2015 (7) TMI 1085 - HC - Income Tax

Deferred receipt v/s accrued receipt - nature of receipt - assessee is following mercantile system of accounting - Held that - In the case in hand it appears from records that in its best interest the assessee had agreed for deferment of fees. Accordingly the original agreement was modified which was supported by a resolution of the board. The genuineness of such modification is not in question as the financial institution was a party to such modification. Therefore as the accrual of income was deferred prior to the closing of the accounting year which as evident from facts was for business expediency and as the right to receive the fee was suspended the Tribunal was justified in deleting the addition - Decided in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the addition of Rs. 63,37,320 on the plea of deferred receipt instead of treating the same as accrued receipt when the assessee follows the mercantile system of accounting?
2. Whether the Tribunal erred in deleting the said amount by misinterpreting two agreements and the condition contained therein, leading to a perverse decision?
3. Whether the order of the Tribunal is sustainable considering the subsequent activities of the assessee, specifically the cessation of filing returns from the assessment year 1992-93?

Analysis:
Issue 1:
The appeal pertains to Income-tax assessments for the years 1989-90, 1990-91, and 1991-92, involving a trade mark and marketing assistance fee of Rs. 63,37,320 payable by a company to the assessee. The Assessing Officer added this amount to the assessee's income as accrued, despite deferment due to financial difficulties faced by related companies. The Tribunal held that the modification of the agreement deferred the income and nothing accrued to the assessee for the relevant year. The Tribunal's decision was based on the genuine modification of the agreement and the deferment of fee agreed upon by all parties involved.

Issue 2:
The dispute revolved around whether the income had truly accrued or not. The amicus curiae highlighted that deferment before the close of the relevant year, with an agreement not to pay, does not fall under the definition of "income." Citing relevant case law, the amicus curiae supported the Tribunal's decision based on the principle that income accrues when due and accompanied by a corresponding liability to pay, which was not the case here due to the deferment.

Issue 3:
Regarding the cessation of filing returns from 1992-93, the Court held that if the assessee stopped filing returns, the revenue authorities could take appropriate action under the Income-tax Act. The judgment dismissed the appeal, affirming the Tribunal's decision to delete the addition of Rs. 63,37,320 and appreciating the assistance of the amicus curiae.

This detailed analysis of the judgment provides a comprehensive understanding of the issues raised, the arguments presented, and the legal principles applied in reaching the final decision.