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DEFINITIONS
decision given by the Supreme Court becomes law and as such it is binding on all the courts,
Appellate Tribunals, the Income-tax Authorities as well as on all the assesses. However, decisions
given by the High Court, Income-tax Appellate Tribunal are binding on all assessees as well as
Income Tax Authorities which fall under their jurisdiction unless it is overruled by a higher
authority.
The history of income-tax dates back to 1860’s when the British Government first levied income-
tax in India. Thereafter the law was amended in 1886, 1922 and 1961. The Income-tax Act, 1961
as amended covers—
O The basis of charging income
O Incomes exempt from income–tax
O Computation of incomes under various heads
O Clubbing of income
O Setoff and carry forward of losses
O Permissible deductions
O Rebates and reliefs
O Double taxation
O Determination of tax in certain special cases
O Non–resident (special provisions)
O Presumptive taxation
O Income–tax authorities and their powers
O Survey, search and seizure
O Assessment procedure
O Assessment of individuals, firms, companies, etc.
O Collection and recovery of tax
O Payment of advance tax
O Refund of tax
O Advance Rulings
O Appeal and revision, Settlement Commission
O Acquisition of immovable property
O Penalty
O Prosecution.
Case Law :
i) “Assessee” includes deemed assessee also - The term “assessee” includes actual assessees as
well as deemed assessees under the provisions of the Act. It is, therefore, not correct to contend
that unless there are actual assessment proceedings pertaining to any person, he cannot be
considered to be an assessee - ITO v. Delhi Development Authority 252 ITR 772 /CIT v. Shri
Manakram 183 ITR 382/53 Taxman 448 .
ASSESSMENT – [Sec. 2(8)]
Assessment means computation of taxable income and imposition of tax liability. Assessment
includes reassessment. The different kinds of assessment are self-assessment, regular assessment,
best judgement assessment, reassessment, block assessment etc.
ASSESSMENT YEAR – [Sec. 2(9)]
“Assessment Year” means the period of 12 months commencing on the 1st day of April every
year and ending on 31st March of the next year. Thus, the Assessment Year 2003-04 commences
on April 1, 2002 and ends on March 31, 2003. The income of previous year of an assessee is
taxed during the next following assessment year at the rate prescribed for each assessment
year by the relevant Finance Act.
“Previous Year” means the financial year immediately preceding the assessment year. Thus,
income earned during the previous year 2006-07 is taxable in the immediately following
Assessment Year 2007-08.
The income of an assessee for a previous year is charged to income-tax in the assessment year
following the previous year. However, in a few cases, this rule does not apply and the income
is taxed in the previous year in which it is earned. These exceptions have been made to protect
the interests of revenue. The exceptions are as follows:
(1) Shipping business of non-resident [Sec. 172] —Where a ship, belonging to or chartered by
a non-resident, carries passengers, livestock, mail or goods shipped at a port in India, the ship
is allowed to leave the port only when the tax has been paid or satisfactory arrangement has
been made for payment thereof. 7.5% of the freight paid or payable to the owner or the charterer
or to any person on his behalf, whether in India or outside India on account of such carriage is
deemed to be his income which is charged to tax in the same year in which it is earned.
Case Laws :
(i) Charges for hire of vessel cannot be treated as charges for carriage of goods - In order that
it might be said that the amount was payable on account of the carriage of goods, it
would be necessary to show that one was the consideration for the other, i.e., that the
payment which the charterers have agreed to make to the owners of the ship was in
consideration of the carriage of goods. If the charterers were liable to pay the amount
irrespective of whether they carried the goods or not, it would be difficult to say that the
amount was payable on account of the carriage of goods - Union of India v. Gosalia
Shipping (P.) Ltd. 113 ITR 307.
(ii) Section 172 will not apply if time-charterer carries his own goods - When the time-
charterers carried their own cargo, they served their own interests and this kind of self-
service was not what seemed to be contemplated for the purpose of assessment, and
section 172 would not be attracted - Lima Leitao & Co. Ltd. v. Union of India 70 ITR 518.
(2) Persons leaving India [Sec. 174] —Where it appears to the Assessing Officer that any
individual may leave India during the current assessment year or shortly after its expiry and
he has no present intention of returning to India, the total income of such individual for the
period from the expiry of the respective previous year up to the probable date of his departure
from India is chargeable to tax in that assessment year.
