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TMI Blog1973 (2) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Associated Planters Ltd. waived the claim for interest and, therefore, the amount was credited to the revenue accounts of the assessees. The assessees were admittedly following the mercantile system of accounting. The question that arose for decision before the Tribunal was whether this sum of Rs. 33,747.09 credited towards interest in the relevant previous year could be assessed in the year 1964-65. The Tribunal, by a majority, held that it was not agricultural income. The question to be decided is whether the view of the Tribunal is correct. The departmental member who wrote the dissenting order relied on the decision of the Bombay High Court in In re Union Bank of Bijapur and Sholapur Ltd. in support of his view that the amount credited to the account, viz., Rs. 33,747.09, is agricultural income. Before us, counsel on behalf of the revenue and counsel for the assessees have referred to a large number of decisions, most of which had been noticed and dealt with in the judgment of the Mysore High Court in Commissioner of Income-tax v. Lakshmamma. A reference to these decisions would show that there is apparent conflict between the set of decisions in In re Union Bank, Gajapat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only remission. Even in the mercantile system of accounting no deductions can be claimed unless the deduction claimed related to a liability that had accrued. Similarly in the case of entries relating to receipts there can be no entry in a mercantile system of accounting unless the amount covered be the entry had actually become due to the assessee. The difference between the cash system and the mercantile system is only that a particular assessee considered it convenient for the purpose of his business to include in his accounts expenditure and income as soon as the liability towards the expenses or the right to receive the income, as the case may be, had crystallised in the sense that it had accrued. This method of accounting is an acceptable form of accounting for the purpose of income-tax assessments. In the cash system of accounting the income-tax department is not entitled to say that the income that had actually accrued during the relevant previous year but which had not been actually received by the assessee should be taken into account. In the case of the mercantile system of accounting on a remission being made by a person to whom a debt was due from the assessee--a debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt for the period within which the concession is made. " These observations mean that the benefits resulting from a remission will not amount to a trade receipt and will not, therefore, give rise to income for the purpose of income-tax assessment. It appears to us that there will be no distinction between a release or a remission on the one hand or a receipt, actual or constructive, on the other; for a receipt, we conceive, will also not be a trading receipt. We have been confronted with a decision of the Bombay High Court in In re Union Bank of Bijapur and Sholapur Ltd, wherein Beaumont C.J. had, on a very brief statement of the law, expressed himself thus: "The embezzlement was, no doubt, substantially more than the income of that year. In a subsequent year a sum is found to have been recovered in respect of that embezzlement, and it seems to me that the assessee, having alleged that the embezzlement was an embezzlement of income, which could properly be set off against income, in a previous year cannot affirm in another year that it was not income and that a recovery in respect of it is a casual appreciation of capital, as he seeks to do. " As we understand this decision, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made by a creditor being taxed. With very great respect we do not think this is a correct statement of the law. Some of the decisions that have been referred to proceeded on an entirely different basis, which had been noticed by Rowlatt J. in his judgment in British Mexican Petroleum Co. v. Jackson, that in cases where either the price of goods delivered had not been finally settled or the amount payable towards remuneration for services rendered had not been finally agreed upon and, therefore, negotiations were in progress and it was finally settled only in a subsequent year, it is the figure that is finally settled that should be taken into account. In such cases it is the principle of the decision in Severne v. Dadswell, very briefly stated in the words of Roxburgh J. thus, that must apply: "But a study of the cases under the able guidance of counsel has convinced me, however, that the relevant question is not whether at the date of retirement there was any outstanding book debt or any contingent or deferred legal or equitable right, but whether any work had been done in the course of trade in respect of which the reward had not been finally settled, or, in other words, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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