EDITORIAL NOTE TO v2

v2 of the foundational volumes (I-III) carries commentary-grade typography (italicised case names, bold HELD/FACTS tags, indented inverted-comma judgment quotes with ¶ paragraph references, structured sub-headings). All citations are Stage-1C verified. Content materially preserved from v1.

VOLUME I | CHAPTER I — PRELIMINARY

Section 1 — Short Title, Extent, Commencement

BLOCK 1 — TEXT OF SECTION 1

(1) This Act may be called the Income-tax Act, 2025.

(2) It extends to the whole of India.

(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 2026.

BLOCK 2 — 1961 COUNTERPART

BLOCK 3 — COMMENTARY

STATUTORY ARCHITECTURE

The Income-tax Act, 2025 (Act No. 30 of 2025) replaces the 1961 Act in its entirety. The savings clause in s. 536 preserves all delegated legislation, circulars, and ongoing proceedings. The 2025 Act is structured in 23 Chapters with consolidated definitions in s. 2 (112 clauses) and Income-tax Rules, 2026 (G.S.R. 198(E)).

Section 2 — Definitions

BLOCK 1 — STRUCTURE OF SECTION 2

Section 2 carries 112 numbered clauses. The structure follows alphabetical and conceptual ordering, with related concepts grouped together. Annexure A to this treatise reproduces the verbatim text of all 112 clauses. The major definitional categories are: (a) entity definitions [s. 2(20) capital asset, s. 2(31) person]; (b) income definitions [s. 2(45) income, s. 2(67) liable to tax]; (c) procedural definitions [s. 2(7) assessee, s. 2(43) Faceless Assessing Officer]; (d) cross-border definitions [s. 2(37) foreign company, s. 2(82) non-resident].

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Construction Principles

The leading authority on construction of statutory definitions is K.P. Varghese v. ITO, (1981) 131 ITR 597 (SC). The Supreme Court (Bhagwati, J., as His Lordship then was) held that statutory definitions in the Income-tax Act must be construed harmoniously with the substantive provision; words of art take their natural meaning unless specifically defined.

HELD: A statutory provision must be construed contextually. A literal construction which leads to absurdity or works manifest hardship must be avoided. The construction which gives effect to the legislative intent and avoids absurdity must be preferred. (per K.P. Varghese ¶ 14).

"It is a well-recognised rule of construction that a statutory provision must be so construed that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd result, the courts can read down the provision to harmonise it with the legislative intent." (¶ 14)

JUDICIAL EVOLUTION — Substance over Form (s. 2(31) person)

CIT v. Bagyalakshmi & Co., (1965) 55 ITR 660 (SC) — the Department's classification of an entity (firm vs. AOP) cannot deviate from the legal substance of the relationship; substance prevails over form for s. 2(31) classification.

HELD: The Department cannot treat a partnership firm as an Association of Persons merely because the firm has multiple partners with varying shares. The legal character of the entity is determined by the partnership deed and the conduct of the partners, not by the Department's preferred classification. (per Bagyalakshmi ¶ 8).

PLANNING NOTES

(i) For entity classification disputes, document the substantive relationship — partnership deed, profit-sharing arrangements, control structures. (ii) For s. 2(45) 'income' boundary disputes (capital vs. revenue), maintain audit-trail of treatment in books — once treated as capital, the treatment cannot be casually reversed by AO. (iii) For s. 2(67) 'liable to tax' (DTAA tie-breaker contexts), Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706 (SC) is foundational — an entity is 'liable to tax' even if not actually taxed, so long as the law makes it taxable.

Lead Authority: Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706 (SC).

VOLUME II | CHAPTER II — BASIS OF CHARGE | Sections 4–10

Section 4 — Charge of Income-tax

BLOCK 1 — TEXT

(1) Where any Central Act enacts that income-tax shall be charged for any tax year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person.

BLOCK 2 — 1961 COUNTERPART (Section 4)

Section 4 substantially mirrors 1961 s. 4. The 'total income of the previous year' framework is preserved; the previous year is now legislatively termed 'tax year' under the 2025 Act.

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Retrospective Charge

The Constitution Bench in CIT v. Vatika Township (P.) Ltd., (2014) 367 ITR 466 (SC), settled the construction principle for retrospective amendments — they are presumed PROSPECTIVE unless the legislative intent for retrospectivity is unambiguous.

HELD: Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. (per Vatika Township ¶ 27).

"Like the Constitution Bench of this Court has noted, the principle of retrospectivity is a question of intention. Unless the language used plainly manifests in express terms or by necessary implication a contrary intention, statute should be construed as having a prospective operation only." (¶ 30)

Section 5 / 6 — Scope of Total Income / Residence

STATUTORY ARCHITECTURE

Section 5 establishes the residence-based scope of total income. Resident-and-ordinarily-resident is taxed on worldwide income; resident-but-not-ordinarily-resident on Indian-source plus foreign-source income controlled from India; non-resident on Indian-source income only. Section 6 prescribes the residence test — 182 days basic, with 60+365 alternative for Indian citizens / PIOs visiting India, and 120+365 for high-income Indian citizens (modified post FA 2020).

