TMI Blog2006 (6) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... 986, when the assessee was maintaining the accounts on mercantile basis - Tribunal is correct in law in holding that the right of receiving the entire lease amount accrued to the assessee - - - - - Dated:- 16-6-2006 - Judge(s) : BILAL NAZKI., G. CHANDRAIAH. JUDGMENT The judgment of the court was delivered by Bilal Nazki J.- This is a reference made at the instance of the assessee. The facts leading to the reference are that the assessee-firm carried on business in distribution of feature films. It had acquired rights over a film called "Paramanandayya Sishvula Katha" during the year 1974 from its producers M/s. Sri Devi Productions, Tanuku. During the year under consideration the assessee sold the leasehold rights in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the rival submissions, the facts and material on record. We are unable to agree with the learned Commissioner of Income-tax (Appeals) in this respect. In repetitive five lease agreements, the assessee had received Rs. 1 lakh as advance which is not refundable in any circumstances. Inter se agreements between the parties that the advances had to be adjusted in 5 years cannot determine the accrual of income for purposes of taxing it. As per the agreements, the assessee had right to receive this Rs. 1 lakh along with Rs. 63,750 which was already taxed and the same is non-refundable. The right of receiving the entire amount is therefore accrued to the assessee when the agreement was made, i.e., during the year under appeal, as- alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain judgments, but before going to these judgments, it may be noted that while the Income-tax Officer had given a finding that the assessee was following the cash system of accounting and he was not under an obligation to return the deposit under any circumstances, but on appeal, the Commissioner of Income-tax (Appeals) gave a finding that there was no justification for the observation of the Income-tax Officer that the assessee was following the cash system of accounting. As a matter of fact, he had stated that in the preceding year itself the Department had accepted the mercantile system being followed by the assessee. The judgment of the Supreme Court reported in CIT v. K.R.M.T.T. Thiagaraja Chetty and Co. [1953] 24 ITR 525 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subjected to tax when it is no more than a mere right to receive. This argument involves the fallacy that profits do not accrue unless and until they are actually computed. The computation of the profits whenever it may take place cannot possibly be allowed to suspend their accrual. In the case of income where there is a condition that the commission will not be payable until the expiry of a definite period or the making up of the account, it might be said with some justification, though we do not decide it, that the income has not accrued, but there is no such condition in the present case. Clauses 7 and 8 of the agreement which relate to the payment of the commission and the calculation of the profits mean no more than this that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under must necessarily relate to the assessment of the year under review, revision or appeal, as the case may be." We do not find that this judgment in any way helps the assessee because it was always the question to be decided by the Income-tax Officer and the appellate authority or the Tribunal whether the income received by the assessee in a year could be spread for five years or could be taken as income for the previous year. The judgment of the Supreme Court in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 was also in a different context whether the words "accrue" and "arise" are used to contradistinguish the word "receive". It was held that when the right to income becomes vested in the assessee, it was said to accrue or arise. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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