3.a. Differentiate between tax planning and tax evasion ?

Tax Planning
(1) Tax planning is an arrangement of financial affairs that reduces the tax burden on the
assessee without violating the law.
(2) It is doing tax within the framework of law.
(3) It is a part of obedience of law.
(4) It is legal/acceptable.
(5) It encourages saving & investment.
(6) It is dependable.
(7) Here transactions are real & natural.

Tax Avoidance
1.Tax Avoidance is an art of jumping tax authority without breaking the law.
2.It is doing in foul play the law.
3.It is a part of defying the law.
4.It is technically legal & acceptable but unethical.
5.It is short term nature.
6.It is conjectural.
7.It is not dependable.
8.Here transaction are artificial.

b. Write short note on Tax avoidance

Tax avoidance refers to the legal use of provisions, exemptions, or loopholes within the tax laws
to minimize tax liability. It involves strategic planning to reduce taxes without violating the law,
unlike tax evasion, which is illegal. In India, tax avoidance is addressed under the Income Tax
Act, 1961, and related regulations, with measures to curb aggressive curve practices.

●​ Tax avoidance is an act of jump tax authority, without breaking the law.
●​ It means the management of financial affairs by clever device to reduce tax.
●​ It is an act of intention to reduce tax liability legally.
●​ Hence assesse takes advantages of certain loop holes or weakness in laws to reduce
tax liability.
●​ It does not violate the tax law.
●​ It is a lawful exercise.
●​ It is known as loop hole tax planning.
●​ It is legal unless expressly banned

c. How do you determine the incidence of tax of company?

The incidence of tax for a company in India, under the Income Tax Act, 1961, is determined
based on its residential status, income sources, and applicable tax provisions. Here are 4-5 key
points:
Residential Status (Section 6(3)): A company is resident if incorporated in India or its Place of
Effective Management (POEM) is in India; taxed on global income. Non-residents are taxed only
on India-sourced income.

Income Sources (Section 5 & 9): Residents are taxed on all income (e.g., business profits,
capital gains). Non-residents are taxed on income from business connections, Indian assets, or
services like royalties/fees deemed to arise in India.

Tax Rates: Domestic companies are taxed at 30% (or 25%/22%/15% under Sections
115BA/BAA/BAB, subject to conditions). Foreign companies face 40% on taxable income, with
surcharge (2–12%) and 4% cess.

DTAA Relief (Section 90): For cross-border income, Double Taxation Avoidance Agreements
(DTAAs) allow tax credits or exemptions, with taxpayers choosing the more beneficial option
between DTAA and the Act.

Compliance: Non-residents need a Tax Residency Certificate (TRC) and Form 10F for DTAA
benefits, comply with transfer pricing (Section 92), and adhere to TDS rules (Section 195) for
payments.

d. What are the provisions for set off and carry forward of losses from capital gains?

Provisions for Set Off and Carry Forward of Capital Losses

Under the Income Tax Act, 1961, Sections 70, 71, and 74 govern the set off and carry forward of
capital losses:
Intra-Head Set Off (Section 70): Short-term capital loss (STCL) can be set off against short-term
capital gains (STCG) or long-term capital gains (LTCG); long-term capital loss (LTCL) only
against LTCG.

Inter-Head Set Off (Section 71): STCL can be set off against other income heads (e.g.,
business); LTCL cannot be set off against anything except LTCG.

Carry Forward (Section 74): Unabsorbed STCL and LTCL can be carried forward for 8 years;
STCL sets off against STCG/LTCG, LTCL only against LTCG.

Filing Requirement: Losses must be reported in the income tax return (ITR) filed by the due date
(Section 139(1)) to be eligible for carry forward.

e. What are the provisions for set off and carry forward of losses from casual income?

Provisions for Set Off and Carry Forward of Losses from Casual Income
Under the Income Tax Act, 1961, casual income (e.g., winnings from lotteries, horse races,
gambling, or betting) is taxed at 30% under Section 115BB as “Income from Other Sources.”
The provisions for set off and carry forward of losses from such income are highly restrictive,
governed by Sections 58(4), 70, 71, and 74A. Below are the key points:
No Intra-Head Set Off (Section 70): Losses from casual income (e.g., gambling losses) cannot
be set off against casual income (e.g., lottery winnings) or other income under the “Income from
Other Sources” head, as prohibited by Section 58(4).

No Inter-Head Set Off (Section 71): Losses from casual income cannot be set off against
income from other heads, such as business, salary, or capital gains, due to the restriction under
Section 58(4).

No Carry Forward (Section 74A): Losses from casual income cannot be carried forward to future
years for set off against any income, unlike capital or business losses, which can be carried
forward for 8 years.

Practical Impact: These restrictions make losses from casual income non-deductible, ensuring
no tax relief and maintaining a strict tax regime for speculative, non-recurring income.

f. Explain the deduction in respect of scientific research u/s 35 ?

Section 35 of the Income Tax Act, 1961, provides deductions for expenditure on scientific
research to promote R&D, applicable to companies and other assessees. Below are the key
provisions in 4 points:
Revenue Expenditure [Section 35(1)(i)]: 100% deduction for revenue expenses (e.g., salaries,
materials) incurred on scientific research related to the company’s business in the year of
expenditure.

