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Commissioner of Income-Tax Versus Nicco Corporation Ltd.

2015 (7) TMI 1085 - CALCUTTA HIGH COURT

Deferred receipt v/s accrued receipt - nature of receipt - assessee is following mercantile system of accounting - Held that:- In the case in hand, it appears from records that in its best interest the assessee had agreed for deferment of fees. Accordingly the original agreement was modified which was supported by a resolution of the board. The genuineness of such modification is not in question as the financial institution was a party to such modification. Therefore, as the accrual of income wa .....

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ing substantial questions of law : "1. Whether the Tribunal was justified in deleting the addition of ₹ 63,37,320 on the plea of deferred receipt instead of treating the same as accrued receipt when admittedly the assessee is following mercantile system of accounting and the receipt should have been on accrual 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 .....

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taxes on the accrued receipts rather to evade ?" 2. Considering the gravity and importance of the present appeal, we requested Mr. J. P. Khaitan, learned senior advocate to act as amicus curiae to assist the court, which he did willingly and admirably. 3. This Income-tax appeal relates to the Income-tax assessments of the assessee for the assessment years 1989-90, 1990-91 and 1991-92. The assessee, a company, follows the mercantile system of accounting. Since trade mark and marketing assist .....

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al year 1990-91, that is in the assessment year 1991-92. However as fee was receivable from Telelink Nicco, the Assessing Officer treated the income as accrued and added it to the income of the assessee. Aggrieved, appeal was preferred before the Commissioner of Income-tax (Appeals). The assessee succeeded. The Revenue, being aggrieved, preferred appeal before the Income-tax Appellate Tribunal. The Tribunal found that the assessee, a co- promoter of Telelink Nicco and M/s. Nicco Orissa Ltd., had .....

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al 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 taxation. 4. Mr. S. N. Dutta, learned advocate for the appellant submits that there is no dispute that the fees were receivable from Telelink Nicco a sister .....

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amined. If deferment means postponing the income itself, as deferment was made prior to the close of the assessment year 1991-92 and parties agreed not to pay, therefore, it does not come within the ambit of the term "income". In support of his submission he has relied on the following judgments : CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC), CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC), CIT v. Simplex Concrete Piles India Pvt. Ltd. [1989] 179 ITR 8 (Cal) and CIT v. Sh .....

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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 ₹ 18,000 as office allowance. In the case of Gwalior Rayon & Silk Manufact .....

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etween the assessee-company and the managed companies no date for payment of the managing agency commission was stipulated. The commission was given up by the assessee-company after the end of the financial year but before the accounts of the managed companies were made up. The accounts of the managed companies were made up somewhere during the end of September of the year following the respective accounting years. But, in the case of office allowance, the same was given up even before the end o .....

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g to the question regarding giving up of the commission, as mentioned earlier, the assessee was maintaining its accounts on the 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 assess .....

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s on the basis of the mercantile system cannot lead to the conclusion that the commission had accrued to it by the end of the relevant accounting year." 8. The question as to when an income becomes due came up for consideration in CIT v. Excel Industries Ltd. (supra) wherein it was held as under (page 301 of 358 ITR) : "It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amoun .....

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gains of the assessee's business. Having regard to the facts of the case and taking note of the terms and conditions of the contract, which were examined by the Tribunal, the High Court held that since the retention money was legally due to the assessee on completion of work and on the fulfilment of obligations under the contract and as the dates of submission of the bills were immaterial and as the assessee had no right to claim any part of the retention money till verification of satisfac .....

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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 interest was planted in the relevant year of account, but the root or germ also fructified in the relevant year of account. A request came for giving up of the interest by a letter from the debtor-company within the year of account and the assessee also, in its return, within the year of account and before its accrual, gave up the claim of interest." The court .....

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