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Income Tax Appellate Tribunal (ITAT): The Bench of Inturi Rama Rao (Accountant Member) and Partha Sarathi Chaudhary (Judicial Member), decided whether registration under Section 12 AA can be denied for non-payment of taxes on donations received.

Instant appeal emanated from the Order of the CIT (Exemption), Pune passed under Section 12AA (1)(b)(ii) of the Income Tax Act, 1961 on the following grounds:

  • CIT (E) erred in rejecting the registration under Section 12 AA of the Income Tax Act.
  • Further, CIT (E) erred in law and on facts that voluntary contributions received by the charitable trust are not income as defined vide Section 2(24) (iia) of the Act.
  • CIT (E) erred in not giving a reasonable opportunity of being heard while rejecting the application made under Section 12AA (1)(b)(ii) of the Act.
  • Assessee craves right to add, alter or modify any grounds of appeal before or at the time of hearing of the appeal.

Factual Matrix

Assessee made online application form for approval of the Trust/Institution under Section 12 AA of the Act under the category of Religious cum Charitable trust/Institution. The said application was rejected by CIT (E).

CIT (E) opined that the voluntary contributions collected by the assessee trust formed a part of the corpus funds of the trust and hence, it is an income of the assessee. Thus, on the said income, the assessee trust was liable to pay tax as per law. Since the requisite taxes were not paid by the assessee, the CIT (E) opined that the requirement of Section 12 AA of the Act i.e. satisfaction of the Commissioner about objects of the Trust and the genuineness of the activities of the trust could not be determined and hence, the said application for registration under Section 12 AA of the Act of the assessee was rejected.

Analysis, Law and Decision

In Tribunal’s opinion, the provisions of Section 12AA of the Act provides that CIT(E) at the time of granting registration to assessee trust or society shall look into the objects of the trust/society and be satisfied with the genuineness of the activities carried out by such applicant trust/society at the time of granting registration under Section 12AA of the Act.

 Whether any tax had accrued to be paid or whether such taxes have been paid or not are to be looked into at the stage of assessment proceedings.

Allahabad High Court in Fifth Generation Education Society v. CIT, (1990) 185 ITR 634 (All) held that,

“the Commissioner is not to examine the application of income at the stage of application made by assessee for granting registration u/s.12AA of the Act. The Commissioner may examine whether the application was made in accordance with the requirements of Section 12AA r.w.r 17A and whether Form 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At that stage, it is not proper to examine the application of income.”

In the case of Kai Shri Mahadebrao Naykude Dnyanvikas Prabhodhini Trust v. Commissioner of Income Tax (Exemption) (2020) 208 TTJ (Pune) 296, it was observed that,

when the objects of the trust were not disputed by the Department, nor they have disputed genuineness of activities of the assessee trust, then non filing of return u/s. 139(4A) of the Act cannot be the ground to deny registration u/s.12AA of the Act to the assessee. It is only at the assessment proceedings, the Assessing Officer can take appropriate steps as per law regarding the non-filing of return. However, at the time of granting registration, the object of the assessee trust has to be looked into and genuineness of the activities of the assessee trust should be considered.

In the present matter, registration was not granted under Section 12AA of the Act since taxes were not paid on the donations received by the assessee trust. It is always left to the Assessing Officer to take appropriate steps at the time of assessment proceedings with regard to payment of taxes and application of income of the trust/society.

Bombay High Court in the case of CIT v. Manekji Mota Charitable Trust (2019) 267 TAXMAN 0016 (Bombay) has held “at the time of the registration of the trust u/s.12A, the question of application of income of the trust is premature.” Thus, whether taxes are due to be paid on any income received that issue has to be looked into only at the time of assessment proceeding. 

In the instant case, the objects of the trust were not doubted by the Department, and they have also not disputed the charitable nature of the activities conducted by the assessee trust.

Therefore, Tribunal held that the present matter was not a fit case for rejection of application for registration under Section 12 AA of the Act and no findings were laid down stating the activities carried out by the assessee were not genuine.

“…just because, the taxes were not paid on the donations/voluntary contributions received cannot be the ground for rejection of application u/s.12AA of the Act. These things can be examined by the Department and scrutinized at the assessment stage. When all the requirements of registration u/s.12AA of the Act have been satisfied by the assessee trust, registration therein should be granted.”

