Assignment Code: BCOC – 136 /TMA/2023-24

Course Code: BCOC-136

Assignment Name: Income Tax Law and Practice

Year: 2023-2024

Verification Status: Verified by Professor

Maximum Marks: 100

Attempt all the questions.

Section-A

Q1) What do you understand by casual income? Discuss the provision of casual income under Income Tax Act?

Ans) Casual income refers to income that is earned irregularly or infrequently, and it may not be a part of one's regular income sources. This type of income is typically earned on an ad-hoc or sporadic basis and is not derived from a regular job or business. Casual income can come from various sources, such as winnings from a lottery or gambling, gifts, prizes, occasional freelance work, or one-time sales of personal assets.

Any non-recurring revenue received by an assesses accidentally or without any prior expectation is treated as casual income. It includes gains from gambling, lotteries, playing cards, horse races, crossword Basic Concepts-II puzzles, and other similar activities. In the case of a horse racing, the maximum amount of incidental revenue is Rs. 10,000, which is free from income tax. Any excess casual income beyond that threshold will be subject to taxation under the "Income from other sources" heading.

In the context of taxation, casual income is treated differently from regular income. The provisions for taxing casual income under the Income Tax Act in many countries, including India, are designed to ensure that such income is reported and taxed appropriately.

Here's a brief overview of how casual income is dealt with under the Indian Income Tax Act:

1. Taxability: Casual income is taxable under the Income Tax Act. The specific tax treatment may depend on the nature and source of the income.

2. Gift Tax: In India, casual income in the form of gifts is subject to gift tax. However, there are exemptions and limits under which gifts may not be taxable, such as gifts from close relatives, gifts received on occasions like weddings, or gifts below a certain threshold.

3. Prize Money: Any prize money or winnings from lotteries, crossword puzzles, card games, and other similar games of chance are taxable under the Act. Tax is usually deducted at source (TDS) when such income is paid.

4. Occasional Income: Income earned from occasional freelance work or one-time services may also be subject to taxation. The individual receiving such income is required to report it and pay taxes accordingly.

5. Capital Gains: If casual income results from the sale of personal assets (like selling an antique or art piece), it may be treated as a capital gain. Capital gains tax may apply, but there are provisions for exemptions on certain types of capital gains.

6. Reporting Requirements: Individuals who earn casual income are obligated to report it in their income tax return. Failing to report such income could lead to penalties or legal consequences.

7. Tax Deduction at Source (TDS): In some cases, where the payer of casual income is responsible for deducting TDS, they are required to deduct taxes at the applicable rates before making the payment to the recipient.

Q2) Mr. Vikash is getting a pension Rs. 4,000 per month from a company. During the previous year, he got two-third pension commuted and received Rs. 1,86,000. Compute the exempted amount, if

Q2a) he also received gratuity

Ans) To calculate the exempted amount when Mr. Vikash received a pension and gratuity during the previous year, we need to consider the provisions of the Income Tax Act in India. Specifically, we need to calculate the exempted portion of both the pension and gratuity. Let's break down the calculation:

Exempted Portion of Commuted Pension

First, calculate the total annual pension before commutation. Since he receives Rs. 4,000 per month, the annual pension is 12 months multiplied by Rs. 4,000, which equals Rs. 48,000.

Then, calculate the commuted value of pension. If two-thirds of the pension was commuted, it means one-third of the pension remains as a monthly pension, which is Rs. 4,000 / 3 = Rs. 1,333.33 (rounded to the nearest rupee).

Now, calculate the commuted pension by subtracting the remaining monthly pension from the total annual pension: Rs. 48,000 - Rs. 1,333.33 * 12 = Rs. 32,000.

The exempted portion of the commuted pension is 1/3 of the commuted pension, which is Rs. 32,000 / 3 = Rs. 10,666.67 (rounded to the nearest rupee).

