Exceptions to the rule that the previous year's income is taxed in the next assessment year (as set, 1961 Act, AY 2019-20)

The general rule

Section 4(1) charges income-tax for an assessment year on the total income of the previous year, at the rates the Finance Act fixes for that assessment year. So the income of 2018-19 is assessed in 2019-20. The proviso to section 4(1) itself allows income of some other period to be charged where the Act so provides; the exceptions below are the cases in which the Act does so, each of them overriding the general rule.

The exceptions

1. Shipping business of non-residents (section 172). Where a ship owned or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India, 7.5% of the amount paid or payable for that carriage to the owner or charterer, or to anyone acting for him, is deemed to be income accruing in India to the owner or charterer, whether the amount is paid or payable in India or abroad (section 172(2)). Before the ship leaves the port, its master must give the Assessing Officer a return showing the whole amount paid or payable for all the carriage shipped at that port since the ship last arrived there (section 172(3)); where the Assessing Officer is satisfied that this is not possible and the master has made satisfactory arrangements for the return and the tax through another person, the officer may accept a return filed by that person within thirty days of the departure (proviso to section 172(3)). The Assessing Officer then assesses the income and fixes the tax at the rate or rates in force for the total income of a company that has not made the arrangements referred to in section 194, and the master pays it (section 172(4)); the order must be made within nine months after the close of the financial year in which the return is filed (section 172(4A)). To determine the tax, the Assessing Officer may call for any accounts or documents he needs (section 172(5)). No port clearance is granted until the Collector of Customs, or another officer authorised to grant it, is satisfied that the tax has been paid or that satisfactory arrangements have been made for paying it (section 172(6)). The levy is thus made voyage by voyage, without waiting for the normal assessment year.
2. Persons leaving India (section 174). If it appears to the Assessing Officer that an individual may leave India during the current assessment year, or shortly after it ends, with no present intention of coming back, the total income from the close of that assessment year's previous year until the probable date of departure is taxed in that assessment year (section 174(1)). Where the income cannot readily be determined in the manner the Act provides, the officer may estimate it (section 174(3)). He may serve a notice requiring, within a time of not less than seven days, a return in the form and verified in the manner of a return under section 142(1)(i), showing the total income of each completed previous year in the period and the estimated total income of any part of a previous year in it (section 174(4)).
3. Association, body or juridical person formed for a particular event or purpose (section 174A). If it appears to the Assessing Officer that such a person is likely to be dissolved in the assessment year in which it was formed, established or incorporated, or immediately after that year, its total income from the close of that assessment year's previous year until the date of dissolution is taxed in that same assessment year.
4. Persons likely to transfer property to avoid tax (section 175). If it appears to the Assessing Officer during any current assessment year that a person is likely to charge, sell, transfer or otherwise part with any of his assets in order to avoid paying any liability under the Act (not only tax), his total income from the close of that assessment year's previous year until the day the Assessing Officer begins proceedings under the section is taxed in that assessment year.
5. Discontinued business or profession (section 176). Where a business or profession is discontinued in an assessment year, the income from the close of that assessment year's previous year until the date of discontinuance may, at the Assessing Officer's discretion, be taxed in that assessment year (section 176(1)); the person discontinuing must give the Assessing Officer notice of it within fifteen days (section 176(3)). Separately, a sum received after a business is discontinued is taxed as the recipient's income in the year of receipt, if it would have formed part of the total income of whoever carried on the business had it come in before the discontinuance (section 176(3A)); section 176(4) applies the same rule to a sum received after a profession ends on the cessation, retirement or death of the person carrying it on.

In cases 2 to 5, the income of each completed previous year, or part of a year, in the period is taxed at the rates in force for the assessment year in which it is assessed, and a separate assessment is made for each such period (section 174(2) and section 176(2)). Sections 174A and 175 apply the whole of sub-sections (2) to (6) of section 174 to their proceedings, so the estimate, the return notice and the other rules of case 2 hold for them too.

What the exceptions have in common

In each case the tax might be lost if the department waited for the normal assessment year: the non-resident ship may never return, the individual or the event body may be gone, the assets may have been disposed of, or the business may have closed. So the Act charges the income without waiting for the normal assessment year.