Hence, the order of CIT (E) was set aside, and the Department was directed to grant registration under Section 12 AA of the Act to asseessee trust. [Shree Lakadipool Vitthal Mandir v. CIT (E), ITA No. 568/PUN/2020, decided on 25-5-2021]

Assessee by: Shri Abhay Shastri

Revenue by: Shri Deepak Garg

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I. Introduction

The recovery of taxes collected under a law which is ultra vires, or on the basis of an incorrect interpretation of law, is a highly debated topic in several jurisdictions. Requests for restitution or refund of such taxes have been deliberated by Courts on the basis of considerations which include mistake of law, chaos in public finances, unjust enrichment and refund being the discretion of the Revenue Department. Restitution claims are also thwarted by enactment of validating laws. At the core of this dispute lie the principles of fairness of the administration, and justice to the affected citizen who was made to pay taxes which were not legally payable. This article examines the legal position in India and other jurisdictions.

II. Illegal Taxes and Ultra vires Taxes

The power to levy taxes[1] at the hands of monarchs was not limited. The importance of the power to levy is underscored by the fact that the Bill of Rights, 1689, provided that the Crown should not levy any tax without the consent of Parliament.[2] The written Constitutions across the world also define taxing powers clearly so that the State will not exceed its power and the subjects will know their obligations.[3]

The demand for payment of taxes could be tainted in two ways viz. (a) the demand is made without any authority, or in other words, the levy was ultra vires, or (b) the tax demanded is based on an incorrect interpretation of law. In the former case, there was no authority to demand tax to begin with, and the authority claimed is void ab initio. In the latter, the authority is valid, but the interpretation placed on the relevant provision of law for demanding the tax is incorrect, and thus the tax was found to not be payable by the subject from whom it was demanded.

III. Restitution or Refund of Illegal Taxes and Ultra vires Taxes

Simple logical reasoning demands that any tax collected without authority or by a wrong interpretation of the relevant provision of law should be returned to the tax payer.[4] The Government has no right over such taxes. Only when a tax payer chooses to challenge a levy or demand for tax and succeeds, and is determined to take the next logical step of making the demand for refund, will he realise the barriers denying him of the chance to get his refund. Sometimes, the legislature also decides to throw in its weight by enacting validating laws, complicating the claim for refund. Some of the grounds on which such claims for refund could be denied are (a) payments made under a mistake of law on the part of the payer, (b) tax liability passed on, (c) chaos in public finances, and (d) the validating law has validated collection of the taxes.

There are rules regarding taxes. The Bilbie Rule or the “mistake of law” rule was propounded in Bilbie v. Lumley[5] wherein the Court held that payments made under mistake of law are not recoverable. The Court based this proposition on the basis that every citizen is expected to be aware of his legal obligations, otherwise there is no saying to what extent the excuse of ignorance may be carried. This rule obtained almost universal recognition in that it was followed in Australia, Canada, New Zealand and many American States.[6] Several authors have criticised this rule as unprincipled and unfair.[7] Later the Bilbie Rule was abandoned in the United Kingdom, Canada and Australia.

In USA, the Supreme Court has held that a State must provide procedural safeguards against an unlawful tax exaction because such exaction constitutes a deprivation of property under the Due Process Clause.[8]

In Air Canada v. R. (British Columbia),[9] La Forest, J. rejected the mistake of law argument to deny the restitution. According to him, the rule was rejected as having been constructed on inadequate foundations as lacking in clarity and resulting in undue harshness.  The development of the law of restitution had rendered otiose the distinction between mistakes of fact and mistakes of law.[10]

In Woolwich Building Society v. IRC,[11] Lord Goff, speaking for the House of Lords, rejected the mistake of law argument to deny the restitution and held that “In the end, logic appears to demand that the right of recovery should require neither mistake or compulsion, and that the simple fact that the tax was exacted unlawfully should prima facie be enough to require its repayment.

