India has a well-developed tax formation with acutely demarcated authority
between Central and State Governments and local bodies. Central Government
levies some direct and indirect taxes on person and commodities respectively.
Direct taxes are, Personal Income Tax, Wealth Tax, and Corporation Tax while
indirect tax includes; Sales Tax, Excise Duty, Customs Duty and Service Tax.
Currently, corporation tax (20% of total tax collection) is the most influential
source of income of the central administration.
Tax System in India
India has a well-developed tax structure with clearly demarcated authority
between Central and State Governments and local bodies. Central Government
levies some direct and Indirect taxes on individual and commodities
respectively. Direct taxes are, Personal Income Tax, Wealth Tax, and Corporation
Tax while indirect tax includes; Sales Tax, Excise Duty, Customs Duty and
Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax
are levied by the State Governments. Local bodies are permitted to levy a tax on
properties, octroi and for services like water supply, drainage etc.
Indian taxation system has experienced huge changes during the last decade. The
tax rates have been deliberated and tax laws have been analysed following in
better compliance, ease of tax payment and better enforcement. The method of
rationalization of tax administration is continuous in India.
In the case of direct taxes (Income Tax, Wealth Tax, Corporation tax etc.), the
burden directly falls on the taxpayer. These are those taxes which can’t be
transferred on the others by the taxpayers.
Income Tax: According to Income Tax Act 1961, every person, who is an assessee and whose
total income surpasses the maximum exclusion limit, shall be chargeable to
the income tax at the rate or rates designated in the Finance Act. Such
income tax shall be paid on the total income of the prior year in the
relevant tax year.
Corporate Tax: it is a tax required on the net income of the company. Description:
Companies, both private and public which are recorded in India under the
Companies Act 1956, are subject to pay corporate tax. For the assessment
year 2014-15, domestic corporations are taxed at the rate of 30%.
Definition of a company
A company has been established as a juristic body having an independent and
separate legal existence from its shareholders. The income of the company is
measured and evaluated clearly in the hands of the company. However, the income
of the company, which is assigned to its shareholders as a dividend, is charged
in their individual hands. Such concentration of income is not treated as
expenditure in the hands of the company; the income so distributed is an
appropriation of the profits of the company.
Different kinds of taxes relating to a company
- Minimum Alternative Tax (MAT)
- Fringe Benefits Tax (FBT)
- Dividend Distribution Tax (DDT)
- Banking Cash Transaction Tax (BCTT)
- Securities Transaction Tax (STT)
Wealth tax, in India, is levied under the Wealth-tax Act, 1957. Wealth tax is a
tax on the profits received from property ownership. The tax is to be given year
after year on the same property on its market value, whether or not such
property yields any income. Under the Act, the tax is charged in respect of the
wealth held during the assessment year by the following persons:
- Hindu Undivided Family (HUF)
Indirect taxes are those taxes which can be transported on the others by the
taxpayers. As if the central government increases the rate of service tax on
different services then sellers pass on this supplement on the final consumers
of the services.
- Sales tax (imposed on the sale of goods. It can be of two types; central
sales tax and states sales tax)
Central Sales Tax (CST): It is usually payable on the sale of all
goods by a merchant in the course of inter-state trade or commerce or,
outside a state or, in the course of import into or, export from India.
Value Added Tax (VAT)
VAT is a multi-stage tax on goods that is levied across different stages of
production and supply with credit given for tax paid at each stage of Value
bonus. Introduction of state-level VAT is the most important tax reform measure
at the state level. The state-level VAT has followed the existing State Sales
Tax. It was started from April 1, 2005, in the country.
Central Excise duty is an indirect tax levied on goods created in India.
Excisable goods have been defined as those, which have been defined in the
Central Excise Tariff Act as being subjected to the duty of excise.
There are three types of Central Excise duties raised in India particularly:
Basic Excise Duty
This is the duty imposed under section 3 of the Central Excises and Salt
Act,1944 on all excisable goods other than salt which are produced or produced
in India at the rates outlined in the schedule to the Central Excise Tariff
Additional Duty of Excise
Section 3 of the Additional Duties of Excise (goods of special importance) Act,
1957 empowers the levy and collection in respect of the goods described in the
Schedule to this Act. This is levied instead of Sales Tax and shared between
Central and State Governments. These are levied following different enactments
like medicinal and toilet preparations, sugar etc. and other industries
Special Excise Duty
As per the Section 37 of the Finance Act, 1978 Special excise Duty was brought
on all excisable goods on which there is a levy of Basic excise Duty under the
Central Excises and Salt Act, 1944. Since then each year the applicable
provisions of the Finance Act defines that the Special Excise Duty shall be or
shall not be levied and collected during the relevant financial year.
