Real income principle governs taxability of liquidation receipts where statutory diversion and accrual remain unverified

Income-tax is chargeable only on income that has actually accrued or arisen, and the real-income principle applies where an assessee-bank under liquidation contends that receipts are diverted by overriding statutory obligations in favour of the Deposit Insurance and Credit Guarantee Corporation. The available record showed substantial liabilities, accumulated losses, a large DICGC claim and negative net worth, but the taxability of the credited amounts could not be determined from the returned figures alone. The factual position on accrual, diversion at source and the effect of liquidation required proper verification before any addition could be sustained.

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Issues: Whether the amounts credited in the assessee-bank under liquidation could be treated as real income chargeable to tax, or whether they stood diverted at source by overriding statutory title in favour of the Deposit Insurance and Credit Guarantee Corporation.

Analysis: The assessee was under liquidation and the record showed substantial liabilities, including claims under the statutory liquidation framework, against assets and deposits. The financial statements indicated accumulated losses, a substantial outstanding DICGC claim, and negative net worth. On the material available, the issue of taxability could not be resolved merely from the returned figures, because the factual position regarding the existence of real income and the effect of the alleged overriding statutory obligations had not been properly verified at the assessment stage.

Conclusion: The matter required fresh factual examination, and the additions could not be sustained without de novo verification of whether any income actually accrued or arose to the assessee.

Ratio Decidendi: Income-tax can be levied only on income that has in fact accrued or arisen, and where an assessee under liquidation claims that receipts are absorbed by overriding statutory obligations, the taxability must be determined on the basis of real income after proper verification of the underlying facts.

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