­The High Court of Australia also rejected the mistake of law rule in Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd.[12]

In Mafatlal Industries Ltd v. Union of India,[13] the Supreme Court of India referred to the above judgments mainly for the purpose of dealing with the claim for restitution under Section 72 of the Contract Act, 1872. The distinction between the payments made under the “mistake of law” and “mistake of fact” was not applied in Indian Law.[14]

The “passed on” defence is sometimes called ‘unjust enrichment” or “windfall gain”. It must be understood that if the illegal tax or ultra vires tax collected is retained by the government, it is “unjust enrichment” on the part of the government. However, the phrase “unjust enrichment” is used in these discussions to indicate that if the assessee has shifted the economic burden to his customers, then granting refund would result in “unjust enrichment” at the hands of the assessee. Sometimes, it is described as “windfall gain” to the assessee as he has already “passed on” the tax burden to others.

In Air Canada[15], the airline argued that the “passed on” defence should be available only if it is shown that the tax was specifically charged to other identified parties, making them true tax payers. However, the majority held that even if the airlines could demonstrate that it did not pass on the tax, it would still be denied the recovery as it would create “fiscal chaos”. In his dissenting opinion, Wilson, J. rejected the “passed on” argument as a defence and held that merely because the person unjustly enriched is a government authority, different rules cannot be made for restitution.[16]

In Australia, the legislature enacted the Franchise Fees Windfall Tax (Imposition) Act, 1997 to tax the receipt at the hands of the taxpayer who were entitled to receive refund from the Government after the judgment in Ha v. State of New South Wales.[17] The windfall tax rate was 100% of the taxable amount. This rendered the refund claim virtually nugatory.[18] However, in Royal Insurance[19] the Australian High Court rejected the “passed on” argument. Mason, C.J. held that “As between the plaintiff and the defendant, the plaintiff having paid away its money by mistake in circumstances in which the defendant has no title to retain the moneys, the plaintiff has the superior claim. The plaintiff’s inability to distribute the proceeds to those who recoup the plaintiff was … an immaterial consideration ….[20]

In Mafatlal Industries[21], the Supreme Court upheld the validity of certain amendments made to the Central Excises and Salt Act, 1944 by which it was provided that refund of excise duty would be denied if the assessee had “passed on” such duty to any other person. By majority, the Court held that the requirement of “unjust enrichment” would apply to assessments “incorrectly made” and excess duty demanded, and also to erroneous assessments demanding duty on transactions that are not dutiable under the Act. The Court rejected the contention that the amendment was a mere device to retain illegally collected taxes. Sen, J. disagreed with the majority and held that the manufacturer from whom the duty was collected is entitled to receive the refund. Sen, J. agreed with the views of Mason, C.J. in Royal Insurance.[22] Prior to Mafatlal Industries[23], the Court allowed refund without regard to unjust enrichment.[24] The minority judgment in Mafatlal Industries[25], and many judgments prior to Mafatlal Industries are in line with the principles generally accepted in other jurisdictions and also have sound basis. In light of them, the majority view in Mafatlal Industries[26] requires reconsideration.

The proposition of chaos in public finances was developed in Coleman v. Inland Gas Corp.,[27] in which the Court observed that “When the income is collected it is allocated to different funds……. no tax payer should have the right to disrupt the government by demanding a refund of his money, whether paid legally or otherwise ….” The majority in Air Canada[28] rejected the chaos argument. In Ha[29], Brennan, C.J. rejected the chaos argument stating that the Court was conscious of the implications of its judgment over the revenues of the States. He also rejected the plea for overruling the previous cases prospectively and also to postpone the effect of the judgment in Ha[30] by 12 months. Lord Goff in Woolwich[31] agreed with the views of Wilson, J. in Air Canada[32] that “Why should the individual taxpayer as opposed to taxpayers as a whole, bear the burden of Government’s mistake?” and held that taxes and levies paid pursuant to an ultra vires demand is prima facie recoverable as of right. Lord Keith, in his dissenting judgment in Woolwich[33] expressed a similar view stating that when the plaintiff pays under protest, the defendant accepts the payment with the full knowledge that it may have to be repaid if the action resulted in favour of the plaintiff. In Mafatlal Industries[34] it was stated that the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration, and that in case of large claims, it may well result in financial chaos in the administration of the affairs of the State. If a levy is held to be invalid for any defect other than the power to impose such a levy, the defect can be cured by making an amendment, or enacting a new law curing the defect pointed out by the Courts. At the time of curing the defect, sometimes, the legislature also gives retrospective effect to such amendments, and provide that any levy collected prior to such an amendment, or the new law, would be treated as the levy charged and collected under the amended or new law, thus validating the levy collected earlier.[35] Instead of curing the defect, if the amendment or the new law only seeks to invalidate the judgment which rendered the levy invalid, and provides for retention of the levies collected earlier, such a law will be invalid.[36] In Rai Ramakrishna v. State of Bihar,[37] the Supreme Court upheld the validating law. The Court also allowed collection of the past dues by reason of the retrospective effect given to the validating law.[38] The Supreme Court also adopted prospective overruling[39] in some cases and held that any taxes paid till its judgment would not be refunded.[40] Validating laws are used by the legislature at the instance of the executive to defeat lawful claims of the tax payers, treating them as adversaries even after the tax payers had succeeded in Court. The time has come for the Courts to consider excluding such successful litigants from the effect of validating and retrospective levies.

