Credit to P & L Account-Whether income?

1. Is mere credit of an amount to the profit and loss account sufficient to constitute income under section 2(24)?

CIT v. Industrial Credit and Development Syndicate Ltd.

(2006) 285 ITR 310 (Karn)

Relevant section: 2(24)

The assessee, a finance company, issued redeemable debentures of Rs.10 each at par. During the period of redemption, the assessee-company purchased some of
these debentures through a nominee at a price less than the face value and credited the difference between the face value and the cost thereof in its books as surplus
arising on redemption of debentures. The assessee had advanced a loan to the nominee for purchase of debentures. Thereafter, on the due dates, the assessee redeemed these debentures. Although the assessee had credited the surplus to the profit and loss account, it claimed deduction of the same on the ground that they did not form part of income. The High Court held that merely because the amount was
shown as surplus in the profit and loss account, it would not constitute income under section 2(24), since the assessee did not actually receive any income.

The High Court held that the definition of income in section 2(24), though inclusive, should be construed as including only such things which are income according to the
natural import of the term. It is income which has really accrued or arisen to the assessee that is taxable. Where there is neither accrual nor receipt of income by the
assessee in reality, an entry to that effect in the books of account would not constitute income for the purpose of levy of tax.