The Tax Publishers

Definition of Assessee, Assessment Year, Books of Accounts, Income, Interest, liable to tax, Manufacture, Maximum Marginal Rate, Person, Tax And Previous Year [Sections 2(7), 2(9), 2(12A), 2(24), 2(28A), 2(29A), 2(29BA), 2(29C), 2(31), 2(43) and 3]

1. Previous year [Section 3]--‘Previous year’ means the financial year preceding the assessment year. To illustrate, for assessment year 2022-23 the previous year is the financial year immediately preceding the assessment year, hence the period from 1-4-2021 to 31-3-2022 is the previous year.

The previous year is generally of 12 months duration. Where the business is newly set up then the previous year will be of less than 12 months duration.

(i) Previous year for newly set up business or profession [Proviso to section 3]--In the case of a business or profession newly set up, or a source of income newly coming into existence, the first previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the financial year, i.e., 31st March.

To illustrate, if Mr. X started a business on 25-1-2022, his previous year for assessment year 2022-23 is the period commencing on 25-1-2022 and ending on 31-3-2022.

(ii) Chargeability of income and previous year--Generally income earned during the previous year is liable to tax in the immediately following financial year known as “assessment year”.

But there are certain exceptions to this principle which are given below :

(a) Income from shipping business of non-residents. [Section 172]

(b) Income of persons leaving India either permanently or for a long period of time. [Section 174]

(c) Income of AOP or BOI formed for particular event or purpose and the assessing officer is of the opinion that it would be dissolved immediately after the event or purpose. [Section 174A]

(d) Income of a person trying to alienate his assets with a view to avoiding tax. [Section 175]

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