IV. Conclusion and Suggestions

As rightly observed by Lord Goff in Woolwich[41], the tax payers are entitled, as a matter of right, to restitution of the taxes paid by them which are not due or payable. When a tax payer challenges a levy, he is acting in accordance with law and asking the Courts to determine if the levy is valid or not. In pursuing the litigation, the tax payer expends a substantial amount of money and effort. The government is also aware of the challenge to the levy and, like the tax payer, it also seeks legal advice and decides whether to contest the litigation or concede. If the Court grants the relief in favour of the tax payer, the least that he can expect from both the government and the Court is that he is granted restitution by refund of the taxes paid by him. Seeking restitution is not illegal. It is also not unfair. Denial of restitution would act as a disincentive to a potential litigant challenging the illegal levy. The tax payer is not interested in just settlement of jurisprudence. Exercise of executive or legislative power to deny such refund and restitution is unfair, particularly in the democratic set up where the executive and legislature are expected to act within their respective sphere for the benefit of the subjects and. The last layer of protection in our Constitution, the Courts, are expected to play a more constructive role in protecting the rights of citizens and they should bear in mind that managing the finances is the role of the executive and not the Courts.

*Research Scholar, VIT School of Law, VIT Chennai-600 127.

**Associate Professor & Head of the Department, VIT School of Law, VIT Chennai – 600 127.

[1]Tax is a compulsory extraction of levy by a governmental authority from its subjects in order to support the activities of the government. Unlike fees or charges, in which there is a necessity of quid pro quo, taxes do not require anything in return.

[2]An Act Declaring the Rights and Liberties of the Subject and Settling the Succession of the Crown”, available at last accessed on 2-1-2020.

[3]See illustratively, Constitution of India, Commonwealth of Australia Constitution Act, Constitution of the United States of America.

[4] See State of Kerala v. K.P.Govindan, (1975) 1 SCC 281, where the Supreme Court upheld the order passed by the High Court granting refund of the illegally collected charges. See also CST v. Auraiya Chamber of Commerce, (1986) 3 SCC 50.

[5] (1802) 2 East 469 : 102 ER 448

[6]G.E. Palmer, The Law of Restitution, Vol. 1 (Boston: Little Brown, 1978), cited in Frederic Bachand, “Restitution of Unlawfully Levied Taxes: Survey and Comparative Analysis of Developments in Canada, Australia, And England”, 38 Alta L Rev 960 (2001).

[7]Id., fn. 38.

[8]McKesson Corp.  v.   Deptt. of Business Regulation of Florida, 1990 SCC OnLine US SC 92: 110 L Ed 2d 17: 496 US 18 (1989).

[9] 1989 SCC OnLine Can SC 47 : [1989] 1 SCR 1161 at p. 1201


[11] 1993 AC 70 : (1992) 3 WLR 366 : [1992] BTC 472 (HL)

[12](1994) 126 ALR 1

[13](1997) 5 SCC 536 

[14]In Salonah Tea Co. Ltd.  v. Supt. Of Taxes, (1988) 1 SCC 401,  the Supreme Court allowed refund of the taxes illegally collected stating that the State has a concomitant duty to refund. Followed in Union of India v ITC Ltd., 1993 Supp (4) SCC 326

[15]Supra Note 9.

[16]In Kingstreet Investments Ltd. v. Province of New Brunswick, 2007 SCC OnLine Can SC 1 : [2007] 1 SCR 3, the Supreme Court of Canada approved Wilson, J.’s arguments and rejected the observations of La Forest, J.