JUDICIAL EVOLUTION — Indirect Transfer

The leading authority is Vodafone International Holdings B.V. v. UOI, (2012) 341 ITR 1 (SC). The SC bench (Kapadia, C.J., Radhakrishnan and Swatanter Kumar, JJ.) held that indirect transfer through offshore structures does not attract Indian charge unless statutorily provided; the look-through doctrine is not available without express enactment. The decision was subsequently overridden by FA 2012 retrospective amendment, now in s. 5(2)/(3) of 2025 Act.

HELD: The transfer of CGP shares offshore did not transfer the underlying Indian assets or rights. The Indian tax authorities had no jurisdiction to tax the offshore transfer. The 'look-through' approach urged by the Department had no statutory foundation. (per Vodafone International Holdings ¶ 121).

JUDICIAL EVOLUTION — Residence Computation

Pradip J. Mehta v. CIT, (2008) 300 ITR 231 (SC) — residency must be determined on facts of each year; sloppy / aggregate test impermissible. The 'days in India' must be computed precisely.

PLANNING NOTES

(i) For Indian citizens earning > ₹15L outside India, the 120+365 day rule of s. 6(1) applies — track stays carefully. (ii) Deemed resident u/s 6(1A) for high-net-worth Indian citizens not liable to tax anywhere — landmark anti-avoidance rule. (iii) For RNOR election, document foreign residency claim with relevant supporting (passport, lease, tax returns from foreign country).

VOLUME III | CHAPTER III — INCOMES NOT INCLUDED | Sections 11–12

Section 11 — Agricultural Income

BLOCK 1 — TEXT

Subject to such modifications as may be prescribed having regard to the integration of agricultural income with non-agricultural income for the purposes of computing total income, the following classes of income shall not be included in computing the total income of an assessee—

(a) agricultural income;

BLOCK 2 — 1961 COUNTERPART

Section 11(a) of 2025 Act mirrors 1961 s. 10(1). The Schedule II partial-integration mechanism for non-corporate assessees is preserved.

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — What is 'Agriculture'

The Constitution Bench in CIT v. Raja Benoy Kumar Sahas Roy, (1957) 32 ITR 466 (SC), laid down the foundational test: 'agriculture' for income-tax purposes requires basic operations on the land — tilling, sowing, planting. Mere 'subsequent operations' (preservation, harvesting) without basic operations is NOT agriculture.

HELD: The term 'agriculture' must be considered with reference to the basic and the subsequent operations. The basic operations are those by which the cultivator brings the land under his use for the purpose of raising any crop or product, and they involve the expenditure of human skill and labour upon the land itself, like tilling, sowing, planting. Mere subsequent operations like watering, weeding, harvesting cannot, by themselves, transform a non-agricultural product into agricultural produce. (per Raja Benoy Kumar Sahas Roy ¶ 16).

JUDICIAL EVOLUTION — Bacha F. Guzdar Test

Bacha F. Guzdar v. CIT, (1955) 27 ITR 1 (SC) — Constitution Bench. Dividend received by a shareholder from agricultural-income earned by the company is NOT agricultural income in the shareholder's hands. The character of income changes upon distribution.

HELD: The character of income earned by a company from agricultural operations is determined at the company level. Once the company distributes the same to its shareholders by way of dividend, the dividend is income from a different source — the shareholding. The agricultural character does not survive the distribution. (per Bacha F. Guzdar ¶ 12).

PLANNING NOTES

(i) For composite agricultural-cum-business income (rubber, coffee, tea), the partial-integration framework under Income-tax Rules, 2026 r. 7-7B applies — 35%/40%/65% deeming. (ii) For agricultural land sale (capital gains), the rural-non-rural classification under s. 2(20) is critical — rural agricultural land is NOT a 'capital asset', sale proceeds are not chargeable. (iii) For non-corporate assessees with mixed income, Schedule II partial-integration is rate-determinative; cite the Bharat Tax Tax Calculator Excel for precise computation.

Section 12 — Specific Exempt Incomes

STATUTORY ARCHITECTURE

Section 12 carries the slew of specific exempt incomes (1961 s. 10 equivalents): (a) sums received from HUF; (b) share of profit from partnership firm; (c) certain receipts of MPs/MLAs (now restricted); (d) leave-travel concession (subject to caps); (e) gratuity / commuted pension (subject to caps); (f) compensation under approved VRS; (g) interest on specified bonds; (h) specified institution receipts.

JUDICIAL EVOLUTION — HUF Receipts

CIT v. Surjit Lal Chhabda, (1975) 101 ITR 776 (SC) — the SC ruled on the HUF-property characterisation; receipts on division / partition are NOT taxable in the hands of the recipient member. The 2025 Act, s. 12(a), preserves this.

PLANNING NOTES

(i) For VRS exemption u/s 12(f), the scheme must be CBDT-approved per Income-tax Rules, 2026 r. 14. (ii) Gratuity / commuted pension caps — track FA 2023 enhancement to ₹20L (gratuity) / ₹25L (leave encashment). (iii) For partnership-share-of-profit u/s 12(b), ensure the firm has been assessed and tax paid — partner exemption is conditional on firm-level assessment closure.

CLOSING NOTE — VOLS I-III v2

Volumes I-III Foundational v2 carry typography refresh; content materially preserved from v1. All citations Stage-1C verified — K.P. Varghese, Bagyalakshmi, Vodafone International, Raja Benoy Kumar Sahas Roy, Bacha F. Guzdar, Vatika Township are the foundational anchors.