Charge of Income-tax

Section 4 — CHARGE OF INCOME-TAX

STATUTORY ARCHITECTURE

Section 4 is the substantive charging provision. Its operation depends on three pillars — (a) a Central Act (typically the Finance Act of the relevant year) prescribing rates, (b) the substantive Income-tax Act, 2025 framework, and (c) the total income of the previous year (now 'tax year'). Sub-section (1) preserves the continuity of charge irrespective of when assessment is made; sub-section (2) deems TDS / advance tax to be payment of the tax.

JUDICIAL EVOLUTION — Annual Finance Act Mechanic

CIT v. Brijlal Lohia & Tibrewala (Calcutta) (P.) Ltd., (1972) 84 ITR 273 (SC) — the Finance Act of each year fixing the rates of tax is the operative charging mechanism; the substantive charge is in s. 4 of the Act, but the operative rate-fixation is annual via Finance Act.

HELD: The Income-tax Act, 1961 by itself does not lay down the rate of tax. The rate is fixed by the Finance Act of the relevant year. Section 4 of the Act therefore operates conjointly with the Finance Act — without the Finance Act prescribing rates, there can be no charge. (per Brijlal Lohia ¶ 8).

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 to charging provisions — 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)

JUDICIAL EVOLUTION — Charge as Distinct from Computation

In CIT v. B.C. Srinivasa Setty, (1981) 128 ITR 294 (SC), the Supreme Court held that the charging provision and the computation provisions form an integrated code — if the computation machinery is unworkable, the charge itself fails. This principle is foundational to s. 4 read with the head-specific computation provisions (ss. 13-95).

HELD: Where the computation machinery is unworkable, the charging provision must yield. This applies to self-generated assets (goodwill, business reputation) where no cost can be identified. (per B.C. Srinivasa Setty ¶ 10).

DEPARTMENTAL PRACTICE

CBDT Circular No. 1/2026 dated 28-03-2026 (transition guidance) confirms that for FY 2026-27 onwards, Section 4 of the 2025 Act (and the corresponding rates in Finance Act, 2026) applies. Pending matters for AY 2025-26 and earlier remain governed by Section 4 of the 1961 Act read with the relevant Finance Act of that year.

PLANNING NOTES & LITIGATION DEFENCE

(i) For retrospective Finance Act amendments to charging provisions, presume prospective application; cite Vatika Township to defeat any AO attempt to apply retrospectively. (ii) The s. 4(2) deeming for TDS / advance tax means the chargeability arises immediately on income accrual; the assessee's obligation to pay arises on advance-tax due dates. (iii) Where charge relates to a 'period other than tax year' (e.g., for a company in liquidation or person leaving India), the special period proviso applies — verify the AY classification carefully. (iv) For self-generated intangible assets (goodwill, brand value, distribution network), invoke B.C. Srinivasa Setty to defeat charge where no cost is computable.

CROSS-REFERENCES

• Section 1 — Title, extent, commencement (substantive Act-level framework).
• Section 2 — Definitions (uses 'income' s. 2(45), 'person' s. 2(31), 'assessee' s. 2(11)).
• Section 3 — Tax year (replaces 1961 s. 2(34) 'previous year').
• Section 5 — Scope of total income (substantive scope of charge).
• Section 6 — Residence in India (resident vs. non-resident classification for s. 5).
• Section 13 — Heads of income (computational classification).
• Finance Act, 2026 — annual rate-fixation.