Section 2(24)

Income

Income

n ‘Income’ in this Act connotes a periodical monetary return ‘coming in’ with some sort of regularity, or expected regularity, from definite sources - CIT v. Shaw Wallace & Co. 6 ITC 178 (PC)/Padmaraje R. Kadambande v. CIT [1992] 195 ITR 877 (SC).

n The word ‘income’ is not limited by the words ‘profits’ and ‘gains’. Anything which can properly be described as ‘income’, is taxable under the Act unless expressly exempted - Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC).

n No attempt has been made in the Act to define ‘income’ except to say that it includes certain things which would possibly not have been regarded as income but for the special definition. That, however, does not limit the generality of its natural meaning except as qualified in the section itself - Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 (SC).

n The word ‘income’ as it is used in the Income-tax Act has often been characterised by judicial decisions as formidably wide and vague and its extent and sweep are not controlled or limited by the use of the words ‘profits and gains’. As has been observed by Sir George Lowndes in CIT v. Shaw Wallace & Co. [1932] 2 Comp. Cas. 276, the object of the [Indian] Income-tax Act is to tax ‘income’, a term which it does not define. It is expanded, no doubt, into income, profits and gains, but the expansion is more a matter of words than of substance - Dooars Tea Co. Ltd. v. CAIT [1962] 44 ITR 6 (SC).

n Whatever income may include or mean, it is, however, clear that it does not include fixed capital or the realising of fixed capital by turning it into some other form of capital or money - Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC).

n The expression ‘income’, according to the dictionary, means ‘a thing that comes in’. Income may also be defined as the gain derived from land, capital or labour or any two or more of them. Even in its ordinary economic sense, the expression ‘income’ includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. That which can be converted into income can be reasonably regarded as giving rise to income - Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315 (SC).

n The word ‘income’, ordinarily in normal sense, connotes any earning of profit or gain periodically, regularly or even daily in whatever manner and from whatever source. Thus, it is a word of very wide import. Clause (24) of section 2 is legislative recognition of its elasticity. Its scope has been widened from time to time by extending it to varied nature of income. Even before it was defined as including profits, gains, dividends and contributions received by a trust it was held to be a word, ‘of broadest connotation’ which could not be ‘understood in restricted or technical sense’ - Universal Radiators v. CIT [1993] 68 Taxman 45/201 ITR 800 (SC).

n Since the definition of income in section 2(24) is an inclusive one, its ambit should be the same as that of the word ‘income’ occurring in entry 82 of List I of the Seventh Schedule to the Constitution - CIT v. G.R. Karthikeyan [1993] 68 Taxman 145/201 ITR 866 (SC).

n ‘Income’, for purposes of taxation, has an element of gain or profit as distinguished from corpus or principal. It is sometimes called fruit born of capital, but mere conceivability or facility of fruition is not income. An important distinguishing feature which, however, cannot be overlooked is that income in the sense of tax laws is distinct from the capital or the stock. It is an increase of wealth out of which money may be taken to satisfy the tax demands of the Government - Punjab Distilling Industries Ltd. v. CIT [1963] 48 ITR 288 (Punj.)

n The word ‘income’ as used in the Income-tax Act has often been characterised by judicial decisions as formidably wide and vague in its scope. It is a word of elastic import and its extent is not controlled and is not governed by the words ‘profits and gains’ in section 10 of the 1922 Act. Every receipt generally may be described as income unless it is expressly exempt - CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 (All.).

n Section 2(6C)of the 1922 Act, and section 2(24) of the 1961 Act give inclusive definition of the word ‘income’. Whenever, a term is given such a definition in a statute, it means not only the things mentioned therein but also includes in its ambit the meaning of the term as generally understood - Raja Ragavendra Singh v. State of Punjab [1976] 102 ITR 40 (Punj. & Har.).

n Considering the use of the word ‘include’ in section 2(24), the word ‘income’ shall be construed as comprehending not only those which section 2(24) declares that they shall include but also such things as it signifies according to its natural import - Lachit Films v. CIT [1992] 195 ITR 402 (Gauhati).

