Relevance of real income vis a vis deemed income:

 

Concept:

1. Income becomes taxable on the footing of accrual only when the right to receive the income becomes vested in the assessee.

2. The basic concept is that he must have acquired a right to receive the income. In other words, there must be a debt owed to him by somebody.

3. Unless and until a debt is created in favour of the assessee by somebody, it cannot be said that the assessee has acquired a right to receive the income or the income has accrued to him.

Legal position:

1. Section 5 defines the scope of total income, stating that  total income of any person includes all income from whatever source derived, which (a) is received or is deemed to be received in India, (b) accrues or arises or is deemed to accrue or arise to them in India, or (c) accrues or arises outside India during the relevant previous year.

2. Hon SC In CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144, has held that only income that has genuinely accrued or been received during  relevant financial year should be taxed.

3. Hon SC in CIT v. Shiv Prakash Janak Raj & Co. (P.) Ltd. (1996) 222 ITR 583 (SC) has held that disputed income should not be taxed until it is realized, in line with Section 5.

4. Hon SC in the case of – CIT v. M/s Excel Industries Ltd (Date of Judgement : 08.10.2013), has held that, in case, no real income but only hypothetical income had accrued to the assessee, Section 28(iv) of the Income Tax Act would be inapplicable. Essentially, the Assessing Officer is required to be pragmatic and not pedantic.

However, a note of caution: There are number of provisions under which income is deemed to accrue or arise by way of statutory fiction, e.g., sections 9, 45, 50, 56, 68, 69, 69A, 69B, 69C, 69D, 93, 94 and 172(2) of the Income Tax Act, and these incomes will have to be assessed, whether shown in the accounts as such or not.