SIGNIFICANCE OF FILING IT RETURNS IN INDIA Submitted By
ANANT EKKA Sec-B Roll No.-26 Submitted To
Mr. Rana Navneet Roy Hidayattulah National Law University, Raipur ON
23-10-2017
CERTIFICATE
OF
DECLARATION
I hereby declare that the project work entitled “Significance of filing IT returns in India
”
submitted to HNLU, Raipur, is record of an original work done by me under the guidance of Mr. Rana Navneet Roy, Faculty Member, HNLU, Raipur.
Manish Kumar Roll No-84 Semester-V
2
ACKNOWLEDGEMENT I would like to sincerely thank the principles of Taxation teacher for giving me this project on ‘Significance of filing IT returns in India’ which has widened my knowledge on the scope and relevance of it in Taxation Law. Her guidance and support has been instrumental in the completion of this project. I’d also like to thank all the authors, writers, columnists and social thinkers whose ideas and works have been made use of in the completion of this project. My heartfelt gratitude also goes out to the staff and administration of HNLU for the infrastructure in the form of our library and IT lab that was a source of great help in the completion of this project. I also thank my friends for their precious inputs which have been very helpful in the completion of this project.
Manish Kumar Roll No-84 Semester-V
3
INDEX OBJECTIVES ................................................................................................................................ 5 RESEARCH METHODOLGY ..................................................................................................... 6 INTRODUCTION ......................................................................................................................... 7 PROVISIONS FOR FILING RETURNS ....................................................................................... 8 SECTION 139 OF INCOME TAX ACT....................................................................................... 9 CONCLUSION............................................................................................................................. 14 BIBLIOGRAPHY ......................................................................................................................... 15
4
OBJECTIVES 1. FIRSTLY , TO EFFECTIVELY ILLUSTRATE THE MEANING OF FILING INCOME TAX RETURNS UNDER I NDIA N LAW 2. SECONDLY, TO HIGHLIGHT THE HISTORY OF THE PREVIOUS TAXATION LEGISLATIONS IN I NDIA 3. MOREOVER , THE WORK AIMS TO CRITICALLY EXAMINE THE VARIOUS AMENDMENTS TO THE INCOME TAX ACT
4. F INALLY, THE WORK AIMS TO PROVIDE WITH HELP OF RELEVANT CASE LAWS THE CURRENT POSITION OF THE
J UDICIARY
ON FILING INCOME TAX RETURNS FOR
DIFFERENT CLASSES OF EMPLOYEES
5
1. R ESEARCH METHODOLOGY 1.1.
MODE OF RESEARCH An attempt has been made in this work to critically evaluate the significance of filing IT returns in India. The research will be descriptive and analytical in nature. Furthermore, a deductive approach will be followed in the project wherein the research has been conducted by taking certain generalized notions into account of the Rule and drawing specific inferences in the light of its implications on Indian Law. The purpose of the research is to bring out the current position of the rule in India. Additionally, analyzing its aspects on various perspectives as well as and throwing light on the judicial pronouncements. The form of interpreting data is:
1.2.
TYPE OF DATA Secondary Data-Data collected through various websites, books and other resources. Primary reliance has been based on internet sources.
1.3.
MODE OF CITATION A uniform mode of citation shall be adopted and followed consistently throughout this project. The style of footnoting shall be as per the citation followed at Hidayatullah National Law University, Raipur
6
2. INTRODUCTION WHAT DOES IT TO MEAN TO FILE I NCOM E TAX RETURNS? The filing of income tax/wealth-tax return is a legal obligation of every person whose total income and wealth tax during the previous year exceeds the maximum amount which is not chargeable to income tax or wealth tax under the provisions of I.T. Act, 1961 or Wealth Tax Act 1957, as the case may be. The return should be furnished in the prescribed form on or before the due date(s). At present, there is an emphasis on self compliance on the part of the taxpayers. The assessing officer will accept the returns, u/s 143(1) of the I.T. Act or u/s 16(1) of W.T. Act, as the cases, may be, on the basis of the returns/documents submitted by the assesses. That is the end of the matter for a majority of the cases, except in the small number of cases selected for scrutiny. It is, therefore, advisable for the taxpayers to furnish correct and complete particulars in the Income-Tax/Wealth Tax return itself. INCOME TAX RETURN
It is compulsory for every company to furnish return of income. Every person, other than a company, whose total income from all sources of income exceeds the maximum amount which is not chargeable to income tax in any previous year ending on 31st March is liable to file the Income-tax Return. The maximum limit of income not chargeable to tax under the provisions of the Income Tax Act, 1961 is Rs. 1, 10,000 (except in case of resident women below 65 years of age and resident senior citizens above 65 years of age) for assessment year 2008-09. WEALTH TAX RETURN
Every Individual, Hindu Undivided Family and Company whos net wealth exceeds the maximum amount which is not chargeable to wealth tax in any previous year ending of 31st March is liable to file the wealth tax return. The maximum limit of net wealth not chargeable to tax under the provisions of the Wealth tax Act, 1957 is Rs. 15 lakhs at present. WHAT IS NET WEALTH?
