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Income Tax Laws – I

Notes 18. Consideration Received for Issue of Shares: Any consideration received for issue of shares
as exceeds the fair market value of the shares referred in section 56(2)(viib).

1.2.1 Features of Income

In general terms, Income is a periodical monetary return with some sort of regularity. However,
the Income Tax Act, even certain income which does not arise regularly is treated as income for
tax purposes for instance income earned from Winnings of lotteries or crossword puzzles etc. A
study of some of the broad principles given below will help you to understand the concept of
income:

1. Cash or Kind: Income may be received in cash or kind. When the income is received in
kind, its valuation will be made in accordance with the rules prescribed in the Income-tax
Rules, 1962.

2. Receipt Basis or Accrual Basis: Income arises either on receipt basis or on accrual basis. It
may accrue to a taxpayer without its actual receipt. The income in some cases is deemed to
accrue or arise to a person without its actual accrual or receipt. Income accrues where the
right to receive arises.

3. Temporary or Permanent: There is no difference between temporary and permanent
income under the Act. Even temporary income is taxable same as permanent income.
4. Lumpsum or Instalments: Income whether received in lump sum or in instalments is
liable to tax. For example: arrears of salary or bonus received in lump sum are income and
charged to tax as salary.
5. Gifts: Gifts of personal nature do not constitute income subject to maximum of ` 50,000
received in cash. The recipient of gifts like birthday, marriage gifts, etc., is not liable to
income-tax as received in kind however as per the Finance Act, 2009 gifts in kind having
fair value upto ` 50,000 is not liable to tax but having fair value of more than ` 50,000 is
wholly taxable.

6. Revenue or Capital Receipt: Income-tax, as the name implies, is a tax on income and not a
tax on every item of money received. Therefore, unless the receipt in question constitutes
income as distinguished from capital, it cannot be charged to tax. For this purpose, income
should be distinguished from capital which gives rise to income. However, some capital
receipts have been specifically included in the definition of income.
7. Definite Source: Income has been compared with a fruit or a crop from the field. Fruit
comes from a tree and crop from fields. Thus, the source of income is definite in both the
cases. The existence of a source for income is somewhat essential to bring a receipt under
the charge of tax.
8. Income must Come from Outside: No one can earn income from himself. There can be no
income from transaction between head office and branch office. Contributions made by
members for the mutual benefit and found surplus cannot be termed as income of such
group.
9. Tainted Income: Income earned legally or illegally remains income and it will be taxed
according to the provisions of the Act. Assessment of illegal income of a person does not
grant him immunity from the applicability of the provisions of other act.
10. Voluntary Receipt: The receipts which do not arise from the exercise of a profession or
business or do not amount to remuneration and are made for reasons purely of personal
nature are not included in the scope of total income.

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