n Under section 2(24) ‘income’ is defined which postulates that the word ‘income’ has to be given a very wide meaning, but certainly it does not mean to cover mere production or receipt of a commodity which may be converted into money. It certainly cannot be construed to be an income in its normal connotation of the term ‘income’ as envisaged under section 2(24) - Keshkal Co-operative Marketing Society Ltd. v. CIT [1986] 55 CTR (MP) 229.

n The word ‘income’ is an expression of elastic ambit and definition given in section 2(24) is not exhaustive. In such circumstances one may consider common parlance meaning of the word ‘income’ - CIT v. Ramdeo Samadhi [1986] 29 Taxman 360/160 ITR 179 (Raj.).

n The definition of ‘income’ in clause (24) of section 2 is not exhaustive. It is inclusive and fictionally covers things which this clause declares to include, but includes also such things as the word signifies according to its natural import. This clause merely brings in artificial categories to the natural connotation of ‘income’. The object of the Act is to tax ‘income’, a term of formidably wide and vague import. The word ‘income’ is an expression of elastic ambit. The word ‘income’ is a more general term than ‘profits’ or ‘gains’. A receipt may be taxable as income, although it may contain no element of profit or gain. ‘Profits’ or ‘Gains’ means something which is in the nature of interest or fruit, as opposed to the principal or tree - CIT v. Bokaro Steel Ltd. (No. 1) [1988] 170 ITR 522 (Pat.).

n When section 2(24) defines the term ‘income’ it does not make any distinction between the gross income and taxable income for the purposes of taxation. However, there is no doubt that it is not the gross income, but it is the taxable income which constitutes the basis of determination of the amount of tax payable - Kaluram Ganeshram (HUF) v. CIT [1988] 37 Taxman 167/172 ITR 154 (MP).

n As per section 2(24) the word ‘income’ is an inclusive definition. It is not exhaustive. It has a wide import. It has got a legal concept. The scheme of section 2(24) read with sections 4 and 10, seems to be that, given its ordinary and natural meaning, the word ‘income’ will take in any monetary return ‘coming in’. It will take in voluntary and gratuitous payments which are connected or linked with the office, vocation or occupation - Father Epharam v. CIT [1989] 43 Taxman 128/176 ITR 78 (Ker.).

n The term ‘income’ is very wide in its import. All allowances received by the salaried persons are taxable under the Act unless expressly exempted. These payments made in the form of allowances and special allowances accrue and are received by the salaried person by virtue of his office and employment - Karnataka Electricity Board Employees Union v. Union of India [1989] 46 Taxman 45/179 ITR 521 (Kar.).

Income - entry 82 of List I - Seventh Schedule
to the Constitution

n The word ‘income’ in List I of the Seventh Schedule to the  Government  of India Act, 1935 should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power and it includes a capital gain. It will be wrong to interpret the word in the light of any supposed English Legislative practice - Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 (SC).

n The word ‘income’ in entry 82, List I of the Seventh Schedule to the Constitution, must receive a wide interpretation; how wide it should be is unnecessary to consider, because such an enquiry would be hypothetical. The question must be decided on the facts of each case. There must no doubt be some rational connection between the item taxed and the concept of income liberally construed - Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC).

n The word ‘income’ is of elastic import. In interpreting expressions in the legislative lists a very wide meaning should be given to the entries. In understanding the scope and amplitude of the expression ‘income’ in entry 82, List I, any meaning which fails to accord with the plenitude of the concept of ‘income’ in all its width and comprehensiveness should be avoided. The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. The widest possible construction, according to the ordinary meaning of the words in the entry, must be put upon them. Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. The expression ‘income’ in entry 82, List I, cannot, therefore, be subjected, by implication, to any restriction by the way in which last term might have been deployed in a fiscal statute. A particular statute enacted under the entry might as a matter of fiscal policy, seek to tax same species of income alone. The definitions would, therefore, be limited by the consideration of fiscal policy of a particular statute. But expression ‘income’ in the legislative entry has always been understood in a wide and comprehensive connotation to embrace within it every kind of receipt or gain either of a capital nature or of a revenue nature. The ‘taxable receipts’ as defined in the statute cannot be held to fall outside such a ‘wider connotation’ of ‘income’ in the wider constitutional meaning and sense of the term as understood in entry 82, List I - Elel Hotels & Investments Ltd. v. Union of India [1989] 178 ITR 140/44 Taxman 304 (SC).

