The provision of section 4 of the Income Tax Act, 1961 is the brain of the law of Income Tax in India. This is because sec. 4 gives the authority for charging as well as collection of income tax in India. This section deals with the provisions by which the income tax is chargeable on the total income earned during the previous year of every person. Basis of Charge [Section 4]: Section 4(1) of Income Tax Act, 1961 provides that income-tax shall be charged on every person specified under section 2(31) for any assessment year in respect of the total income of the previous year at the rates prescribed by the relevant annual Finance Act. Thus, the income-tax is levied on the total income earned during previous year and not the assessment year except the provisions of the following sections where income tax may be charged in respect of the income of a period other than the previous year:
a) Section 172: Shipping business of non-residents; b) Section 174: Assessment of persons leaving India; c) Section 174A: Assessment of association of persons (AOP) or body of individuals (BOI) or artificial juridical person formed for a particular event or purpose; d) Section 175: Assessment of persons likely to transfer property to avoid tax; and e) Section 176: Discontinued business. In respect of income chargeable under section 4(1) of Income Tax Act, 1961, the income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of Income Tax Act, 1961. Person [Section 2(23)]: As we know that the income-tax is levied on every person, the term ?person? is the indispensable part under the income tax law. However, in accordance with the provision of sec. 2(31) of Income Tax Act, 1961 the definition of ?person? is inclusive in nature and includes: (ii)?a Hindu Undivided Family (HUF), ?(v)?an AOP?or a BOI, whether incorporated or not, (vi)?a Local Authority, and (vii)?every Artificial Juridical Person, not falling within any of the preceding sub-clauses e.g. an idol, or deity. Objective to Earn Income: An association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains. Assessment Year [Section 2(9)]: ?Assessment Year? means the period of 12 months commencing on the 1st day of April every year. Previous Year [Section 2(34)]: As per section 2(34) ?Previous Year? means the previous year as defined in section 3 and sec. 3 explains that ?previous year? means the financial year immediately preceding the assessment year. However, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the 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 said financial year. Assessee [Section 2(7)]:?Assessee has been defined under section 2(7) of the Income Tax Act, 1961. Accordingly, the term ?Assessee? means a person by whom any tax or any other sum of money is payable under this act. It includes: -?every person in respect of whom any proceeding has been taken for the assessment of his income or - assessment of fringe benefits or the assessment of - of the income of any other person in respect of which he is assessable, or - of the loss sustained by him or by such other person, or - of the amount of refund due to him or to such other person. Note that the term ?Assessee? also includes every person who is deemed to be an assessee or an assessee in default under any provision of this Act.
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