Para 6.

1 Income-tax- Basic concepts

6.1 Incustve definition ofsection 2(24)-Asperdefinition in section 2(24),the term"inc O

includes thefollowing:
Profits and gains [seepara 101]
Dividend [seepara 193]
Voluntary contributions received by a
trust created wholly or partly for charital.
for such
religious purposes or by an institutionestablished whollyor partly purposes
an institution/fund referred to in section 10(2/)/(23)/(230(iv)/(v).
The value of any perquisite
[seeparas 51 and 52]or profit
in lieu of salary [see
para 40
to to meet his
Any special allowance or benefit specifically granted theassessee expe
of his duties.
wholly, necessarily and exclusively for the performance

Any allowance granted to the assessee either to meet his personal expenses at the plia
where he performs his duties or to compensatehim for the increased cost of livin.

The value a
of any benefit or perquisite obtained from acompany by director or a pers pe

who has substantial interest in the company or by relative of a director or such person,
The following propositions shouldbe kept in view:
o The value of arising to a company-director
has to be quantified at an am
any benefit
that he would have spend otherwise with regard to his personal needs-CIT
Ramakrishnan [1980]124 ITR 545 (Mad).
o The words "benefit/perquisite" obtained from company would only include suchbepel
which company has agreed to provide and the person concerned can claim it as a maul
of
of right. Amere advantagewithout authority or knowledge company not includedi
is

it- CITv. A.R.AdaikappaChettiar [1973]91 ITR 90(Mad.). Even remission of loan taken
K.S. Malik v.
CIT[1980] 129 ITR
5

by the director amounts to chargeable "benefit"-

(Delhi). However, the word benefit' would

not
include perquisite orbenefit received b
a relative of the director- Dhirajlal Haridas v. CIT[1982] 138 ITR 570 (Bom.).
o of interestby company from its two directors on debit balances standing in
Non-charging
would amount to benefit assessable under section 2(24 iv)-CIT v. Gurdial
their names
507 (Delhi).
Singh [1998]100Taxman
Any sum chargeable to tax under section 28(v) (ie, interest, salary, bonus, commission or
remuneration due to; or received by, partner of a firm--see para 322.3).
a

Any sum chargeable to tax undersection 28(iia), (iib) or (iic)[seepara 101.111

Thevalue of any benefit or perquisite (whetherconvertible into money or not) obtained by

any amount paid by the

any representative assessee [sec. 160(1)(in), (iv)] or beneficiary, or
the benetit of the beneticiary (which the beneficiary would have
representative assessee for
been required to pay).
ordinarily
Any sum chargeable under section 28(i), (ii), 41 or 59[seeparas 101 and 156]
into money or not, arising from
The value of any benefit or perquisite, whetherconvertible
business or the exercise of a profession.

Any capital gains [seepara 166].

44.
Insurance profit computed under section
races horse races, card games and
-Winnings from lotteries, crossword puzzles, including

other games of any sort [see para 194].

fund for the
his employeesas contribution to any
Any sum received by the assessee offrom
the employeesto various funds which are deducted
by

welfare of employees. Contribution of will be taken as "income"

of the emplover.
the employerfrom salaries or wages employees
section 36 or 57 if such contribution
One may, however,claim deduction of the sameunder the relevant fund by
the adue
in the accountof the employeein
is credited by the employer
date" [fordetails,seeproblem 155-P3].
bonus on such policy.

Any sunm received under a keyman insurance policy including

I of
of List the Seven
for tax purposesEntry.82 on income other ta
6.2 Income as generally understood Parliament to levy "taxes
Schedule to the Constitution empowers
the Seventh Scheduleto the
Constitution snou
income". Entries in the Lists in
agricultural
 be read in a
11ot
nmow or estited
Tuxan 7 (SC). I0, therelore, lollow 1hat
(which docs nol deline tlhe lerm
Co pt

