“right to receive”
The decision most relied on for right to receive is CIT v. Excel Industries Ltd. (358 ITR 295), cited in 935 judgments on BharatTax.
Leading authorities on right to receive
When an income or expenditure is revenue neutral across different assessment years, where any benefit derived is offset by a corresponding liability or reversal, no additional tax liability arises, particularly concerning income recognition under the mercantile system of accounting.
Income is taxable only when it represents real income, not notional income. It accrues only when there is a vested right to receive it, typically upon the occurrence of a transfer or event, rather than merely on a time basis.
Under the mercantile system of accounting, interest income accrues and is taxable in the year it arises, even for "sticky" or doubtful loans, as the right to receive the income is paramount, not its actual receipt, provided there is an agreement for payment.
For income tax purposes, the 'owner' of a property is the person who is entitled to receive income in their own right, bears the risks incidental to ownership, and utilizes the asset, even if the sale deed is not formally registered. This beneficial ownership is sufficient for claiming depreciation or capital gains exemption under relevant sections.
Income is diverted by an overriding charge, and thus not taxable, when it never truly accrues to the assessee due to a prior obligation. Conversely, income that first accrues to the assessee and is then applied to discharge an obligation out of that income is taxable.
Surrender of tenancy rights is a transfer of a capital asset, and the consideration received is a capital receipt subject to capital gains tax. If the cost of acquisition cannot be determined, the transfer of such an asset was not taxable under capital gains prior to the amendment of Section 55(2) in 1995.
Income accrues when it becomes due, vesting the assessee with the right to claim the amount, even if payment is not immediate. It requires a corresponding liability from the other party to pay, emphasizing real rather than hypothetical accrual, particularly for assessees using the mercantile system of accounting.
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).
