Resident in India
Sec.5 of the Income Tax Act provides for the assessment of income on the basis of residential status of the assessee. The residence of a person has to be determined with reference to a particular assessment year, but as an assessment year is related to a particular previous year, the question of residence will be dependant on the conditions in such previous year.
For the purpose of determining residence, Sec.6 divides person in four categories:
An individual, 2. A HUF, Firm and other Association of Person
A Company, and 4. Every other person

Residence of an individual
Individual would be a resident of
(A) He stays in India for 182 days or more during the previous year, OR
(B) He stays in India for 365 days or more during the four preceding previous years and stays in India for at least 60 days during the previous year. (182 days in place of 60 days in case of Indian citizen or person of Indian origin coming to visit India or Indian Citizen going abroad as crew of Indian ship or employment).
In order to become ordinarily resident an individual is required to satisfy both the following conditions:
(i) He has been resident in India in 2 out of 10 previous years preceding the relevant previous year, AND
(ii) He has been physically present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year.
If an individual satisfies one of (A) Or (B) conditions but does not satisfy both the conditions (i) and (ii), he is said to be not ordinarily resident.

Residence of an HUF
Will be resident in India except where during the previous year the control and management of its affairs is situated WHOLLY outside India. In that case it will be non-resident.
HUF will be resident and ordinarily resident in India if its manager has been (I) resident in India in 2 out of 10 previous years preceding the relevant previous year, AND (II) present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year. If manager does not fulfill the above condition, a HUF will be non-ordinary resident.

Residence of a company
Sec 6(3) divides companies into two categories – (1) domestic company and (2) other company.
Domestic company shall be resident in India in every case.
For other companies, to be resident in India, the control and management of its affairs is to be situated wholly in India.

Residence of every other person
Every other person is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.


Scope Of Income
Resident and ordinary resident
The total income includes all income which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India, and (C) accrues or arise to him outside India during such year.
Resident and not ordinary resident
The total income includes all three above items except income accruing outside India unless it is derived from a business controlled in or a profession set up in India.
Non resident
The total income includes all income, which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India.

Income
Sec 2(24) provides an inclusive definition of the income. So other form of income not specified in the section but treated as income as per general and natural meaning of the term are also covered by the definition unless exempted under the Act. Section provides that income includes the followings:
(A) Profits and Gains (B) Dividends
(C) Voluntary contribution received by a trust (including any other legal obligations) created wholly or partly for charitable or religious purposes or an association or institution referred to in section 10(23)(iv)(v)
(D) Value of any perquisite or profit in lieu of salary (E) Any special allowance or benefit
(F) Value of any benefit or perquisite whether convertible into money or not obtained by the director or any person having substantial interest in the company. (G) Income as per section 28, 41 and 59.
(H) Capital Gains U/S 45
(I) Winning from lotteries, crossword puzzles, race, card games etc.
(J) Sum received by assessee from his employees as contribution to (a) any provident fund, (b) superannuation fund (c) any fund set up under ESI Act or (d) any other fund for the welfare of such employees.

Income deemed to be received
a. Annual accretion in the previous year to the balance at the credit of an employee in a Recognised Provident Fund.
b. Transferred Balance in Recognised Provident Fund from an unrecognized provident fund.
c. TDS from any payment made to assessee.
d. Deemed profit U/S 41 of I.T. Act.

Income Deemed To Accrue Or Arise In India
Income accruing or arising from a business connection in India
Income accruing or arising from any house property in India
Income accruing or arising through transfer of a capital asset situated in India
Salary income earned in India
Salary income payable by Govt. to a citizen in India for services rendered outside India
Dividend paid by an Indian company outside India
Interest / Royalty Income / Fees for technical services payable by
Govt.
Resident Person except where the debt used for the purpose of business carried outside India or making any income from any source outside India.
Non-resident provided the debt used for the purpose of business carried in India.

Capital receipt Vs Revenue receipts
Capital means accumulated wealth employed reproductively. Revenue means the return, yield or profit of any land, property or other important source of income. Whereas capital is a fund; revenue is a flow. A receipt on account of circulating capital is revenue receipt. A receipt on account of fixed capital is capital receipt. In order to determine whether a receipt is a capital or revenue in nature, one has to go by its nature in the hands of recipient. The source from which the payment is made has no bearing. Similarly the payer’s motive is not relevant in deciding whether a particular receipt is revenue or capital in nature. A receipt in lieu of source of income is a capital receipt. A receipt in lieu of income is a revenue receipt.


Income
Income connotes a periodical monetary return coming in some sort of regularity. Income may be received in cash or in kind. Income arises either on receipt basis or on accrual basis. The I.T. Act does not make any difference in between legal or illegal source of income or in between temporary or permanent income. Income includes negative incomes (losses). Same income cannot be taxed twice.
Reimbursement of expenses is not treated as income. Gift of a personal nature or pin money do not constitute income & thus not liable to tax under the Act. Mere production does not amount to income.
Income should be real and not fictional. Income must come from outside. Thus a person cannot make a taxable profit out of a transaction with himself.

Previous Year (Sec.3)
Income earned in a year is taxable in next year. The year in which income is earned is known as previous year.
Previous year always starts on 1st April and ends on 31st March. But in case of newly set up business, first previous year starts from the date of starting of business and ends on immediately following 31st March.

Assessment Year [Sec. 2 (9)]
Assessment Year is the year in which the income of previous year is to be assessed. Thus the next year from the previous year in which income is taxed is known as Assessment Year.
General rule is that the income of the previous year is taxed in the assessment year. But there are few exceptions to the rule:
Income of non-resident shipping companies if they do not have any representative in India;
Income of any person leaving India permanently or for long period;
Income of bodies formed for short term
Income of a person trying to alienate his assets with a view to avoiding tax; and
Income of a discounted business.

PERSON [Sec 2(31)]
The term includes:
a. An Individual b. A HUF c. A Company d. A Firm
An AOP or BOI f. A Local Authority g. Every Artificial Person

Assessee
Means a person by whom any tax or any other sum of money is payable under the Act.