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Commissioner of Income Tax Versus Balbir Singh Maini, CS Atwal

2017 (10) TMI 323 - SUPREME COURT OF INDIA

Income from capital gain - “transfer” exigible to tax by reference to Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882 - rights emanating from the JDA, legal effect of non registration of JDA, its alleged repudiation etc. - delivery of possession - Held that:- As has been stated there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that t .....

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out their part of the bargain. - Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. - However, the High Court has held that Section 2(47)(vi) will not apply for the reason that there was no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of .....

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e owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. - In the facts of the present case, it is clear that the income from capital gain on a transaction which n .....

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acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act. - Decided in favour of assessee. - CIVIL .....

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(CIVIL) NO.583 OF 2016), CIVIL APPEAL NO. 15621 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.35251 OF 2015), CIVIL APPEAL NO. 15643 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1450 OF 2016), CIVIL APPEAL NO. 15623 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.499 OF 2016), CIVIL APPEAL NO. 15657 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3170 OF 2016), CIVIL APPEAL NO. 15650 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1629 OF 2016), CIVIL APPEAL NO. 15633 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.575 OF 2016), CIVIL APPEAL .....

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L) NO.564 OF 2016), CIVIL APPEAL NO. 15627 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.565 OF 2016), CIVIL APPEAL NO. 15644 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1562 OF 2016), CIVIL APPEAL NO. 15641 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.587 OF 2016), CIVIL APPEAL NO. 15631 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.572 OF 2016), CIVIL APPEAL NO. 15635 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.577 OF 2016), CIVIL APPEAL NO. 15649 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1628 OF 2016), CIVIL APPEAL NO. 15640 .....

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7 OF 2016), CIVIL APPEAL NO. 15648 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1627 OF 2016), CIVIL APPEAL NO. 15667 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3826 OF 2016), CIVIL APPEAL NO. 15653 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3165 OF 2016), CIVIL APPEAL NO. 15656 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3169 OF 2016), CIVIL APPEAL NO. 15663 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3821 OF 2016), CIVIL APPEAL NO. 15665 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3824 OF 2016), CIVIL APPEAL NO. 15647 OF .....

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75 OF 2016), CIVIL APPEAL NO. 15652 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3059 OF 2016), CIVIL APPEAL NO. 15672 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.5441 OF 2016), CIVIL APPEAL NO. 15664 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3822 OF 2016), CIVIL APPEAL NO. 15654 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3167 OF 2016), CIVIL APPEAL NO. 15660 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3174 OF 2016), CIVIL APPEAL NO. 15659 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.3173 OF 2016), CIVIL APPEAL NO. 15673 OF .....

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O.4717 OF 2016)And CIVIL APPEAL NO. 15670 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.4722 OF 2016) JUDGMENT R.F. Nariman, J. 1. Leave granted. 2. This judgment shall dispose of a batch of civil appeals, as learned counsel appearing for both sides have submitted that common substantial questions of law are involved in all these appeals. 3. The present appeals arise from a judgment of the Punjab and Haryana High Court where a large number of appeals were disposed of under Section 260A of the Income Ta .....

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(v) and Section 53-A of the Transfer of Property Act, 1982 was delivered, and if so, its nature and legal effect? iv) Whether there was any default on the part of the developers, and if so, its effect on the transactions and on exigibility to tax? v) Whether amount yet to be received can be taxed on a hypothetical assumption arising from the amount to be received? 4. For the sake of convenience, we have referred to the facts of Civil Appeal arising out of Special Leave Petition (Civil) No.1565 o .....

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ed 25.02.2007 for development of 21.2 acres of land in the village Kansal. This JDA was entered into between the owner i.e. Punjabi Cooperative Housing Building Society Ltd., Hash Builders Pvt. Ltd., Chandigarh (HASH) and Tata Housing Development Company Ltd. (THDC). Under the JDA, it was agreed that HASH and THDC viz., the developers, will undertake to develop 21.2 acres of land owned and registered in the name of the society. The agreed consideration was to be disbursed by THDC through HASH to .....

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nd instalment payment, being ₹ 23.22 crores, was for land of an equivalent value of 4.62 acres, also earmarked on the demarcation plan, which was effected by a registered deed of conveyance dated 25.04.2007. The third instalment payment of ₹ 31.9275 crores was to be made within six months from the date of execution of the agreement or within two months from the date of approval of plans/design and drawings and grant of the final license to develop, whichever was later. This was to be .....

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nd 7.7 acres of land was conveyed as mentioned, which we have been reliably informed, has since suffered payment of capital gains tax for assessment years 2007-2008 & 2008-2009. The problem which arose for the subsequent assessment years was that, due to pending proceedings, first in the Punjab and Haryana High Court and thereafter in the Delhi High Court, the necessary permissions for development were not granted, as a result of which the JDA did not take off the ground. For the previous ye .....

