Section 5 of the Income Tax Act
Income-tax Act, 2025: s.5
Section 5 of the Income-tax Act, 1961 corresponds to section 5 (Scope of total income) of the Income-tax Act, 2025.
Read section 5 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 5 is Balakrishnan v. M. Krishnamurthy (7 SCC 123), cited in 368 of the 847 judgments on BharatTax that turn on this section.
Leading authorities on Section 5
The Supreme Court outlines the principles for condoning delay in filing appeals, stating that a litigant's lapse is not always a bar if the explanation is bona fide and not a dilatory strategy. Courts should show utmost consideration to suitors and prioritize substantial justice unless the delay is deliberately to gain time.
A Permanent Establishment (PE) signifies a foreign enterprise's virtual projection into another country, with a fixed place PE existing where an MNE's business is wholly or partly carried on. A dependent agent PE requires the agent to act as such and/or have the authority to conclude contracts for the foreign enterprise under DTAA provisions.
Taxing statutes must be interpreted strictly, assuming that the law-making authority does not commit a mistake or make an omission. There is no room for purposive interpretation under direct tax laws.
Disallowance under Section 14A of the Income Tax Act, 1961, cannot exceed the actual tax-exempt income earned by the assessee during the relevant year. If no tax-exempt income is earned, no disallowance under Section 14A is warranted.
Not all receipts constitute income chargeable to tax. An Assessing Officer cannot reject a prima facie reasonable explanation on mere probabilities or arbitrary grounds, but must disprove facts.
Disallowance under Section 14A applies only when exempt income is actually received or receivable during the relevant previous year. The provision does not trigger merely upon incurring expenditure if no exempt income materialized in that year.
Expenditure incurred by an assessee carrying on a composite business giving rise to both taxable and non-taxable income is allowable in its entirety without apportionment. This principle led to the subsequent introduction of Section 14A of the Income-tax Act.
Income taxability depends on the real nature of the receipt and actual or constructive receipt of income, not merely on book entries. An amount is only "deemed to be received" if explicitly provided by the Income Tax Act, not by an assessee's unilateral intention.
The burden of proving the existence of a Permanent Establishment (PE) under a Double Taxation Avoidance Agreement (DTAA) rests squarely on the Income Tax Department.