[17]1997 HCA 34. In this decision, of the provisions of the Business Franchise Licences (Tobacco) Act, 1987 (NSW) were held to be invalid as imposing a duty or duties of excise within the meaning of Section 90 of the Constitution of Australia.

[18]See Margaret Brook, “Restitution of Invalid Taxes, Principles and Policies”, 5 Deakin L Rev 127 (2000). When the legislature passed a law prohibiting recovery, it was held to be invalid in Commr.  of Motor Transport v. Anthill Ranger & Co. Pty. Ltd., (1956) 94 CLR 177. However, if the prescribed a limitation period for seeking restitution, it was held to be valid in Burmah Construction Co. v. State of Orissa, 1962 Supp (1) SCR 242.

[19] Supra Note 12.

[20]Ibid. See Peter Butler, “Restitution of Overpaid Taxes, Windfall Gains, and Unjust Enrichment: Commissioner of State Revenue v. Royal Insurance Australia Ltd.” 18 U. Queensland LJ 318 (1994-95)

[21]Supra Note 13.

[22] Supra Note 12.

[23] Supra Note 13.

[24]Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, 1959 SCR 1350; State of Kerala v. Aluminium Industries Ltd., (1965) 16 STC 689.

[25] Supra Note 13.

[26] Ibid.

[27]21 SW 2d 1030 (1929) as cited in Air Canada, 1989 SCC OnLine Can SC 47.

[28] Supra Note 9.

[29]1997 HCA 34.

[30] Ibid.

[31] Supra Note 11.

[32] Supra Note 9.

[33]Supra Note 11.

[34] Supra Note 13.

[35]See the dissenting opinion of Wilson, J. in Air Canada, 1989 SCC OnLine Can SC 47 on the effect of retroactive tax.

[36]D. Cawasji & Co. v. State of Mysore, 1984 Supp SCC 490. See Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283, where the validating law was held to be valid as the law cured the defect pointed out by the Court, and it was within the competence of the legislature.

[37](1964) 1 SCR 897

[38] The reason given for approving the retrospective effect in Rai Ramakrishna, (1964) 1 SCR 897 is disputable and it is not within the scope of this article.

[39]See Somaiya Organics (India) Ltd. v.  State of U.P., (2001) 5 SCC 519.   Application of prospective overruling, particularly in tax matters, raises various jurisprudential questions which are not within the scope of this article. A casual survey of the number of validating and retrospective enactments made in India shows that this power is not used responsibly.

[40]Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109.    The State Government understood that this would mean that it could collect any dues for the past period and that resulted in a fresh round litigation. Finally, in Somaiya Organics (India) Ltd. v. State of U.P., (2001) 5 SCC 519, the Court held that the Government cannot collect any past unpaid dues after its judgment declaring the levy to be illegal. See also Belsund Sugar Co. Ltd. v. State of Bihar, (1999) 9 SCC 620.

[41] Supra Note 11.

Hot Off The PressNews

Opening of Current Accounts by Banks

On a review, it has been decided to permit banks to open specific accounts which are stipulated under various statutes and instructions of other regulators/ regulatory departments, without any restrictions placed in terms of the circular dated August 6, 2020. An indicative list of such accounts is as given below:

  1. Accounts for real estate projects mandated under Section 4 (2) l (D) of the Real Estate (Regulation and Development) Act, 2016 for the purpose of maintaining 70% of advance payments collected from the home buyers.
  2. Nodal or escrow accounts of payment aggregators/prepaid payment instrument issuers for specific activities as permitted by Department of Payments and Settlement Systems (DPSS), Reserve Bank of India under Payment and Settlement Systems Act, 2007.
  3. Accounts for settlement of dues related to debit card/ATM card/credit card issuers/acquirers.
  4. Accounts permitted under FEMA, 1999.
  5. Accounts for the purpose of IPO / NFO /FPO/ share buyback /dividend payment/issuance of commercial papers/allotment of debentures/gratuity, etc. which are mandated by respective statutes or regulators and are meant for specific/limited transactions only.
  6. Accounts for payment of taxes, duties, statutory dues, etc. opened with banks authorized to collect the same, for borrowers of such banks which are not authorized to collect such taxes, duties, statutory dues, etc.
  7. Accounts of White Label ATM Operators and their agents for sourcing of currency.

