TMI Blog2003 (1) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, assessee had been working on the construction of Narmada Canal for Sardar Sarovar Narmada Nigam Ltd. (Nigam for short). Assessee had to excavate the canal in soil and rocky channel from kms. 97 to kms 108 and thereafter canal lining, had to be constructed by the assessee-firm. The scrutiny of Narmada main canal work account as appearing in the assessee s books showed of Rs. 20,43,64,239 for RA bill Nos. 57 to 80. The sum of Rs. 15,36,65,056 was debited as various expenses. The other debit was of Rs. 3,70,54,104 pertaining to RA bill No. 79 being a payment for rock excavation and was transferred to ad hoc payment account which was reflected on the liability side of the balance sheet. The balance of Rs. 1,36,45,079 in the above account was transferred to the credit of P L a/c. 4. AO enquired above RA bill No. 79 and the reasons for transferring the concerned amount to ad hoc payment account. The first explanation of the assessee was that as per the tender drawing and details given by Nigam, total earth to be excavated was 36.49 lac cubic metres consisting of 34.69 lac cubic metres of earth and 1.80 lac cubic metres of soft rock. However, as the excavation progressed since its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. CIT(A) considered the submissions of the assessee. It was stated before her that the rates for provisional payment were revised from time to time and in fact there had been some recovery also in December, 1993/January, 1994. The CIT(A), therefore, observed that the AO s observation that Nigam was paying a uniform rate for all sorts of rock, hard or soft, was not in order. So also his method of working out the average rate was also found to be not in order. Further, according to the CIT(A), AO did not take into account the element of higher expenses required to be incurred in future while determining the average rate on the basis of ad hoc payment. Legally also, she held, there was no firm commitment from the Nigam and at best it could be treated as deposit in the hands of the assessee. Accordingly, she directed the AO to delete the addition of Rs. 50,73,698 with a rider that for any reason, the amount of ad hoc payment or part thereof ceased to be held as deposit, in any year, the same will become taxable as income accrued in that year. 7. The learned Departmental Representative referred to the various facts mentioned by the AO in his order. Our specific attention was drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission was owed by the company to the assessee. The dispute with regard to one amount did not stop the accrual of the commission income and hence was held to be taxable. The facts in the case before us are quite distinguishable. We are concerned only with one amount, i.e., the ad hoc payment received by the assessee. We have to decide whether the receipt accrued to the assessee during the year under consideration as income or not. 10. The case of Morvi Industries also related to the accrual of managing agency commission. As per the terms of agreement, commission was due to the assessee on the last day of the accounting year but was payable immediately after the annual accounts of the managed company had been passed in the general meeting. Since the managed company was suffering losses, assessee relinquished part of its commission after it had become due but before it had become payable. The claim of the assessee was that the commission relinquished by it was not taxable. The Supreme Court held that the commission had accrued to the assessee, and the fact that payment was deferred till after the accounts had been passed in the meeting of the managed company did not affect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was certain about what the future excavations would reveal. And who can be so sure about the ways of nature. It was not a bald statement on the part of the Nigam that ad hoc payment was liable to be recovered in full or part. But it was possible because of the unfathomable ways of nature. Hence, though 4.4. lac cu.m. of excess rock excavated during the year may have been taken as a base to compute the ad hoc payment, it could not be said to be the income of the assessee for the year. It was merely a receipt, atleast for the year under appeal, without any of the attributes to be described as income. The assessee had no legal claim over it. In this connection, it would be pertinent to quote the observations of the Supreme Court in the case of Morvi Industries Ltd. At p. 840 the Court observed as follows: "The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately. There also arises a corresponding liability of the other party from whom the income becomes due to pay that amount. The further fact that the amount of income is not subsequently received by the assessee would also not detract from or efface the accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the entire amount, the amount taxed in this year could fall through. We reiterate that the payment received by the assessee was purely ad hoc and the quantity of rock excavated was used merely as a base to quantify the ad hoc payment. It was not the final rate for the quantity excavated during the year. Again, it would be advantageous to reproduce the observations of the Supreme Court in the case of Hindustan Housing Land Development Trust given on p. 530: "It is sufficient to point out that there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles." In the present case also, merely the provisional payment to be received by the assessee is quantified, but the right to receive payment is not absolute. It is not the reverse, i.e., where right to payment is admitted and quantification is left to be determined. The Nigam has not admitted of assessee s right to receive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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