Notes on Taxation law

Fundamental Principles relating to Tax Laws
Basic concepts by which a government is meant to be
guided in designing and implementing an equitable
taxation regime. These include:
(1) Adequacy: taxes should be just-enough to generate
revenue required for provision of essential public services.
(2) Broad Basing: taxes should be spread over as wide as
possible section of the population, or sectors of economy,
to minimize the individual tax burden.
(3) Compatibility: taxes should be coordinated to ensure tax
neutrality and overall objectives of good governance.
(4) Convenience: taxes should be enforced in a manner that
facilitates voluntary compliance to the maximum extent
possible.

(5) Earmarking: tax revenue from a specific
source should be dedicated to a specific purpose
only when there is a direct cost-and-benefit link
between the tax source and the expenditure, such
as use of motor fuel tax for road maintenance.
(6) Efficiency: tax collection efforts should not
cost an inordinately high percentage of tax
revenues.
(7) Equity: taxes should equally burden all
individuals or entities in similar economic
circumstances.

(8) Neutrality: taxes should not favor any
one group or sector over another, and
should not be designed to interfere-with or
influence individual decisions-making.
(9) Predictability: collection of taxes should
reinforce their inevitability and regularity.
(10) Restricted exemptions: tax exemptions
must only be for specific purposes (such as
to encourage investment) and for a limited
period.
(11) Simplicity: tax assessment and
determination should be easy to understand
by an average taxpayer.

Taxing power and constitutional limitations
Apart from Art 265 and the limitations
imposed by the division of the taxing
power between the Union and the State
Legislature by the relevant entries in the
Legislative list, the taxing power of either
Legislature is particularly subject to the
following limitation imposed by particular
provision of our constitution.

(i) It must not contravene Art 13.
(ii) It must not deny equal protection of the
laws (Art 14).
(iii) It must not constitute an unreasonable
restrictions upon the rights of business
[Art 19(l)(g)].
(iv) No tax shall be levied over the proceeds of
which are specifically appropriated in
payment of expenses for the promotion or
maintenance of any particular religion or
religions denomination. (Art 27).

(v) A State legislature or any authority within
the State cannot tax the property of the Union
(Art 285).
(vi) The Union cannot tax the property and
income of a State (Art 289).
(vii) The power of a State to levy tax on sale or
purchase of goods is subject to Art 286.
(viii) Save in so far as Parliament may by Law
otherwise provide a State shall not tax the
consumption or sale of electricity in the case
specified in Art 287.

(ix) Imposition of tax should not impede the
free flow of trade. Commerce and intercourse
(Art 301)
(x) Levy of tax must not offend Art 304 (a).

Some Important Case Laws
 The scope of Art 301 was again defined
by the Supreme 29 Court in Automobile
Transport Ltd., V State of Rajasthan
There the majority held that
regulatory measure of imposing
compensatory taxes for the use of
trading facilities did not hamper trade
commerce and inter-course but rather
facilitated them and therefore were
not hit by the freedom declared by the
Art 301.

 In State of Assam, V Labanya Prabha , the
impunged Act imposed tax on motor vehicles
in Assam. The petitioner challenged the tax as
violative of Art 301. The court rejected the
plea as the said Act was only regulatory
measures imposing compensatory taxes for
facilitating trade commerce and intercourse .

Distinction between : Tax, Fee and Cess
 Tax - Any money the government takes from you (legally)
for doing any economic activity is referred to as tax.
Generally, this is a percentage of the money you receive or
give. Taxes can be either direct, where the money goes directly
from your pocket to the govt's kitty like income tax, or
indirect, where the money goes from your pocket to someone
else's pocket and then to the govt's pocket like customs or
excise.
 Duty - In economics, a duty is a kind of tax levied by a
state. It is often associated with customs, in which context they
are also known as tariffs or dues. The term is often used to
describe a tax on certain items purchased abroad.

