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Unit 1: Income Tax: Basic Framework

4. Circulars and Notifi cations: Circulars are issued by the CBDT from time to time to deal Notes

with certain specific problems and to clarify doubts regarding the scope and meaning of the
provisions. These circulars are issued for the guidance of the officers and/or assessees. The

department is bound by the circulars. While such circulars are not binding the assessees
they can take advantage of benefi cial circulars.
5. Case Laws: The study of case laws is an important and unavoidable part of the study of
income tax law. It is not possible for Parliament to conceive and provide for all possible
issues that may arise in the implementation of any Act. Hence the judiciary will hear the
disputes between the assessees and the department and give decisions on various issues.
The Supreme Court is the Apex Court of the country and the law laid down by the Supreme
Court is the law of the land. The decisions given by various High Courts will apply in the
respective states in which such High Courts have jurisdiction.

Self Assessment

Fill in the blanks:
7. The administration of direct taxes is looked after by the ………………..

8. The circulars are issued for the guidance of the ………………...
9. The levy of income tax in India is governed by the …………………..

1.4 Basic Concepts of Income Tax

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 defi nition

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.
(i) of his income or of the income of any other person in respect of which he is
assessable; or
(ii) of the loss sustained by him or by such other person; or
(iii) 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’.

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