Section 5

Scope of total income

Subject to

n The expression ‘subject to’ used in the opening portion of both sub-sections (1) and (2) of section 5 has to be read keeping in mind that section 5 is intended to explain the scope of total income. Therefore, what the use of the said expression shows is that in considering what is total income under section 5 one has to exclude such income as is excluded from the scope of total income by reason of any other provision of the Act and not that the other provisions of the Act override the provisions of section 5. - CIT v. F.Y. Khambaty [1986] 24 Taxman 29/159 ITR 203 (Bom.).

Is received - clause (a) of Sub-section (1)

n The words ‘are received’ are not terms of art and their meaning must receive colour from the context in which they are used. In the context of section 5(1)(a) these words could only refer to the first receipt. - CIT v. Dharamdas Hargovandas [1961] 42 ITR 427 (SC).

n The word ‘receipt’ of income refers to the first occasion when the recipient gets the money under his own control. Once an amount is received as income, any remittance or transmission of the amount to another place does not result in ‘receipt’ within the meaning of clause (a) of section 4(1) of the 1922 Act, at the other place. - Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC).

n Income is said to be received when it reaches the assessee. - CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC).

n The expression ‘receipt’ has not been defined in the Act but the meaning of the expression ‘receipt’ has been made clear in sections 5 and 9 of the Income-tax Act, 1961. From a plain reading of sections 5 and 9, it appears that the expression ‘accrued’ or ‘arisen’ or ‘received’ or deemed to be ‘received’ has been used in the Act and they must be given therein plain meaning in the absence of any particular definition. - CIT v. Shinwa Kaium Kaisha Ltd. [1986] 26 Taxman 277 (Cal.).

n Neither, the word ‘income’ nor the words ‘is received’, ‘accrues’ and ‘arises’ have been defined in the Act. Income can be said not to have resulted at all if there is neither accrual nor receipt of income. For the purposes of the Act, income can be said to be received when it reaches the assessee but it can be said to have ‘accrued’ or ‘arisen’ only when the right to receive the said income becomes vested in the assessee.

It is, therefore, also clear that income may accrue to an assessee without the actual receipt of the same. The said income can be received later on provided the assessee has got a right to receive the said income.

According to the Oxford English Dictionary, the meaning of the word ‘accrue’ is to fall as a natural growth or increment; to come as an accession or advantage. The word ‘arise’ is defined as ‘to spring up, to come into existence’. The words ‘accrue’ and ‘arise’ do not mean actual receipt of profits or gains. Both these words are used in contradistinction to the word ‘receive’ and indicate a right to receive.

Thus, it is manifest that if an assessee acquires a right to receive the income, the income can be said to accrue to him though it may be received later on.

Unless and until there is created in favour of an assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. A mere claim to income without an enforceable right thereto cannot be regarded as accrued income for the purpose of the Income-tax Act - CIT v. Govind Prasad Prabhu Nath [1988] 171 ITR 417/35 Taxman 513 (All.).

Deemed to be received - Clause (a) Of Sub-section (1)

n The expression ‘deemed to be received’ in section 5(1) only means deemed by the provisions of the Act to be received. The phrase ‘statutory receipt’ might be conveniently employed to cover income which is ‘deemed to be received’ and instances of such statutory receipts are to be found in the various provisions of the Act. An amount cannot be ‘deemed to be received’ merely by the volition or sweet will of an individual. - Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC).