Exempted Portion of Gratuity

Gratuity received by an employee is exempt from tax up to a certain limit as per the Income Tax Act. The limit is determined based on the employee's tenure of service.

For non-government employees, the exemption limit is calculated as (15/26) (Last Drawn Salary) (Number of Years of Service).

Mr. Vikash's exempted gratuity amount depends on his last drawn salary and years of service. Without this information, we can't calculate the exact exempted gratuity amount. You would need to know these details to calculate the gratuity exemption.

Q2b) he did not received gratuity, for the assessment year 2022-23.

Ans) To calculate the exempted amount of pension commutation for Mr. Vikash for the assessment year 2022-23, we need to consider the provisions of the Income Tax Act in India. The exempted amount depends on whether Mr. Vikash has received any gratuity.

Here are the steps to calculate the exempted amount:

a) Calculate the amount of pension commutation:

Mr. Vikash received Rs. 1,86,000 as a commuted pension.

b) Calculate the exempted amount:

The exempted amount of pension commutation is determined as follows:

1. If Mr. Vikash did not receive gratuity:

The exempted amount is calculated as (1/3) * (pension commutation received).

2) If Mr. Vikash received gratuity:

The exempted amount is calculated as (1/2) * (pension commutation received).

In this case, since Mr. Vikash did not receive gratuity, we'll use the formula for the exempted amount without gratuity:

Exempted Amount = (1/3) * Rs. 1,86,000

Exempted Amount = Rs. 62,000

So, the exempted amount of pension commutation for Mr. Vikash for the assessment year 2022-23 is Rs. 62,000.

Q3) For the previous year 2021-22, the business income of X Ltd. before allowing expenditure on family planning is Rs.3,00,000. The company had incurred the following expenditure on family planning amongst its employees during the previous year 2021-22:

(i) Revenue expenses on family planning Rs 1, 65,000.

Ans) In the case of X Ltd. for the previous year 2021-22, the business income before allowing expenditure on family planning is Rs. 3,00,000. The company incurred revenue expenses on family planning amounting to Rs. 1,65,000 during the same year.

To compute the deduction allowable under Section 36(1)(ix) of the Income Tax Act for the expenditure on family planning, you can follow these steps:

a) Calculate the lower of the following two amounts:

1. The actual expenditure on family planning (Rs. 1,65,000).

2) 20% of the business income before allowing such expenditure (20% of Rs. 3,00,000 = Rs. 60,000).

b) Compare the calculated amounts from step 1.

The actual expenditure on family planning (Rs. 1,65,000) is higher than 20% of the business income (Rs. 60,000).

c) The deduction allowable under Section 36(1)(ix) will be the lower of the two amounts from step 1, which is Rs. 60,000.

So, X Ltd. can claim a deduction of Rs. 60,000 for the expenditure on family planning for the previous year 2021-22.

(ii) Capital expenditure on family planning Rs 9,00,000.

a) Compute the deduction available for expenditure on family planning to the company assuming the company has income from other sources amounting to Rs. 30,000.

Ans) To compute the deduction available for the capital expenditure on family planning (Rs. 9,00,000) to the company (X Ltd.) for the previous year 2021-22, we need to consider Section 36(1)(ix) of the Income Tax Act. Since X Ltd. has income from other sources amounting to Rs. 30,000, we will calculate the allowable deduction as follows:

a) Calculate the lower of the following two amounts:

1. The actual capital expenditure on family planning (Rs. 9,00,000).

2) 20% of the business income before allowing such expenditure (20% of Rs. 3,00,000 = Rs. 60,000).

b) Compare the calculated amounts from step 1.

The actual capital expenditure on family planning (Rs. 9,00,000) is higher than 20% of the business income (Rs. 60,000).

c) Deduct the income from other sources (Rs. 30,000) from the calculated amount in step 2.

Rs. 9,00,000 - Rs. 30,000 = Rs. 8,70,000

So, the deduction available for the capital expenditure on family planning to the company (X Ltd.) for the previous year 2021-22 is Rs. 8,70,000.

b) What will be your answer if the revenue expenditure on family planning is Rs. 2, 30,000 instead of Rs.1, 65,000?

