“real income theory”

Judicial DoctrinesCIT vs Shoorji VallabhdasCIT vs Shoorji Vallabhdas205 judgments

The decision most relied on for real income theory is CIT v. Shoorji Vallabhdas & Co. (46 ITR 144), cited in 551 judgments on BharatTax.

Leading authorities on real income theory

CIT v. Shoorji Vallabhdas & Co.

46 ITR 144 · 1962 · Supreme Court

551

citing judgments

Income tax is levied only on real income that actually materializes, not on hypothetical or notional income, even if accounting entries suggest otherwise. If no income results, there is no tax liability.

Poona Electric Supply Co. Ltd. v. CIT

57 ITR 521 · 1965 · Supreme Court

126

citing judgments

Income tax is levied on real income, which represents profits determined by ordinary commercial principles after permissible deductions, considering the probability of realization. This principle distinguishes real profits from statutory profits specified for other purposes under the Income-tax Act.

CIT v. Vasisth Chay Vyapar Ltd.

330 ITR 440 · 2011 · High Court

125

citing judgments

Interest income is taxable under the mercantile system of accounting even if it is not actually recovered, provided there is a right to receive it. The decision also touches upon the treatment of bad debts and provisions for doubtful debts under Section 36(1)(viia).

CIT v. Birla Gwalior (P.) Ltd.

89 ITR 266 · 1973 · Supreme Court

citing judgments

The Supreme Court holds that income tax is levied on real income, not on hypothetical or notional accrual. For income to be taxable, it must genuinely accrue or be received, taking into account the realistic probability of its realization.

Judgments citing real income theory

M/S Onmobile Global Limited, Bangalore vs. Assistant Commissioner of Income Tax Circle-5(1)(2), Bangalore

In the result, both these appeals are partly allowed

ITA 139/BANG/2019[2014-15]Status: DisposedITAT Bangalore10 Aug 2022AY 2014-15

Bench: Shri George George K. & Ms. Padmavathy S

For Appellant: Shri T. Suryanarayana, AdvocateFor Respondent: Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru

Section 143(3)Section 14ASection 234BSection 244ASection 32

which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing

Kiran S Patel, Mumbai vs. ADIT, CPC, Bengaluru

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 233/MUM/2022[2019-20]Status: DisposedITAT Mumbai13 Jul 2022AY 2019-20

For Appellant: Shri Chetan K. DhabaliaFor Respondent: Shri Rajesh Ojha, (Sr. AR)

Section 143(1)Section 205

Period January 2019 to March 2019 should not have been charged to tax Considering the concept of “real income theory” as your appellant has not received such salary income till date. 6. On the facts and circumstances of the case and in law, the learned CIT(A) erred ... assessee in his return of income on accrual basis, ought not have been charged to tax on the principle of the “real income theory” as the assessee has not received such salary income till date. 4 A.Y. 2019-20 Kiran S. Patel However, the Ld. CIT(A), NFAC

ITO 28 (1)(5), Mumbai vs. Shri. Hari Bachubhai Mujat, Mumbai

ITA 6855/MUM/2019[2013-14]Status: DisposedITAT Mumbai28 Apr 2022AY 2013-14

For Appellant: Smt. Ritika AgarwalFor Respondent: Shri Tejinder Pal Singh Anand

Section 143(2)Section 143(3)Section 250Section 28

whether such interest has been really accrued to the assessee in ITA. No. 6855 & 6865/Mum/2019 Assessment Year: 2013-14 the light of real income theory. The question whether real income has materialized has to be examined in the context of commercial and business realities in the circumstances in which

M/S. United Spirits Limited, Bengaluru vs. Deputy Commissioner of Income Tax, Circle-7(1)(1), Bengaluru

