TOTAL INCOME

[Mr. M. GOVINDARAJAN]

Charge of income tax

Section 4(1) of the Income Tax Act, 1961 (‘Act’ for short) provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person.

Total income

Section 2(45) of the Act defines the expression ‘total income’ as the total amount of income referred to in section 5, computed in the manner laid down in this Act.

Scope of total income

Section 5(1)  of the Act provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-

•  is received or is deemed to be received in India in such year by or on behalf of such person ; or
• accrues or arises or is deemed to accrue or arise to him in India during such year ; or
• accrues or arises to him outside India during such year.

In the case of a person not ordinarily resident in India the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

Section 5(2) of the Act provides that the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-

• is received or is deemed to be received in India in such year by or on behalf of such person ; or
• accrues or arises or is deemed to accrue or arise to him in India during such year.

The explanation 1 to this section provides that the income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.  The explanation 2 to this section clarifies that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

Return

Section 139(1) of the Act provides that every person,-

(a) being a company or a firm; or

(b) being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

Assessment

Section 143(1) of the Act provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner,-

1. the total income or loss shall be computed after making the following adjustments-

• any arithmetical error in the return; 
• an incorrect claim, if such incorrect claim is apparent from any information in the return;
• disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;
• disallowance of expenditure or increase in income indicated  in the audit report but not taken into account in computing the total income in the return;
• disallowance of deduction claimed under section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain incomes”, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
•  addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.

no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode.

2. the tax, interest and fee], if any, shall be computed on the basis of the total income computed under clause (a).

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.

Income escaping assessment

There is a possibility that income chargeable to tax has escaped assessment in the first instance.  Section 147 of the Act, 1961 enables the Assessing Officer to assess or reassess the case and bring to tax such income also.

Thus, the Act, 1961 contains elaborate machinery to facilitate determination of ‘total income’ and collection of tax thereon.

Collection of information

The Assessing Officer in order to determine ‘total income’ correctly needs to collect information from the assessee as well as third parties.  The Act contains many provisions enable the Department to collect information relating to the assessee, directly as well as indirectly, so as to enable it to detect tax evasion and make proper assessment of ‘total income’. Section 132 of the Act, 1 is a tool for collecting information relating to tax evasion by an assessee through search and seizure process.  There are other provisions to ensure that the assessees are assessed correctly on their ‘total income’, namely,

• Section 142 - Inquiry before assessment;
• Section 131 - Power regarding discovery, production of evidence etc.;
• Section 133- Power to call for information;
• Section 133A - Power of survey; and
• Section 285BA - Obligation to furnish statement of financial transaction of reportable account.

The Department also gets information from the following sources-

• Suspicious Transaction Report from the Financial Intelligence Unit;
• Information from other taxation authorities viz. GST, and Law Enforcement Agencies;
• Information from foreign tax jurisdictions under Automatic Exchange of Information as well as on request basis under Tax Treaties and International conventions;
• Gathering of documents and evidence from and based on third party sources;
• Information available in public domain and gets the same from informants, tax evasion petitions, etc.

The information collected from all these sources, including search and seizure, is eventually to be used for assessing ‘total income’.