Example: Suppose Mr. X is leaving India for USA on 10.06.2007 and it appears to the Assessing
Officer that he has no intention to return. Before leaving India, Mr. X will be required to pay
income tax on the income earned during the PY 2006-07 as well as the total income earned
during the period 1.04.2007–10.06.2007.
(i) Obligations of principal and agent continue if ITO fails to resort to section 174 - Section
174 is merely an enabling provision authorising the ITO to have recourse to that section
in the circumstances postulated by that section. If the ITO however fails to take advantage
of that enabling provision, neither the non-resident principal nor the agent can be relieved
of its obligation. There are no provisions in the Act to the effect that, if no action under
section 174 was taken, proceedings could not be continued against the agent - Barium
Chemicals Ltd. v. ITO 100 ITR 637.
(3) AOP / BOI / Artificial Juridical Person formed for a particular event or purpose [Sec.
174A]—If an AOP/BOI etc. is formed or established for a particular event or purpose and the
Assessing Officer apprehends that the AOP/BOI is likely to be dissolved in the same year or in
the next year, he can make assessment of the income up to the date of dissolution as income of
the relevant assessment year.
(4) Persons likely to transfer property to avoid tax [Sec. 175] - During the current assessment
year, if it appears to the Assessing Officer that a person is likely to charge, sell, transfer, dispose
of or otherwise part with any of his assets to avoid payment of any liability0020under this Act,
the total income of such person for the period from the expiry of the previous year to the date,
when the Assessing Officer commences proceedings under this section is chargeable to tax in
that assessment year.
Case Laws :
(i) Assessment for two previous years is not contemplated - Section 176 contemplates the
usual assessment in respect of the income of the previous year and a special and separate
assessment in the same assessment year in respect of the income of the broken period
between the end of the previous year and the end of the discontinuance; it does not
contemplate assessments in the same assessment year in respect of two previous years -
Esthuri Aswathaiah v. CIT 60 ITR 411.
(ii) Professional fees realised after death are assessable to tax - Where considerable amounts
were due to a deceased barrister towards professional services rendered by him, and the
department realised the amounts through garnishee proceedings in order to adjust them
against income-tax dues, the amounts must be deemed to have been received by the
deceased within the meaning of section 176(4) - Mrs. Roma Bose v. ITO 95 ITR 299.
There are many occasions when the Assessing Officer detects cash credits, unexplained
investments, unexplained expenditure etc, the source for which is not satisfactorily explained
by the assessee to the Assessing Officer. The Act contains a series of provisions to provide for
these contingencies:
(1) Cash Credits [Sec. 68] : Where any sum is found credited in the books of the assessee and
the assessee offers no explanation about the nature and source or the explanation offered is not
satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged as
income of the assessee of that previous year.
Case Laws :
(i) Gift received by NRI shown as credit to his account, however it was held that such income
is undisclosed income. The burden to prove that the income lies within the taxing
provisions is on the Department. The Supreme Court held that where any sum is found
credited in the books of the assessee for any previous year the same is to be charged to the
income tax if the explanation offered by the assessee is not satisfactory. Commissioner of
Income Tax vs P. Mohanakala & Ors. 291 ITR 278.
(2) Unexplained Investments [Sec. 69] : Where in the financial year immediately preceding the
assessment year, the assessee has made investments which are not recorded in the books of
account and the assessee offers no explanation about the nature and the source of investments
or the explanation offered is not satisfactory, the value of the investments are taxed as income
of the assessee of such financial year.
Case Laws :
(i) Amount credited in business books can normally be presumed as business receipt - When
an amount is credited in business books, it is not an unreasonable inference to draw that
it is a receipt from business, if the explanation given by the assessee as to how the amounts
came to be received is rejected by all the income-tax authorities as untenable - Lakhmichand
Baijnath v. CIT 35 ITR 416
(ii) Burden of proof - Burden is on assessee to prove source of receipt - The law is well settled
that the onus of proving the source of a sum of money found to have been received by an
assessee is on him. Where the nature and source of a receipt, whether it be of money or
other property, cannot be satisfactorily explained by the assessee, it is open to the revenue
to hold that it is the income of the assessee and no further burden lies on the revenue to
show that the income is from any particular source - Roshan Di Hatti v. CIT 107 ITR 938
/ Kale Khan Mohammad Hanif v. CIT 50 ITR 1.
