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Case Laws - Taxation

Learning Sections

Section 28	Chargeability.
Section 30 to 36	Amount expressly allowed as deduction.
Section 37	General deduction.
Section 40 to 43B	Restriction on deduction.
Section 44AA	Compulsory maintenance of accounts.
Section 44AB	Compulsory tax audit.
Section 44AD & 44AE	Presumptive basis of taxation.

General

To be discussed in the class.

How to compute “profit from business or profession”?

Net Profit as per P & L A/c			xxx
(+)	Inadmissible	Capital expenditure or personal expenditure debited to P & L A/c	xxx
(+)	Additions	Business receipts not recorded in P & L A/c	xxx
(-)	Admissible	Revenue expenditure of business in nature not recorded in P & L A/c	(xxx)
(-)	Subtraction	Other than business incomecredited to P & L A/c	(xxx)
Profits from business or profession			xxx

P1: Mr. Sudeep who runs a Gas Agency furnishes the following P & L A/c (maintained as per mercantile system) for the PY ending 31-3-2017:

Dr.	Particulars	Amount	Particulars		Amount Cr
1.	Office expenses	1,95,000	Gross Profit		2,05,000
2.	Purchase of Building	50,000	6	Rent from building	4,000
3.	Purchases a computer for personal use	18,000	7.	Dividend from an Indian Company	20,000
4.	Provision for bad debts	2,000	8.	Other business receipts	55,000
5.	Household expenses	20,000	9.	Interest on saving bank	10,000
Net Profit		35,000	10.	Profit from sale of land	26,000
total		3,25,000	total		3,25,000

Additional informations:

11. Audit fees of Rs 2,000 not debited to P/L A/c.

12. He also purchases printer worth Rs 36,000 for the purpose of business. This amount is not debited to P & L A/c. (the rate of depreciation 15%)

13. He has received an interest from company deposits of Rs 500 which is not credited to P/L A/c.

14. On 1-6-2016, he made a sale worth Rs 30,000 not recorded in P & L A/c.

15. On 31-3-2017, he contributed Rs 10,000 in PPF.

Ans : BI = 82,600; HP = 2,800; CG = 26,000; OS = 10,500; GTI = 1,21,900; TI = 1,01,900.

Shanti Bhushan Case

1. Expenses incurred on heart surgery whether business expenses or personal expenses?

2. Shanti Bhushan argued that heart is treated as plant therefore repairs of plant should be allowed as deduction.

3. Delhi High Court argued if heart is treated as plant and expenditure is incurred by him on a heart operation should be allowed as deduction then heart should found a mention in the assessee’s balance sheet.

4. And heart is not treated as plant instead it is god gift.

5. Therefore treated as personal expenses and not allowed as deduction.

6. Had the expenses incurred on EE then it should be treated as business expenses and allowed as deduction.

Jaypee Case

1. For the business of the Company, the Managing Director is required to go on tours to countries abroad.

2. If on international tours a MD is accompanied by his wife, it goes a long way to benefit the Company since warm human relations and social mixing promotes better business understanding.

3. Also wife of the Director is sometimes required to accompany him on his tour abroad as a matter of reciprocity in international business.

The document Case Laws - Taxation | Income Tax for assessment (Inter Level) is a part of the Taxation Course Income Tax for assessment (Inter Level).

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FAQs on Case Laws - Taxation - Income Tax for assessment (Inter Level)

1. What is taxation and how does it work?

Ans. Taxation is the process by which a government collects money from individuals and businesses to fund public services and infrastructure. It works by imposing taxes on various sources of income, such as wages, profits, and property, and using the revenue to fund government activities.

2. What are the different types of taxes imposed by the government?

Ans. The government imposes various types of taxes, including income tax, sales tax, property tax, corporate tax, and excise tax. Income tax is levied on individuals' earnings, sales tax is charged on the purchase of goods and services, property tax is imposed on real estate, corporate tax is paid by businesses on their profits, and excise tax is levied on specific goods like alcohol and tobacco.

3. Can you provide an example of a case law related to taxation?

Ans. One example of a case law related to taxation is the landmark Supreme Court case of Brown v. Board of Education. Although not directly related to taxation, this case had significant implications for tax laws as it led to the desegregation of public schools, which impacted the allocation of tax revenues for educational purposes.

4. What are some common tax deductions and credits available to taxpayers?

Ans. Some common tax deductions and credits available to taxpayers include the standard deduction, which reduces taxable income for individuals and families, and credits such as the child tax credit, earned income tax credit, and education-related tax credits. These deductions and credits can help reduce the overall tax liability for eligible taxpayers.

5. How does tax evasion differ from tax avoidance?

Ans. Tax evasion refers to the illegal act of intentionally avoiding paying taxes by providing false information or hiding income and assets. It is a criminal offense and can result in substantial penalties and even imprisonment. On the other hand, tax avoidance refers to the legal use of strategies and loopholes within the tax laws to minimize tax liability. While tax avoidance is permissible, aggressive forms of it may be subject to scrutiny and potential legal challenges.

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