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Persons Chargeable to Income Tax under Indian Law

Income tax in India is governed by the Income Tax Act of 1961, a comprehensive statute that establishes the regulations and obligations of taxpayers in the country. One key aspect of this act is the determination of who is chargeable to income tax. This fundamental aspect is covered under Section 2(7) and Chapter XV of the Income Tax Act, 1961, defining the persons who can be assessed for income tax in India.


Section 2(7) of the Income Tax Act, 1961

Section 2(7) of the Income Tax Act, 1961, defines the term 'assessee.' It denotes any person against whom any proceeding has been initiated under this Act, or by whom any tax or any other amount of tax is due or payable under the act. Furthermore, it encompasses persons who are deemed to be an assessee or an assessee in default under any provision of the Act.



Classification of Assessees

Under Indian taxation law, assessees can be classified into the following categories, each chargeable to income tax:

  1. Individuals: An individual person is treated as an independent unit for tax purposes. The income tax is calculated on the total income of the individual, considering the various income slabs and rates specified under the law.

  2. Hindu Undivided Family (HUF): As per the Hindu law, an HUF constitutes all individuals lineally descended from a common ancestor, including wives and unmarried daughters. The 'Karta' or the eldest male member manages the affairs of the HUF, and it is treated as a separate entity for taxation purposes.

  3. Company: A company, whether incorporated in India or abroad, is considered a separate legal entity. It is assessed separately from its members and shareholders. The income tax rate for a company differs from that of an individual.

  4. Firms and Associations of Persons (AOP): Partnerships and AOPs are collectively taxed, wherein the income tax is assessed on the total income of the firm or association, not on the individual partners or members.

  5. Body of Individuals (BOI): A BOI includes a group of individuals who jointly own a business or venture. Here, the tax is levied on the income generated by the entity as a whole.

  6. Local Authorities: These include municipal corporations, town committees, and other local governmental bodies. They are liable to pay income tax on their income.

  7. Every Artificial Juridical Person: It refers to any institution or entity which is not a person but is treated as an individual for the purpose of taxation.


Relevant Case Laws

  1. CIT v. Sodra Devi 1957 SCR 1 - The Supreme Court ruled that the term 'individual' is wide in its scope and does not merely include human beings but also groups of human beings forming an association.

  2. CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) - In this case, it was held that an unregistered firm could be assessed as an 'association of persons.'


Conclusion: Persons Chargeable to Income Tax

The Income Tax Act of 1961 extensively covers the range of 'persons' who are chargeable to income tax in India. From individuals to companies, associations, bodies of individuals, and local authorities, the Act ensures that all income-generating entities fall under its purview. This comprehensive approach ensures the equitable distribution of tax liabilities, contributing to the nation's overall fiscal health.

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