Tax Act, 1961 is not exhaustive but, inclusive in nature

The definition of Income under Section 2(24) is inclusive in nature. In the Income Tax Act, 1961 Section 2(24) includes the word ‘income’ from the clause (i) to (xviii). The Hon’ble Supreme Court in the case of E. D. Sasson & Co. Ltd. v. CIT (has said “

“Now what is income? The term is nowhere defined in the Act…… In the absence of a statutory definition, we must take its ordinary dictionary meaning that which comes in as the periodical produce of one’s work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money)” annual or periodical receipts accruing to a person or corporation (Oxford Dictionary). – [E. D. Sasson & Co. Ltd. v. CIT (1954) 26 ITR 27 (SC)]

[48] “Income-tax Officer” means [clause (25) to section 2]

(25) “Income-tax Officer” means a person appointed to be an Income-tax Officer under section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[49] “India” means [clause (25A) to section 2]

(25A) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;

Text of Article 1 of Constitution of India 1950

1. Name and territory of the Union

(1) India, that is Bharat, shall be a Union of States

(2) The States and the territories thereof shall be as specified in the First Schedule

(3) The territory of India shall comprise

[50] “Indian company” means [clause (26) to section 2]

(26) “Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes -

(i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause);

(ia) a corporation established by or under a Central, State or Provincial Act ;

(ib) any institution, association or body which is declared by the Board to be a company under clause (17);

(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State;

(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :

PROVIDED that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India;

[51] “infrastructure capital company” means [clause (26A) to section 2]

(26A) “infrastructure capital company” means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

[52] “infrastructure capital fund” means [clause (26B) to section 2]

(26B) “infrastructure capital fund” means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

clause (27) to section 2 Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.

[53] “Inspector of Income-tax” means [clause (28) to section 2]

(28) “Inspector of Income-tax” means a person appointed to be an Inspector of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[54] “interest” means [clause (28A) to section 2]

(28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;

Interest paid by a builder on failure to construct a flat is compensatory in nature which is out of the preview of Section 194A

In the instant case, the assessee had not given the money to the builder by way of deposit, nor had the builder borrowed the amount from the assessee. The sum paid to the assessee was a refund of the advance given to the builder. The interest was paid for damages suffered by the assessee on failure in delivering the flats. Provision of interest by way of compensation falls outside purview of section 194A and section 2(28A). Assessee entered into an agreement with a builder for purchase of two residential flats. Flats booked were not delivered in committed period. Thus, Real Estate Regulatory Authority directed builder to refund advance amount paid by assessee with compensatory interest. Builder deducted TDS on amount of compensatory interest paid to assessee. It was noted that amount payable to assessee was in nature of a judgment debt or akin to a judgment debt, payment of which could not establish a debtor-creditor relationship between parties; nor was payment made by builder to assessee one in discharge of any pre-existing obligation, so as to attract section 2(28A). It was held that the term ‘interest’ is defined under Section 2(28A) of the Income-tax Act. From such definition, it appears that the term ‘interest’ has been made entirely relatable to money borrowed or debt incurred and various gradations of rights and obligations arising from either of the two. Since the payment could not establish a debtor-creditor relationship between the assessee and the builder, the said sum or any part thereof cannot be liable for tax deduction under the relevant provisions of the Act. Therefore, the provisions of Section 194A were not applicable, and the builder was wrong in deducting the TDS from the interest payable to the assessee. [In favour of assessee] (Related Assessment year : 2021-22) – [Sainath Rajkumar Sarode v. State of Maharashtra (2021) 131 taxmann.com 332 (Bom.)]