2. The above permission is subject to the condition that the banks shall ensure that these accounts are used for permitted/specified transactions only. Further, banks shall flag these accounts in the CBS for easy monitoring. Lenders to such borrowers may also enter into agreements/arrangements with the borrowers for monitoring of cash flows/periodic transfer of funds (if permissible) in these current accounts.

3. Banks shall monitor all current accounts and CC/ODs regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with instructions contained in a circular dated August 6, 2020 ibid.

Please read the notification here: NOTIFICATION

Reserve Bank of India

[Notifications dt. 14-2-2020]

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Death and taxes in life are certain, knowing how to pay only your fair share is third.

                                                                                                                                       Yvette D.

Income Tax Return (‘ITR’), an annual record of income, enables a taxpayer to declare his income, expenses, tax liability, deductions, savings, investments, etc. during the applicable Fiscal Year [i.e. Financial Year (‘FY’) – a period from April 1 to March 31]. This annual record is to be mandatorily submitted to the Indian revenue authorities in a prescribed format, known as the ITR form. In India, tax on income for individuals, is levied at slab rates i.e. lower income is taxed at a lower rate and higher income at a higher rate. This is also known as vertical equity i.e. people with higher income are placed higher up the ladder and therefore are required to shell out more taxes compared to those with lower income who are placed at the lower end of the ladder. The Income Tax Act, 1961[1] (‘the Act’) and the related rules cast a legal obligation on every individual to file ITR, wherein the total income for the year exceeds the basic exemption limit of INR 2.5 lakhs, which is not chargeable to income tax as per the applicable provisions. However, in case of companies, there is no such basic exemption limit and it becomes mandatory to file the ITR annually.

An assessee, in simpler terms, means a person by whom any tax or any other sum of money is payable under the Act. The total income of an assessee for the FY/Previous Year (‘PY’) is taxable in the relevant Assessment Year (‘AY’). For example, the total income for PY 2019-20 (i.e. from
April 1, 2019, to March 31, 2020) is taxable in  AY 2020-21.

Why taxes are levied? Can the Government collect the taxes arbitrarily?

One of the primary reasons for levy of taxes in India, is that it constitutes the basic source of revenue for the Government, which is further utilised to meet the expenses for development purposes like
health care, infrastructure, provision of education, defence, etc. and public welfare.

  • Article 265 of the Constitution of India, lays down that “No tax shall be levied or collected except by authority of law”.
  • Parliament and State Legislatures are empowered to makes laws on the matters enumerated in the 7th Schedule by virtue of Article 246 of the Constitution of India.
  • The 7th Schedule to Article 246 contains 3 lists which enumerate the matters under which Parliament and the State Legislatures have the authority to make laws for the purpose of levy of taxes.
  • One of the 3 lists is the ‘Union List’, on the matters of which, only Parliament has the exclusive power to make laws.
  • Entry 82 of the ‘Union List’ has given the power to Parliament to make laws on taxes on income other than agricultural income.

Article 265 –> Article 246 –> 7th Schedule –> Union List –> Entry 82 –>Income Tax

Therefore, the Government derives its powers to frame laws on taxes directly from the Constitution of India.


The ITR serves as an income proof and is very critical for the following reasons:

  1. Claiming refunds or deductions: Deductions are one of the ways to reduce the overall tax liability and save unnecessary tax leakage. By filing ITRs, a person can get refund of Tax Deducted at Source (‘TDS’) subject to certain conditions.
  2. Carry forward of losses: In situations wherein losses have been incurred for a particular year, even then the ITR should be filed so that the assessee can carry forward the losses to set off against the gains of the subsequent years, subject to certain conditions. This is one of the efficient ways to reduce the burden of tax in the forthcoming years.
  1. Visa Processing: Foreign consulates often ask for ITRs of past few years, at the time of visa process. Thus, it becomes an important document while travelling overseas.
  1. Government Tender: Individuals that plan to start their own business and are required to fill government tenders, have to furnish ITR of preceding years. It serves as a proof of financial status and acts as a check on timely payment of obligations.
  1. Fee/Prosecution for non-filing or late filing of ITR: Under the Act, non-filing or late filing of ITR can attract a fee of INR 1,000 if the total income does not exceed INR 5 lakhs. In other circumstances, a penalty of INR 5,000 or INR 10,000 is levied (as the case may be), leading to legal implications for the taxpayers who are mandatorily required to file as per the provisions. Further, a willful failure to furnish ITR in due time may lead to rigorous imprisonment of 3 months to 7 years and fine.