Note : The above case is on Hotel Receipts Tax Act, 1980.

n The expression ‘income’ in entry 54 of List I of the Seventh Schedule to the  Government  of India Act, 1935, and the corresponding entry 82 of List I of the Seventh Schedule to the Constitution of India, shall be widely and liberally construed so as to enable a Legislature to provide by law for the prevention of evasion of income-tax - Punjab Distilling Industries Ltd. v. CIT [1965] 57 ITR 1 (SC).

n It would not be wrong to construe the word ‘income’ in Entry 82 of List I of the Seventh Schedule to the Constitution as including all items which were taxable under the contemporaneous law relating to tax on income which was in force at the time when the Constitution was enacted - Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315 (SC).

n The word ‘income’ occurring in Entry 82 in List I of the Seventh Schedule to the Constitution of India should be construed liberally and in a very wide manner and the power to legislate will take in all incidental and ancillary matters, including the authorisation to make provisions to prevent evasion of tax, in any suitable manner and the entry will take within its fold any profits or gains not only actually received but also income which is supposed by the Legislature to have notionally accrued. What can be converted into income will also come within its fold - Union of India v. A. Sanyasi Rao [1996] 85 Taxman 321/219 ITR 330 (SC).

Includes

n The word ‘includes’ is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute - CIT/CWT v. P.R.S. Oberoi [1990] 52 Taxman 267/183 ITR 103 (Cal.).

Profits and Gains - Sub-clause (i)

n  From the charging provisions of the Act, it is discernible that the words ‘income’ or ‘profits and gains’ should be understood as including losses also, so that, in one sense ‘profits and gains’ represent ‘plus income’ whereas losses represent ‘minus income’. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 of the 1922 Act classifies income under six heads, the  main charging provision is section 3 of the 1922 Act which levies income-tax, as only one tax, on the ‘total income’ of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two  conditions. Firstly, it must comprise the ‘total amount of income, profits and gains referred to in section 4(1)’. Secondly, it must be ‘computed in the manner laid down in the Act’. If either of those conditions fails, the income will not be a part of the total income that can be brought to charge - CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC).

n ‘Gains’ is really the equivalent of ‘profits’. The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. The tax is upon income, profits or gains; it is not a tax on the gross receipts. The expression ‘profits’ or ‘gains’ is not limited to business only, but is used in the Act with reference to other sources of income as well - CIT v. Bokaro Steel Ltd. (No. 1) [1988] 170 ITR 522 (Pat.).

‘Profits’ implies a comparison between the state of a business at two specific dates usually separated by an interval of a year - E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 (SC).

Benefit/Perquisite - Sub-clauses (iv) and (iva)

n The intention of the Legislature seems to be very clear that the expression ‘benefit’ did not include the enjoyment of loan or credit free of interest or at a concessional rate - CIT v. P.R.S. Oberoi [1990] 52 Taxman 267/183 ITR 103 (Cal.).

n The words ‘benefit or perquisite obtained’ from a company would take in only such benefit or perquisite which the company had agreed to provide and which the person concerned could claim as of right based on such agreement and a mere advantage derived from the company without its authority or knowledge will not amount to a benefit or perquisite obtained - CIT v. A.R. Adaikappa Chettiar [1973] 91 ITR 90 (Mad.).

Lottery - Sub-clause (ix)

n The term ‘lottery’ has been defined in the Corpus Juris Secundum which says that ‘pooling the proceeds derived from chances or tickets taken or purchased and then allotting such proceeds or a part of them or their equivalent by chance to one or more such takers or purchasers are indicia of a lottery’. Hence, it is necessary that the winner must be not only a contributor to the prize amount, but must also be a participant in the lottery. All the ingredients which are set out in the definition in Corpus Juris Secundum must be present to identify the winner and the winnings of the lottery - Visveswaraiah Lucky Centre v. CIT [1991] 56 Taxman 80/189 ITR 698 (Kar.).