Meaning of “Deemed to accrue”

The meaning of deemed to accrue under section 5 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of deemed to accrue.

Meaning of deemed to accrue defined by court

The phrase ‘deemed to accrue’ used in section 5 of the Income Tax Act came up before hon’ble Punjab High Court in CIT vs. Jai Parkash Om Parkash Co. Ltd. [1961] 41 ITR 718 (Punj.) and it explained.

Meaning : The words ‘deemed to accrue’ have only relation to what has been so made to accrue under the provisions of the act; whereas it was not in reality so, but by force of the statute it is treated to be so.

Section 5 of Income Tax Act

Scope of total income.

5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or

(c) accrues or arises to him outside India during such year :

Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

In this article, you can get guidance from high courts on the meaning of deemed to accrue under section 5 of the Income Tax Act.

Updated up to Finance Act 2021