Some of the important modes of collecting taxes from taxpayers are in the form of TDSAdvance Tax and Self-Assessment Tax. The taxes are deductible from the total tax due from the assessee. Additionally, every person whose estimated tax liability for the year is INR 10,000 or more shall pay tax in advance i.e. advance tax subject to few exceptions. Advance tax also known as ‘pay-as-you-earn’ refers to paying a part of the taxes before the end of the FY rather than paying the complete amount at the end of the FY. This helps the Government to get a constant flow of income throughout the year and is beneficial for the assessee to avoid any interest on taxes for late payment.

The assessee, while filing ITR, needs to pay Self-Assessment Tax under Section 140-A of the Act, if tax is due on the total income as per his ITR after adjusting, inter alia, TDS, relief of tax, tax credit, advance tax, etc. However, it is to be noted that a senior citizen of age 60 years or above who does not have any income chargeable under the head “Profits and Gains of Business or Profession” is not liable to pay advance tax and can discharge their tax liability (other than TDS) by payment of Self-Assessment Tax.


One of the common conundrum that exists among the taxpayers is the difference between deductions and exemptions. Not all that one earns is taxed in India. Yes! The Government provides exemptions which are applicable on certain types of income, such as agriculture income is exempt from income tax in India. The various items of income that are mentioned in Section 10 of the Act are excluded from the total income of an assessee and hence are known as exempted incomes.

Now, what if the income earned by the individual is not exempted? Is there still a ray of hope? Yes, of course. There are certain other incomes which are included in the Gross Total Income but are wholly or partly allowed as deductions while computing the total income.

Rent paid – claim exemption or deduction

One of the most common exemption/deduction claimed by an assessee is for the rent paid while filing ITR. This can be availed by using House Rent Allowance (‘HRA’) under Section 10(13-A) of the Act or deduction of rent paid under Section 80GG of the Act. HRA is an allowance granted by an employer to its employee towards payment of rent for residence of the employee. Tax exemption on HRA can be claimed on satisfaction of certain conditions. Whereas, Section 80GG of the Act provides relief to those individuals who do not receive HRA.


Certain sections of society consider the ITR process to be cumbersome. However, it is of significant importance to consider that people with different income levels/sources are required to file different ITR forms. Every individual is not required to provide detailed information and calculations. For example, a salaried employee who earns a modest salary and has no other source of income except salary, the government has provided a plain-vanilla ITR form which actually becomes a child’s play. The assessee has to judiciously ascertain the ITR form applicable as follows:




  • For individuals having income from salaries, one house property, other sources (interest etc.) and;
  • Having total income up to INR 50 lakhs;
  • It is not applicable to directors of a company or shareholders in an unlisted company.
  • For individuals and HUFs

[3] not carrying out business or profession under any proprietorship.

  • For individuals and HUFs having income from a proprietary business or profession.
ITR 4 (Sugam)
  • For presumptive income from Business and Profession;
  • Not for an individual who is either Director in a company or has invested in unlisted equity shares.
  • For persons other than:

(i) Individual,
(ii) HUF,
(iii) Company, and
(iv) Person filing Form ITR-7.

  • For companies other than those claiming exemptions under Section 11 of the Act.
  • For persons including companies required to furnish return under Sections 139(4-A) or 139(4-B) or 139(4-C) or 139(4-D) or 139(4-E) or 139(4-F) of the Act.

ITR can be filed either online or offline. The introduction of online or electronic filing (‘E-filing’) portal has made the ITR filing comparatively swifter and easier compared to earlier days making it a child’s play.


