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Income Tax Act, 1961 (ITA)
Income Tax Act, 1961 (ITA)
Comprehensive piece of legislation that covers all aspects of income taxation, including the following:
definition of tax, tax rates, deductions and exemptions, assessment, collection and recovery of tax
Recent amendment was made by Finance Act 2023. Changes brought were:
● New tax regime
● Increased threshold for tax rebate
● Reduced surcharge rate
● New tax rate for manufacturing co-operative societies
● Extended applicability of alternate tax regime
Income Tax Act, 1961 (ITA)
● Section 37(1) :Provides a list of expenses that can be deducted from business income. These include expenses
on salaries, rent, repairs, and maintenance, as well as interest on loans taken for business purposes.
● Section 43B :Provides for depreciation on assets used for business purposes. The amount of depreciation that
can be claimed depends on the type of asset and its useful life.
● Section 48 :Provides for a number of deductions in respect of capital expenditure incurred on business assets.
These deductions can be claimed in full or over a period of time.
● Section 203 :Requires businesses to maintain proper books of accounts and prepare financial statements in
accordance with the prescribed accounting standards.
● Section 206 :Prescribes the different tax rates for different types of taxpayers and income. For businesses, the
tax rate is typically higher for larger businesses and lower for smaller businesses.
● Section 209 :Requires businesses to pay advance tax on their estimated tax liability for the year.
● Section 139 :Requires businesses to file tax returns on an annual basis. These returns must disclose the
taxpayer's income and expenses, and the tax payable.
Case: ITO v. Ashok Leyland Ltd. (2012)
Involved the interpretation of Section 35D of the Income Tax Act, which allows for the deduction of certain preliminary expenses incurred by an
assessee in connection with the setting up or expansion of an industrial undertaking.
The assessee appealed the ITO's decision to the Income Tax Appellate Tribunal (ITAT), which held that the assessee was entitled to the deduction
under Section 35D. The ITAT reasoned that the proposal to expand the industrial undertaking was tantamount to the actual expansion of the industrial
undertaking.
The Revenue appealed the ITAT's decision to the Madras High Court, which upheld the ITAT's decision. The High Court held that the word "expansion"
in Section 35D should be interpreted liberally to include any activity that is undertaken with the intention of increasing the capacity of the industrial
undertaking.
The Supreme Court has not yet ruled on this issue. However, the Madras High Court's decision in ITO v. Ashok Leyland Ltd. is widely followed by the
lower courts.
The significance of the ITO v. Ashok Leyland Ltd. case is that it allows assessees to claim a deduction for preliminary expenses incurred in connection
with a proposal to expand an industrial undertaking, even if the expansion is not ultimately undertaken. This can provide significant tax relief to
assessees who are planning to expand their businesses.