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TMI Blog2015 (7) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... l basis ? 2. Whether the Tribunal erred in deleting the said amount by misinterpreting two agreements and the condition contained therein although the agreement in question is an arranged mutual agreement dated September 5, 1988, which cannot take away the nature of accrued receipt of fees in the hands of the assessee and therefore the decision of the Tribunal is perverse ? 3. Whether the order of the Tribunal is at all sustainable in view of the subsequent events or activities of the assessee inasmuch as the assessee stopped filing of return from the assessment year 1992-93 as per the records of the Assessing Officer which proved the assessee is not inclined to pay due taxes on the accrued receipts rather to evade ?" 2. Considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and loan. In view of financial difficulties of the two companies, the payment of loan and interest payable to the financial institutions were delayed. On being approached for reschedulement of loan and interest, necessary conditions were imposed by the financial institutions for deferment of fee payable to the assessee. The Tribunal found that as the assessee had agreed to deferment of fee, the original agreement got modified which were ratified by a resolution of the Board. Since modification of the agreement rendered the amount as not due and as the genuineness of the modifications were not in doubt and was not an afterthought, the Tribunal held that for the assessment year 1991-92 nothing had accrued to the assessee for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters are not in doubt. 7. Now the issue is as the assessee was following mercantile system of accounting, whether the Tribunal was justified in holding that the receipt of the fee stood deferred and was not due. In CIT v. Birla Gwalior (P.) Ltd. (supra) the facts were the assessee was the managing agent of the National Bearing Co. Ltd. and Gwalior Rayon & Silk Manufacturing Company. As managing agent of the former company it was entitled to receive a commission of 12½ per cent. on the net profits of the managed company together with a sum of Rs. 18,000 as office allowance. In the case of Gwalior Rayon & Silk Manufacturing Co. the assessee was entitled to get an office allowance of Rs. 30,000 per year in addition to the agreed mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the mercantile system. Its accounting year was the financial year. It gave up the commission after the end of the financial year. On the basis of these facts it was contended on behalf of the Revenue that the commission had accrued before it was given up. Hence, it cannot be said that the assessee had not earned the commission in question. Therefore, the assessee's case cannot be considered under section 10(1). We are unable to accept this contention as correct. As mentioned earlier, no due date was fixed for the payment of the commission under the managing agency agreements. The commission receivable could have been ascertained only after the managed company made up its accounts. The assessee had given up the commission even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and as the assessee had no right to claim any part of the retention money till verification of satisfactory execution of the contract, the amount in question did not accrue. 10. In CIT v. Shree Export House Ltd. (supra), where the assessee was following the mercantile system of accounting, a similar question arose. The Income-tax Officer held that interest on loan had accrued and assessed accordingly. In appeal the Commissioner of Income-tax deleted the addition which was affirmed by the Tribunal. On a reference under section 256(1) of the Income-tax Act, 1961, it was held as under (pages 699 and 700 of 194 ITR) : "In the instant case, the assessee is in a strong position. Not only the root or the germ to stop accrual of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as justified in deleting the addition of Rs. 63,37,320. 13. Therefore, the question No. 1 is answered in the affirmative, against the Revenue and in favour of the assessee. 14. Accordingly, the question No. 2 is answered in the negative, against the Revenue and in favour of the assessee. 15. So far as the question No. 3 is concerned we are of the view that if the assessee has stopped filing returns from the assessment year 1992-93, the revenue authorities are at liberty to proceed for non-filing of returns as per provisions of the Income-tax Act, 1961. 16. Thus, the appeal is dismissed. 17. It is necessary again put on record our appreciation for the assistance rendered by Mr. J. P. Khaitan, learned senior advocate, as amicus curiae, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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