TMI Blog2016 (4) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... t under the agreement dated 25th January, 2006 obtained a right to receive ₹ 20 crores or any specified part thereof in the subject assessment year. In the above view there could be no occasion to bring the maximum amount of ₹ 20 crores, which could be received as deferred consideration to tax in the subject assessment year as it had not accrued to the respondent-assessee.We find that both the Commissioner of Income-Tax (Appeals) and the Tribunal have in view of the clear clauses of agreement dated 25th January, 2006 have in the facts of the present case correctly held that the respondent-assessee and the co-owners of the shares did not have a right to receive ₹ 20 crores in the subject assessment year. - Decided against revenue - INCOME TAX APPEAL NO.2348 OF 2013 - - - Dated:- 29-3-2016 - M. S. SANKLECHA AND A.K. MENON , JJ. For The Appellant : Mr. Arvind Pinto For The Respondent : Mr. J.D. Mistri,Sr. Advocate i/b Mr.Atul Jasani P.C. : 1. This appeal under Section 260A of the Income Tax Act, 1961 (the 'Act') challenges the order dated 10th July, 2013 of the Income Tax Appellate Tribunal (the 'Tribunal'). The appeal relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January, 2006 also provided for deferred consideration which was capped at ₹ 20 crores, which had to be paid in terms of formula prescribed in the agreement dated 25th January, 2006. The working out of the formula could lead and in fact had led to a situation where no amount on account of deferred consideration for the sale of shares was receivable by the respondent-assessee in the immediate succeeding assessment year i.e. assessment year 2007- 08. On the analysis of agreement, the Commissioner of Income-Tax (Appeals) concluded that the amount of ₹ 20 crores is the maximum amount that could be received by all co-owners under the agreement from M/s. RKHS. However, on working of the formula there was no guarantee that this amount or for that matter any amount would be received as was evident from the immediate succeeding assessment year i.e. assessment year 2006-07 when no amount was received as deferred consideration. In fact in terms of formula the amount to be received as deferred consideration was contingent upon the performance of M/s. Unisol in the succeeding assessment year. In the above view, the Commissioner of Income- Tax (Appeals) concluded that no amount of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration shall be capped at ₹ 20,00,00,000/- (India Ruppes two hundred million) less debt plus cash. Subject to Clause 3.3.1 and 3.3.2 below the initial consideration shall be payable on completion and shall be satisfied by the payment to Shete Group on the completion date. Clause 3.3.1 . . . Clause 3.3.2 . . . Clause 3.4 Deferred consideration shall be payable to Shete Group in accordance with the following provisions : Clause 3.4.1 For the purpose of clause 3.4 (a) UNISOLs net profit shall mean the net profits before interest and tax of the company as derived from the figures shown in the audited accounts of the company (such audited accounts to be prepared in accordance with the generally accepted accounting principles in India excluding any one off profits or one off losses and consistently applied with previous years). (b) Where any capitalized letter is given any meaning in any of the remaining sub clauses of the clause 3.4 such capitalized letter shall also bear the meaning where it is used in any other of the sub clauses of this clause 3.4. (c) Cash and debt shall be calculated in accordance with the definition un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f E did not exceed the sum calculated under clause 3.4.5 the third deferred consideration shall subject to clause 3.4.6 be calculated as follows: G = (F X 5.5) Debt + Cash - (A+B+E) F = Unisols net profit for the year ended 31st March 2009 and for the year ended 31st March 2010 divided by two E = the second deferred consideration under clause 3.4.4 (if any) B = the first deferred consideration under clause 3.4.2 (if any) A = initial consideration Cash = Cash as on March 31, 2010 On 31st May, 2010 RKHS shall submit the calculation of the third deferred consideration to Shete Group for review. The parties shall agree within 30 days the amount of third deferred consideration which shall be made and payable on June 30, 2010 Clause3.4.7 The amount payable in respect of G under clause 3.4.6 shall be capped at the sum calculated as follows: Rs.20,00,00,000 - (A+B+E) And payment of such sum shall be in respect of G shall be in full settlement of any sum due under clause 3.4.6 in full settlement of the purchase price for the sale of the shares to RKHS notwithstanding the circumstance where the calculation under clause 3.4.7 would othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested in the hands of the respondent-assessee. Therefore, entire amount of ₹ 20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the respondent-assessee. The test of accrual is whether there is a right to receive the amount though later and such right is legally enforceable. In fact as observed by the Supreme Court in E.D. Sassoon Co. Ltd. Vs. CIT (1954) 26 ITR 27 It is clear therefore that income may accrue to an assesee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro . . . . In this case all the co-owners of the shares of M/s.Unisol have no right in the subject assessment year to receive ₹ 20 crores but that is the maximum which could be received by them. This amount which could be received as deferred consideration is dependent/contingent upon certain uncert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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