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Clause (7) [Section 2(9) of 1922 Act]: Assessee
Clause (7) [Section 2(9) of 1922 Act]: Understanding the Definition of "Assessee" Under Indian Income Tax Law
Understanding the definition of "Assessee" is fundamental to navigating the Indian Income Tax Act, 1961. This article delves into Clause (7) of Section 2(9) of the 1922 Act (reproduced with necessary modifications and expansions in Section 2(7) of the 1961 Act), which defines the term "assessee." We will dissect the legal nuances, clarify ambiguities, and provide a comprehensive understanding of who qualifies as an assessee under Indian income tax law.
The Foundation: Section 2(7) of the Income Tax Act, 1961 (Relevance to Clause (7) of Section 2(9) of the 1922 Act)
While we are focusing on the principles derived from Clause (7) of Section 2(9) of the 1922 Act, it is crucial to understand that the Indian Income Tax Act, 1961, superseded the older legislation. The current definition of "assessee" is found in Section 2(7) of the 1961 Act. The principles embedded in the 1922 Act's definition remain largely relevant and inform the interpretation of the current law. Therefore, understanding the historical context is crucial.
Section 2(7) of the Income Tax Act, 1961, defines "assessee" as:
(7) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes—
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or 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
(b) every person who is deemed to be an assessee under any provision of this Act; or
(c) every person who is deemed to be an assessee in default under any provision of this Act;
This definition, evolved from the principles in the 1922 Act, encompasses a broad range of individuals and entities. Let's break down each component to gain a clear understanding.
Core Definition: A Person Liable to Pay Tax
At its core, an "assessee" is a person liable to pay tax or any other sum of money under the Income Tax Act. This is the most straightforward aspect of the definition. The term "person" is itself defined in Section 2(31) of the Act and includes:
- An Individual
- A Hindu Undivided Family (HUF)
- A Company
- A Firm
- An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not.
- A Local Authority
- Every artificial juridical person, not falling within any of the preceding categories.
Therefore, any of these entities who are obligated to pay income tax, interest, penalty, or any other sum under the Income Tax Act, 1961, qualify as an assessee.
Extended Definition: Persons Under Assessment Proceedings
Clause (a) of Section 2(7) (drawing from the principles of Clause (7) of Section 2(9) of the 1922 Act) expands the definition to include individuals or entities even if tax is not currently payable. It includes every person in respect of whom any proceeding under the Act has been initiated for:
- Assessment of Income: This is the most common scenario. If the Income Tax Department initiates proceedings to determine the taxable income of a person, that person becomes an assessee, regardless of whether the assessment ultimately results in a tax liability.
- Assessment of Fringe Benefits: Prior to the abolition of the Fringe Benefit Tax (FBT), if proceedings were initiated to assess fringe benefits provided by an employer, the employer would be considered an assessee for the purpose of those proceedings. While FBT is no longer in effect, this clause retains historical significance and informs the overall interpretation.
- Assessment of the Income of Another Person: This provision covers situations where a person is assessable on behalf of another. Examples include legal representatives of a deceased person, guardians of minors, or trustees managing property for beneficiaries. In these cases, the legal representative, guardian, or trustee becomes an assessee in respect of the income of the deceased, minor, or beneficiary.
- Assessment of Loss: Even if a person incurs a loss, and no tax is payable, if proceedings are initiated to determine the amount of loss, that person becomes an assessee. This is significant because the determination of loss allows for carry forward and set-off of losses against future profits.
Key takeaway: The initiation of assessment proceedings, even without an immediate tax liability, is sufficient to classify someone as an assessee.
Deemed Assessee: Specific Provisions of the Act
Clause (b) of Section 2(7) (again, rooted in the principles of the older Act) introduces the concept of a "deemed assessee." The Income Tax Act contains specific provisions that deem certain individuals or entities to be assessees, even if they don't fit the core definition. Some common examples of deemed assessees include:
- Representative Assessee (Section 160): A representative assessee is a person who is assessed on behalf of another person. This includes agents of non-residents, guardians of minors, and managers of properties of lunatics. Section 160 outlines the specific circumstances under which a person will be considered a representative assessee.
- Agent of a Non-Resident (Section 163): An agent of a non-resident is deemed to be an assessee for the purpose of assessment and recovery of tax on the non-resident's income accruing or arising in India.
Key takeaway: Deemed assessees are created by specific provisions within the Income Tax Act, extending the definition beyond those directly liable for tax on their own income.
Assessee in Default: Failure to Comply
Clause (c) of Section 2(7) defines an "assessee in default." This refers to a person who has failed to comply with certain obligations under the Income Tax Act, resulting in a deemed failure to pay tax. Some common examples include:
- Failure to Deduct Tax at Source (TDS): If a person is required to deduct tax at source (TDS) from payments made to others and fails to do so, they are considered an assessee in default for the amount of TDS they failed to deduct.
- Failure to Pay Tax after Deduction: Even if TDS is deducted, failure to deposit that TDS with the government within the prescribed time also makes the deductor an assessee in default.
- Failure to Pay Advance Tax: Individuals or entities with a significant tax liability are required to pay advance tax in installments during the financial year. Failure to pay advance tax can result in being classified as an assessee in default.
Key takeaway: "Assessee in default" status arises from non-compliance with specific statutory obligations, particularly those related to tax deduction and payment.
Relevance and Practical Implications
The definition of "assessee" is not merely a technicality; it has significant practical implications:
- Jurisdiction of Tax Authorities: The definition determines which individuals and entities are subject to the jurisdiction of the Income Tax Department.
- Obligations and Responsibilities: Being classified as an assessee carries with it a range of obligations, including filing tax returns, maintaining records, and responding to notices from the Income Tax Department.
- Rights and Remedies: Assessees also have certain rights, such as the right to appeal assessment orders, claim refunds, and seek legal recourse in case of disputes.
- Penalties and Prosecution: Failure to comply with the obligations of an assessee can result in penalties, interest, and even prosecution under the Income Tax Act.
Case Laws and Interpretations
Numerous case laws have further clarified the definition of "assessee." Courts have emphasized the broad and inclusive nature of the definition, emphasizing that the term should be interpreted liberally to achieve the objectives of the Income Tax Act. While specific case citations would require constant updating, understanding that the judiciary plays a vital role in interpreting this definition is key.
Conclusion
The definition of "assessee" under Section 2(7) of the Income Tax Act, 1961 (rooted in Clause (7) of Section 2(9) of the 1922 Act), is a cornerstone of Indian income tax law. It encompasses not only those directly liable to pay tax but also those involved in assessment proceedings, deemed to be assessees under specific provisions, or in default of their statutory obligations. A thorough understanding of this definition is essential for taxpayers, tax professionals, and anyone dealing with income tax matters in India. This understanding helps ensure compliance, protects taxpayer rights, and facilitates the efficient administration of the tax system. The evolution of this definition from the 1922 Act to the current law highlights the enduring principles of fairness and inclusivity in the Indian income tax system.