Ans) If the revenue expenditure on family planning is Rs. 2,30,000 instead of Rs. 1,65,000:

a) Calculate the lower of the following two amounts:

1. The actual expenditure on family planning (Rs. 2,30,000).

2) 20% of the business income before allowing such expenditure (20% of Rs. 3,00,000 = Rs. 60,000).

b) Compare the calculated amounts from step 1.

The actual expenditure on family planning (Rs. 2,30,000) is higher than 20% of the business income (Rs. 60,000).

c) The deduction allowable under Section 36(1)(ix) will be the lower of the two amounts from step 1, which is Rs. 60,000.

So, even if the revenue expenditure on family planning is Rs. 2,30,000, X Ltd. can still claim a deduction of Rs. 60,000 for the expenditure on family planning for the previous year 2021-22.

Q4) The following particulars of income are submitted by Smt. Suman Garg for the assessment year 2022-23. She lives at Delhi.

(i) Basic pay 10,000 p.m.

(ii) Dearness allowance @ 10% of salary

(iii) HRA 30% of basic salary.

(iv) Medical allowance Rs 200 p.m. (amount actually spent on her own treatment is Rs. 2,000).

(v) Warden ship allowance 400 p.m.

(vi) Rent from house Property Rs. 3,000 p.m.

(vii) Contribution to RPF 10% of basic salary.

(viii) House rent paid Rs. 6,000 p.m.

(ix) Donation to approved charitable institution Rs. 20,000 Compute her total income for assessment year 2022-23.

Ans) Computation of total income of Smt. Suman for the A.Y. 2020-21

Q5) Discuss the various kinds of Securities? Explain the rule regarding grossing up of interest on Commercial Securities.

Ans) Various kinds of securities can be broadly categorized into two main types: Debt Securities and Equity Securities. Let's discuss each of these types:

a) Debt Securities:

• Bonds: Bonds are a type of debt security where the issuer borrows funds from investors and promises to pay periodic interest (coupon) and the principal amount at maturity. They can be issued by governments, municipalities, corporations, or other entities.

• Debentures: Debentures are unsecured debt instruments issued by corporations. Unlike bonds, they are not backed by specific assets but rely on the issuer's creditworthiness.

• Treasury Securities: These are debt securities issued by the government and are considered one of the safest investments. In the United States, they include Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds).

b) Equity Securities:

• Common Stock: Common stock represents ownership in a corporation. Shareholders have voting rights and may receive dividends if the company decides to distribute profits.

• Preferred Stock: Preferred stockholders have a higher claim on the company's assets and earnings than common shareholders. They typically receive fixed dividends but usually don't have voting rights.

• Convertible Securities: These are hybrid securities that can be converted into a specific number of common shares at the investor's discretion.

Regarding the rule of grossing up of interest on Commercial Securities, this rule applies to interest earned on certain types of debt securities. When individuals or entities earn interest income on such securities, the interest income may be subject to tax withholding. To ensure that the recipient of the interest income pays the appropriate amount of taxes, the interest may be "grossed up" to include the tax liability within the interest payment itself.

The rule aims to make the recipient of the interest income responsible for paying the taxes on that income. Here's a simplified example to explain how it works:

(Suppose an individual earns interest income of $1,000 on a commercial security, and the applicable tax rate is 20%.)

a) Grossing Up: The interest payment is grossed up by dividing it by (1 - tax rate). In this case, it's $1,000 / (1 - 0.20) = $1,250.

b) Tax Withholding: The entity paying the interest withholds 20% of $1,250, which is $250, and remits it to the tax authorities.

c) Net Payment to Recipient: The recipient receives the remaining $1,000 ($1,250 - $250) as taxable interest income.

Section-B

Q6) Explain the conditions which should be satisfied for an individual to be resident but not ordinarily resident.