(3) Unexplained money etc. [Sec. 69A] : Where in any financial year the assessee is found to be
the owner of any money, bullion, jewellery or other valuable article and the same is not recorded
in the books of account and the assessee offers no explanation about the nature and source of
Case Laws :
(i) Income’ has a wide meaning - The word ‘income’ used in section 69A has wide meaning,
and means anything which comes in or results in gain - Chuharmal v. CIT 172 ITR 250 .
(ii) Person can be owner of money even after giving incorrect explanation - A person can still
be held to be the owner of a sum of money even though the explanation furnished by him
regarding the source of that money is found to be not correct. From the simple fact
that the explanation regarding the source of money furnished by A in whose name
the money is lying in deposit has been found to be false, it would be a remote and far-
fetched conclusion to hold that the money belongs to B - CIT v. Daulat Ram Rawatmull
87 ITR 349 .
(4) Amount of investments etc., not fully disclosed in the books of account [Sec. 69B] : Where
in any financial year the assessee has made investments or is found to be the owner of any
bullion, jewellery or other valuable article and the Assessing Officer finds that the amount
spent on making such investments or in acquiring such articles exceeds the amount recorded
in the books of account maintained by the assessee and he offers no explanation for the difference
or the explanation offered is unsatisfactory, such excess may be deemed to be the income of the
assessee for such financial year.
For example, if the assessee is found to be the owner of say 300 gms of gold (market value of
which is Rs.25,000) during the financial year ending 31.3.07 but he has recorded to have spent
Rs.15,000 in acquiring it, the Assessing Officer can add Rs.10,000 (i.e. the difference of the
market value of such gold and Rs.15,000) as the income of the assessee, if the assessee offers no
satisfactory explanation thereof.
Case Law:
(i) Accounts must have been maintained - Where accounts are not maintained, additions
made as unexplained investments would not be sustainable under section 69B - Dr.
Prakash Tiwari v. CIT 148 ITR 474.
(5) Unexplained expenditure [Sec. 69C] : Where in any financial year an assessee has incurred
any expenditure and he offers no explanation about the source of such expenditure or the
explanation is unsatisfactory the Assessing Officer can treat such unexplained expenditure as
the income of the assessee for such financial year. Such unexplained expenditure which is
deemed to be the income of the assessee shall not be allowed as deduction under any head of
income.
Case Law :
(i) Question of addition depends on satisfactory explanation of source - Section 69C deals
with unexplained source of expenditure. If from documents it appears that there was an
expenditure, unless its source is satisfactorily explained, the same would also be deemed
to be the income of the assessee for such financial year. The question of addition depends
on the satisfactory explanation of the source. It cannot be negated simply because the
expenditure was actually incurred. On the failure to explain the source of the expenditure,
it is liable to be added - CIT v. Bhagwati Developers (P.) Ltd. 261 ITR 658.
(6) Amount borrowed or repaid on hundi [Sec. 69D] :Where any amount is borrowed on a
hundi or any amount due thereon is repaid other than through an account-payee cheque drawn
on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person
borrowing or repaying for the previous year in which the amount was borrowed or repaid, as
the case may be.
However, where any amount borrowed on a hundi has been deemed to be the income of any
person, he will not be again liable to be assessed in respect of such amount on repayment of
such amount. The amount repaid shall include interest paid on the amount borrowed.
Case Law :
(i) Provision is constitutionally valid - Section 69D did not suffer from any vice and it was
not violative of articles 14 and 19(1)(g) of the Constitution - Dulichand Gulzari Lal Jain
v. Union of India 90 Taxman 337/226 ITR 753.
The definition of ‘assessee’ leads us to the definition of Person’ as the former is closely connected
with the latter. The term ‘person’ is important from another point of view also i.e. the charge of
income-tax is on every ‘person’.
(i) an individual,
(ii) a Hindu Undivided Family (HUF),
(iii) a company,
(iv) a firm,
(v) an AOP or a BOI, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person e.g., an idol or deity.
(i) Individual— The term ‘individual’ means only a natural person, i.e., a human being. It
includes both males and females. It also includes a minor or a person of unsound mind. But the
assessment in such a case may be made under section 161(1) on the guardian or manager of the
minor or lunatic. In the case of deceased person, assessment would be made on the legal
representative.
(ii) HUF — Under the Income-tax Act, a Hindu undivided family (HUF) is treated as a separate
entity for the purpose of assessment. It is included in the definition of the term “person”
under section 2(31). The levy of income-tax is on “every person”. Therefore, income-tax is
payable by a HUF. “Hindu undivided family” has not been defined under the Income-tax Act.