Capital Expenditure [Section 35(1)(iv)]: 100% deduction for capital expenses (e.g., equipment,
buildings) on research related to the business, with no depreciation allowed on such assets;
sale proceeds are taxable as business income.

Contributions to Approved Entities [Section 35(1)(ii)/(iia)]: 150% deduction (100% post-March

31, 2020) for payments to approved institutions (e.g., universities) and 100% for contributions to
approved research companies.

Conditions: Research must be business-related, and contributions must be to approved entities;

timely documentation and approval are required to claim deductions.

g.Discuss the taxability of capital gain in case of buy back of share?

Under the Income Tax Act, 1961, the taxability of capital gains from a buy-back of shares is
governed by Section 46A for shareholders and Section 115QA for companies.

Capital Gains for Shareholders (Section 46A): Gains from buy-back are calculated as Buy-back
Consideration – Cost of Acquisition (or Indexed Cost for long-term gains). Short-term gains
(held ≤12 months for listed, ≤24 months for unlisted shares) are taxed at slab/corporate rates;
long-term gains are taxed at 10% (listed, above ₹1 lakh, Section 112A) or 20% (unlisted, with
indexation).

Buy-Back Tax for Companies (Section 115QA): Domestic companies (listed or unlisted) pay a
Buy-Back Tax at 20% (plus 12% surcharge and 4% cess, effective ~23.296%) on the distributed
income (Buy-back Consideration – Issue Price), applicable to buy-backs after June 1, 2013.

Exemption for Shareholders: Amounts taxed under Section 115QA are exempt in the hands of
shareholders under Section 10(34A), meaning no capital gains tax applies if the company pays
the buy-back tax.

Non-Resident Shareholders: If the buy-back is not taxed under Section 115QA (e.g., pre-2013
or specific cases), non-residents are subject to capital gains tax, with relief under DTAAs (e.g.,
lower rates or exemptions) if applicable.

Compliance: Companies must deposit Buy-Back Tax within 14 days and file returns.
Shareholders report exempt income or capital gains (if applicable) in their ITR, with TDS under
Section 195 for non-residents if no buy-back tax applies.

h. Penalty provision for delaying filing TDS/TCS Return?

Under the Income Tax Act, 1961, timely filing of Tax Deducted at Source (TDS) and Tax
Collected at Source (TCS) returns is mandatory. Delays in filing attract penalties and other
consequences, primarily under Section 234E, with additional provisions for interest and
prosecution. Below are the key points:

Late Filing Penalty (Section 234E):

●​ A penalty of ₹200 per day is imposed for each day the TDS/TCS return is delayed
beyond the due date, until filed.

●​ The total penalty is capped at the TDS/TCS amount deductible or collectible for the
relevant quarter.

●​ Example: If a TDS return due on July 31 is filed after 30 days with ₹50,000 TDS, the
penalty is ₹200 × 30 = ₹6,000, subject to the ₹50,000 cap.
Applicability:
●​ Applies to quarterly TDS returns (e.g., Form 24Q for salaries, 26Q for payments) under
Section 200(3) and TCS returns (e.g., Form 27EQ) under Section 206C(3).

●​ The penalty is levied on the deductor (e.g., company paying salaries) or collector (e.g.,
seller collecting TCS).

Additional Consequences:
 ●​ Interest (Section 201(1A)): Interest at 1% per month for non-deduction or 1.5% per
month for non-deposit of TDS/TCS after deduction is charged.

●​ Expense Disallowance (Section 40(a)(ia)): 30% of expenditure (e.g., interest, fees) is

disallowed if TDS is not deducted or deposited, increasing taxable income.

Prosecution (Section 276CC):

Wilful failure to file TDS/TCS returns may result in prosecution, with penalties including
imprisonment (3 months to 7 years) and fines, though typically applied in cases of persistent
non-compliance.

i. What is the best judgement assessment?

Best Judgement Assessment under Section 144 of the Income Tax Act, 1961, allows the
Assessing Officer (AO) to estimate a taxpayer’s income and tax liability when they fail to comply
with tax obligations. Below are the key points:

Applicability: Triggered if a taxpayer fails to file a return (Section 139), ignores notices (Sections
142/143), or submits incomplete/incorrect accounts.

Procedure: The AO issues a show-cause notice, then estimates income using available data,
past records, or industry norms, computing tax to the best of their judgment.

Consequences: May result in higher tax liability, interest (Sections 234A/B/C), and penalties
(e.g., Section 271 for concealment).

Safeguards: Taxpayers get a reasonable opportunity to be heard; assessments must be

evidence-based, and appeals can be filed under Section 246A.

j. What are the modes of filing a return of income?

Under the Income Tax Act, 1961, taxpayers file their Income Tax Return (ITR) primarily through
electronic modes. Below are the key modes:

E-Filing: Filing ITR online via the Income Tax portal (www.incometax.gov.in), mandatory for
companies and high-income taxpayers.

Digital Signature Certificate (DSC): E-filing with DSC for secure authentication, mandatory for
companies and audited entities.

E-Verification: Verifying uploaded ITR using Aadhaar OTP, net banking, or bank/Demat account,
optional for non-DSC users.
Physical Filing: Paper-based filing, allowed only for super senior citizens (above 80) with income
below ₹5 lakh and no refund claim.