TMI Blog2007 (11) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner. Ms. Radhika Suri for the assessee. JUDGMENT The judgment of the court was delivered by 1. AJAY KUMAR MITTAL J. - At the instance of the Revenue the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity "the Tribunal"), vide its order dated July 23, 1993, in I. T. A. No. 207/Chd/1988 has referred the following question of law to this court for its opinion under section 256(1) of the Income-tax Act, 1961 (for short "the Act"), for the assessment year 1983-84: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the income of the assessee to be taxed on receipt basis and not on accrual basis, even though the assessee was following the mercantile system of accountancy?" 2. The facts as narrated in the statement of the case are that the assessee corporation is engaged in the business of development and sale of industrial sheds. The assessee raised certain construction in the form of industrial sheds on the land provided by the State of Punjab and made allotments to the entrepreneurs. As per the conditions of the allotment, 25 per cent. of the price was to be pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual instalments or violated any terms and conditions, the industrial sheds were liable to be resumed by the assessee and, therefore, the right in the land did not stand transferred to the allottees finally till the last instalment was paid. Further, the allottees were not permitted to transfer the industrial sheds without the permission of the assessee and they had only right of possession. Learned counsel relied upon the Chandigarh Industrial and General Development Corporation Ltd. - Allotment of Industrial Shed Rules, 1977 (for short, "the Allotment Rules") in support of her submission. It was further submitted that according to the consistent method adopted by the assessee since 1979, the profits accruing on the allotment of industrial sheds have been accepted by the Department on the basis of accrual of profits from year to year till the final instalment is paid. 6. After giving our thoughtful consideration to the respective submissions, we have not felt impressed by the submission of learned counsel for the Revenue. 7. Before proceeding further, it would be apposite to view the relevant allotment rules which are material for adjudication of controversy involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrue" or "arise" are used to contradistinguish the word "receive". Income is said to be received when it reaches the assessee when the right to receive the income becomes vested in the assessee, it is said to accrue or arise. The apex court further held as under (headnote): "income becomes taxable on the footing of accrual only after the right of the taxpayer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or on the happening of a contingency, the fact that the profits are the result of transactions spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or became receivable." It was also observed thus (headnote): "In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss. On such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed, but dormant profits cannot be equated to profits charged to tax under sections 3 and 4 of the Indian Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 85,000 was paid before execution of the agreement. A sum of Rs. 1,00,000 was to be paid before April 1, 1971. A further amount of Rs. 1,50,000 was to be paid before May 1, 1971. Another amount of Rs. 3,50,000 was to be paid before May 1, 1972.Thereafter, other amounts mentioned in the said clause were payable before the dates mentioned therein. There is no doubt that the entire amount did not become due to the assessee on the execution of the agreement. The assessee had no right to claim the amount from the builders or to enforce the claim before the date specified in the agreement. In such a situation it is difficult to accept the submission of the Revenue that the entire amount of Rs. 8 lakhs accrued to the assessee immediately on execution of the agreement. The principles to determine as to when the income is said to have accrued or arisen are already well settled by a catena of decisions of the Supreme Court and need no reiteration. It is well settled that the income is held to accrue only when the assessee acquires a right to receive that income. In other words, or to say it differently, income can be said to accrue on a date when the debt becomes due. As observed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
