Questions 8 explain person, previous year, etc

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Q.8 Write short notes on any two of the following:

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(i) Define the term ‘Person’ — [Section 2(31) of the Income Tax Act, 1961]

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📘 Meaning:

The word ‘Person’ under the Income Tax Act has a very wide meaning.
It does not mean only a living human being — it includes every entity capable of earning income and paying tax.

Under Section 2(31), the term “Person” includes the following seven categories:

1. An Individual — Example: Any person like Mr. A or Ms. B.
2. A Hindu Undivided Family (HUF) — Example: Joint Hindu family with Karta and members.
3. A Company — Example: Infosys Ltd., TCS, etc.
4. A Firm — Example: Partnership firms.
5. An Association of Persons (AOP) or Body of Individuals (BOI) — Example: Group of people earning jointly, such as lottery groups.
6. A Local Authority — Example: Municipal Corporation, Gram Panchayat.
7. Every Artificial Juridical Person — Example: Temple Trust, University, or Idol of a Deity (legal personality but not human).

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⚖️ Case Law:

CIT v. Sodra Devi (1957) 32 ITR 615 (SC)
🔹 Held: The term “individual” means a single human being, whether male or female.
🔹 Principle: A “person” may include both a natural and artificial entity under the Act.

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💬 Simple Example:

If Mr. X (individual), ABC Pvt. Ltd. (company), and a Temple Trust (juridical person) all earn income — each will be considered a separate ‘person’ for income tax purposes.

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✍️ In short:

“Person” means any entity — natural or artificial — capable of earning income and being taxed under the Income Tax Act.

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(ii) What is ‘Previous Year’? — [Section 3 of the Income Tax Act, 1961]

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📘 Meaning:

The term ‘Previous Year’ means the financial year immediately preceding the assessment year.

In simple words:

The year in which income is earned is called the Previous Year,
and the year in which income is taxed is called the Assessment Year.

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🗓️ Example:

If income is earned between 1 April 2024 to 31 March 2025,
then that year is the Previous Year 2024–25.
It will be assessed (taxed) in Assessment Year 2025–26.

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📜 Section 3 – Key Points:

1. The previous year always starts on 1st April and ends on 31st March.
2. Every assessee has a previous year for each source of income.
3. Even a newly started business has a previous year beginning from its start date till 31st March.

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⚖️ Case Law:

CIT v. Brij Lal Lohia & Mahabir Prasad Khemka (1972) 84 ITR 273 (SC)
🔹 Held: The income earned in the previous year is taxable in the assessment year unless otherwise provided by law.

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💬 In short:

“Previous Year” = Year of earning income.
“Assessment Year” = Year of paying tax on that income.

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(iii) Difference between Gross Total Income and Total Income

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Basis	Gross Total Income (GTI)	Total Income
Meaning	The total of all incomes from the 5 heads before deductions.	The income remaining after deductions under Chapter VI-A.
Formula	GTI = Income from all 5 heads (Salary + HP + Business + Capital Gains + Other Sources)	Total Income = GTI – Deductions (Sections 80C to 80U)
Sections Covered	Section 14	Section 80A to 80U
Purpose	To know the total income before exemptions.	To calculate the final taxable income.
Example	If total income from all heads = ₹10,00,000	After 80C deduction ₹1,50,000 → Total Income = ₹8,50,000
Tax Payable On	Not directly taxed	Tax is calculated on Total Income only

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💬 Example in Simple Words:

If Mr. A earns ₹8,00,000 salary + ₹2,00,000 rent = ₹10,00,000 (GTI)
He invests ₹1,50,000 under Section 80C →
Total Income = ₹10,00,000 – ₹1,50,000 = ₹8,50,000

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⚖️ Case Law:

CIT v. Harprasad & Co. (P) Ltd. (1975) 99 ITR 118 (SC)
🔹 Held: Total income is computed after making all deductions and exemptions allowed by the Act.
👉 Principle: GTI and total income are distinct stages in computation.

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✍️ In short:

Gross Total Income = Total of all heads of income.
Total Income = GTI minus deductions = Final taxable amount.

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(iv) Define ‘Assessee’ — [Section 2(7) of the Income Tax Act, 1961]

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📘 Meaning:

The term ‘Assessee’ means a person who is liable to pay tax or any sum under the Income Tax Act.
It also includes a person against whom:

• Any proceeding has been started under the Act, or
• Any refund is due, or
• Any penalty or fine is imposed.

So, even if a person is not yet paying tax but is under proceeding, he is still called an assessee.

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🧾 Types of Assessee:

1. Ordinary Assessee: Pays tax on own income.
2. Representative Assessee: Pays tax on behalf of another (like guardian, agent, trustee).
3. Deemed Assessee: Treated as assessee by law (e.g., legal heir of deceased person).
4. Assessee-in-default: Fails to deduct or pay tax (e.g., employer not deducting TDS).

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⚖️ Case Law:

CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC)
🔹 Held: The term “assessee” includes both the person assessed directly and persons assessed on behalf of others.
👉 Principle: The definition of assessee is wide and covers all persons responsible for tax payment.

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💬 Example:

If Mr. X earns income, he is an assessee.
If a guardian pays tax for a minor child, the guardian is a representative assessee.

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✍️ In short:

“Assessee” means any person who is liable to pay tax, or who is assessed, or who is under any proceeding or entitled to refund under the Act.

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✅ Summary (Memory Tip for Exam):

Concept	Section	Meaning
Person	2(31)	Any natural or artificial entity capable of earning income
Previous Year	3	The year in which income is earned
Gross Total Income vs Total Income	14 & 80A-80U	GTI is before deductions; Total Income is after deductions
Assessee	2(7)	Person liable to pay tax or under assessment