CURRENT INCOME AND TOTAL INCOME

[Mr. M. GOVINDARAJAN]

Section 2 (45) of the Income Tax Act, 1961 (‘Act’ for short) defines the terms ‘total income’. As per this section the total income is the total amount of income referred to in Section 5, computed in the manner laid down in the Act. The scope of ‘total income’ is dealt with in Section 5 of the Act. Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-

          (a)  is received or is deemed to be received in India in such year by or on behalf of such person ; or

          (b)  accrues or arises or is deemed to accrue or arise to him in India during such year; or

          (c)  accrues or arises to him outside India during such year.

Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-

          (a)  is received or is deemed to be received in India in such year by or on behalf of such person ; or

          (b)  accrues or arises or is deemed to accrue or arise to him in India during such year.

According to Section 139(1) of the Act, every person who is assessable under the Act must file a return declaring his or her total income during the previous year on or before the due date, for assessment under Section 143 of the Act. 

UNDISCLOSED INCOME AND TOTAL INCOME

Section 158BB (1) of the Act provides the method of computation of ‘undisclosed income’ for a block period. The computation of undisclosed income for a block period shall be the aggregate of the total income of the previous years falling within the block period. This amount is reduced by the aggregate of the total income, or as increased by the loses returned or determined earlier, in respect of such previous years in accordance with the provisions of the Act.  Thus the computation of ‘undisclosed income’ has to be construed in terms of the ‘total income’ received.

The total income is distinct from the estimated income, up on the basis of which, advance tax paid by an assessee. Advance tax is based on estimated income, and hence it cannot be said the disclosure of the total income assessable and chargeable to tax.                  

CURRENT INCOME

Section 207 of the Act provides that in every case the amount of tax payable on the total income earned during the financial year is Rs.10,000/- or more then the assessee would be liable to pay in the financial year itself, advance tax on such income, also known as ‘current income’. Whether the current income is the total income?  Whether the payment of advance tax results in the disclosure of the total income?

According to Section 210 (1) of the Act, every person who is liable to pay advance tax under Section 208 shall, of his own accord, pay advance tax on his ‘current income’ calculated in the manner laid down in Section 209. Section 209(1)(a) the assessee shall first estimate his ‘current income’ and thereafter pay income tax calculated on this estimated income on the rates in force in the relevant financial year.  It is significant to note that this income is an estimation that is made by the assessee and may not be the exact income, which may ultimately be declared in the return under Section 139 and assessed under Section 143 of the Act. Therefore it may be inferred that payment of advance tax does not absolve an assessee from an obligation to file return disclosing total income for the relevant assessment year. 

In ‘Brij Lal V. Commissioner of Income Tax’ – 2010 (10) TMI 8 - SUPREME COURT , while explaining the scope of the provisions of advance tax, the Supreme Court expressed the view that the ‘current income’ in respect of which the assessee pays advance tax is not the same as understood in Section 2(45).  The Supreme Court held that Section 207 requires tax to be paid during the financial year. It has to be in respect of the total income of the assessee which would be chargeable to tax under the Act. The said total income is not as understood in Section 2(45) but it is equated to ‘current income’ for the purposes of Chapter XVII. After the amending Act of 1987, advance tax is to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year.

The vital distinction being that the current income is an estimation or approximation, which may not be accurate or final; whereas the total income is the exact income disclosed in a valid return assessable by the revenue. An estimate always has an element of guess work.There could be various reasons due to which an estimate may be faulty and inaccurate which is why, there is a provision for payment of interest on deficient or excess payment of advance tax where there is variation between advance tax and actual liability to tax. The fact that the current income is an estimation implies that it is not final and is subject to further adjustments in the form of additions or reductions, as the case may be, and would have to be succeeded by the disclosure of final and total income in a valid return.