TMI Blog2015 (1) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... s each. From each of the first 3 bills, sums representing 7.5% are deducted. On successful completion of the work, the amounts representing 5% deducted from the first three bills, would become payable along with the final bill. However, even from the final bill, 2.5% would be deducted. This amount of 2.5%, which stood deducted from all the four bills, becomes payable, only on expiry of the defect free period. If such period is one year, the amount becomes payable only when no defects whatever are found or noticed, during that period. It is, no doubt, true that in all the bills, reference was made to these amounts and corresponding entries were made in the books of account. However, the right to receive that amount was contingent upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 1996-97, the respondent did not include amount representing 2.5% of the bills. According to them, such amount can be shown as income, only on its being received. The Assessing Officer, however, took the view that since the respondent was following the mercantile system of accounting, the amount of 2.5% of bills can be said to have accrued to it, along with the amount paid under the bills and the same is liable to be treated as income for that year. The respondent filed an appeal before the Commissioner of Income Tax (Appeals). The same was rejected on 29.10.1999. Thereafter, it filed I.T.A.No.40 of 2000 before the Tribunal. The appeal was allowed and the Revenue has challenged the order of the Tribunal by filing this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, who follows the cash system, would be under obligation to pay tax only on the amount received by him, after assessment, in accordance with law. In contrast, an assessee, who follows the mercantile system, would be liable to pay tax on the amounts reflected in the books of account, irrespective of the fact whether he received the amount or not. Same is the case with the deductions and they do not depend upon the actual payments. Two judgments rendered by the Honble Supreme Court, which are almost classics, would be helpful to have a clear idea about the concept. Of course, most of the players in the administration of tax regime are fairly acquainted with it. In Commissioner of Income Tax v. Shoorji Vallabhdas and Co. , Sri Hidayatullah, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. The concentration was on sub-clause (i). The following passage from Rogers Pyatt Shellac and Co. v. Secretary of State for India was taken note of: ..both the words are used in contradistinction to the word receive and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. The Honble Supreme Court proceeded to observe: Under this definition accepted by this Court, an income accrues or arises when the assessee acquires a right to receive the same. It is commonplace that there are two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose. Section 34 of the Act empowers the Income-tax Officer to assess the income which escaped assessment or was under-assessed in the relevant assessment year. One does not need any further help or material to understand the basics of the concept than this. A clear distinction is maintained between right to receive the amount and acquisition of right, as such. In the present context, the distinction is mostly between the acquisition of a right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount becomes payable only when no defects whatever are found or noticed, during that period. The controversy, in the instant case, is about the year in which the amount representing 2.5% had accrued to the respondent. It is, no doubt, true that in all the bills, reference was made to these amounts and corresponding entries were made in the books of account. However, the right to receive that amount was contingent upon there not being any defects in the work, during the stipulated period. It is then, and only then, that the amount can be said to have accrued to the respondent. It is represented by the learned counsel for the respondent that the amount was received by his client in the subsequent assessment year on expiry of the defect fre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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