SECTIONS 10, 11, 12, 12A AND 13

Incomes which do not form part of total income

SECTION 10(3) – RECEIPT OF CASUAL AND NON-RECURRING NATURE [CORRESPONDING TO SECTION 4(3)(vii) OF THE 1922 ACT]

46.  Effect of withdrawal of tax exemption in respect of receipts of casual and non-recurring nature on liability to tax in respect of gifts

1. Section 10(3) was amended by the Finance Act, 1972 by which receipts of casual and non-recurring nature in excess of Rs. 1,000 would no longer be exempt from tax. A question has arisen as to whether this amendment would make receipts in the form of gifts liable to income-tax.

2. Receipts which are of a casual and non-recurring nature will be liable to income-tax only if they can properly be characterised as “income” either in its general connotation or within the extended meaning given to the term by the Income-tax Act. Hence, gifts of a purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.

Circular : No. 158 [F. No. 173/2/73-IT(A-I)], dated 27-12-1974.

JUDICIAL ANALYSIS

EXPLAINED IN – In CIT v. Sarbamangala Devi [1987] 163 ITR 898 (Pat.), the abovesaid circular was explained with the following observations :

“. . . This circular lays down that the receipts which are of a casual and non-recurring nature will be liable to income-tax only if they can properly be characterised as ‘income’ either in its general connotation or within the extended meaning given to the terms by the Income-tax Act and, hence, gifts of a purely personal nature will not be chargeable to income-tax, except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.

We have held in CIT v. Tata Robins Frazer Ltd., disposed of on the 21st of November, 1985 ([1987],163 ITR 886 reasons mentioned on pages 895 to 897) that the circulars which are issued under section 119 of the Act are binding on the Department and they have to be enforced.  On this ground also, the assessees are bound to succeed as the gifts which are of a purely personal nature are held to be receipts of casual and non-recurring nature under section 10(3) of the Act.” (p. 910)

EXPLAINED IN – The above circular was explained in Lohtse Co.-op. Housing Society Ltd. v. ITO [1994] 125 Taxation 13, in the fol­lowing words :

“14. Thus, it is obvious from the above clarification that in order to tax a casual receipt as income, the starting point would be to determine whether the receipt can be called income. In order to do that, we shall have to refer to the definition of the term ‘income’ given in section 2(24) of the Act. . . .” (p. 16)

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