Comprehensive Analytical and Clause-by-Clause Commentary on Entry Gates of Heads of Income: Sections 15, 22, 28, 45 & 56
Summary: Income Tax Act, 1961, classifies taxable income into five distinct heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—each forming a separate “entry gate” for taxation. Section 15 covers salary income, requiring an employer-employee relationship and applying accrual or receipt-based taxation, including arrears and commissions, as clarified in judicial precedents like CIT v. L.W. Russel and Gestetner Duplicators Pvt. Ltd.. Section 22 taxes the annual value of owned property, excluding business use, with ownership and beneficial entitlement determining liability (East India Housing & Land Development Trust Ltd., Poddar Cement Pvt. Ltd.). Section 28 applies to business and professional income, including profits, contract compensation, perquisites, and partner receipts, while allowing deductions for incidental business losses (Best & Co. Pvt. Ltd., Badridas Daga). Section 45 addresses capital gains arising from the transfer or conversion of capital assets, with computation based on acquisition cost and transfer timing, covering slump sales and cross-border transfers (CIT v. B.C. Srinivasa Setty, Vodafone International Holdings B.V.). Section 56 functions as a residual head for income not covered under other sections, including gifts, dividends, and interest, with exemptions for relatives and inadequate consideration, as seen in CIT v. D.P. Sandu Bros. and Subhash Chandra Poddar v. ITO. Collectively, these heads provide a comprehensive, mutually exclusive framework ensuring all income is taxed once, with judicial interpretation emphasizing the dominant nature test, legal ownership, and commercial substance. Section 56 completes the system by capturing residual income, maintaining the integrity and completeness of India’s income-tax structure.
Section 15 – Combined Discussion
The Income Tax Act, 1961, classifies all taxable income into five broad heads, each forming a distinct “entry gate” for taxation.
The heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—collectively form the architecture of income taxation in India.
Each head represents a distinct source and manner of earning income and determines the computation mechanism, deductions, exemptions, and tax liability applicable to that income. The classification ensures that all incomes are taxed, but none are taxed twice.
Section 15 – Income from Salaries: The Employment Relationship as a Tax Nexus
Section 15 is the charging section for income under the head ‘Salaries’. It states that income shall be chargeable to tax under this head if it is received by an employee from an employer in respect of employment. The existence of a master-servant relationship is the sine qua non for the classification of income as salary. The timing of taxability is determined by the accrual or receipt basis, whichever is earlier.
Illustration: If Mr. A, an employee of XYZ Ltd., receives salary for March 2025 in April 2025, the income is taxable in the previous year 2024-25 since it accrues in that period. In contrast, if he receives advance salary in March 2025 for April 2025, it becomes taxable in 2024-25 itself, by virtue of the rule of “receipt earlier.”
Key Judicial Reference: In CIT v. L.W. Russel (1964) 53 ITR 91 (SC), the Supreme Court clarified that any payment that arises from the employer-employee relationship constitutes “salary,” irrespective of the nomenclature given. Similarly, in Gestetner Duplicators Pvt. Ltd. v. CIT (1979) 117 ITR 1 (SC), the Supreme Court held that commission received by employees as part of their remuneration was also taxable as salary.
Page Contents
- Section 15 – Income from Salaries
- Key Judicial Pronouncements:
- Section 22 – Income from House Property
- Essential Ingredients:
- Leading Cases:
- Section 28 – Profits and Gains of Business or Profession
- Key Definitions:
- Leading Cases:
- Section 45 – Capital Gains
- Key Definitions:
- Leading Cases:
- Section 56 – Income from Other Sources
- Key Legislative Expressions:
- Leading Cases:
- Comparative Framework of Heads of Income
- Comparative Analytical Table of Heads of Income
Section 15 – Income from Salaries
- Clause (a): Salary due from an employer or former employer in the previous year, whether paid or not, is chargeable. This reflects the accrual basis principle.
- Clause (b): Salary paid or allowed to an employee in advance of becoming due is chargeable in the year of receipt — ensuring “receipt earlier” taxation.
