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Unit 1: Income Tax: Basic Framework

1.4 Basic Concepts of Income Tax Notes

Section 2 of the Act gives definitions of the various terms and expressions used therein. In order
to understand the provisions of the Act, one must have a thorough knowledge of the meanings
of certain key terms like ‘person’, ‘assessee’, ‘income’, etc. To understand the meanings of these
terms we have to first check whether they are defined in the Act itself. If a particular definition
is given in the Act itself, we have to be guided by that definition. If a particular definition is not
given in the Act, reference can be made to the General Clauses Act or dictionaries. Students
should note this point carefully because certain terms like “dividend”, “transfer”, etc. have been
given a wider meaning in the Income-tax Act, 1961 than they are commonly understood.
Some of the important terms defined under section 2 are given below:
(1) Assessee [Section 2(7)]: ‘Assessee’ means a person by whom any tax or any other sources of
money is payable under this act, and includes:
(a) Every person in respect of whom any proceedings under this act have been taken for
the assessment

of his income 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

of the amount of refund due to him or to such other person;
(b) Every person who is deemed to be an assessee under any provision of this Act.
(c) Every person who is deemed to be an assessee in default under any provisions of
this act.
(2) Person [Section 2(31)]: The definition of ‘assessee’ leads us to the definition of ‘person’ as
the former is closely connected with the latter. The term ‘person’ is important from another
point of view also viz., the charge of income-tax is on every ‘person’.
The definition is inclusive i.e. a person includes,
(a) an individual,

(b) a Hindu Undivided Family (HUF),
(c) a company,
(d) a firm,
(e) an AOP or a BOI, whether incorporated or not,
(f) a local authority, and

(g) every artificial juridical person e.g., an idol or deity.
We may briefly consider some of the above seven categories of assessees each of which
constitute a separate unit of assessment.

(i) Individual: The term ‘individual’ means only a natural person, i.e., a human being. It
includes both males and females. It also includes a minor or a person of unsound
mind. But the assessment in such a case may be made under section 161(1) on the
guardian or manager of the minor or lunatic. In the case of deceased person,
assessment would be made on the legal representative.

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