The expression is however defined under the Hindu Law as a family, which consists of all
males lineally descended from a common ancestor and includes their wives and unmarried
daughters.
The relation of a HUF does not arise from a contract but arises from status. A Hindu is born
into a HUF. A male member continues to remain a member of the family until there is a partition
of the family. After the partition, he ceases to be a member of one family. However, he becomes
a member of another smaller family. A female member ceases to be a member of the HUF in
which she was born, when she gets married. Thereafter, she becomes a member of the HUF of
her husband.
Some members of the HUF are called co-parceners. They are related to each other and to the
head of the family. HUF may contain many members, but members within four degrees
including the head of the family (karta) are called co-parceners. A hindu coparcenary includes
those persons who acquire by birth an interest in the joint coparcenary property. Only the
coparceners have a right to partition.
A Jain undivided family would also be assessed as a HUF, as Jains are also governed by the
laws as Hindus.
Case Law :
(i) Single person cannot constitute HUF - The word ‘family’ always signifies a group. Plurality
of persons is an essential attribute of a family. A single person, male or female, does not
constitute a family. He or she would remain, what is inherent in the very nature of things,
an individual, a lonely wayfarer till perchance he or she finds a male. A family consisting
of a single individual is a contradiction in terms - C. Krishna Prasad v. CIT 97 ITR 493/
CIT v. Ved Parkash 136 ITR 238.
(iii) Company [Sec. 2(17)] —For all purposes of the Act the term ‘Company’, has a much wider
connotation than that under the Companies Act. Under the Act, the expression ‘Company’
means:
Classes of Companies :
1. Indian company [Sec. 2(26)] - Two conditions should be satisfied so that a company can
be regarded as an Indian company—
(a) the company should have been formed and registered under any law relating to
companies which was or is in force in any part of India, and
(b) the registered office of the company should be in India.
2. Company in which public are substantially interested [Sec. 2(18)] - The following
companies are said to be companies in which the public are substantially interested:
(i) A company owned by the Government (either Central or State but not foreign) or
the Reserve Bank of India (RBI) or in which not less than 40% of the shares are held
by the Government or the RBI or corporation owned by that bank.
(ii) A company which is registered u/s 25 of the Companies Act, 1956 (formed for
promoting commerce, arts, science, religion, charity or any other useful object).
(iii) A company having no share capital which is declared by the Board for the specified
assessment years to be a company in which the public are substantially interested.
(iv) A company which is not a private company as defined in the Companies Act, 1956
and which fulfills any of the following conditions :
- its equity shares should have, as on the last day of the relevant previous year, been listed in a
recognised stock exchange in India; or
- its equity shares carrying at least 50% (40% in case of industrial companies) voting power
should have been unconditionally allotted to or acquired by and should have been beneficially
held throughout the relevant previous year by (a) Government or (b) a Statutory Corporation
or (c) a company in which public are substantially interested or (d) any wholly owned subsidiary
of company mentioned in (c).
(v) A company which carries on its principal business of accepting deposits from its
members and which is declared by the Central Government under section 620A of
the Companies Act to be Nidhi or a Mutual Benefit Society.
Person having substantial interest in the company [Sec. 2(32)]— is a person who is the beneficial
owner of shares (not being shares entitled to a fixed rate of dividend), whether with or without
a right to participate in profits, carrying at least 20% of the total voting power.
(iv) Firm — The terms ‘firm’, ‘partner’ and ‘partnership’ have the same meanings as assigned
to them in the Indian Partnership Act. However, for income-tax purposes a minor admitted
to the benefits of an existing partnership would also be treated as partner. This is specified
u/s 2(23) of the Act. A partnership is the relation between persons who have agreed to share
the profits of business carried on by all or any of them acting for all. The persons who have
entered into partnership with one another are called individually ‘partners’ and collectively a
‘firm’.
(v) Association of Persons (AOP) - When persons combine together for promotion of joint
enterprise they are assessable as an AOP when they do not in law constitute a partnership. In
order to constitute an association, persons must join in a common purpose, common action
and their object must be to produce income; it is not enough that the persons receive the income
jointly. Co-heirs, co-legatees or co-donees joining together for a common purpose or action
would be chargeable as an AOP.