Net wealth is the aggregate value, computed under the provisions of the W.T. Act, 1957, of all assets (including deemed assets), belonging to the assessee on the valuation date, MINUS the aggregate value of all debts owed by the assessee on the valuation date which have been taken in relation to the assets attracting wealth tax. HOW IS WEALTH TAX CHARGED?
It is charged @ 1% of the amount by which the net wealt h exceeds Rs. 15 Lakhs.
7
3.
DELAY IN FILING RETURNS
[THE FINANCE ACT, 1963
Under section 139 of the Income-tax Act, 1961, the interest to be paid by an assessee for delay in the filing of the return was to be calculated with reference to the tax determined on regular assessment, and no adjustments were subsequently admissible in respect of such interest. Section 8 of the Finance Act, 1963, introduces two modifications in respect of this position. In the first place, if the assessment is modified as a result of appeal, reference, review or rectification, and the amount of tax payable by the assessee is reduced, provision has been made for reducing the amount of interest pro rata, and for refunding the excess interest paid, if any. Secondly, the Income-tax Officer has been given power in certain circumstances to reduce or waive the interest. The circumstances 1 in which this power of reduction or waiver can be exercised will be prescribed by rules to be made for this purpose. It is to be noted that this provision enables a modification of the amount of interest only in the assessee’s favour, and not in the other direction. If the assessment is enhanced as a result of appeal, revision or rectification, the amount of interest payable is not to be enhanced and no additional interest is to be demanded.’ 2 Section 139(1) and section 139(2) of the 1961 Act are independent of each other
‘Section 139(1) and section 139(2) of the Income -tax Act, 1961, are independent of each other. Whereas, section 139(1) is primarily intended for new assessees, section 139(2) is intended for old assessees. In both cases, interest under clause {iii) of the provision to section 139(1) becomes chargeable only if the filing of the return is delayed beyond the 30th September or, as the case may be, the 31st December of the relevant assessment year. The penalty under section 271(l) (f) of the Act becomes leviable in both cases only if the Incometax Officer is satisfied that the assessee’s failure to furnish the return within the time allowed was without any reasonable cause. In issuing a notice under section 139(2), therefore, the question of curtailment of any statutory right does not arise. 2. If an assessee, on whom notice under section 139(2) is served, does not furnish the return within the time allowed by the notice and does not apply for extension of time, the provisions of sub-clause (iii) of the proviso to section 139(1) regarding charging of interest will apply in such case. However, interest will run only from 1st October or the 1st January, as the case may be, of the assessment year. Penalty, as specified in clause (h of section 271(1), would be attracted in cases where the Income-tax Officer is satisfied that the assessee had no reasonable cause for failure to furnish the return within the time allowed. ’ 3
1 2
3
Such circumstances have been prescribed in rule 117A of the Income-tax Rules, 1962.only [Source: Excerpts from Departmental Circular No. F. No. l(95)-63 TPL, dated 9th September, 1963.] [Source: Board’s F. No. 13/41/63-IT(AI), dated 2nd December, 1963.]
8
4.