[55] “interest on securities” means, [clause (28B) to section 2]

(28B) “interest on securities” means, -

(i) interest on any security of the Central Government or a State Government;

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act;

[56] “insurer” means [clause (28BB) to section 2]

(28BB) “insurer” means an insurer, being an Indian insurance company, as defined under clause (7A) of section 2 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act;

Text of Section 2(7A) the Insurance Act, 1938

(7A) “Indian insurance company” means any insurer being a company —

(a) which is formed and registered under the Companies Act, 1956 (1 of 1956);

(b) in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed twenty-six per cent. paid-up equity capital of such Indian insurance company;

Explanation. - For the purposes of this clause, the expression “foreign company” shall have the meaning assigned to it under clause (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961)

[57] “Joint Commissioner” means [clause (28C) to section 2]

(28C) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[58] “Joint Director” means [clause (28D) to section 2]

(28D) “Joint Director” means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[59] “legal representative” [clause (29) to section 2]

(29) “legal representative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908);

Text of clause (11) of section 2 of the Code of Civil Procedure, 1908

(11) “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or issued in a representative character the person on whom the estate devolves on the death of the party so suing or sued;

[60] “liable to tax”, in relation to a person and with reference to a country, means [clause (29A) to section 2]

(29A) “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country;

[61] “long-term capital asset” means [clause (29AA) to section 2]

(29AA) “long-term capital asset” means a capital asset which is not a short-term capital asset;

[62] “long-term capital gain” means [clause (29B) to section 2]

(29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset;

[63] “manufacture”, with its grammatical variations, means [clause (29BA) to section 2]

Initially there is no definition for the term ‘manufacture’ in the Income Tax Act, 1961. During 2004 the FICCI in a letter to the Central Board of Direct Taxes (CBDT), has said, “One is surprised to note that the term ‘manufacture’ has not been defined in the Income-Tax Act, even though the word has been used in several sections of the Act, which provide for either exemption from tax or deduction from taxable income."

Section 2(29BA) of Income Tax Act, 1961 (which has been inserted vide Finance Act, 2009, with effect from 01.04.2009) defines the term ‘manufacture’ as with its grammatical variations, means a change in a non-living physical object or article or thing.

Text of clause (29BA) to section 2

(29BA) “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,—

(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;

[64] “maximum marginal rate” means [clause (29C) to section 2]

(29C) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year;

[65] “National Tax Tribunal” means [clause (29D) to section 2]

(29D) “National Tax Tribunal” means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005;

Text of Section 3 of National Tax Tribunal Act, 2005

3. Establishment of National Tax Tribunal. - The Central Government shall, by notification in the Official Gazette, establish with effect from such date as may be specified therein, a Tax Tribunal to be known as the National Tax Tribunal to exercise the jurisdiction, powers and authority conferred on such Tribunal by or under this Act.

National Tax Tribunal Act under which a national tribunal was set up to decide tax-related cases by taking away the jurisdiction of High Courts in such matters, declared as unconstitutional

It was the Hon’ble Supreme Court came to the rescue of the tax-payers when there was move to take away the powers of the High Courts and constitute the National Tax Tribunal to decide the substantial question of law as the provisions of the said Act was not in accordance with the basic structure of the Constitution. The substantial provisions of the Act were struck down as unconstitutional. - [Madras Bar Association v. UOI (2014) 368 ITR 42 :271 CTR 257 : 227 Taxman 151 : 109 DTR 273 (SC)]

[66] “non-resident” means [clause (30) to section 2]

(30) “non-resident” means a person who is not a “resident”, and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6 ;

Section 92 : Computation of income from international transaction having regard to arm's length price.

Section 93 : Avoidance of income-tax by transactions resulting in transfer of income to non-residents.

Section 168 : Executors.

Section 6(6) : A person is said to be “not ordinarily resident” in India in any previous

year if such person is …….

[67] “person” includes [clause (31) to section 2]

(31) “person” includes -

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.

[68] “person who has a substantial interest in the company”, in relation to a company, means
[clause (32) to section 2]

(32) “person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power;

[69] “prescribed” means [clause (33) to section 2]

(33) “prescribed” means prescribed by rules made under this Act;

[70] “previous year” means [clause (34) to section 2]

(34) “previous year” means the previous year as defined in section 3;

Text of Section 3

“Previous year” defined.

