Meaning of Income

Section 2(24) of the Income-tax Act has specifically included the following receipts and benefits as income:

Receipts or Gains

The following receipts or gains are considered as income:

1. Profits and gains;
2. Dividends;
3. Any interest, salary, bonus, commission or remuneration, due to, or received by, a partner of a firm from such firm to the extent deduction allowed to the firm under Section 40(b);
4. Capital gains;
5. Any winnings from lotteries, crossword puzzles, races, including horse races, card games and other games of any sort or from any form of gambling or betting;
6. Any sum received by the assessee from his employees as contributions to the provident fund or superannuation fund or a fund set up under the provisions of the ESI Act, 1948, or any other fund for the welfare of such employees;
7. Receipts under a keyman insurance policy, including the sum allocated by way of bonus;
8. Receipts under a life insurance policy (other than ULIP and keyman insurance policy), including the sum allocated by way of bonus;
9. Specified sum received by a unit holder from a business trust;
10. Forfeiture of advance money on account of failure of transfer of a capital asset;
11. Deemed Income or gift under Section 56(2)(x), namely:
    • Receiving monetary benefits without consideration;
    • Receiving immovable property without consideration or for inadequate consideration;
    • Receiving specified movable properties without consideration or for inadequate consideration.

Voluntary Contributions

The voluntary contributions received by the following institutions are considered as income:

1. A trust or institution, created or established wholly or partly for charitable or religious purposes;
2. Research association as referred to in Section 10(21);
3. Charitable or religious institution as referred to in Section 10(23C)(iv)/(v);
4. University or educational institution as referred to in Section 10(23C)(iiiad)/(vi);
5. Hospital or other medical institution as referred to in Section 10(23C)(iiiae)/(via).
6. Electoral trust

Perquisites, Benefits or Allowances

The following perquisites, benefits or allowances are considered as income:

1. The value of any perquisite or profits in lieu of salary.
2. Any other special allowance or benefit granted explicitly to the assessee to meet his expenses wholly, necessarily and exclusively for the performance of his duties of an office or employment of profit;
3. Any allowance granted to the assessee either to meet his personal expenses at the place where he performs his duties or to compensate him for the increased cost of living;
4. The value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or a person substantially interested or by a relative of director or such person and any sum paid by company in respect of any obligation which would have been payable by any of such individuals;
5. The value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee or beneficiary. Further, any sum paid by the representative assessee in respect of any obligation which would have been payable by the beneficiary is also an income;
6. The value of any benefit or perquisite from business or profession, whether convertible into money or not, arising from business or the exercise of a profession.

Compensation

Income includes the compensation due to or received by the following:

1. Any person who is wholly or substantially managing the affairs of an Indian company, for the termination of his management or for the modification of the terms and conditions relating thereto.
2. Any person managing the affairs of any other company in India, for the termination of his office or modification of the terms and conditions relating thereto.
3. Any person holding an agency in India for any part of the activities relating to the business of any other person, for the termination of the agency or the modification of the terms and conditions relating thereto.
4. Any person for the vesting of the management of any property or business in the government or any corporation owned or controlled by the government.
5. Any person for the termination or modification of the terms and conditions of any contract relating to his business.
6. In connection with the termination of his employment or the modification of the terms and conditions relating thereto.

Subsidies or Incentives

The following subsidies, assistance, or incentives are taxable as income:

1. Profits on sale of license granted under the Import (Control) Order 1955, made under the Imports and Exports (Control) Act, 1947;
2. Cash assistance received or receivable by any person against exports under any scheme of the Government of India;
3. Any duty of custom or excise repaid or repayable as a drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;
4. Any subsidy, grant, cash incentive, duty drawback, waiver, concession, or reimbursement by the Government (Central or State) or any other authority, body, or agency in cash or kind to the assessee. It does not include any subsidy or grant or reimbursement, which is taken into account for determining the actual cost of the asset under Section 43(1) or subsidy or grant by the Government for the corpus of a trust or institution established by the Government.

Further, the CBDT has clarified that the LPG subsidy and other welfare subsidies received by individuals would not be taxable as income.

Recovery of Loss or Expenditure

The following recovery of loss or expenditure is taxable as income:

1. Any recovery in respect of loss or expenditure which was allowed to be deducted in any year as referred to in Section 41(1) or Section 59;
2. Excess of sale proceeds of an asset of an electricity undertaking to the extent depreciation has been allowed in earlier years as referred to in Section 41(2);
3. Excess of sale proceeds of a scientific research asset over its amortised value, to the extent of deduction allowed as referred to in Section 41(3);
4. Any recovery in respect of a debt which was allowed as a bad debt as referred to in Section 41(4);
5. Amount withdrawn from a special reserve as referred to in Section 41(4A).

Other Incomes

1. Income derived by a trade, professional or similar association from specific services performed for its members is considered as income.
2. The profits and gains of any business of insurance carried on by a mutual insurance company or by a cooperative society;
3. The profits and gains of any banking business (including providing credit facilities) carried on by a cooperative society with its members.
4. Income includes any sum, subject to certain exceptions, whether received or receivable, in cash or kind, under an agreement for:
   • not carrying out any activity in relation to any business or profession; or
   • not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision of services.
5. In the following situations, the income is computed in reference to the fair-market value of an asset:
   • The fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset;
   • Any consideration received for the issue of shares that exceeds the fair market value of the shares as referred to in Section 56(2)(viib).