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fficer vide an order dated 30.12.2009, passed under Section 143(3) of the Act, held that since physical and vacant possession had been handed over under the JDA, the same would tantamount to transfer within the meaning of Sections 2(47)(ii), (v) and (vi) of the Income Tax Act. He further held that, in the case of an assessee owning a 1000 square yards plot, the full value of consideration would be ₹ 3.675 crores less cost of acquisition of ₹ 12,81,724/-. The long term capital gain wa .....

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eeds dated 02.03.2007 and 25.04.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. 2. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.02.2007 so as to fall within the domain of Section 53A of 1882 Act. 3. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. 4. Further S .....

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e developer, capital gains tax has already been paid on that and sale deeds have also been executed. In view of cancellation of JDA dated 25.02.2007, no further amount has been received and no action thereon has been taken. It was urged that as and when any amount is received, capital gains tax shall be discharged thereon in accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee-appellants shall remain bound by their said stand. 6. The i .....

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ious orders passed by the Supreme Court and the High Court in PILs. Therefore, the appeals are allowed. 10. Learned counsel for the revenue has argued that the Assessing Officer and the CIT (Appeals), as well as the ITAT, were all correct in bringing capital receipts under the JDA to tax as capital gains . According to the learned counsel, the present case is squarely covered by Section 2(47)(v) as Section 53A of the Transfer of Property Act, 1882 is applicable to the transaction under the JDA. .....

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opment of the property could not be obtained. He further argued that the fact that, after 2001, registration of agreements under Section 53A is necessary in law would not stand in his way, as Section 2(47)(v) only refers to a contract of the nature of Section 53A of the Transfer of Property Act and that, therefore, the ITAT was right in stating that since Section 53A had been incorporated into Section 2(47)(v) of the Income Tax Act, it was unnecessary, for the purpose of the Income Tax Act, to h .....

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ients of Section 53A of the Transfer of Property Act were met and the ITAT was also correct in stating that the developers were ready and willing to perform their part of the contract. He, therefore, urged us to uphold the ITAT order and set aside the High Court judgment. 11. On the other hand, Shri Vohra, learned counsel for the Respondents, argued that the High Court was correct in holding that Section 2(47)(v) would not apply in the absence of registration of the JDA, which admittedly was not .....

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Court and missed by the ITAT was the fact that only two parcels of land, admeasuring 7.7 acres, were conveyed, for which capital gains tax has been paid. Since the rest of the project could not go through for want of various permissions, it is clear that no capital gain, in fact, arose or accrued to the assessees. According to the learned counsel, under Section 45 read with Section 48 of the Income Tax Act, profits and gains should arise from the transfer of a capital asset and income should be .....

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portant to first set out the important clauses of the JDA dated 25.02.2007. 13. The JDA, as has been stated above, was between the housing society, who was referred to as the owner, and two developers, namely Hash Builders Pvt. Ltd., Chandigarh and Tata Housing Development Company Ltd. Strewn throughout the agreement is the fact that the owner, being absolutely seized and possessed of the property, was desirous of assigning its development rights for developing the same. This is clear, inter ali .....

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se or means to do so and had invited/ quotations from builders/ contractors/ developers to Develop the property vide advertisements published in The Tribune dated 31-05-06 HASH approached the Owner and submitted the proposal to the owners for development of the Property and after prolonged negotiations finalized the term of development. Since HASH did not have the sufficient means to develop the Property, HASH have approached THDC for developing the property by constructing thereupon buildings a .....

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/ lessees/transferees for residential and / or any other authorized user as may be determined by the THDC(hereinafter referred to as the Project ). It is expressly agreed to between the parties that the role of HASH as a developer shall be as specifically set out in this Agreement. It is expressly agreed to between the parties that the role THDC as a developer shall be to execute, implement, develop and complete the project on the Property. Under cause 2, the project is stated to be: 2.1 The Own .....

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enforce the Right in the Property including to execute Lease Agreement, License Agreements, Construction Contracts, Supplier Contracts, Agreement for Sale, Conveyance, Mortgage Deed, Finance document and all documents and Agreements necessary to create and register the mortgage, conveyance, lease deeds, License agreement, Power of Attorneys, affidavits, declarations, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Right and to regis .....

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It is hereby agreed and confirmed that what is stated in the recitals hereinabove, shall be deemed to be declarations and representations on the part of the Owner as if the same were set out herein in verbatim and forming an integral part of this Agreement. 2.2 The Project shall comprise of development/ construction of the Property into the Premises as permissible under Punjab Municipal Building Bye-laws/Punjab Urban Development Authority or any other Competent authority by the Developer at them .....

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for and obtain necessary sanctions, licenses and permissions from all the Concerned Authorities for the commencement, development and completion of the Project on the Property. 14. The consideration clause in the agreement is Clause 4, by which a sum of ₹ 106.425 crores, plus 129 flats consisting of a super area of 2250 square feet, was to be made over to the society and its members. As stated hereinabove, ₹ 3.87 crores was paid as earnest money on execution of the agreement, and  .....