3. For the purposes of this Act, “previous year” means the financial year immediately preceding

the assessment year :

[71] “Principal Chief Commissioner of Income-tax” means [clause (34A) to section 2]

(34A) “Principal Chief Commissioner of Income-tax” means a person appointed to be a Principal Chief Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[72] “Principal Commissioner of Income-tax” means [clause (34B) to section 2]

(34B) “Principal Commissioner of Income-tax” means a person appointed to be a Principal Commissioner of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[73] “Principal Director of Income-tax” means [clause (34C) to section 2]

(34C) “Principal Director of Income-tax” means a person appointed to be a Principal Director of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[74] “Principal Director General of Income-tax” means [clause (34D) to section 2]

(34D) “Principal Director General of Income-tax” means a person appointed to be a Principal Director General of Income-tax under sub-section (1) of section 117;

Text of sub-section (1) of section 117

Appointment of income-tax authorities.

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

[75] “principal officer”, [clause (35) to section 2]

(35) “principal officer”, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means -

(a) the secretary, treasurer, manager or agent of the authority, company, association or body, or

(b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof;

[76] “profession” includes [clause (36) to section 2]

(36) “profession” includes vocation;

[77] “public sector company” means [clause (36A) to section 2]

(36A) “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);

Text of Section 617 of the Companies Act, 1956

617. Definition of “Government company”. For the purposes of 3 this Act Government company means any company in which not less than fifty- one per cent. of the 4 paid up share capital] is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments 5 and includes a company which is a subsidiary of a Government company as thus defined.

[78] “public servant” [clause (37) to section 2]

(37) “public servant” has the same meaning as in section 21 of the Indian Penal Code (45 of

1860);

Text of Section 21 of the Indian Penal Code, 1860

21. “Public servant”. - The words “public servant” denote a person falling under any of the descriptions hereinafter following; namely : -

[79] “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means [clause (37A) to section 2]

The rate or rates in force is defined under section 2(37A) mean :- the rate or rates of income-tax

specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax

specified in an agreement entered into by the Central Government under section 90 or an agreement notified

Text of section 2(37A)

(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means -

(i) for the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head "Salaries" or computation of the "advance tax" payable under Chapter XVII-C in a case not falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the "advance tax" payable under Chapter XVII-C in a case falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates specified in section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, as the case may be, or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable ;

(ii) for the purposes of deduction of tax under sections 193, 194, 194A, 194B, 194BB and 194D, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year ;

(iii) for the purposes of deduction of tax under section 194LBA or section 194LBB or section 194LBC or section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be;

[80] “recognised provident fund” means [clause (38) to section 2]

(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees' Provident Funds Act, 1952 (19 of 1952);

clause (39) to section 2 [Omitted by the Finance Act, 1992, with effect from 01.04.1993;]

[81] “regular assessment” means [clause (40) to section 2]

(40) “regular assessment” means the assessment made under sub-section (3) of section 143 or section 144;

Scrutiny Assessment. [Section 143(3)]

(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:

Best judgment assessment [Section 144]

144. (1) If any person -

(a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) or an updated return under sub-section (8A) of that section, or

(b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or

the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment:

[82] “relative”, in relation to an individual, means [clause (41) to section 2]

(41) “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual;

Assessing Officer cannot import the definition of ‘Relative’ from Section 56 to invoke Section 40A(2) - Sister-in-law of an individual does not fall under definition of relative under section 2(41); thus, rental payment on account of godowns/shop made to sisters-in-law could not be disallowed

It held that the definition of the term ‘relative’ provided under section 2(41) does not cover the sister-in-law of the assessee. However, the sister-in-law of the assessee is covered within the definition of the term ‘relative’ as provided under Section 56(2). Since the said definition is only for the relevant clause provided under Section 56(2), therefore, the same couldn’t be applied in respect of provisions of Section 40A(2) when a general definition of the term ‘relative’ is provided under Section 2(41). Hence, the provisions of Section 40A(2) could not be invoked in respect of a transaction of payment of rent to persons who are not falling in the definition in term of ‘relative’ provided under Section 2(41). [In favour of assessee] (Related Assessment years : 2013-14 and 2014-15) – [Rajesh Bajaj v. DCIT (2021) 187 ITD 230 : 124 taxmann.com 69 (ITAT Allahabad)]

[83] “resulting company” means [clause (41A) to section 2]

(41A) “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;

[84] “resident” means [clause (42) to section 2]

(42) “resident” means a person who is resident in India within the meaning of section 6;

Text of Section 6

Residence in India.