Form 26AS is a consolidated annual tax statement that reflects details of TDS, Tax Collected at Source, Advance Tax, Self-Assessment Tax, against the taxpayer’s Permanent Account Number (PAN). Basically, it is the record of all the transactions (certain to some conditions) made or done against one’s individual PAN. The Budget for 2020-21 further revised Form 26AS with an aim to provide a more comprehensive profile of the taxpayer which would include all high value transactions like the details provided by banks and financial institutions too.[4] This is to enhance the flow of information between the taxpayers and the tax authorities. As a result, all the information is available and collected in a consolidated form that is Form 26AS. This in turn facilitates correct ITR filing as the assessee can cross-check the details of income and taxes, thereby making Form 26AS a very important document while filing ITR. For instance, if the employer quotes an incorrect PAN of any employee, TDS deducted will not be reflected in the employee’s Form 26AS. Further, certain high value transactions are also reported in Form 26AS now thus, bringing everything under the Government scanner now.


 Filing ITR is a legal, moral and social duty of every citizen of the country. It provides a platform to the assessee to claim refund of taxes already paid, apart from other reliefs and act as a basis for the Government to determine the revenue generated in the country and accordingly form public welfare policies. The number of registered users on the Income Tax India E-filing Portal as of August 31, 2020 was 9.47 crores[5] out of approximately 138 crores of population. Now, any individual can easily file ITR by visiting and creating own income-tax account simply using their PAN. Considering the Covid-19 pandemic and with a view to providing immediate relief to the business entities and individuals, in a press release dated July 17, 2020, the Ministry of Finance stated that the Income Tax Department refunded INR 71,229 crore to more than 21.24 lakh taxpayers. The last date to file ITR for AY 2019-20 was September 30, 2020 which has been extended to November 30, 2020[6] and for AY 2020-21 it was November 30, 2020, which has been extended till December 31, 2020[7]. It is observed that the citizens consider the whole procedure of ITR filing, to be tedious, however, it is undeniable that India is moving towards creating an easier, simpler and efficient tax system with the introduction of e-filing and newly introduced tax reforms.

*Author is an Economics graduate and also holds a Master’s degree in Economics. Currently, in her final year of LLB (Symbiosis Law School, Pune) wherein she secured merit scholarship for holding first rank in her batch. Author has undergone numerous internships with certain renowned law firms like Khaitan & Co. and L&L Partners, New Delhi. The views expressed in this article are solely of the author and does not relate to the views of any other person or firm.

[1] Income Tax Act, 1961


[3]HUF stands for Hindu Undivided Family

[4] Union Budget 2020-21, Ministry of Finance, Government of India


[6] F.No. 225.150/2020-ITA-II, dated 30-9-2020

[7] CBDT issues Press Release for extension of due dates for filing Income tax Returns and Tax Audit Reports under the Income Tax Act, 1961 for AY 2020-21, dated 25-10-2020.

Legislation UpdatesStatutes/Bills/Ordinances

President gave assent to the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 on 29-09-2020.

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (Ord. 2 of 2020) was promulgated on the 31-03-2020 which, inter alia, relaxed certain provisions of the specified Acts relating to direct taxes, indirect taxes and prohibition of Benami property transactions. Further, certain notifications were also issued under the said Ordinance.

The said Act will provide for the extension of various time limits for completion or compliance of actions under the specified Acts and reduction in interest, waiver of penalty and prosecution for the delay in payment of certain taxes or levies during the specified period.

Amendments to Income-tax Act, 1961 will also be made:

  • Providing of tax incentive for Category-III Alternative Investment Funds located in the International Financial Services Centre (IFSC) to encourage relocation of foreign funds to the IFSC.
  • deferment of a new procedure of registration and approval of certain entities introduced through the Finance Act, 2020.
  • providing for the deduction for donation made to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) and exemption to its income,
  • Incorporation of Faceless Assessment Scheme, 2019 therein, empowering the Central Government to notify schemes for faceless processes under certain provisions by eliminating physical interface to the extent technologically feasible and to provide deduction or collection at source in respect of certain transactions at a three-fourths rate for the period from 14th May, 2020 to 31st March, 2021.
  • Amendment to the Direct Tax Vivad se Viswas Act, 2020 to extend the date for payment without additional amount to 31-12-2020 and to empower the Central Government to notify certain dates relating to filing of declaration and making of the payment.
  • Finance Act, 2020 is also proposed to be amended to clarify regarding capping of the surcharge at 15% on dividend income of the Foreign Portfolio Investor.
  • Central Government empowered to remove any difficulty up to a period of 2 years and provide for repeal and savings of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020.

Read the detailed Act, here: Taxation & Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

Ministry of Law and Justice