ITO Vs. K P VARGHESE

JUDGEMENT

(1.) I have perused the judgment prepared by Gopalan Nambiyar J. and agreed to by Viswanatha Iyer J., but I regret that I am not able to agree with the main reasoning of my learned brother and the conclusion in the case.

(2.) The facts which lie in a narrow compass are not disputed; and they are stated in the judgment of Nambiyar J. I do not, therefore, recapitulate them.

(3.) In the inclusive definition of 'income' in S.2(24) of the Income Tax Act of 1961, 'capital gains' chargeable under S.45 are also included. And under S.5, the scope of 'total income' is fixed; and what is provided in sub-s.(1) thereof is that the 'total income of the previous year of a person who is a resident will include all income from whatever source derived, which is received or is deemed to be received in India by him or on his behalf in such year, or accrues or arises or is deemed to accrue or arise to him in India during such year, or accrues or arises to him outside India during such year. The deeming in this provision, obviously, does not have the effect of converting an income not received by him or which does not accrue or arise to him into an income deemed to have been received by him or into one which is deemed to accure or deemed to arise to him: in other words, the deeming relates to place. It is a well established principle of income tax that "Income Tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted. viz., the accrual of the income or its receipt but the substance of the matter is the income" (vide the observation of the Supreme Court in Commissioner of Income-tux, Bombay City 1 v. Messrs. Shoorji Vallabhadas and Co. (46 ILR 144). Of course, in Commissioner of Income Tax". Excess Profits Tax, Bombay City - I v. Messrs. Bhogilal Laherchand (25 ITR 50), Mahajan J. has observed that the term 'deemed' involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability." And in Navinchandra Mafatlal, Bombay v. Commissioner of Income Tax, Bombay City ( AIR 1955 SC 58 ), the Supreme Court has again observed that the "scheme of such legislation is to bring to charge only such income as falls under certain specified heads ....... and as arises or accrues or is received or is deemed to arise or accrue or to be received as mentioned in the statute." Still further, in E. D. Sassoon and Company Ltd v. The Commissioner of Income Tax, Bombay City 1955 (1) SCR 313 = 26 ITR 27), the Supreme Court has observed that "income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have a right to receive the income." In this case, Bhagwati J. has also referred to the observation of Mukherji J. in Rogers Pyatt Shellac & Co. v. Secretary for State of India (1 IPC. 363), where Mukerji J. has stated, "What is sought to be taxed must be income and it cannot be taxed unless it hrs arrived at a stage when it can be called 'Income' ".