Body of Individuals (BOI)— It denotes the status of persons like executors or trustees who
merely receive the income jointly and who may be assessable in like manner and to the same
extent as the beneficiaries individually. Thus co-executors or co-trustees are assessable as a BOI
as their title and interest are indivisible. Income-tax shall not be payable by an assessee in
respect of the receipt of share of income by him from BOI and on which the tax has already
been paid by such BOI.
(vi) Local Authority— The term means a municipal committee, district board, body of port
commissioners or other authority legally entitled to or entrusted by the Government with the
control or management of a municipal or local fund.
Note : A local authority is taxable in respect of that part of its income which arises from any
business carried on by it in so far as that income does not arise from the supply of a commodity
or service within its own jurisdictional area. However, income arising from the supply of water
and electricity even outside the local authority’s own jurisdictional areas is exempt from tax.
(vii) Artificial Persons— This category could cover every artificial juridical person not falling
under other heads. An idol, or deity would be assessable in the status of an artificial juridical
person.
INCOME [Sec. 2(24)]
The definition of the term “income” in sec. 2(24) is inclusive and not exclusive. The term “income”
not only indicates those things which are included in sec. 2 (24), but also includes such thing
which the term signifies according to its general and natural meaning.
The above amendment has been made consequent to the introduction of new section viz section
115BBC relating to taxation of certain anonymous donations.
Profit or gain of co-operative banks included in the definition of income [Sec. 2(24)]
A new sub-clause (viia) has been inserted in section 2(24) to provide that the profits and gains
of any business (including providing credit facilities) carried on by a co-operative society with
its members shall be treated as income.
The above sub-clause has been inserted to provide that even if the co-operative bank is earning
profit or gains from its members only, such profits shall be included in the meaning of income
and taxable. It shall not be treated as income of mutual character.
The above amendment had been made as the income of a co-operative bank shall now not be
eligible for deduction u/s 80P.
Case Laws :
(i) Treating cash assistance as income is valid - Clause (vb) introduced in section 2(24) to
include cash assistance in the definition of ‘income’ with retrospective effect from
1-4-1967, is valid and is within the legislative competence of Parliament under entry 82
of List I of Schedule VII to the Constitution of India - Aero Leather (P.) Ltd. v. Union of India
194 ITR 7.
(ii) Items not falling under specified categories can still be income - Even if a receipt does not fall
within the ambit if any of the sub-clauses in section 2(24), it may still be income if it
partakes of the nature of the income. The idea behind providing inclusive definition in
section 2(24) is not to limit its meaning but to widen its net. The word ‘income’ is of
widest amplitude, and it must be given its natural and grammatical meaning - CIT v.
G.R. Karthikeyan 68 Taxman 145/201 ITR 866.
TOTAL INCOME [Sec. 2(45)]
“Total income” means the total amount of income as referred to in sec. 5 and computed in the
manner laid down in the Act. Total income constitutes the tax with reference to which income
tax is charged.
BOOKS OF ACCOUNT [Sec. 2(12A)]
It includes ledgers, day books, cash books, account-books and other books, whether kept in the
written form or as printouts or data stored in a floppy, disc, tape or any other form of
electromagnetic data storage device.
DOCUMENT [Sec. 2(22AA)]
It includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the
Information Technology Act, 2000 (21 of 2000).
RELATIVE [Sec. 2(41)]
In relation to an individual, means the husband, wife, brother or sister or any lineal ascendant
or descendant of that individual.
RESULTING COMPANY [Sec. 2(41A)]
It means one or more companies (including a wholly owned subsidiary thereof) to which the
undertaking of the demerged company is transferred in a demerger and, the resulting company
in consideration of such transfer of undertaking, issues shares to the shareholders of the
demerged company and includes any authority or body or local authority or public sector
company or a company established, constituted or formed as a result of demerger.
INSURER [Sec. 2(28BB)]
It means an insurer being an Indian insurance company, as defined under clause (7A) of section
2 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration
under section 3 of that Act.
Under the existing provision of Income-tax Act, infrastructure capital company and
infrastructure capital fund have been defined in clause (23G) of section 10. Further, this definition
is also with reference to sections 80-IA and 80IB. The definitions of infrastructure capital company
and infrastructure capital fund existing in section 10(23G) have been used in the Income-tax
Act in various other provisions. Since section 10(23G) has been omitted from the Income-tax
Act, section 2 has been amended so as to provide for a general definition of infrastructure
capital company and infrastructure capital fund.