Ans) In many countries, including India, tax residency can alter income tax liability. Tax residence in India is divided into three categories: ROR, RNOR, and Non-Resident (NR).To qualify as an individual who is "Resident but Not Ordinarily Resident" (RNOR), certain conditions must be satisfied:

a) Resident Status: First and foremost, the individual must meet the criteria for being a "resident" in India for a particular financial year as per the Income Tax Act. The primary test for determining residential status in India is the number of days spent in India during the financial year. If an individual spends a specified number of days or more in India, they are considered a resident. The exact number of days may vary depending on various factors, including the individual's nationality and whether they have an Indian source of income. For instance, for a citizen of India, the threshold is typically 182 days.

b) Not Ordinarily Resident: To qualify as RNOR, the individual must not satisfy the conditions for being "Ordinarily Resident." An individual is considered "Ordinarily Resident" in India if they meet any of the following conditions:

• They have been resident in India for at least two out of the ten previous financial years.

• They have spent at least 730 days in India during the seven previous financial years preceding the relevant financial year.

c) Indian Source of Income: Being an RNOR means that the individual has minimal or no Indian source income during the financial year. Income earned or accrued in India is typically taxed in India. If an individual has significant income from Indian sources, they might not qualify as RNOR.

d) Foreign Income: RNOR status is often associated with individuals who have substantial foreign income. They may have income generated from overseas sources or assets held abroad. This foreign income is usually subject to tax in India if it is received or deemed to be received in India.

e) Tax Liability: Under RNOR status, an individual's tax liability may differ from that of an ROR. Certain exemptions and deductions available to ROR individuals might not apply to RNORs.

f) Tax Planning: Individuals in the RNOR category often use this status for tax planning purposes, especially if they have returned to India after working abroad and have foreign income. This status provides some tax benefits compared to being classified as ROR.

Q7) How is tax avoided through Bond washing transactions?

Ans) Bond washing is a financial transaction strategy that was historically used to avoid taxes on capital gains and dividends. However, it's important to note that tax authorities have implemented regulations to prevent such practices. Bond washing transactions are considered illegal or against tax regulations in many countries.

a) Here's how bond washing transactions were typically conducted to avoid taxes:

• Purchase and Sale: An investor holding a bond with accrued capital gains (i.e., the bond's market value has increased since purchase) would sell the bond to another party, typically a related party or a controlled entity.

• Settlement: The seller would then repurchase the same or identical bond shortly before or after the sale, often on the same trading day. The objective was to reset the cost basis of the bond to the current market price without realizing the capital gain.

• Tax Avoidance: By engaging in this transaction, the investor effectively avoided recognizing and paying taxes on the accrued capital gains that would have been triggered by selling the bond at a profit.

b) To prevent tax avoidance through bond washing transactions, tax authorities have implemented specific anti-avoidance rules and regulations, including:

• Wash Sale Rules: Many tax districts have introduced wash sale rules that disallow the immediate repurchase of identical securities shortly after their sale. This prevents investors from resetting the cost basis without realizing capital gains or losses.

• Capital Gains Taxation: Tax authorities may tax capital gains based on the original acquisition cost, even if the bond is repurchased shortly after the sale. This ensures that investors cannot avoid capital gains taxes through such transactions.

• Specific Regulations: Some countries have specific regulations and reporting requirements for securities transactions, including bonds. Failure to comply with these regulations may result in penalties or additional taxation.

Q8) Define annual value and state the deductions that are allowed from the annual value in computing the income from house property.

Ans) In the context of income tax in India, "Annual Value" refers to the potential rental income that a property can generate in a fiscal year. It is a key component in the calculation of taxable income from house property. The Income Tax Act, 1961, provides guidelines for determining the annual value of a property and allows for certain deductions to arrive at the taxable income from house property.

