Important Definitions under Income Tax

Important Definitions under Income Tax

Important Definitions under Income Tax - Chapter 2

Definition of Assessee [Section 2(7) of Income Tax, 1961]

Definition of Assessee
Definition of Assessee

The term assessee is defined under Section 2(7) of Income Tax Act, 1961.  According to this definition, “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes—

  • 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 of the amount of refund due to him or to such other person ;
  • every person who is deemed to be an assessee under any provision of this Act ;
  • every person who is deemed to be an assessee in default under any provision of this Act ;

Thus there can be 4 kinds of assessees

  • Normal Assessees
    This category includes those persons by whom any tax or any other sum of money is payable under this Act.
  • Assessees against whom any assessment proceedings are going on
    This category includes those persons against whom any proceedings are going on under Income Tax laws, irrespective of the fact whether any tax or other amount is payable by him or not. Such proceedings may be related to the assessment of income or assessment of loss or assessment of refund.
  • Deemed Assessees
    Deemed assessee means any person who is deemed to be an assessee under this Act on behalf of any other person. For example, Principle Officer of a company is deemed to be an assessee on behalf of the company.
  • Assessees in Default
    Assessee in default means any person who has made default in complying with the provisions of Income Tax Act, 1961. For example, an employer who has to deduct advance tax from the salary of an employee did not deduct such advance tax is an Assessee in Default.

Definition of Principal Officer [Section 2(35) of Income Tax, 1961]

Definition of Principal Officer
Definition of Principal Officer


Principal Officer means a person who can be considered as principal officer of a concern for the purpose of income tax.

According to Section 2(35) of Income Tax Act, 1961, “principal officer”, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means—

  • the secretary, treasurer, manager or agent of the authority, company, association or body, or
  • any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof ;

Thus the definition is divided into 2 parts.

  • In 1st part it has included the secretary, treasurer, manager or agent of a concern. These persons shall be considered as principal officer whether or not they are connected with the management or administration of the concern.
  • In 2nd part, definition has included those persons who are connected with the management or administration of the concern. Such person can be considered as principal officer only if Assessing Officer wants to treat such person as the principal officer. For this assessing officer is required to send a notice to such person setting out his intention of treating him as the principal officer.

Definition of Person [Section 2(31) of Income Tax, 1961]

Definition of Person
Definition of Person

The term person is defined under Section 2(31) of Income Tax Act, 1961. It is an inclusive definition. According to this definition person includes

  • an individual
  • an Hindu undivided family (HUF),
  • a company,
  • a partnership firm (whether registered or not),
  • an association of persons (AOP) (whether incorporated or not),
  • a body of individuals (BOI) (whether incorporated or not)
  • a local authority (like municipal committee, district board etc.) and
  • every other artificial juridical person (like deity, unregistered charitable trusts, unregistered clubs, religious body, Delhi University etc.)

Meaning of Individuals

Meaning of Individuals

Individual means natural persons just like me and you. Individual includes both male and female of any age. It means, under income tax laws, income of a female is as much assessable as income of a male.  Further under income tax laws income of minor is also taxable. We have to club the income of minor with the income of his/her parents as per the provisions of Income tax laws.

Under Income tax laws, income of a lunatic individual (or u can say individual of unsound mind) is also taxable. An individual of unsound mind is not capable of representing himself therefore his income is represented by his legal representative.

Same is the case with the income of a deceased individual means non-living individual. As a non-living individual cannot represent himself, his income is represented by his legal representative. So, under income tax act, income of a dead individual is also taxable.

Meaning of HUF

Meaning of HUF

The term Hindu undivided family is not defined under income tax laws.   HUF is a separate entity for the purpose of assessment under income tax Act. An HUF can be defined as a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. It should be noted that an HUF cannot be created under a contract. A male become the part of an HUF by taking birth in such family. A female become the part of an HUF either by taking birth in such family or by getting married in such family.

It should be noted that Buddhist, Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Income Tax Act.

Examples of families which can be assessed as HUF under income tax

  • A family of widow mother and sons (may be minor or major)
  • Family of husband and wife, having no child
  • Family of two widows of deceased brothers
  • Family of two or more brothers
  • Family of uncle and nephew
  • Family of mother, son and son’s wife
  • Family of a male and his late brother’s wife

Firms/Association of Person/Body of Individual
Under income tax laws, firms/association of person/body of individual are taxable as a separate entity even if such firms/AOP/BOI are registered or not, and even if such Firms/AOP/BOI are created for non-profit motives.

Artificial Juridical Person
Artificial Juridical Person means units or entities which have separate existence in the eyes of law but not included in any of the categories of person which are specified in u/s 2(31).

Examples are: Deity, unregistered charitable trusts, unregistered clubs, religious bodies, universities etc.

Definition of Assessment Year [Section 2(9) of Income Tax, 1961]

The term Assessment Year is defined under Section 2(9) of Income Tax Act, 1961. Assessment Year means the period of 12 months commencing on the 1st day of April every year (means 1st April to 31st March).

It means every financial year is an assessment year. Assessment Year is a relative term. We have to see assessment year in relation to previous year.

For example:
2021-22 is assessment year for P.Y 2020-21
2022-23 is assessment year for P.Y 2021-22

Definition of Assessment Year
Definition of Assessment Year

Definition of Previous Year [Section 3 of Income Tax, 1961]

Previous Year is defined under Section 3 of Income Tax Act, 1961. Previous year means the financial year immediately preceding the assessment year. So

  • if assessment year is 2022-23 (1st April 2022 to 31st March 2023), previous year is 2021-22 (1st April 2021 to 31st March 2022),
  • if assessment year is 2021-22 (1st April 2021 to 31st March 2022), previous year is 2020-21 (1st April 2020 to 31st March 2021).

Thus every financial year is an A.Y for its P.Y as well as P.Y for its A.Y 

Previous Year in case of new business/profession
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.

For example:

  • if business is set up on 1st September, 2019, previous year in this case shall be the period beginning with 1st September, 2019 and ending with 31st March, 2020.
  • if new source of income comes into existence on 1st February, 2020, previous year in this case shall be the period beginning with 1st February, 2020 and ending with 31st March, 2020.
Meaning of Previous Year
Meaning of Previous Year

MCQs on Important Definitions


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The term assessee is defined under Section
Any person who has made default in complying with the provisions of Income Tax Act, 1961 is known as
The term principal officer is defined under Section
Under Income Tax Act, 1961, who may be considered as principal officer of a company?
By serving a notice of his intention, assessing officer can consider any person as the principal officer of a company only if
The term ‘assessment year’ is defined under
Assessment year means
The term ‘previous year’ is defined under
If business is set up on 1st September, 2021, previous year in this case shall be
If a new factory was set up on 1st September, 2021 and it commenced its business on 1st January, 2022, previous year in this case shall be
The term person is defined under
Definition of ‘person’ under Income Tax Act, 1961 is

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