PROVISIONS RELATING TO FILING OF RETURNS BY CHARITABLE TRUSTS
The same assessment year persons in charge of charitable or religious trusts or institutions will be under a statutory obligation to furnish a return of income of the trust in all cases where the total income of the trust as computed without availing of the exemption under section 11(1) exceeds the maximum amount which is not chargeable to tax. This has been secured by the insertion of a new sub-section (4A) in section 139 of the Income-tax Act. The existing provision in sub-section (8)2 of section 139 which empowers the Income-tax Officer to reduce or waive the interest payable by any person for delay in furnishing the return of income under certain circumstances is being retained in the second proviso to clause (a) of the new sub-section (8). Further, specific power has been vested I in the Board, under a new clause (kk) of section 295(2), to specify in the Income-tax Rules the procedure to be followed in calculating interest payable by assessees or interest payable by Government to assessees, including the rounding off of the period for which such interest is to be calculated in cases where such period includes a fraction of a month, and also specify the circumstances in which and the extent to which petty amounts of interest payable by assessees may be ignored. Sub-section (3) of section 139 relating to the furnishing of return showing a loss under the head “Profits and gains of business or profession” or under the head “Capita] gains", has been amended so as to empower the Income-tax Officer to extend, in his discretion, the time for furnishing such a return on an application being made to him for this purpose. At present, there is no provision specifically empowering the Income-tax Officer to extend the time for furnishing such a return.
5. CURTAILMENT MODIFICATION
OF TIME ALLOWED FOR FILING RETURNS OF INCOME AND OF
THE
PROVISIONS
RELATING
TO
CHARGING
OF
INTEREST FOR DELAY IN FURNISHING SUCH RETURNS
Under sub-section (1) of section 139 of the Income-tax Act, every person having a taxable income from sources other than business or profession is required to furnish voluntarily the return of his income of the relevant assessment year. In the case of an assessee deriving income from business or profession, the return is required to be furnished before the expiry of six months from the end of the previous year or before the 30th June of the assessment year, whichever is later. Under sub-section (2), the Income-tax Officer has the power to issue a notice to any person requiring him to furnish his return of income within 30 days of the date of service of the notice and this notice can curtail the time allowed for furnishing the voluntary return. In case the return of income is not furnished before 1st October of the assessment year, the taxpayer is ordinarily liable to pay simple interest at 9 per cent, per annum from the 1st day of October to the date of furnishing of the return. Where, however, the total income of the assessee includes any income from business or profession, the previous year in respect of which expired after 31st December of the year immediately preceding the assessment year, the interest is reckoned from the 1st day of January instead of the 1st day of October of the assessment year. In view of these provisions, an assessee can 9
delay his return of income for a period ranging from three months to almost six months without attracting any liability to pay interest for the period of delay. Further, under section 140A, where the tax payable on the basis of the return filed by an assessee exceeds Rs. 500*, the assessee is required to pay tax on the basis of self-assessment within 30 days* of furnishing the return. In case of default in paying the tax on the basis of self-assessment within the time allowed, a penalty up to a maximum of 50 per cent. of the amount of tax due is eligible The effect of these provisions is that if an assessee furnishes his return of income within the time allowed under section 139(1), he is required to pay the tax due on the basis of the return within 30 days* of furnishing such return. If, however, he does not furnish the return within the time allowed but delay it either after obtaining an extension from the Income-tax Officer or otherwise, he does not have to pay any tax on self-assessment basis until he files the return. Further, where the return is due by 30th June, the assessee can delay it up to 30th September even without attracting any liability to interest for delay in furnishing the return. Where the assessee derives income from a business or profession and closes his accounts after 31st December of the previous year preceding the assessment year, the return can be delayed up to 31st December of the assessment year without attracting any liability to interest. In view of this position, there is tendency on the part of asses sees not only to delay the returns of income up until the due date under section 139(1) but also to request for extension of time, sometimes, on frivolous grounds. The time limit for completion of assessments has been reduced from four years to two years recently and with the introduction of the scheme of summary assessments, the pendency of arrear assessments has also been reduced considerably. It is, therefore, necessary in the interest of proper management of assessment work that bulk of the returns are received early in the assessment year. With the twin objective of ensuring early receipt and withdrawing the in-built incentive for delaying the returns, the following modifications have been made m the provisions of the Income-tax Act; (i) Clause (a) of sub-section (1) of section 139 has been amended requiring assessees having income from business or profession to furnish returns of income voluntarily within four months (as against six months at present) of the close of the accounting year or by the 30th June following that year, whichever is later. For all other categories of assessees, the last date for filing the return of income will continue to be 30th June, regardless of the accounting year adopted by them. (//) Clause (a) of sub-section (8) of section 139 has been amended to provide that the interest for delay or default in furnishing the return of income will, in all cases, be charged from the expiry of the due date for furnishing such return voluntarily under section 139(1), whether the return is filed under sub-section (1), sub-section (2) or sub-section (4) of section 139. Thus, where the return is due by 30th June of any assessment year, but is not filed on or before that date, interest will be charged from 1st July of that year. (Hi) Under the corresponding provision in the Wealth-tax Act, an assessee carrying on a business or profession is required to furnish the return of his net wealth before 30th June of 10
the assessment year or within the period prescribed under the Income-tax Act for furnishing the return of his total income, whichever is later. In view of the above modifi- ; cations made in the Income-tax Act, the returns of net wealth in such cases will also become due on 30th of June or within four months of the expiry of the relevant account year, whichever is later. (/V) In keeping with the other provisions in the Finance Act, 1972, increasing the rate of interest chargeable from assessees or payable to them from 9 per cent, per annum to 12 per cent, per annum, the rate of interest for delay or default in furnishing the return has also been increased to 12 per cent, per annum. 4
6.
