Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

In which Cases Income of Previous Year is Assessed in the Same Year

As a normal rule, the income earned  during any previous year is assessed or charged to tax in the immediately succeeding assessment year. However,  in the following circumstances the income is taxed in the same year in which it is earned. Therefore, the  assessment year and the previous year in these exceptional circumstances will be the same. These exceptions have  been provided to safeguard the collection of taxes so that assessees, who may not be traceable later on, are not  allowed to escape the payment of the taxes. The exceptions are as follows:

In which Cases Income of Previous Year is Assessed in the Same Year
In which Cases Income of Previous Year is Assessed in the Same Year

1. Shipping Business of Non-Residents [Section 172]:

A non-resident who is carrying on a shipping business  and earns income from carrying passengers/livestock/goods from a port in India, will be charged incometax before the ship is allowed to leave the Indian port. Therefore, before the ship leaves the Indian port,  the master of the ship is under an obligation to furnish a return of the full amount earned on account of  fare and freight (including the amount paid or payable by way of demurrage charge or handling charge or  any other amount of similar nature) and pay the tax accordingly. In this case 7.5% of the amount of  fare/freight/charge, etc. shall be deemed to be income of such assessee on which the income-tax will be  charged. Therefore, in this case the tax is chargeable on the income in the same year in which it is earned.

Where the Assessing Officer is satisfied that it is not possible for the master of ship to furnish the  return before the departure of the ship from the port and the master of the ship has made satisfactory  arrangement for the filing of the return and payment of the tax by any other person on his behalf, he  (the Assessing Officer) may, if the return is filed within 30 days of the departure of the ship, deem the  filing of the return by the person so authorised by the master as sufficient compliance for the purpose  of this section.

See also  Location of Supplier and Place of Supply of Goods and Services under GST Law

2. Assessment of Persons Leaving India [Section 174]:

When it appears to the Assessing Officer that any  individual may leave India during the current assessment year or shortly after its expiry, and such  individual has no present intention of returning to India, the total income of such individual, from the  expiry of previous year for that assessment year (i.e. from 1st April of the assessment year) up to the  probable date of his departure from India shall be chargeable to tax in the same assessment year.

Example 1.—R wishes to migrate to USA permanently and plans to leave India on 15.11.2019. He  submitted his return for assessment year 2019-20 on 31.7.2019 the assessment of which is still pending.

In this case the Assessing Officer will make two assessments:

(a) regular assessment for previous year income of 2018-19 at the rates applicable for assessment year  2019-20.

(b) assessment of income of the period 1.4.2019 to 15.11.2019 (either actual or estimated basis) and tax  should be levied on such income in the assessment year 2019-20 itself but at the rates of advance tax  for financial year 2019-20 (A.Y. 2020-21) given in part III of First Schedule of Finance (No. 2) Act,  2019.

3. Assessment of Association Of Persons (AOP) or Body Of Individuals (BOI) or Artificial Juridical Person formed for a  particular event or purpose [Section 174A]:

Where it appears to the Assessing Officer that any  association of persons or a body of individuals or an artificial juridical person formed or established or  incorporated for a particular event or purpose is likely to be dissolved in the assessment year in which  such association of persons or body of individuals or artificial juridical person was formed or established  or incorporated or immediately after such assessment year, the total income of such person or body or juridical person, for the period from the expiry of the previous year for that assessment year up to the date  of its dissolution, shall be chargeable to tax in that assessment year.

See also  Investment Planning for Tax Savings

E.g. if AOP which is formed in the previous year 2019-20 is going to be dissolved on 16.6.2020 then the  income of the period 1.4.2020 to 16.6.2020 shall be charged to income tax in the assessment year 2020-21  itself although its assessment year should have been assessment year 2021-22.

4. Assessment of Persons likely to Transfer Property to Avoid Tax [Section 175]:

If it appears to the  Assessing Officer during any current assessment year, that any person is likely to charge, sell, transfer,  dispose of or otherwise part with any of his assets with a view to avoiding any payment of his tax  liability, then the total income of such person for the period from the expiry of the previous year for that  assessment year (i.e. from 1st April of that assessment year) till the date when the assessing officer  commences proceedings, shall be chargeable to tax in the same assessment year. However, in this case  also the rate of tax applicable shall be the rate given in Part III of Schedule I which are applicable for  advance tax also.

5. Discontinued Business [Section 176]:

Where any business or profession is discontinued in any  assessment year, the income of the period from expiry of the previous year for that assessment year up to  the date of such discontinuance may, at the discretion of the assessing officer, be charged to tax in that  assessment year. For example, if a business is discontinued on 16.7.2019 then the income for the period  1.4.2019 to 16.7.2019 may be assessed in the assessment year 2019-20 itself. The tax will be charged at  the rates in force for advance tax payable during financial year 2019-20. [i.e. rates given in Part III of the  First Schedule].

Any person discontinuing any business or profession shall give to Assessing Officer notice of such  discontinuance within 15 days thereof.

It may be noted that in the first four exceptions given above, the Assessing Officer shall charge the tax on such  persons in the same previous year i.e. it is mandatory for the Assessing Officer to charge the tax in the same  previous year. On the other hand, in the fifth exception given above the Assessing Officer has the discretionary  power and as such he may charge in the same previous year or may wait till the assessment year.

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