Section 145 of the Income Tax Act
The decision most relied on for Section 145 is Kedarnath Jute Mfg. Co. Ltd. v. CIT (82 ITR 363), cited in 629 of the 427 judgments on BharatTax that turn on this section.
Leading authorities on Section 145
Tax liability for an item of income or expenditure is determined solely by the provisions of the Income-tax Act. Entries in an assessee's books of account are not conclusive and do not govern the taxability or deductibility of an item, as the legal rights and obligations under the Act prevail.
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
The Completed Contract Method (CCM) is an accepted method of accounting for recognizing revenue from real estate contracts, allowing income recognition to be deferred until the contract's completion. The Supreme Court approved the use of CCM, having considered both CCM and the Percentage of Completion Method (POCM) under the framework of Section 145.
The word 'production' has a wider connotation than 'manufacture'; every manufacture is production, but not every production amounts to manufacture. 'Production' includes bringing into existence new goods, by-products, or inter-products through a process, which may or may not be manufacture.
If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.
Advertising, Marketing, and Promotion (AMP) expenses do not automatically qualify as an international transaction subject to Transfer Pricing adjustments under the Income-tax Act.
Interest income on non-performing assets (NPAs) is not taxable under the mercantile system of accounting if there is no real income or no reasonable certainty of recovery. This principle governs income recognition, distinct from deductions for provisions under Section 36 of the Income Tax Act.
The amendment to Section 43A of the Income Tax Act, 1961, is prospective and applies only from April 1, 2003. This means it governs changes in the actual cost of assets due to exchange rate fluctuations from that date onwards.
The income of a charitable trust, particularly income from property held under trust, for the purpose of claiming exemption under Section 11, must be computed in a normal commercial manner, without strict reference to the computation provisions for different heads of income like Section 14 or Section 24(a). This approach ensures that the income available for application or accumulation is assessed on commercial principles.
Broken period interest paid on the purchase of securities constitutes capital expenditure and forms part of the cost of acquisition of the security, thus not being allowable as a revenue deduction.
Judgments on Section 145
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