TMI Blog1997 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... June 30, 1977), declaring income of Rs. 1,11,190. The assessee had shown, in its balance-sheet, a sum of Rs. 2,01,236 on the liabilities side under the head "Post warranty service advances" (P. W. S. advances). The assessee had received advances from the buyers of tractors to cover the service charges of tractors for a period of one year after the expiry of the warranty period of one year. The assessee explained before the Assessing Officer that there was an obligation on the part of the assessee to provide free services to the tractors under warranty for one year as required by the manufacturers. After the expiry of the warranty period of one year, further period of one year was also covered by the assessee for servicing the tractors and, for those services of the post-warranty period, the assessee received money from the buyers. The Assessing Officer examined the quarterly receipts of the money and looked into the period covered by each quarterly receipt and treated, on proportionate basis, a sum of Rs. 15,953 as the income of the assessee. The Commissioner of Income-tax took notice of the assessment under section 263 of the Act on the ground that the assessment order was err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no dispute that the assessee had provided free service to the purchasers of the tractors for one year from the date of purchase and had agreed to provide further service for the next one year under the P. W. S. scheme. Though the P. W. S. charges were received at the time of the sale of the tractors, those were not part of the sale price. The purchasers, who desired to avail of the scheme known as "P. W. S. scheme" for one year after the expiry of the warranty period, paid money towards the charges under that scheme at the time of the purchase. Though it was not part of the sale price but a voluntary payment to join the P. W. S. scheme, it was a trading receipt in the hands of the assessee. Shri Gupta has argued that accrual of income cannot follow the receipt of money. If once the money was received and there was no dispute that it was a revenue receipt, there would be the only conclusion that it was assessable in the year of receipt. The assessee is maintaining its accounts on the mercantile system. If the accounts are so maintained, whenever the right to receive money in the course of a trading transaction accrues or arises, the income is deemed to accrue or arise. Where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed merely on the ground that the assessee had been following the mercantile system of accounting. In a case of sale, title to "immovable property of the value of rupees one hundred or above" passed to the transferee only when the sale deed was executed and registered. But, the title to movables passed when they were delivered to the transferee. In a case of rendering of service, income would accrue at the time of such rendering. In the case of the assessee before us, money was paid by the buyers towards P. W. S. charges. Services were required to be rendered by the assessee for one year after the expiry of the warranty period, that is to say, one year after the date of receipt of money. The assessee was also bound to refund the deposit to a member of the scheme if that member so desired. The assessee had refunded a sum of Rs. 19,320 to those persons who did not want to continue as members of the scheme. Every receipt was thus not necessarily income. Shri B. S. Gupta, learned senior counsel for the Department, has argued that accrual could not occur after receipt. It was admittedly a revenue receipt. The only dispute was as to when it was liable to be assessed. If the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account as being payment for work done. The income had accrued and was also received by the assessee. The condition that if the assessee failed to perform the work in time that amount was refundable was a kind of penalty and did not affect accrual. In the event of the amount becoming refundable due to a default, the question, whether it had to be written back in the accounts, will have to be considered. The Bombay High Court in CIT v. Batliboi and Co. Pvt. Ltd. [1984] 149 ITR 604, had also an occasion to examine a case of a dealer in machinery. He used to debit deposits from intending purchasers of machinery which were later adjusted towards the purchase price of the machinery sold. The surplus deposits were not generally refunded to the customers. Such excess deposits, which the assessee was unable to refund to the customers, were transferred to the profit and loss account. However, the assessee claimed before the Income-tax Officer that the amount, so transferred, did not represent a taxable receipt. The Income-tax Officer negatived the claim of the assessee. The Appellate Assistant Commissioner held that the amounts having been originally received as depos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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