TMI Blog2008 (3) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... the royalty amount. Therefore, notwithstanding the mercantile system of accounting being followed by the assessee, royalty income accrued in favour of assessee only in the years the right to receive such royalty income accrued in favour of assessee as per the terms of consent letter. Accordingly, royalty accrued in favour of the assessee in the AY 2003-04 and AY 2004-05. As the assessee was in receipt of royalty of from GGL for the period 1st April, 1993 to 31st March, 1995 during the relevant assessment year under consideration, the same is liable to be taxed accordingly in the AY 2002-03 under consideration. We direct accordingly. Charging of interest under ss. 234B and 234C is consequential in nature, the AO is directed to give due credit for the TDS pertaining to the income received by the assessee and recompute the interest chargeable under ss. 234B and 234C of the Act. In the result, the appeal of the assessee is allowed in terms indicated hereinabove. - I. P. Bansal (Judicial Member) And R. C. Sharma (Accountant Member) For the Appellant : A. Vohra Neeraj Jain For the Respondent : Devendra Shanker ORDER R. C. Sharma (Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for payment of said past royalty amount to M/s Guardian Industries Corpn. USA in 6 semi-annual instalments of ₹ 47.46 million each commencing from 1st Oct., 2001 till 1st April, 2004 subject to availability of adequate cash flows and that there are no overdues payable by the company to any institution/bank at the time of making payment of any royalty instalment. 3. Thus, it is quite clear that the approval letter dt. 26th April, 2001 did not confer absolute rights to GGL for payment of royalty, nor to the assessee to receive such royalty income, inasmuch as the same was subject to the availability of the adequate cash flow and there being no overdues payable by the GGL to the institution at the time of payment of royalty. As during the year under consideration, adequate cash flow was not available, GGL made royalty payment only of ₹ 5.18 lacs pertaining to 1st April, 1993 to 31st March, 1995. In terms of the instalments laid down by IDBI, royalty for the period 1st April, 1995 to 31st March, 1997 amounting to ₹ 10.17 crores became due to the assessee during the financial year ending on 31st March, 2003, and royalty for the period 1st April, 1997 to 31st Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty by means of letter dt. 26th April, 2001 and, therefore, royalty accrued to appellant on this date. The important sentence in this letter is please refer to your letter dt. 5th Jan., 2001 and subsequent discussions your representatives had with us on the above subject. In this connection, we advise that your request for making payment of past unpaid royalty amount of about ₹ 284.8 million to M/s Gurdian Industries Corporation USA has been examined carefully and IDBI (lead) is agreeable, in principle for payment of said past royalty amount to M/s Guardian Industries Corporation, USA.......... .The subsequent condition with regard to available cash flow and there being no overdues is merely a technical restriction and does not affect the right of the appellant to receive. It is merely a deferral of payment. Further he relied on the judgment of Hon'ble Delhi High Court in case of Bhai Sunder Dass Sons Co. (P) Ltd. vs. CIT (2002) 178 CTR (Del) 1 : (2003) 259 ITR 33 (Del) wherein it held as follows : Held that there was no dispute with regard to the existence and the genuineness of the agreement dt. 5th May, 1970, stated to have been entered into between the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... postponed to the extent of uncertainty. In the instant case due to restriction but by the IDBI, royalty income amounting to ₹ 21.53 crores did not accrue to the assessee in the relevant previous year under consideration. In terms of the conditions laid down by the IDBI for realization of royalty of ₹ 10.17 crores relating to the period of 1st April, 1995 to 31st March, 1997 became due to the assessee only during the year ending on 31st March, 2003 i.e. asst. yr. 2003-04; similarly royalty amounting to ₹ 11.96 crores for the period from 1st April, 1997 to 31st March, 1999 became due during the year ending on 31st March, 2004 i.e. asst. yr. 2004-05. Income can be said to accrue when the assessee got the right to receive income. Merely because assessee is following mercantile system of accounting, the income which is subject to some terms and conditions of agreement and contingent, cannot be brought into the tax net, unless assessee acquires absolute right to receive such income. In the instant case, GGL had obtained financial assistance from IDBI on certain terms and conditions. Such terms and conditions inter alia included the terms under which GGL could pay the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission was not dependent on the Reserve Bank of India permission to remit the same abroad, what was deferred was the discharge of liability and not the accrual of liability, the assessee was therefore held to be entitled to claim deduction of the commission in the year of accrual. However the instant case is quite distinguishable wherein there was restriction on the payment of royalty by the IDBI to which assessee has also consented. Because of this restriction assessee's right to receive such royalty income only accrued as per the terms of IDBI letter. Accordingly only that portion of royalty income was accrued during the respective years for which the assessee got the right to receive the same during those years as per terms of IDBI letter. 7. In view of the above discussion, we can safely conclude that payment of royalty to the assessee by GGL was fixed by the IDBI, for which assessee had also consented, and the same was dependent on the terms and conditions of no overdue debt to the financial institution and there being availability of sufficient cash flow in the hands of GGL, at the time of payment of instalment, can be considered as sufficient riders for postponing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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