Real income basis governs tax computation when exemption is denied; gross receipts cannot be taxed without allowable deductions.

Where exemption under section 11 was denied, taxable income still had to be computed under the regular provisions on the basis of real income after allowing admissible expenditure. Taxing gross receipts without considering deductible expenses was impermissible because income tax is levied on income, not on gross receipts. The assessment framed on that basis could not stand and was remitted to the Assessing Officer for fresh computation of total income in accordance with law.

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Issues: Whether, after denial of exemption, the assessee's income could be assessed by taxing gross receipts without allowing deduction of expenditure incurred in earning such receipts.

Analysis: The exemption claim based on delayed audit report was not pursued seriously and the surviving question was the correct method of computation where exemption under section 11 was unavailable. The income and expenditure account showed receipts and expenses which were not reflected in the assessment order, and tax was levied by effectively treating gross receipts as taxable income. Income tax is levied on income and not on gross receipts. Where exemption is denied, the total income must still be computed under the regular provisions of the Act after allowing admissible expenditure. The assessment, therefore, could not stand as framed and required fresh computation in accordance with law.

Conclusion: The assessment on gross receipts was unsustainable; the matter was remitted to the Assessing Officer to recompute total income after considering the deductible expenses.

Final Conclusion: The assessee obtained partial relief as the impugned computation was set aside and the matter was restored for fresh determination of taxable income under the regular provisions.

Ratio Decidendi: Where exemption is denied, taxable income must be computed on the basis of real income after allowing lawful deductions and not by taxing gross receipts as such.

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