The deductions allowed from the annual value in computing income from house property are as follows:

1. Standard Deduction: A standard deduction of 30% of the annual value is allowed to cover expenses related to property maintenance and repairs. This deduction is available irrespective of the actual expenditure incurred by the property owner.

2. Municipal Taxes: The property owner can deduct the amount of municipal taxes paid during the fiscal year from the annual value. These taxes are levied by the local municipal authority, and the deduction is allowed to encourage property owners to fulfil their tax obligations.

The formula for computing the income from house property is as follows:

• Income from House Property = Annual Value - (Standard Deduction + Municipal Taxes Paid)

• It's important to note that if the property is self-occupied (used for residential purposes by the owner), the annual value is taken as zero, and no actual rent is assumed. In such cases, the only deduction allowed is for municipal taxes paid.

• If the property is not self-occupied (let-out property), the actual rent received or the potential rent, whichever is higher, is considered the annual value. Deductions for standard deduction and municipal taxes paid are then applied to arrive at the taxable income from house property.

• In the case of a property that is deemed to be let-out (even if it is not actually rented out), the potential rent is considered the annual value, and deductions are applied accordingly.

Q9) What items are disallowed as deduction in computation of firm's income from business or profession under Section 40(b)?

Ans) In computing a firm's business or profession income, Section 40(b) of the Income Tax Act, 1961, prohibits certain deductions. These banned items involve company partner payments. Section 40(b) aims to prevent partner payments from being tax-deductible business costs.

Here are the items disallowed as deductions under Section 40(b):

a) Remuneration and Interest to Partners: Any payment made to partners of the firm as remuneration for their services or interest on capital is subject to certain limits. The deduction allowed for such payments is subject to the following conditions:

• Remuneration: The amount of remuneration paid to any partner should be within the limits prescribed under the Income Tax Act. The maximum limit for deduction is specified, and any amount exceeding this limit is disallowed.

• Interest on Capital: Similarly, the interest paid to partners on their capital should be within the limits specified in the Income Tax Act. Any interest paid above the prescribed limit is not allowed as a deduction.

b) Salary, Bonus, Commission, or Remuneration to a Partner Not Entitled to Share Profit: If any partner receives a salary, bonus, commission, or remuneration but is not entitled to a share of the firm's profits, such payments are disallowed as deductions.

c) Interest, Salary, Bonus, Commission, or Remuneration Paid to a Partner Entitled to Share Profits: If any partner receives interest, salary, bonus, commission, or remuneration and is entitled to a share of the firm's profits, such payments are allowed as deductions but are subject to the limits specified under the Income Tax Act. Any excess amount is disallowed.

d) Payment to a Partner Who Holds a Substantial Interest in the Firm: If a partner holds a substantial interest in the firm (usually defined as a partner having a certain percentage of the total interest in the firm's capital or profit), payments made to such partners as remuneration, interest, salary, bonus, or commission are subject to additional restrictions and disallowances if they exceed the prescribed limits.

e) Payment Made to a Partner's Relative: Payments made to a partner's relative (spouse, brother, sister, lineal ascendant, or descendant) are subject to specific disallowances if the payment exceeds the limits specified in the Income Tax Act.

Q10) Explain in brief the consequences of delay in Filing the Return.

Ans) Under the Income Tax Act in many nations, it is crucial to submit income tax returns within the deadlines specified in order to avoid different repercussions and fines. The following are some of the main effects of filing income tax returns late:

• Interest on Tax Liability: One of the primary consequences of a delayed return is the imposition of interest on any tax liability. Interest is typically levied from the original due date of filing (which is usually the end of the assessment year) until the actual date of filing. The rate of interest may vary and can be substantial, increasing the overall tax liability.

• Loss of Refund: If you are eligible for an income tax refund, delaying the filing of your return means that you won't receive your refund promptly. Governments typically process refunds only after receiving the return. By delaying the filing, you also delay the receipt of any refund due to you.