- Clause (c): Arrears of salary paid or allowed to an assessee in the previous year, if not charged earlier, are taxable when received.
Key Judicial Pronouncements:
- CIT v. L.W. Russel (1964) 53 ITR 91 (SC): Salary income arises only when the employer–employee nexus exists.
- Gestetner Duplicators Pvt. Ltd. v. CIT (1979) 117 ITR 1 (SC): Commission to employees as part of remuneration is taxable as salary.
- E.D. Sheppard v. CIT (1963) 48 ITR 237 (SC): Salary accrues when the right to receive is vested.
Section 22 – Combined Discussion
The Income Tax Act, 1961, classifies all taxable income into five broad heads, each forming a distinct “entry gate” for taxation.
The heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—collectively form the architecture of income taxation in India.
Each head represents a distinct source and manner of earning income and determines the computation mechanism, deductions, exemptions, and tax liability applicable to that income. The classification ensures that all incomes are taxed, but none are taxed twice.
Section 22 – Income from House Property
The annual value of property consisting of any building or land appurtenant thereto of which the assessee is the owner, other than property occupied for business/profession, is taxable under this head.
Essential Ingredients:
- Property must consist of buildings or lands appurtenant thereto;
- Assessee must be the owner (actual or deemed u/s 27);
- Property should not be used for the assessee’s business or profession.
Leading Cases:
- East India Housing & Land Development Trust Ltd. v. CIT (1961) 42 ITR 49 (SC): Rental income from property is taxable under this head, even if the assessee is engaged in the property business.
- CIT v. Poddar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC): “Owner” includes the beneficial owner entitled to receive rent.
- Shambhu Investment Pvt. Ltd. v. CIT (2003) 263 ITR 143 (SC): Composite letting primarily of property remains taxable as house property.
Section 28 – Combined Discussion
The Income Tax Act, 1961, classifies all taxable income into five broad heads, each forming a distinct “entry gate” for taxation.
The heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—collectively form the architecture of income taxation in India.
Each head represents a distinct source and manner of earning income and determines the computation mechanism, deductions, exemptions, and tax liability applicable to that income. The classification ensures that all incomes are taxed, but none are taxed twice.
Section 28 – Profits and Gains of Business or Profession
- Clause (i): Profits and gains from any business or profession are chargeable.
- Clause (ii): Compensation for termination/modification of business contract is taxable as business income.
- Clause (iii): Income derived by trade/professional associations from specific services to members is taxable.
- Clause (iv): Value of benefits or perquisites arising from business/profession is taxable.
- Clause (v): Interest, salary, bonus, commission received by a partner from the firm is taxable as business income.
Key Definitions:
- “Business” [s. 2(13)]: includes trade, commerce, manufacture, or adventure in the nature thereof.
- “Profession” [s. 2(36)]: vocation involving intellectual skill.
- “Perquisite”: benefit in kind or otherwise arising from a business connection.
Leading Cases:
- Best & Co. Pvt. Ltd. v. CIT (1966) 60 ITR 11 (SC): Termination compensation taxable as business income.
- Badridas Daga v. CIT (1958) 34 ITR 10 (SC): Business losses incidental to trade are deductible.
- CIT v. Mahindra & Mahindra Ltd. (2018) 404 ITR 1 (SC): Loan waiver not taxable as a perquisite u/s 28(iv) if capital in nature.
- Sassoon J. David & Co. Pvt. Ltd. v. CIT (1979) 118 ITR 261 (SC): Voluntary payment in the course of business is taxable under this head.
Section 45 – Combined Discussion
The Income Tax Act, 1961, classifies all taxable income into five broad heads, each forming a distinct “entry gate” for taxation.
The heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—collectively form the architecture of income taxation in India.
Each head represents a distinct source and manner of earning income and determines the computation mechanism, deductions, exemptions, and tax liability applicable to that income. The classification ensures that all incomes are taxed, but none are taxed twice.
Section 45 – Capital Gains
- Clause (1): Profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head “Capital Gains.”
- Clause (2): Conversion of a capital asset into stock-in-trade results in taxable capital gains.