(1) “Infrastructure capital company” means such company which makes investments by way
of acquiring shares or providing long-term finance to any enterprise or undertaking wholly
engaged in the business referred to in sub-section (4) of section 80 –IA or sub-section (1)
of section 80-IAB or an undertaking developing and building a housing project referred
to in sub-section (10) of section 80- IB or a project for constructing a hospital with at least
one hundred beds for patients.[ Sec. 2(26A)].
(2) “Infrastructure capital fund” means such fund operating under a trust deed registered
under the provisions of the Registration Act, 1908 established to raise monies by the
trustees for investment by way of acquiring shares or providing long-term finance to any
enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of
section 80-IA or sub-section (1) of section 80- IAB or an undertaking developing and
building a housing project referred to in sub-section (10) of section 80-IB or a project for
constructing a hotel of not less than three star category as classified by the Central
Government or a project for constructing a hospital with at least one hundred beds for
patients. [ Sec 2(26B)].
(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any
share issued for full cash consideration, where the holder of the share is not entitled in
the event of liquidation to participate in the surplus assets ;
(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such
distribution is attributable to the capitalised profits of the company representing bonus
shares allotted to its equity shareholders after the 31st day of March, 1964,
(ii) any advance or loan made to a shareholder [or the said concern] by a company in the
ordinary course of its business, where the lending of money is a substantial part of the
business of the company ;
(iii) any dividend paid by a company which is set off by the company against the whole or
any part of any sum previously paid by it and treated as a dividend within the meaning
of sub-clause (e), to the extent to which it is so set off;
(iv) any payment made by a company on purchase of its own shares from a shareholder in
accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged company (whether or not there is a reduction of capital in
the demerged company)
Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall
not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March,
1948, and before the 1st day of April, 1956.
Explanation 2.—The expression “accumulated profits” in sub-clauses (a), (b), (d) and (e), shall
include all profits of the company up to the date of distribution or payment referred to in those
sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of
liquidation,[but shall not, where the liquidation is consequent on the compulsory acquisition
of its undertaking by the Government or a corporation owned or controlled by the Government
under any law for the time being in force, include any profits of the company prior to three
successive previous years immediately preceding the previous year in which such acquisition
took place].
exclusive licenses of patent rights are granted is Capital Receipt.- Murray v/s Imperial
Chemicals Industries Ltd.
(iii) % of profits received by partners for user of his goodwill and know how by the firm –
Revenue Receipt. Hindustan Forests Co. Ltd. v/s CIT
(iv) Certain portion of net revenue collection given in perpetuity by way of pension to Jagirdar
who divested land – Revenue Receipt.- CIT v/s Kumar Trivikram Narayan Singh
(v) Interest on refund of Income Tax paid in excess.- Revenue Receipt - Ramanathan Chettair
v/s CIT
(vi) Subsidy received from Government for early starting of Crushing of sugarcane Revenue
Receipt.- H.R. Sugar Factory (P) Ltd. v/s CIT
(vii) Held in order that a payment with a gift element of bounty may be treated as part of
taxable income of businessman, it must be shown that gift had been received in course of
or as necessary incident of recipients business. CIT v/s Paramanand Uttam Chand
(viii) Gift to surgeon for saving life, as he had reimbursed fully for professional services No tax
as capital receipt.- CIT v/s Dr. C.M. Sundaravadanam
CAPITAL AND REVENUE EXPENDITURE
In computing taxable income normally revenue expenditure incurred for the purpose of earning
income is deductible from revenue receipt unless the law provides specific rules to disallow
such expenditure wholly or partly. On the other hand capital expenditure is not deductible
while computing taxable income unless the law expressly so provides.
Neither the capital expenditure nor revenue expenditure has been defined in the Act. However,
from the facts and circumstances of each case and from the judicial decisions the following
general principles to be kept in mind :
(i) Capital expenditure is incurred in acquiring, extending or improving a fixed asset whereas
revenue expenditure is incurred in the normal course of business as a routine expenditure.
(ii) Capital expenditure incurred for enduring benefits whereas revenue expenditure is
consumed within a Previous Year .
(iii) Capital expenditure makes improvement with earning capacity of a business whereas a
revenue expenditure maintains the profit making capacity of a business.
(iv) Capital expenditure is a nonrecurring expenditure whereas revenue expenditure is
normally a recurring one.