Deemed income

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Deemed income

1. Section 59

Deemed Income based on Past Deductions or Allowances Received Subsequently:

  • Scenario: If a taxpayer has claimed any deduction or allowance in previous years, but subsequently receives the benefit of such deduction or allowance in the current financial year, it is deemed as income under the head "Income from Other Sources".
  • Example: If depreciation was claimed in previous years, and in the current year, the taxpayer receives compensation or remission related to that depreciation, the amount received will be treated as income.

Successor of Assessee Clause:

  • Scenario: If a taxpayer (original assessee) has claimed deductions or allowances in the past, and in the current year, a successor (like an heir or successor in business) receives any such allowances or deductions, it is deemed as income for the successor.
  • Example: If a deceased taxpayer had claimed deductions, and in the current year, the legal heir receives any compensation related to those deductions, it is treated as income for the legal heir.

2. Section 68

Deemed Income from Unexplained Credits in Books:

  • Scenario: Any sum credited in the books of the taxpayer for any previous year which the taxpayer is unable to explain satisfactorily to the assessing officer is treated as income under the head "Income from Other Sources".
  • Example: If a credit entry appears in the books of the taxpayer without proper justification or explanation, and the taxpayer fails to provide satisfactory details about the source of that credit, it will be treated as taxable income.

Credit Purchase without Proper Explanation:

  • Scenario: If the taxpayer has recorded a purchase on credit in any previous year but fails to establish the identity of the creditor to the satisfaction of the assessing officer, it is treated as income under "Income from Other Sources".
  • Example: If a taxpayer records a purchase transaction on credit in their books, but cannot provide sufficient evidence of who extended the credit or the nature of the transaction, it may be deemed as income.

3. Section 69

A. Section 69A

Deemed Income from Unexplained Money, Jewelry, or Valuables:

  • Scenario: If the taxpayer is found to be the owner of any money, jewelry, bullion, or other valuable article which is not recorded in their books of accounts, and fails to provide a satisfactory explanation, it is treated as income under "Income from Other Sources".
  • Example: If during a tax assessment, undisclosed cash or valuable items are found in possession of the taxpayer, and there is no record or explanation of how these were acquired, it will be treated as taxable income.

B. Section 69B

Deemed Income from Understated Value of Recorded Money or Valuables:

  • Scenario: If the assessing officer has reason to believe that the amount recorded in the books of accounts for any money or valuables is less than their actual value, and the taxpayer fails to explain satisfactorily, the excess amount is treated as income under "Income from Other Sources".
  • Example: If the books show an amount for jewelry or cash that is suspected to be lower than its actual value, and the taxpayer cannot justify or explain this discrepancy, the additional amount may be deemed as income.

C. Section 69C

Deemed Income from Unexplained Expenditure:

  • Scenario: If the taxpayer incurs any expenditure in a financial year and fails to provide satisfactory details about the source of funds for such expenditure to the assessing officer, it is treated as income under "Income from Other Sources".
  • Example: If a taxpayer spends a significant amount during the year, but cannot prove where the funds came from or their legitimacy when questioned by the tax authorities, that expenditure may be deemed as taxable income.

4. Section 69D

Deemed Income from Borrowing or Repayment on Hundi:

  • Scenario: If the taxpayer borrows any amount on hundi (informal promissory notes) and repays such amount (including interest) otherwise than through account payee cheque or electronic transfer, it is treated as income under "Income from Other Sources".
  • Example: If a taxpayer borrows money informally (e.g., through hundi) and repays it in cash or by means other than a bank transfer, the transaction is treated as income and taxed accordingly.

Key Points to Note:

  • Nature of Deemed Income: These provisions of the Income Tax Act deem certain transactions or possessions as taxable income even if not directly earned or received.
  • Assessment Requirements: Taxpayers must provide satisfactory explanations to the assessing officer regarding the source, nature, and legitimacy of these transactions or possessions to avoid them being deemed as income.
  • Disallowance of Deductions: Income deemed under these provisions cannot be claimed as deductions under any other heads of income.
  • Legal Implications: Failure to justify these transactions or possessions can result in additional tax liabilities, penalties, or legal proceedings.

Understanding these provisions is crucial for taxpayers to comply with tax regulations effectively and ensure accurate reporting of income to the tax authorities.