DISTINCTION BETWEEN APPLICATION OF INCOME AND DIVERSION OF INCOME:
APPLICATION OF INCOME:
AFTER EARNING THE INCOME, IF IT IS REQUIRED TO TO BE APPLIED TO DISCHARGE AN OBLIGATION, IT IS MERELY AN APPLICATION OF INCOME AND CHARGEABLE TO TAX.
DIVERSION OF INCOME:
*WHERE INCOME OR PORTION OF INCOME IS DIVERTED AT THE SOURCE OF INCOME BY AN OVERRIDING TITLE BEFORE IT REACHES THE ASSESSEE, IT IS DIVERSION OF INCOME AND NOT TAXABLE.
*IT MUST BE NOTED THAT THE OBLIGATION IS ON SOURCE OF INCOME AND NOT ON THE RECEIVER.
*INCOME IS TAXABLE IN THE HANDS OF PERSON TO WHOM INCOME IS DIVERTED BY OVERRIDING TITLE AND NOT IN THE HANDS OF PERSON WHO FIRST RECEIVE IT.
HOW TO DETERMINE WHETHER A PARTICULAR INCOME IS AN APPLICATION OF INCOME OR DIVERSION OF INCOME?:
IN ORDER TO DECIDE WHETHER A PARTICULAR INCOME IS AN APPLICATION OF INCOME OR DIVERSION OF INCOME, IT HAS TO BE DETERMINED WHETHER THE AMOUNT SOUGHT TO BE DIVERTED REACHES THE ASSESSE'S HANDS AS HIS/ HER OWN INCOME OR NOT.
REGARDS.