TMI Blog1993 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction and making allotment of the industrial sheds to entrepreneurs of small-scale industries. The assessee raised construction after mortgaging the land with the financial institutions and raising loans on mortgage. The industrial sheds were allotted on the terms and conditions that 25 per cent of the price shall be paid by the allottee on allotment. Balance 75 per cent was to be paid by the allottee in ten equal instalments. The land was to be allotted for 99 years on lease. The lease-hold rights were to be finally transferred after 15 years from the date of allotment. 3. During the year under consideration, the assessee had sold 49 industrial sheds measuring 5 marlas and an equal number of sheds measuring 15 marlas. An amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r allotment, and, therefore, it was a kind of credit sale. Since the assessee was admittedly maintaining its account books on mercantile system, it had to pay tax on the profit on accrual basis. It has been contended by the Id. D.R. that the industrial sheds were handed over to the allottees, after allotment, and thereby the rights were duty transferred. It was only the payment of the value which was spread over 15 years and, therefore, the assessee was bound to declare income on accrual basis. 6. The Id. counsel for the assessee has, in reply, countered that it was not a case of sale but that of transfer of lease-hold rights. Such rights were to ripen only after 15 years from the date of allotment and not earlier. He has further pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession and thus the transaction could not be said to be a complete transfer of lease-hold right. The Id. counsel has urged that the factum of mortgage by the assessee-corporation further went to show that the assessee had placed the land on the basis of mortgage in question and, therefore, the assessee could not be said to have sold the industrial sheds. 7. The question which arises in this case is whether the assessee is to be assessed on the profit on receipt or accrual basis. The assessee received 10 per cent of total value on receipt of application, 15 per cent within 30 days from the date of allotment and balance 75 per cent in ten equal annual instalments. As we have already seen, the instalments were spread over 10 years and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Aggarwal Rice General Mills [1989] 180 ITR 29. It has been held in that case that where the assessee followed mercantile system of accounting, he had to claim deduction on the basis of accrual of liability. That was also a case where the question of liability was under consideration and the case is, therefore, again distinguishable on facts. 10. The ld. counsel for the assessee has invited our attention to a decision of the Supreme Court in the case of Municipal Corpn. of Hyderabad v. P. N. Murthy [1987] 167 ITR 204. The term ' vesting ' was examined in that case and it was held that it meant title as well as possession. It was observed that the title in land is to pass only on payment of final instalment of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit could, therefore, never accrue to the assessee at all and the same industrial shed may have to be again allotted to a new allottee. In these circumstances, the ld. counsel has urged that it was a case where only the profit received could be said to have accrued to the assessee. The final papers for the transfer of lease-hold rights for 99 years were to be executed after 15 years. The assessee was following hybrid system of accounting in view of the peculiar circumstances of the case. Since the assessee had no right to recover the balance amount but only to cancel the deal, the profit inherent in the sale price can never be said to have accrued to the assessee. 11. After carefully considering the rival contentions, we are of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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