Section 45(1) of the Income Tax Act
Income-tax Act, 2025: s.67
Section 45(1) falls under section 45 of the Income-tax Act, 1961, which corresponds to section 67 (Capital gains) of the Income-tax Act, 2025.
Read section 67 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 45(1) is Morvi Industries Ltd. v. CIT (82 ITR 835), cited in 136 of the 84 judgments on BharatTax that turn on this section.
Leading authorities on Section 45(1)
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.
The Supreme Court clarifies the distinction between income chargeable as capital gains and income taxable as business profits, guiding the assessment of whether a transaction constitutes a transfer of a capital asset or is in the nature of trade.
Capital gains arising from the distribution of capital assets on the dissolution of a firm or other association of persons, or otherwise, are taxable under section 45(4) based on the fair market value of the asset on the date of transfer. This applies even to reconstitutions of partnership businesses as part of a family settlement.
Distribution, division, or allotment of assets to partners upon dissolution of a firm is a mutual adjustment of rights and not a transfer of assets by the firm, as the firm does not hold separate rights in partnership assets.
Addition should not be made when tax authorities fail to conduct inquiries with TDS deductors regarding discrepancies between Form 26AS and books of account, despite having the information and opportunity. Disallowance of expenses is arbitrary and against the rule of law if made without rejecting books of account or identifying specific discrepancies.
