CIT v Shaw Wallace and Co

Facts

• Shaw Wallace and Co was a well-known trading company in India
• The CIT assessed certain trading profits as income
• The assessee raised questions about the characterisation of specific receipts
• The matter went to the Privy Council on the definition and scope of "income"

Issues

1. What constitutes "income" or "profits and gains" within the meaning of the Income Tax Act
2. Whether the Act's concept of income is limited to recurring/periodic receipts

Held

• "Income" is to be given its ordinary, natural, and grammatical meaning consistent with commercial usage
• It includes all that comes in as profit from business operations
• The Act taxes income from all sources unless specifically exempt
• The distinction between recurring and non-recurring is not determinative; what matters is whether the receipt has the character of income

Ratio Decidendi

The Income Tax Act does not define income exhaustively; it is inclusive. Income bears its natural meaning: the fruit of capital, labour, or activity. In a business context, all profits and gains arising from business operations are income. The test is not periodicity but the character of the receipt: is it a return from the employment of capital or effort in a productive activity?