• Penalties and Late Fees: Some countries impose penalties or late filing fees for missing the tax return deadline. These penalties can be significant and can vary based on factors such as the delay period and the amount of tax owed. The penalties may increase with the duration of the delay.

• Notice from Tax Authorities: Tax authorities may issue notices or reminders to taxpayers who have not filed their returns on time. These notices can demand explanations, additional documentation, or payment of taxes along with interest and penalties.

• Ineligibility for Certain Deductions: Some deductions or exemptions may be available only to taxpayers who have filed their returns within the stipulated time. Delayed filing could result in the loss of these tax benefits.

• Carry Forward Losses: If you have incurred losses in a particular financial year and intend to carry them forward for set-off against future gains, timely filing is crucial. Delayed filing may affect your ability to carry forward losses for set-off.

• Legal Consequences: In extreme cases of prolonged non-compliance, tax authorities may initiate legal actions, including the possibility of prosecution for tax evasion.

• Impact on Credit Score: In some countries, a history of non-compliance with tax obligations can negatively impact an individual's credit score or financial reputation.

Section-C

Q11) “The income of the previous year is taxed in the current year”. Explain.

Ans) The statement "The income of the previous year is taxed in the current year" is a fundamental concept in the taxation system of many countries, including India. It refers to the basis on which income taxation is assessed and collected. Here's an explanation of this concept:

a) Assessment Year and Previous Year: In income tax terminology, there are two critical concepts: the "Assessment Year" (AY) and the "Previous Year" (PY).

• Assessment Year (AY): This is the year in which your income is assessed, and the tax liability is calculated and paid. It follows the Previous Year and typically begins on April 1st and ends on March 31st of the following calendar year. For example, if you are calculating and paying taxes for the income earned between April 1, 2022, and March 31, 2023, the AY will be 2023-24.

• Previous Year (PY): This is the year in which you earn income that will be assessed and taxed in the subsequent Assessment Year. In simpler terms, it is the year preceding the Assessment Year. Using the same example, if you earn income between April 1, 2022, and March 31, 2023, the PY will be 2022-23.

b) Income Tax Calculation: When you file your income tax return for a particular Assessment Year (e.g., 2023-24), you report the income you earned during the Previous Year (e.g., 2022-23). This reported income is subject to taxation based on the tax laws and rates applicable in the Assessment Year.

c) Reasoning Behind the Concept: The concept of taxing income in the Assessment Year rather than the year in which it is earned allows for the orderly collection and assessment of taxes. It provides a clear time for taxpayers to calculate their income, determine their tax liability, and pay the taxes owed. This approach ensures that the tax administration system can function efficiently.

d) Timing of Tax Payment: Taxpayers are required to pay their estimated tax liability in instalments during the Financial Year (FY), which is the same as the Previous Year. These instalments are typically paid in advance and are known as "Advance Tax." By the end of the Financial Year (i.e., by March 31 of the Previous Year), taxpayers should have paid the full estimated tax liability for the income they earned during that year.

e) Filing of Returns: After the close of the Previous Year, taxpayers are required to file their income tax returns for that year during the Assessment Year. This return includes details of income earned, deductions claimed, and taxes paid. Tax authorities then assess the return and calculate the final tax liability. If there is any discrepancy or additional tax owed, it is settled during the Assessment Year.

Q12) What are the provisions for calculating House rent allowance?

Ans) House Rent Allowance (HRA) is a component of an employee's salary that provides tax benefits for the rent paid by the employee for their residential accommodation. The provisions for calculating HRA in India are governed by the Income Tax Act, and they are as follows:

• Actual HRA Received: This is the actual amount of HRA received by the employee from the employer as part of their salary package.

• Rent Paid: The actual rent paid by the employee for the residential accommodation they occupy. To claim HRA benefits, the rent should be paid for a house/apartment that is not owned by the employee or for which they do not receive any other housing-related allowance.