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er of 500 Sq. yard and ₹ 49,50,000/-( Rupees Forty nine lacs fifty thousand only) per plot holder of 1000 Sq. yards, to be made to the Owner and / or the respective members of the Owner ( as the case may be), within six (6) months from the date of execution of this Agreement or within two (2) months from the date of approval of the plans/ Design and Drawings and grant of the final license to develop whereupon the construction can commence, whichever is later against which the Owner shall e .....

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ted @ ₹ 24,75,000/- (Rs. Twenty four lacs seventy five thousand only) per plot holder of 500 Sq. yards and ₹ 49,50,000/-, ( Rupees Forty nine lacs fifty thousand only) per plot holder of 1000 Sq yards, to be made to the Owner and /or the respective members of the Owner (as the case may be ), within two (2) months from the date of the Payment made as per Clause 4.1 (iv) mentioned hereinabove, towards full and final settlement of payment, after adjustment of the above said ₹ 3,87 .....

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/3, 122//10/1, 122//10/2, 122//11/1, 122//11/2, 122//12, 122/19, 122//22/1, 122//22/2, 122//23//2/1 (bal. part), 122//17/3/2 (balance part). Under clause 9, transfer of ownership/rights of property are stated as follows: 9.2 The owner shall execute in favor of THDC, the sale deeds in accordance with the provisions of Clause 4.1(ii) to Clause 4.1 (v) of this Agreement and execute all other necessary documents and papers to complete the aforesaid transaction. 9.3 That all the original title deeds .....

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ect the Owner/ Allottee in any manner whatsoever. Under Clause 10, financial assistance can be raised by mortgaging the property. Clause 10 reads as follows: 10. LOANS/ FINANCIAL ASSISTANCE The Owner hereby gives their express consent to THDC to raise finance of the development and completion of the Project on the Property by way of mortgaging the Property and the proposed structures to the lending banks/ financial institutions by deposit of the title deeds with the lending bank and / or financi .....

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urpose of development of the project and shall keep the Owner informed in writing about the charge created on the Property and keep the Owner indemnified against all claims, costs for the bank / financial institutions from when. THDC may have availed loan facility in respect of the Project, in case, the Project is not completed in terms of this Agreement. 15. The JDA could, under clause 14, be terminated under certain circumstances by all the parties thereto. Since the owner alone terminated the .....

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terminated by Owner, all the lands registered in the name of THDC as per the terms of this Agreement up to the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this agreement shall not to be transferred by the Owner as per the terms of this agreement. Upon the termination, the Owner shall forfeit the Adjustable Advance/ Earnest Money mentioned in clause 4(i). 16. A reading of the JDA shows that, it is essentially an agreement to f .....

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made after the grant of approvals and not otherwise, and that it is an admitted position that this was never done because no approvals could be obtained as the High Court ultimately interdicted the project. Also, the termination clause is of great significance because it shows that in the event of the JDA being terminated, whatever parcels of land have already been conveyed, will stand conveyed, but that no other conveyances of the remaining land would take place. 17. The relevant sections that .....

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on, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and perso .....

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asset, includes, - (i) to (iv) xxx xxx xxx (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other man .....

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The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: 18. Section 53A, as is well known, was inserted by the Transfer of Property Amendment Act, 1929 to .....

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) the contract must be in writing, signed by the transferor, or by someone on his behalf; (3) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained; (4) the transferee must in part-performance of the contract take possession of the property, or of any part thereof; (5) the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willing to perform his part of the contract. 19. It is .....

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imultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words the contract, though required to be registered, has not been registered, or in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of 18 .....

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2 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then they shall have no effect for the purposes of the said Section 53A. 49. Effect of non-registration of documents required to be registered. No document required by Section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall- .....

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, 1887 (1 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument. 20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This bei .....

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ing to the expression of the nature referred to in Section 53A in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub-section (v) was inserted by the Finance Act of 1987 w.e.f. 01.04.1988. All that is meant by this expression is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (s .....

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egistration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law, obviously no transfer can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided by the High C .....

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no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to the expression or in any other manner whatsoever in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative so .....

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eatedly applied by this Court. A recent application of the maxim is contained in Coastal Paper Limited v. Commissioner of Central Excise, Visakhapatnam, (2015) 10 SCC 664 at 677, para 25. This maxim is best explained as birds of a feather flocking together. The maxim only means that a word is to be judged by the company it keeps.) The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact. 23. A re .....

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ewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must arise on the assumption that there is transfer of a capital asset. This income must have been received or have accrued under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held: It is clear therefore that income may accrue to an assessee .....

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. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. 26. This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression accrues , and then held: 14. First of all, it is now well settled that income tax cannot be levied on hypothetical .....

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ypothetical income , which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. 15. The above passage was cited w .....

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ven though it may not be immediately. 16. This Court further held, and in our opinion more importantly, that income accrues when there arises a corresponding liability of the other party from whom the income becomes due to pay that amount . 17. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not .....

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