Accrue/Arise - Clauses (b) and (c) Of Sub-section (1)

n The dictionary meaning of the word ‘accrue’ is ‘to come as an accession, increment, or produce; to fall to one by way of advantage: to fall due’. The income can thus be said to accrue when it becomes due. - Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC).

n The meaning of the word ‘accrue’ or ‘arise’ in section 4(1)(b)(i) of the 1922 Act, cannot be extended so as to take in amounts received in a later year though the receipt was not on the basis of a right accrued in the earlier year. - CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC).

n The words ‘accrue’ and ‘arise’ are used to contradistinguish the word ‘receive’. Income is said to be received when it reaches the assessee; when the right to receive the income becomes vested in the assessee, it is said to accrue or arise. - CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC).

n The meaning of the word ‘accrue’ is ‘to fall as a natural growth or increment; to come as an accession or advantage’. The word ‘arise’ is defined as ‘to spring up, to come into existence’. The words ‘accrue’ and ‘arise’ do not mean actual receipt of the profits or gains. Both these words are used in contradistinction to the word ‘receive’ and indicate a right to receive. - Seth Pushalal Mansinghka (P.) Ltd. v. CIT [1967] 66 ITR 159 (SC).

n According to the Oxford English Dictionary the meaning of the word ‘accrue’ is ‘to fall as a natural growth or increment; to come as an accession or advantage’. The word ‘arise’ is defined as ‘to spring up, to come into existence’. The words ‘accrue’ and ‘arise’ do not mean actual receipt of the profits or gains. Both these words are used in contradistinction to the word ‘receive’ and indicate a right to receive. - CIT v. Govind Prasad Prabhu Nath [1987] 35 Taxman 513/[1988] 171 ITR 417 (All.).

n ‘Accrue’ means to increase, to augment, to be added as an increase, to arise or spring as a natural growth or result. Strictly speaking, the word ‘accrue’ may not be synonymous with ‘arise’. - CIT v. Punjab Bone Mills [1998] 96 Taxman 555 (Punj. & Har.).

Deemed to accrue - clause (b) of sub-section (1)

n The words ‘deemed to accrue’ have only relation to what has been so made to accrue under the provisions of the Act; whereas it was not in reality so, but by force of the statute it is treated to be so. - CIT v. Jai Parkash Om Parkash Co. Ltd. [1961] 41 ITR 718 (Punj.).

Accrue, arise and received

n ‘Accrue’ means to increase, to augment to be added as increase, to arise or spring as a natural growth or result.

‘Accrues’ ‘arises’ and ‘is received’ are three distinct terms and so far as receiving of income is concerned, there can be no difficulty as it conveys a clear and definite meaning. The words ‘accrue’ and ‘arise’ also are not defined in the Act. The three expressions ‘accrues’, ‘arises’ and ‘is received’ having been used in section 5 of the Act, strictly speaking, ‘accrue’ should not be taken as synonymous with ‘arises’ but in the distinct sense of growing up by way of addition or increase or as an accession or advantage, while the word ‘arises’ means comes into existence or notice or presents itself.

The words ‘accrue’ or ‘arise’, though not defined in the Act, are certainly synonymous and are used in the sense of bringing in as a natural result. Strictly speaking, the word ‘accrue’ is not synonymous with ‘arise’, the former connoting the idea of growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. There is a distinction in the dictionary meaning of these words, but throughout the Act they seem to denote the same idea or ideas very similar and the difference only lies in this that one is more appropriate when applied to a particular case - CIT v. Jai Hind Travels (P.) Ltd. [2000] 108 Taxman 242/243 ITR 451 (Ker.).

Dealing with the scope of total income, section 5 provides that the total income of a person, who is resident, includes all income from whatever source derived and becomes chargeable to tax either when it ‘is received’ or is deemed to be received in India by him or when it ‘accrues’ or ‘arises’ or is deemed to accrue or arise to him in India during the previous year. In other words, receipt of income is not the sole test of taxability. Under this section, the charge is both on receipt and accrual basis. The expressions ‘is received’, ‘accrues’ or ‘arises’ as appearing in the section are three distinct terms but are not defined. Income is said to be received when it actually reaches the assessee’s hands; but short of receipt, when the right to receive the income becomes vested in the assessee, it is said to accrue or arise - Seth Madan Lal Modi v. CIT [2003] 126 Taxman 129/261 ITR 49 (Delhi).