/uwan as
in

"inone" lt meely
in

allitienn
:
totcepnention insee
hain

29)
deuiw the va trt rocciyt.
v
nn
Para 6.3

of hndui|1I*IY
tieiil

income),iiyotlhcr' Teceip is
meaninp ol the teIn "ineon "
tunable mder tlie
At,i comeswithinthe
geuerlnd natH al
as

it
According tothe Shorter
asthe periodicalproduct Oafondlnylish Dietiomarv, "nu
ol "tha whie ne" meas lhe
on in
on*'s wonk,
interms ol moncy); iunnual or perienlicalbusins,land»,on investnents(comuon ejned
In CIT v.
& reeipte aceung fo pet
Shuw Wallaer Cia 6 ITC T78 ('C),Siu
en
on pt ilien
(icogelowies oelncd "k
"Income connotes A perioxicaal

expectedregularitylromdelinite
to
nonelary retun'oming in' witlh oneleolhn
n
ol ol rcgul. ilv,
sorees,ThemICeisnot necessarily one
wlhich isesee led
becontinuously productive, but mUst be oe
it
whoe objert is the produe tionolale fnnle
return, excluding anything in the natune ol
a meie winlall".
Anything which can be properly deseribed as
income is lAxAblee under the Al, unuless
expressly exciptcd-(GopalSaranNarain
not necessarily be recurring in nature,
Singhv,CIT |1935|.3ITR 237 (PC), m.av loe
though it is pener:allyol that churacteTAnakslhva
Narain SinghofRarmgarhv. C1T |1943| 11 ITR S13
(PC).
Though therearedillerent conceptsof "inconme"lorthe
purpose ol tAxation,incone is broadly
defined asthetrucincrease in the amount of
wealth vhicheones toa peTson duriug.a slatcd
period of time- Comn. of Corprationand Taxation v. Filom 38
NI:. 2d 693, 700.

6.3Broad principles which clarify the concept of

income A
study of the lollowing judic i.al
principles will be helplul to understand the concept of inconne.
6.3-1 Regularanddefinilesource- Theterm "income"
conotes a periodical nonetary ret uun
coming in with some sort ol regularity-CIl'v. Shaw Wallace &CCo. 6 ITC 178
(PC). Hlowever,
it must be read with reference to lacts of cach
casc- RaghnvanshiMills Ld. v.
22 ITR 484 (SC). CTT|I9521|

6.3-2 Different formsof income - Income may be received in cash or kind.

Wheu ineome Is
received in kind, its valuation is to be made according to the rules
prescribed the lucome
in
tax Rules. If, however,there is no prescribed rule, valuation thereol is
made on the basis uf
market value.
6.3-3 Receipt vs. Accrual- Income arises either on receipt basis or on accrual basis. lncome
may accrue to a taxpayer without its actual receipt. Morcover, in sonne cases, inconne is
deemed to accrueor arise to a person without its actual acerual or receipt |see, lor instance,
para 32]. Tax incidence arises either on "acerual" basis or on "reccipt"basis see para 29|
6.3-4 Illegal inconne - The income-tax law does not make any distinction between income
a
accrued or arisen from legal source and income lainted with illegality. By bringing the
of an State does it or
profits illegal business to tax, the not condone takepart in erime, nor does
it become
a party to the illegality. The assessee might
be prosecuted for the offence and yet
be taxed upon profitsarising outof its commission-Manmv. Nash| 1932|| KB752. However,
any expense or loss incurred by an assessee in carrying on such business is not deductible.
that
Explanation to section 37(1)provides any expenditure incurred by an assessee for any
purpose which is an offence or which is prohibited by law shall not be deemed to have been
for the purpose of business or prolession and no deduction or allowance shall
incurred
be made respect of such expenditure. This amendment in statute has now over-ruled the
in
decision given by the Apex Court in CIT v. Piara Siugh [1980]3 Taxman 67.
6.3-5 Disputed title- Income-lax assessment cannot be held up or postponed mercly because
of existence of a dispute regarding the title of incomc.
The recipientis, therefore, chargeable
to tax,though there may be rival claims to the source of the income-Franklinv. IRC|19301
15 TC 464. A mere claim, on the other hand, by a person against the recipient ol income is
not sufficient to make income accrueto the claimant and render him liable for tax.
6.3-6 Relief or reimbursementof expenses not treated as incone-Mere relief or reimburse-
ment of expenses is not treatcd asincome.For instunce,reinmbursement of actual travelling
expenses to an employee is not an income. Similarly, when the assessee is relieved ot his
obligation of a certain sum to a party by an order of court, the amounit so relieved cannot be
treated as income of the assessee.