FILING OF RETURNS OF INCOME BY CERTAIN SA LARIED TAXPAYERS TO BE OPTIONAL
Under section 139(1) of the Income-tax Act, every person having a taxable income is required to voluntarily furnish the return of his income before the date specified in the law in this behalf. In the case of salaried taxpayers, the return is required to be furnished before the 30th June of the relevant assessment year. In view of the position that appropriate tax due on the salary income is required to be deducted at source by the employer, the taxpayers having only salary income do not ordinarily have to pay any further tax on filing the return of income. The existing requirement of law where under such salaried taxpayes are obliged to voluntarily file their returns of income before the due date does not result in any particular benefit to the revenue and, on the other hand, adds infructuous workload on the staff and officers of the Income-tax Department and also imposes an unnecessary burden on the salaried taxpayers. With the replacement of the separate deductions in respect of books, travelling, taxes on professions and expenditure incurred in the performance of duties by a standard deduction, it will also not be necessary to verify the correctness of the claims in respect of these expenses. In view of this position, the Finance Act, 1974, has amended section 139 of the Income-tax Act with a view to making optional the filing of voluntary returns of income by salaried taxpayers who do not have large income. It will, accordingly, not be necessary for a person to furnish a voluntary return of income (or the income of any other person in respect of whose total income he is assessable) if his total income (or the total income of such other person) consists only of income chargeable under the head “Salaries” or income chargeable under that head and also income in the nature of dividends or interest or income from units in the Unit Trust of India referred to in clauses (/) to (ix) of sub-section (1) of section 80L. The requirements of furnishing a voluntary return in such cases will be waived only if certain conditions specified in this behalf are fulfilled. These conditions are: (a) If the person concerned was employed by a company at any time during the relevant previous year, he should not have been, at any time during that year, a director of the company or a beneficial owner of shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying 20 per cent, or more of the voting power. 4
(Source: Excerpts from Departmental Circular No. 108, dated 20th March, 1973.].
11
In it has been held that the above Instruction No. 1348 do not refer to clauses (bb) and (d) of the Explanation to section 139(9) and, therefore, are not applicable to those clauses. 5 In it has been held that where the audit is not completed, the Instruction No. 1348 makes it clear that such a return should not be treated as a defective return.6 PROVISIONS INTRODUCED FOR RECTIFYING DEFECTIVE
RETURNS
The Finance (No. 2) Act, 1980, has inserted a new sub-section (9) in section 139 of the Income-tax Act with a view to empowering the Income-tax Officer to call upon the assessee to rectify a defective return. For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely: — The annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in. The return of income is accompanied by the following, namely: — A statement showing the computation of the tax payable on the basis of the return; the proof of the tax, if any, claimed to have been deducted at source and the advance tax and tax on self-assessment, if any, claimed to have been paid; The proof of the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974; Where regular books of account are maintained by an assessee, — Copies of manufacturing account, trading account, profit and loss account, or income and expenditure account, or any other similar account and balance-sheet; In the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals; Where the accounts of the assessee have been audited, copies of the audited profit and loss account and balance-sheet and a copy of the auditor ’s report; Where regular books of account are not maintained by the assessee, a statement indicating the amounts of turnover or gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, as also of the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.
