Section 10(1) Indian Income-tax Act, 1922

Section 10(1) Indian Income-tax Act, 1922 — the law in short

What the courts have decided on section 10(1) Indian Income-tax Act, 1922, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sutlej Cotton Mills Ltd v CIT Supreme CourtCuts both ways
  The rupee moved and I have a gain on foreign currency. Is that trading income or a capital receipt?
  It depends on what the currency was doing in the business, not on the size or direction of the currency movement. If the foreign currency was held on revenue account, as a trading asset or as part of the circulating capital of the business, the profit or loss is a trading profit or loss. If it was held as a capital asset or as fixed capital, the profit or loss is of a capital nature.
• Kedarnath Jute Manufacturing Co Ltd v CIT Supreme CourtHelps taxpayer
  I never made a provision in my books for the demand, and I am disputing it in appeal. Can I still deduct it?
  Yes. Whether a deduction is available is decided by the Act, not by what the assessee wrote or failed to write in the books, and not by the view the assessee takes of his own liability. A sales tax liability that had accrued on the demand being raised was deductible under the mercantile system even though no entry had been made for it and the assessment was under appeal.
• CIT v Gemini Cashew Sales Corporation Supreme CourtHelps department
  Our firm dissolved and the business passed to the surviving partner. Can the firm deduct the retrenchment compensation that became payable to the workmen on that transfer?
  No. The Supreme Court held that Rs 1,41,506 debited as gratuity payable to workers was not allowable, either as a deduction in computing business profits under section 10(1) or as expenditure under section 10(2)(xv) of the 1922 Act. Liability to pay retrenchment compensation on a transfer of an undertaking arises on the transfer and not before; while the business continues the workmen's right is contingent, since a workman may resign, die or retire. The liability therefore arose not in the course of the business nor for the purpose of carrying it on, but from the transfer, and was not of a revenue nature.
• Badridas Daga v CIT Supreme CourtHelps taxpayer
  My employee embezzled money from the business bank account. Can I write that off for tax?
  Yes, as a trading loss, provided the loss springs from the way the business is carried on. The Court refused the claim as a bad debt and refused it as expenditure, and then allowed it under the charging provision itself, because profits of a business cannot be computed without taking account of losses incidental to that business. The route matters: this is a deduction in computing profits, not an item of expenditure under s.37(1).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.