In the result, the appeal filed by the assessee is partly allowed

ITA 2701/BANG/2017[2013-14]Status: DisposedITAT Bangalore04 Apr 2022AY 2013-14

Bench: Shri George George K, Jm & Ms.Padmavathy S, Am It(Tp)A No.2701/Bang/2017 : Asst.Year 2013-2014 M/S.United Spirits Limited The Deputy Commissioner Of Ub Towers, Income-Tax, Circle 7(1)(1) V. No.24 Vittal Mallya Road Bangalore. Bangalore – 560 001. Pan : Aaccm8043J. (Appellant) (Respondent) Appellant By : Sri.Percy Pardiwala, Senior Advocate Respondent By : Sri.Pradeep Kumar, Cit-Dr Date Of Pronouncement : 05.04.2022 Date Of Hearing : 24.03.2022 O R D E R Per George George K, Jm : This Appeal At The Instance Of The Assessee Is Directed Against Final Assessment Order Dated 12.10.2017 Passed U/S 143(3) R.W.S. 144C(13) Of The I.T.Act. The Relevant Assessment Year Is 2013-2014. 2. The Brief Facts Of The Case Are As Follows: The Assessee Is A Company Engaged In The Manufacture & Sale Of Alcoholic Beverage. The Assessee Filed Its Return Of Income For The Assessment Year 2013-2014 On 28.11.2013 Which Was Selected For Scrutiny Assessment. During The Course Of Assessment, The Assessee’S Case Was Also Referred To The Transfer Pricing Officer (Tpo). The Tpo Vide Order Dated 26.10.2016, Recommended Transfer Pricing Adjustments. The A.O., Thereafter, Passed A Draft Assessment Order Dated 30.12.2016. 2 It(Tp)A No.2701/Bang/2017 M/S.United Spirits Limited.

For Appellant: Sri.Percy Pardiwala, Senior AdvocateFor Respondent: Sri.Pradeep Kumar, CIT-DR

Section 143(3)Section 14ASection 234BSection 234CSection 36(1)(iii)

free advances made to the AEs. The learned TPOI Hon’ble DRP have erred in computing notional income and in not applying the real income theory as per which taxes are to be levied only on income that has actually accrued to the Appellant. Commercial Expediency [or the advances made

Smt. Amarjeet Kaur, Delhi vs. ACIT, New Delhi

In the result, the appeal filed by the assessee is partly allowed

ITA 2780/DEL/2017[2012-13]Status: DisposedITAT Delhi08 Jun 2021AY 2012-13

Bench: Shri R.K. Panda & Ms Suchitra Kambleassessment Year: 2012-13 Amarjeet Kaur, Vs Acit, C/O L.N. Nangalya & Co., Circle-46(1), 101 & 105, S-524, Neelkanth New Delhi. Complex, Shakarpur, Delhi. Pan: Aaipk4730F (Appellant) (Respondent) Assessee By : Shri Saurabh Jain, Advocate Revenue By : Shri Ashok Gautam, Sr. Dr Date Of Hearing : 09.03.2021 Date Of Pronouncement : 08.06.2021 Order Per R.K. Panda, Am: This Appeal Filed By The Assessee Is Directed Against The Order Dated 2Nd February, 2017 Of The Cit(A)-16, New Delhi, Relating To Assessment Year 2012-13. 2. Facts Of The Case, In Brief, Are That The Assessee Is An Individual & Filed Her Return Of Income On 31St July, 2012 Declaring Total Income At Rs.7,49,01,810/-. During The Course Of Assessment Proceedings, The Assessing Officer Noted That The Assessee Has Claimed Capital Gain On Sale Of Her Undivided 12.5% Share Of 921.06 Sq. Yard. Of Land In Property No.11B, Jungpura, New Delhi – 110014 Which Was Sold For Rs.74 Lacs To Her Son Mr. Aniljit Singh, Whereas Mr. Aniljit Singh Has Purchased The Undivided 25% Share Of The Above Said Property From His Uncle At Rs.2,40,00,000/-. According To The Assessing Officer, Since Both Are Part Of The Same Property, The Rate At Which It Is Sold By The Assessee Is Under Valued. Rejecting The Various Explanations Given By The Assessee, The Assessing Officer Made Addition Of Rs.45.50Lakhs Being The Difference Between The Value Of 12.5% Share At Rs.1.20 Crore & The Sale Value Of Rs.74.50 Lakhs.

For Appellant: Shri Saurabh Jain, AdvocateFor Respondent: Shri Ashok Gautam, Sr. DR

Section 133(6)

assessee dated 02.01.2017, all these documents established that said amount has remained unaccrued, non crystallized, inchoate, thus cannot be taxed on basis of real income theory. 3.1. That on the facts and in the circumstances of the case and in law, the Ld. CITA erred in confirming the addition