5 6
Gopal Glass Works Pvt. Ltd. v. CIT [(2001) 252 1TR 354, 364 (Guj)], Flotech Welding & Cutting Systems Ltd. v. Chander Singh [(2 004) 271 ITR 300, 307 (Bom)], 12
Where the Income-tax Officer considers that the return of income furnished by the assessee is defective, he is given the discretion to intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen da ys from the date.
13
7. CONCLUDING R EMARKS The new provision will apply in relation to returns of income which are filed on or after 1st September, 1980, whether for the assessment year 1980-81 or any earlier or later assessment year. The provision will also cover returns filed on or after that date in response to notices under section 148. A return of income is to be regarded as defective only if it contains any of the defects referred to in the Explanation to section 139(9). In other words, the provision in section 139(9) will not be applicable in the case of returns which do not contain any of these specified defects. The provision makes a distinction between a defective return and an invalid return. A defective return is not ipso facto to be regarded as an invalid return. It is only when a return contains any of the specified defects and the Income-tax Officer, in his discretion, intimates the defect to the assessee and the assessee fails to rectify the same within the specified period of 15 days or such further period as the Income-tax Officer may, on an application made in this behalf allow that the return shall be treated as an invalid return. In this connection, a reference may be made to section 292B of the Income-tax Act which, inter alia, provides that no return of income shall be invalid merely by reason of mistake, defect or omission in such return of income. The provision in section 139(9), however, overrides other provisions of the Income-tax Act (including section 292B) in this regard and in a case where any of the specified defects is not removed within the time allowed, the return shall be treated as an invalid return and the provisions of the Income-tax Act shall apply as if the assessee had failed to furnish the return. (The defect intimated by the Income-tax Officer is ordinarily required to be rectified by the assessee within a period of 15 days from the date of intimation. Where the Income-tax Officer sends a written communication to the assessee by post or through Notice Server, the period of 15 days will have to be reckoned from the date on which the communication is served on the assessee. Where there is a default in rectifying the defect intimated by the Income-tax Officer, the return of income has to be treated as an invalid return and further proceedings shall have to be taken on the footing that the assessee had failed to furnish the return. Thus, in a case where the return is furnished voluntarily under section 139(1), the Income-tax Officer cannot proceed to make an ex parte assessment under section 144 without serving a notice under section 139(2) or, as the case may be, under section 148. Where, however, the defective return was filed in response to a notice under section 139(2) or section 148, the Income-tax Officer may straightaway proceed to complete the assessment ex parte under section 144 or issue a notice under section 142(1).
14
8. BIBLIOGRAPHY BOOKS
1. CHATURVEDI & PITHISARIA, INCOME TAX LAW 3, 4161(5 th ed. 1999). 2. GIRISH AHUJA & RAVI GUPTA, DIRECT TAXES LAW & PRACTICE 831(1 st ed. 2009).
ARTICLES
1. Shyamal Mukherjee , Capital gains taxation: A step in the right direction?, Business Standard, June 18, 2010.
DISCUSSION PAPER
1. Report of the Working Group on Non Resident Taxation,2003 available at http://finmin.nic.in/reports/NonResTax.pdf 2. Discussion Paper on Direct Taxes Code, Central Board of Direct Taxes (June 2010). WEBSITES
1. http://www.femaonline.com/nricms.php?id=42 (last updated Aug 28, 2011). 2. http://www.hindu.com/pp/2004/07/17/stories/2004071700090300.htm (last updated Aug 29, 2011). 3. http://www.gichfindia.com/TaxBenefits.htm (last updated on Aug 20, 2011). 4. http://www.moneycontrol.com/news/management/the-vodafone-taxcontroversy_369736.html (last updated Aug 20, 2011). 5. http://www.nishithdesai.com/tax-hotline/2008/Tax-hotline-July-10-2008.htmls (last updated Aug 20, 2011). 6. http://www.thehindubusinessline.com/features/investment-world/personalfinance/article2037957.ece (last updated Sep 2, 2011). Dr. GirishAhuja and Ravi Gupta, Direct taxes: Law and Practice
15
