Notional income is the flow of satisfactions from goods owned and used by the taxpayer. This paper explores the Indian and American approaches to taxation of notional income. It is argued that the Indian approach to taxation of notional income exhibits a distinct theoretical incoherence. Indian courts have refrained from allowing taxation of notional income, unless the same is expressly provided for in the Income Tax Act. This approach has resulted in divergent judicial reasoning which is not founded on the theoretical basis for inclusion of notional income. In contrast, the American law has progressed to an expansive conception of income that includes all economic gain. The focus on economic reality of transactions is clearly reflected in the economic substance doctrine of the American anti-avoidance law. This paper pre-empts that the introduction of General Anti-Avoidance Rules in India hint at a gradual shift towards the broader conception of income adopted in American law.