6. For the purposes of this Act, -

(1) An individual is said to be resident in India in any previous year, if he –

……………………..

[85] “short-term capital asset” means [clause (42A) to section 2]

(42A) “short-term capital asset” means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer :

PROVIDED that in the case of a security (other than a unit) listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted:

PROVIDED FURTHER that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified under clause (23D) of section 10, which is transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words "twelve months" had been substituted:

PROVIDED ALSO that in the case of a share of a company (not being a share listed in a recognised stock exchange in India), or an immovable property, being land or building or both, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twenty-four months” had been substituted.

[86] “short-term capital gain” means [clause (42B) to section 2]

(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset;

[87] “slump sale” means [clause (42C) to section 2]

(42C) “slump sale” means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer.

Explanation 1. - For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19AA).

Explanation 2. - For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.

Explanation 3. - For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);

[88] “tax” [clause (43) to section 2]

(43) “tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA;

[89] “tax credit certificate” means [clause (43A) to section 2]

(43A) “tax credit certificate” means a tax credit certificate granted to any person in accordance

with the provisions of Chapter XXII-B and any scheme made thereunder;

Text of Chapter XXII-B

CHAPTER XXII-B

TAX CREDIT CERTIFICATES

280Y. [Omitted by The Finance Act, 1990, with effect from 01.04.1990]

280Z. [Omitted by the Finance Act, 1990, with effect from 01.04.1990]

280ZA. [Omitted by the Finance Act, 1987, with effect from 01.04.1988]

280ZB. [Omitted by the Finance Act, 1990, with effect from 01.04.1990]

280ZC. [Omitted by the Finance Act, 1990, with effect from 01.04.1990]

280ZD. [Omitted by the Finance Act, 1990, with effect from 01.04.1990]

280ZE. [Omitted by The Finance Act, 1990, with effect from 01.04.1990]

clause (43B) to section 2

Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1989.

Original clause (43B) was inserted by the Finance (No. 2) Act, 1971, with effect from

01.01.1972.

[90] “Tax Recovery Officer” means [clause (44) to section 2]

(44) “Tax Recovery Officer” means any Income-tax Officer who may be authorised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer and also to exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed;

[91] “total income” [clause (45) to section 2]

(45) “total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act;

Text of Section 5

Scope of Total Income

clause (46)

Omitted by the Finance Act, 1965, with effect from 01.04.1965.

[92] “transfer”, in relation to a capital asset, includes, [clause (47) to section 2]

(47) "transfer", in relation to a capital asset, includes, -

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or

(iva) the maturity or redemption of a zero coupon bond; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation 1.—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA.

Explanation 2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;

[93] “virtual digital asset” means [clause (47A) to section 2]

[Inserted by the Finance Act, 2022, with effect from 01.04.2022]

(47A) “virtual digital asset” means -

(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

PROVIDED that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation. - For the purposes of this clause, -

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.

[94] “zero coupon bond” means a bond [clause (1A) to section 2]

(48) “zero coupon bond” means a bond -

(a) issued by any infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank on or after the 1st day of June, 2005;

(b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or infrastructure debt fund or] public sector company or scheduled bank; and

Explanation 1. - For the purposes of this clause, the expression “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to sub-clause (c) of clause (viia) of sub-section (1) of section 36.

Explanation 2. - For the purposes of this clause, the expression “infrastructure debt fund” shall mean the infrastructure debt fund notified by the Central Government in the Official Gazette under clause (47) of section 10.

INCOME TAX

Sunday, 21 August 2022

Definitions under Section 2 of the Income Tax Act, 1961

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