Taxation Law: Topic
Taxation Law: Topic
Taxation Law: Topic
Taxation law
topic
Assistant Commissioner of Income Tax (ACIT)
vs.
Jackie Shroff
Pritam Muhuri
B.Com. LLB (08)
10th Semester, 5years.
Subject Matter
Charge of income-tax.
Section 4 of the Income-Tax Act, 1961 (the Act), is the basic charging section under which
income-tax is chargeable on the total income of every person. The word “income” is defined
under section 2(24) of the Act.
Section 2(24): The income includes profits and gains, dividend and voluntary contributions
received by a trust created wholly or partly for charitable. The trust" includes any other legal
obligation.
Section 4:
i. Where any Central Act enacts that income-tax shall be charged for any assessment
year at any rate or rates, income-tax at that rate or those rates shall be charged for that
year in accordance with, and subject to the provisions (including provisions for the
levy of additional income-tax) of, this Act in respect of the total income of the
previous year of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged in
respect of the income of a period other than the previous year, income-tax shall be charged
accordingly.
ii. In respect of income chargeable under sub-section (1), income-tax shall be deducted
at the source or paid in advance, where it is so deductible or payable under any
provision of this Act.
As per section 14, all income, for the purpose of charge of income-tax and computation of
total income, is classified under five heads of income.
Income from house property shall be taxable under this head if following conditions are
satisfied:
a. The house property should consist of any building or land appurtenant thereto;
b. The taxpayer should be the owner of the property;
c. The house property should not be used for the purpose of business or
profession carried on by the taxpayer.
Section 28 “Profits and gains of business or profession”,
Profit and gains of business or profession” is one of the heads of income under the Income
Tax Act. ... While filing an income tax return, the taxpayer must declare the amount
of profits and gains of business or profession in case the assessee is having any such income.
Any Income derived from a Capital asset movable or immovable is taxable under the
head Capital Gains under Income Tax Act 1961. The Capital Gains have been divided in two
parts under Income Tax Act 1961. One is short term capital gain and other is long term
capital gain.
Income which is not exempt and cannot be charged under the heads of salary, income from
house property, profits and gains from business or profession, or capital gains, form income
from other sources for taxation purpose. All dividends received are taxable under the head
of income from other sources.
Facts
Shroff got $1.5 million (69.8 million at the time) from one Sudesh Iyer.
He did not offer it for taxation.
The issue dates back many years when the actor and others proposed
bringing Sony TV channel to India. A company Atlas Equfin was
incorporated to hold shares in Multi Screen Media India (MSM), owners
of the Sony TV channel. The aggregate share holding of Atlas and
another Mauritius-based company, Grandway Global Holdings, in
MSM was 23 per cent.
After the complaint was made, he was approached to settle the matter
amicably. In January 2011, a deed of settlement was signed between the
actor and Sudesh Iyer for settling the dispute. According to the terms,
Iyer agreed to pay a sum of $3,500,000 on the condition that Shroff
withdraw the criminal complaint.
Profit motive to not decisive of the question whether a particular receipt is capital or income.
An accretion to capital does not become taxable income merely because an asset is acquired
in the hope that it may be sold at a profit.
Capital receipts are cash inflow in business arising from financial (capital) activities and not
the operating activities of the business. These are receipts resulting from activities which are
occasional or not of routine nature. Capital Receipts are not the regular or main source of
income for an organisation. Thus it either creates a liability or reduces the assets for the
business entity. And, because of its capital nature such receipts are shown in the balance
sheet of a company and not the income statement or Profit and Loss account.
From the above definition, it’s clear that a receipt can be called capital receipt if it adheres to
at least one of the following conditions --
It must create a liability. For example, if a company takes a loan from a bank or a
financial institution, then it would create a liability. That’s why it is a capital receipt in
nature. But if a company received a commission for using its expertise in producing a special
type of product for another company, it would not be called a capital receipt because it didn’t
create any liability.
It must reduce the assets of the company. For example, if a company sells out its
shares to the public, it would help reduce the asset, which could create more money in the
future. That means it should be treated as a capital receipt.
Types of Capital Receipts
a. Borrowings:-
It includes the funds raised from outside to meet the expenditure incurred in the
company. It is considered as the capital receipts because it creates liability for the
company.
b. Recovery of Loans:-
Sometimes the company separates a part of the asset to recover the loans in future, as
a result, it decreases the assets of the company.
Revenue receipts are money earned by a business through its day to day operational
activities. These are recurring in nature and directly affect the profit and loss of the business.
Thus, the disclosures of revenue receipts are required to be made in the income statement of
the company or organization.
In general terms, we can say that revenue receipts do not create any liability for the business
nor does it reduces the assets. It simply suggests that goods or services have been delivered
to the clients and in return, income has been received. Ultimately it is a source of cash inflow
which leads to an increase in the total revenue of a company. Revenue Receipts are those
receipts that neither reduces the assets of the company, nor they create any liability. They are
always recurring in nature, and they are earned during the normal course of business.
From the definition, it is clear that any type of receipt needs to satisfy one of the two
conditions to be called as revenue receipt --
Some examples of receipts which are of routine nature i.e. revenue receipts in an
organization are,
The capital receipts are to be charged to tax under “Capital Gains” and revenue receipts are
taxable under other heads, it is of vital importance to understand which receipt is a capital
receipt and which one is Revenue. Some tests, however, can be applied in particular cases.
These Tests are:
B. Profit on the sale of Motor Car used in business by an assessee is Capital Receipt
whereas the profit earned by an automobile dealer, dealing in cars, by selling a car is
his revenue receipt.
e.g. An Author gives up his right to publish a book and receives Rs. 1,00,000 as
compensation. It is capital receipt but if he receives it as advance Royalty for 5 years
it is Revenue receipt.
The Bombay High Court in the case of CIT v. Amar Dye Chem Ltd.
[1994] also held that the amount received towards compensation or
damage for settlement of dispute was capital receipt which was not
taxable. Thus, compensation received by assessee for withdrawing
criminal complaint was a capital receipt and couldn’t be treated as
income.
The compensation received by the assessee was not for his professional
activities but for settlement of dispute between him and some other
party resulting in filing of a criminal complaint. The amount received
towards compensation could not fit in to the definition of income as per
section 2(24), read with section 4 of the Income-tax Act, 1961. Thus,
compensation received by assessee for withdrawing criminal complaint
was a capital receipt and couldn’t be treated as income.
THANK YOU