Custom or import taxes are levied by the Central Government of India on the
goods imported into India. The rate at which customs duty is leviable on the
goods depends on the kind of goods defined under the Customs Tariff. The Customs
Tariff is usually followed by the Harmonised System of Nomenclature (HSL).
In line with following the customs duty and bringing it at par with the ASEAN
level, the government has decreased the peak customs duty from 12.5 per cent to
10 per cent for all goods other than agriculture products. Nevertheless, the
Central Government has the ability to regularly exempt goods of any specified
description from the whole or any part of the duties of customs leviable
thereon. In extension, preferential/concessional rates of duty are also possible
under the various Trade Agreements.
Service tax was launched in India way back in 1994 and started with mere 3 basic
services viz. general insurance, stockbroking and telephone. Today the counter
services subject to tax have reached over 120. There has been a constant
increase in the rate of service tax. Currently, India receives near about 60% of
its GDP from it. The current rate of service tax is 14% in India.
Brij Lal v. Commissioner of Income Tax 
In view of the different judgements of the Supreme Court in Anjum Ghaswala,
Hindustan Bulk Carrier and Damani Brothers, a recommendation was made to
the Full Bench of the Supreme Court to answer the questions:
- Whether sections 234A, 234B and 234C refers to proceedings of the
Settlement Commission under Chapter XIX-A?
- If the answer to the above question is in the positive,
what is the concluding point for duty of such interest — whether such interest
should be computed up to the date of the order under section 245D(1) or up to
the date of the order of the Commission under section 245D(4); and
- Whether the Settlement Commission can reopen its concluded processes by
invoking section 154 so as to levy interest under section 234B, though it
had not been so done in the original proceedings?
The Supreme Court brought perfection to the issues by holding as under:
- Though Chapter XIX-A is a self-contained Code, the method to be followed
by the Settlement
Commission under sections 245C and 245D is nothing but tax or estimate of total
income which catches place at the section 245D(1) step. In that number,
requirements dealing with a regular assessment, self-assessment and levy and
computation of interest for default in payment of advance tax, etc. are
engrafted. Accordingly, sections 234A to 234C are appropriate.
- Interest under sections 234A to 234C is payable only up to the date of
the section 245D(1) order and not up to the date of the section 245D(4)
order. The Legislature has not contemplated levy of interest for the period
between the section 245D (1) and the section 245D(4).
- Section 245-I provides that the order of the Settlement Commission shall
be final and conclusive.
Hence, the Settlement Commission cannot reopen its concluded proceedings by
invoking section 154 of the Act so as to levy interest under section 234B,
particularly, in view of section 245-I.
- Therefore, the Supreme Court held that the Settlement Commission cannot
reopen ended operations by having recourse to section 154 to levy interest
under section 234B if it was not done in the original proceedings.
Vijaya Bank v. Commissioner of Income Tax 
On a problem before the Hon’ble Supreme Court whether it is necessary for
assessee-bank to close an individual account of each of its debtors in its books
for claiming deduction under section 36(1)(vii) of the Income-tax Act, the
Supreme Court referring to its judgment in Southern Technologies Limited v.
Joint CIT judged that in order to explain the term “write-off” one has to
see how they write off has been produced.
If an assessee debits a number of doubtful debtors to profit and loss account
and credits the asset account (i.e., sundry debtors) it would create an actual
write off of a debt. On the opposite, if the amount is credited to current
liabilities and provisions, then it would be a provision.
In the latter case, the assessee would not be allowed to the deduction after
1-4-1989. It was also believed that the assessing officer was allowed to tax the
subsequent repayment if any, under section 41(1) of the Income-tax Act.
Reference may also be made to the Supreme Court decision in TRF Limited vs CIT10
wherein it was held that bad debts need not be proven to be irretrievable under
section 36(1)(vii). It is sufficient if they are written off.
-  [328 ITR 477]
- 252 ITR
- 259 ITR 449
- 259 ITR 475
-  [323 ITR 166]
- 320 ITR 577