• Place of Residence: The location of the residential accommodation plays a crucial role in determining the HRA calculation. The provisions vary for individuals living in metropolitan cities (like Mumbai, Delhi, Kolkata, or Chennai) and those residing in other cities or towns.

• Salary Received: The salary on which HRA is calculated is the sum of basic salary, dearness allowance (if it is part of the salary), and any other commission or bonus included as part of the salary.

• The HRA calculation is based on the following three scenarios:

  • Scenario 1: Actual HRA Received is Less than 50% of Salary (in metros) or 40% of Salary (in non-metros):

  • In this scenario, the actual HRA received by the employee is fully taxable.

  • Scenario 2: Actual HRA Received is More than 50% of Salary (in metros) or 40% of Salary (in non-metros):

Here, HRA is calculated as the minimum of the following three amounts:

• Actual HRA Received

• 50% of Salary (in metros) or 40% of Salary (in non-metros)

• Rent Paid - (10% of Salary)

• The balance amount of HRA received is taxable.

Scenario 3: Employee does not live in a rented house:

If the employee does not pay any rent or lives in a house they own, they are not eligible for HRA tax benefits.

It's essential to note that to claim HRA benefits, the employee needs to provide rent receipts as proof of rent payment and the rental agreement with the landlord's details. If the annual rent paid exceeds Rs. 1 lakh, the employee must also provide the landlord's PAN (Permanent Account Number).

Employees can claim HRA exemptions while filing their income tax returns. By taking advantage of HRA provisions, individuals can reduce their taxable income, resulting in lower tax liabilities.

Q13) State any five business losses which are not deductible from business income.

Ans) Under the Indian Income Tax Act, there are specific business losses that are not deductible from business income. These include:

• Losses from Speculation Business: Losses incurred in speculative business activities, such as trading in shares, commodities, or derivative instruments, are not deductible against other business income. Speculative business losses can only be set off against speculative business gains.

• Losses from Unabsorbed Depreciation: If a business has unabsorbed depreciation, meaning the depreciation expenses exceed the business income, such losses cannot be set off against other business income.

• Losses from Unabsorbed Capital Expenditure: Losses incurred on account of unabsorbed capital expenditure, like expenses on scientific research or the acquisition of capital assets, cannot be deducted against other business income.

• Losses from Unabsorbed Amortization of Preliminary Expenses: Any unabsorbed amortization of preliminary expenses cannot be set off against other business income.

• Losses from Business of Owning and Maintaining Racehorses: Losses arising from the business of owning and maintaining racehorses are not deductible against other business income. Such losses can only be set off against income generated from the same racehorse business.

Q14) In what circumstance is the income of one person treated as income of another?

Ans) The income of one person can be treated as the income of another person under certain circumstances, primarily under the concept of "clubbing of income" as per the Indian Income Tax Act. This provision is designed to prevent tax evasion by shifting income from one person to another, usually within a family or closely related individuals. Here are some circumstances in which the income of one person is treated as the income of another:

• Spouse's Income: In the case of an individual, the income of their spouse can be clubbed with their income under certain conditions. This typically applies when the transfer of assets or funds between spouses is done with the intention of avoiding taxes.

• Minor Child's Income: If a minor child has income from any source, such as investments or property, it can be clubbed with the income of the parent whose total income is higher. This provision is in place to prevent parents from transferring income-generating assets to their minor children to reduce their own tax liability.

• Income from Assets Transferred to Spouse: If an individual transfers an asset to their spouse, and the asset generates income, that income can be clubbed with the income of the individual who transferred the asset, if certain conditions are met. This prevents individuals from transferring assets to their spouse to evade taxes on income generated from those assets.

• Income from Assets Transferred to Son's Wife: If an individual transfers assets to their son's wife (daughter-in-law), and the assets generate income, that income can be clubbed with the income of the individual who transferred the assets.

• Association of Persons (AOP) or Body of Individuals (BOI): In some cases, income earned by an AOP or BOI can be clubbed with the income of its members, depending on the nature of the income and the extent of their association.