- Clause (5): Capital gains on compulsory acquisition are taxed in the year of receipt of compensation.
Key Definitions:
- “Capital Asset” [s. 2(14)]: Property of any kind, excluding stock-in-trade and personal effects.
- “Transfer” [s. 2(47)]: Includes sale, exchange, relinquishment, and extinguishment of rights.
- “Cost of acquisition” [s. 55]: original or deemed cost used for computation.
Leading Cases:
- CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC): Self-generated goodwill without the cost of acquisition is not taxable.
- CIT v. Artex Manufacturing Co. (1997) 227 ITR 260 (SC): Slump sale valuation principles.
- Vodafone International Holdings B.V. v. UOI (2012) 341 ITR 1 (SC): “Transfer” in cross-border indirect shareholding.
- CIT v. Tata Services Ltd. (1980) 122 ITR 594 (Bom): Right to obtain conveyance is a capital asset.
Section 56 – Combined Discussion
The Income Tax Act, 1961, classifies all taxable income into five broad heads, each forming a distinct “entry gate” for taxation.
The heads—Salaries (Section 15), Income from House Property (Section 22), Profits and Gains of Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56)—collectively form the architecture of income taxation in India.
Each head represents a distinct source and manner of earning income and determines the computation mechanism, deductions, exemptions, and tax liability applicable to that income. The classification ensures that all incomes are taxed, but none are taxed twice.
Section 56 – Income from Other Sources
- Clause (1): Income of every kind not chargeable under any other head shall be chargeable under “Income from Other Sources.”
- Clause (2): Specifically includes dividends, winnings, interest on securities, gifts, share premium above FMV, etc.
Key Legislative Expressions:
- “Income” [s. 2(24)]: Inclusive definition covering all receipts capable of taxation.
- “Without consideration” & “inadequate consideration”: Taxable under clause (x) for the transfer of money/property.
- “Relative”: Defined for exemptions under clause (x) explanation.
Leading Cases:
- CIT v. D.P. Sandu Bros. Chembur Pvt. Ltd. (2005) 273 ITR 1 (SC): Section 56 is residual; it cannot apply where a specific head covers the income.
- CIT v. Shamlal Narula (1964) 53 ITR 151 (SC): Interest on compensation is taxable under this head.
- Subhash Chandra Poddar v. ITO (2019) 419 ITR 329 (Cal): Stamp duty value difference is taxable u/s 56(2)(x).
Comparative Framework of Heads of Income
The five heads of income act as mutually exclusive yet collectively exhaustive compartments.
Sections 15, 22, 28, 45, and 56 ensure that every taxable receipt finds its rightful place within one defined charging provision. Judicial interpretation has upheld the sanctity of proper classification, emphasizing the dominant nature test, legal ownership, and commercial substance. Section 56 serves as the residuary clause, capturing incomes not specifically provided for elsewhere, thereby ensuring the completeness of the income-tax structure in India.
Comparative Analytical Table of Heads of Income
| Head of Income | Section | Tax Nexus | Core Condition | Computation Basis | Leading Case |
| Salaries | 15 | Employer-employee relationship | Existence of a service contract | Accrual or receipt, whichever is earlier | CIT v. L.W. Russel (1964) 53 ITR 91 (SC) |
| House Property | 22 | Ownership of property | Building or land appurtenant thereto | Annual value under Sec. 23 | CIT v. Poddar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC) |
| Business/Profession | 28 | Commercial activity | Profit motive & continuity | Sections 30–43D deductions | Best & Co. Pvt. Ltd. v. CIT (1966) 60 ITR 11 (SC) |
| Capital Gains | 45 | Transfer of a capital asset | Existence of the cost of acquisition | Computation under Sec. 48 | CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) |
| Other Sources | 56 | Residual or specified receipts | Not taxable under any other head | Receipt basis with deeming clauses | CIT v. D.P. Sandu Bros. Chembur Pvt. Ltd. (2005) 273 ITR 1 (SC) |
Author Bio
Well articulated article. congratulation