Definition of Previous Year

Tax queries 11020 views 2 replies

AJAY KUMAR

STUDENT

53 Points Joined May 2008

As we all know that "Previous Year" means the period which begins with the date immediately following the last day of the previous year relevant to the assessment year commencing on the 1st day of April,and ends on the 31st day of March,But in the case of newly setup business coming into existence on or after the 1st day of April"Previous year" in relation to the assessment year commencing on the 1st day of April, 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 on the 31st day of March, whats the logic behind it? In this situation how can we say the Previous "year".

Replies (2)

CA SURENDRA KUMAR RAKHECHA

Practising CA at Surat

26263 Points Joined November 2009

Some years ago (around 15 years back) different previous years were adopted by the assessees i.e. Diwali,Rathyatra,Ramnavmi and financial year. Many times confirmation of accounts were not possible in this situation. To remove the difficulties; financial year was taken as the previous year and accordingly amendments were made in the Income Tax Act. Since the previous year's income is taxable under I T Act hence income is to be assessed for the financial year (period) ending on 31st March. There are so many deeming fictions in the Income Tax Act. Hence even though full year is not there in a particular year of commencement of the business; still it is known as previous year ( although full financial year is not there).

Amir

Learner

4016 Points Joined December 2009

Dear Ajay,

The entire Income Tax is based on the previous year..

Had the defination of previous year not clarified this thing (that in case of newly setup business Previous year will start from the date of business) then this leaves the scope of litigation where assessee can claim that he cannot be assessed since his case does not falls within the defination of previous year.

I hope u understand.