This is an on-border tax charged on goods
(commodities, or things that you can physically touch)
either while coming into the country or going out of the
country. Generally, a percentage of the value of the
good.
Cess - This is a tax on tax, levied by the govt
for a specific purpose. Generally, cess is
expected to be levied till the time the govt gets
enough money for that purpose. The education
cess, that is levied currently, is meant to
finance basic education in the country.

The term cess is confusing because it means
different things to different people, depending on
where a person lives. In Ireland, Cess is nothing but
a tax, while in Scotland it means a property tax. In
Thailand, the term is used to refer to Rubber Export
Tax.
However in modern India, cess refers to a tax that is
levied for a particular reason to collect money to
fund particular project for the betterment of the
country. For example, education cess is collected in
order to provide education in rural countries.
Fee is nothing but amount charged for providing
the services,

Tax avoidance and Tax evasion.
What Is Tax Avoidance?
Tax avoidance is the legitimate minimizing
of taxes, using methods included in the tax
code. Businesses avoid taxes by taking all
legitimate deductions and by sheltering
income from taxes by setting up employee
retirement plans and other means, all legal
and under the Internal Revenue Code or
state tax codes.

What is Tax Evasion?
 Tax evasion, on the other hand, is the illegal practice
of not paying taxes, by not reporting income,
reporting expenses not legally allowed, or by not
paying taxes owed. In this situation, the phrase
"ignorance of the law is no excuse" comes to mind.
 Tax evasion is most commonly thought of in relation
to income taxes, but tax evasion can be practiced by
businesses on state sales taxes and on employment
taxes. In fact, tax evasion can be practiced on all the
taxes a business owes.
 Tax evasion is the illegal act or practice of failing to
pay taxes which are owed. In businesses, tax
evasion can occur in connection with income
taxes, employment taxes, sales and excise taxes, and
other federal, state, and local taxes.

Double taxation
Double taxation is a taxation principle
referring to income taxes paid twice on
the same source of earned income. It can
occur when income is taxed at both the
corporate level and personal level.
Double taxation also occurs in
international trade when the same
income is taxed in two different
countries.

Tax planning and Tax management
Tax Planning Tax Management
(i) The Objective of Tax Planning is to
minimize the tax liability
The objective of Tax Management is to comply with
the provisions of Income Tax Law and its allied rules.
(ii) Tax Planning also includes Tax
Management
Tax Management deals with filing of Return in time,
getting the accounts audited, deducting tax at source
etc.
(iii) Tax Planning relates to future.
Tax Management relates to Past ,. Present, Future.
Past – Assessment Proceedings, Appeals, Revisions etc.
Present – Filing of Return, payment of advance tax etc.
Future – To take corrective action
(iv) Tax Planning helps in minimizing Tax
Liability in Short-Term and in Long Term.
Tax Management helps in avoiding payment of
interest, penalty, prosecution etc.
(v) Tax Planning is optional. Tax Management is essential for every assessee.

Overviewof tax litigation
Tax litigation under the Indian judicial system
occupies a large portion of judicial time. The
adjudicating and quasi-judicial appellate
authorities, which act as fact-finding bodies
under the Income Tax Act 1961, Central Excise
Act 1944, Customs Act 1962, Good & Service
Tax Law. The key statutes on the Goods &
Service Tax Law are the:
 Central Goods and Services Act 2017.

 Union Territory Goods and Services Act 2017.
 Integrated Goods and Services Act 2017.
 GST
Legislative framework
Civil tax litigation
 Income Tax Act 1961 (Chapters XIX-A, XIX-
B and XX).
 Income Tax Rules 1962.
 The Constitution of India 1950.
 Double taxation avoidance agreements.

 Income Tax (Dispute Resolution Panel) Rules
2009.
 Income Tax (Appellate Tribunal) Rules 1963.
 Authority for Advance Rulings (Procedure)
Rules 1993.
 Income Tax Settlement Commission
(Procedure) Rules 1997.
 Black Money (Undisclosed Foreign Income
and Assets) and Imposition of Tax Act 2015
 Benami Transactions (Prohibition)
Amendment Act 2016

 Good & Service Tax Law.
 Code of Civil Procedure 1908.
 Central Excise Act 1944.
 Customs Act 1962.
 Finance Act 1994 (Service Tax).
 State-level value added tax, sales tax, entry
tax, luxury tax and advertisement tax
legislation.

