Fly ash sale receipts accrue as business income where a post-accrual fund restriction does not create diversion by overriding title.

Fly ash sale receipts arising incidentally from power generation were held to accrue directly to the assessee as business income. A government notification directing that the proceeds be credited to a separate fund affected only the use of income after accrual and did not create an enforceable diversion at source or a liability in favour of a third party. The accounting entry by itself could not alter the substantive tax character of the receipt. The prior authority relied on was found distinguishable on the facts, and the receipts remained taxable as business income.

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Issues: Whether receipts from sale of fly ash credited to a separate fund pursuant to a government notification were taxable as business income or constituted a liability / diversion of income by overriding title.

Analysis: Fly ash arose incidentally from the assessee's power generation activity and its sale consideration accrued directly to the assessee at the point of sale. The receipts were not paid to any third party or statutory authority, and no enforceable obligation diverting the income at source was shown. A restriction on how the receipts were to be used, even if mandated by notification, amounted only to application of income after accrual. The accounting treatment of crediting the amount to a fund could not override the substantive tax character of the receipt. The prior view relied upon by the assessee was found inapplicable on the facts.

Conclusion: The fly ash sale receipts were taxable as business income and not as a liability or diverted income; the addition was rightly restored, in favour of Revenue.

Ratio Decidendi: Receipts that accrue directly to the assessee in the course of business remain taxable income, and a post-accrual restriction on their utilization does not amount to diversion of income by overriding title.

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