Criminal tax litigation
 Criminal tax litigation is regulated by the following
principal pieces of legislation:
 Income Tax Act 1961 (Chapter XXII).
 Income Tax Rules 1962.
 Code of Criminal Procedure 1973.
 Black Money (Undisclosed Foreign Income and Assets)
and Imposition of Tax Act 2015
 Benami Transactions (Prohibition) Amendment Act,
2016
 Good & Service Tax Law
 Central Excise Act 1944.
 Customs Act 1962.
 Finance Act 1994 (Service Tax)

Resolving disputes before
commencing court proceedings
Under the administrative procedure (which is
in the remit of the Commissioner of Income
Tax (CIT) and the Commissioner of Income
Tax (Appeals) (CIT(A)), the main procedures
used to resolve disputes before
commencing proceedings are:

 Filing objections with the Dispute Resolution Panel
(DRP).
The taxpayer must file objections to the draft order
proposed by the Assessing Officer (AO) within 30 days of
the receipt of the draft order. Taxpayers are not obliged to
guarantee the payment of the tax assessed until the final
order is passed by the AO in accordance with DRP
directions. The DRP has nine months to consider the AO's
and the taxpayer's facts and arguments and issue
directions to the AO. Directions issued by the DRP are
binding on the AO and the AO must issue the final order
in accordance with these directions within 30 days of
receipt. The DRP can confirm, reduce or enhance the
additions proposed by AO. However, it cannot remand the
matter back to the AO. If the taxpayer is unsatisfied with
the decision, he can file an appeal with the Income Tax
Appellate Tribunal.

 Filing an appeal with the CIT(A).
The taxpayer can file an appeal (even for transfer pricing
cases as well as cases of foreign companies and non-
residents) with the CIT(A) within 30 days of receipt of the
final order. Taxpayers are not obliged to guarantee the
payment of the tax assessed. However, they must pay
additional taxes, unless the demand is stayed by
administrative authorities. The CIT(A) can confirm,
reduce, enhance or annul the assessment. In addition, a
taxpayer can ask the Principal Commissioner of Income
Tax (PCIT) / Commissioners of Income Tax (CIT) to
grant immunity from prosecution if he has made an
application for settlement under the Income Tax Act 1961
(Income Tax Act) and the proceedings for settlement have
abated (section 278AB, Income tax Act).

 Resolving a dispute under the jurisdiction of
the Income Tax Settlement Commission
(ITSC).
The ITSC provides a mechanism for a one-time
settlement of taxes to evaders or taxpayers who
default unintentionally. The ITSC has wide powers
to settle tax disputes on facts and circumstances of
the case. Orders passed by the ITSC are final and
cannot be appealed, except by way of writ before
the High Court only on points of law. The ITSC also
has powers to grant immunity from penalty and
prosecution.

 Resolving a dispute under the jurisdiction of
the Authority for Advance Rulings (AAR).
The AAR is an independent adjudicatory body,
which issues binding rulings in relation to civil tax
disputes. The scheme of advance rulings was
introduced by the Finance Act 1993 (effective from
1 June 1993). Accordingly, a high-level body
headed by a retired judge of the Supreme Court has
been set-up which is empowered to issue rulings,
which are binding both on the Income Tax
Department and the applicant. Advance rulings are
written opinions or authoritative decisions such as
determinations:

Resolving a dispute by
advance pricing agreements
(APA).The APA mechanism was introduced in 2013 to
determine the arm's length price and the method of
determination of arm's length price of an
international transaction between two associated
enterprises. An APA is valid for five years with
provision for four years' rollback. The progress of
the APA scheme strengthens the government's
resolve to foster a non-adversarial tax regime. The
Indian APA programme has been appreciated
nationally and internationally for being able to
address complex transfer pricing issues in a fair and
transparent manner.

Notes on Taxation law

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Notes on Taxation law