TMI Blog1997 (8) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... stion has been referred in each reference and that common question is identical to question No. 2 referred in the asst. yr. 1978-79. Question No. 1 in IT Ref. No. 37 of 1984 3. The assessee-firm was dealing in crushing bones and the manufacture and sale of its bye -products. Return of income for the asst. yr. 1978-79 was filed, declaring income of Rs. 67,963. The assessee had claimed weighted deduction under s. 35B of the Act on the total expenditure of Rs. 2,22,267. The AO allowed weighted deduction on commission and trade discount of Rs. 9,257 only. In appeal, the CIT agreed with the assessee that expenditures, other than those covered under sub-cl. (iii) of cl. (b) of s. 35B(1), are not to be excluded on the ground that those were incurred in India. The CIT(A) also agreed for allowing weighted deduction on salaries (Rs. 66,101), printing and stationeries (Rs. 7,727/-), gratuity (Rs. 4,313/-) electricity (Rs. 2,599), postage and telegrams (Rs. 1,252) and travelling expenses (Rs. 4,688). The assessee had shown total exports at Rs. 51,42,000 against total turnover of Rs. 81,55,000. The export was thus about 63 per cent of the total turnover. The CIT(A) after adopting the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing into force of the aforesaid Act, w.e.f. 10th Sept., 1972, the payment is a statutory liability in case of employers. The said Act has subsequently been amended several times. 5. There is no dispute to the fact that payment of gratuity is an allowable deduction under s. 37(1) of the Act. Gratuity is paid to a retiring employee in lieu of his past services. The plea put forward by Shri Gupta, learned senior counsel for the Department, is that the amount paid by way of gratuity was not an expenditure for the service rendered by an employee during the current year. Since it was not paid in lieu of the service rendered during the current year, it was not admissible for the purpose of weighted deduction inasmuch as it was not relatable to the development of export market during the year. 6. As has been seen earlier, weighted deduction was allowed by the CIT(A) as well as the Tribunal on various establishment expenditures including salary. Gratuity is paid to an employee by way of remuneration in lieu of his past services. Therefore, it would be difficult to say that it was different from salary. In these circumstances, no distinction can be drawn between the allowability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted right, it could not form part of the income of the year. 8. None of the two amounts mentioned above, was stated to have accrued during the accounting year ending on 31st March, 1978 inasmuch as those were received after the said date. Even the second amount of Rs. 1,04,304 had not accrued as the application was made after the close of the accounting year. Since the claim for cash incentive was required to be filed at the end of each quarter and it was admissible only when the exporter submitted the application, the income was said to be not assessable before its receipt, as per the assessee. The Tribunal took the view that cash incentive accrued to the assessee on the date on which application for claim was made by the assessee to the competent authority. Shri B.S. Gupta, learned senior counsel for the Department, has argued that the actual computation of the cash incentive was only a formal act and may be done at any time. Quantification was, therefore, not a condition precedent to the accrual of a right. If the assessee had acquired the right during the year under assessment on his exports, its value should be included in that year. Determination or quantification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be synonymous and have been used for bringing in a natural result. Strictly speaking, the word 'accrue' may not be synonymous with 'arise'; the former would be connoting the idea of growth or accumulation and the latter, of the growth or accumulation with a tangible shape so as to be receivable. It is clear that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires the right to receive the income, the income can be said to have accrued to him though it may be received later, on its being ascertained. The basic conception is that he must have acquired a right to receive the income. When an ITO includes a particular income in the assessment, two questions would arise, namely, what was the system of accountancy adopted by the assessee and when has the right to receive the amount accrued. If it is found that the mercantile system of accountancy is followed by the assessee, then the question would arise as to when the right accrued or arose in a particular accounting year. Income which accrues to an assessee is taxable in his hands. However, income which he could have but has not earned cannot be made taxable as income accrued to him. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of interest in part to the "Interest suspense account". A certain portion of the interest was taken to the P L a/c. It was held that the entire income had accrued to the assessee and the transfer of part of the interest to a suspense account was indicative of the fact that the assessee treated the income as having accrued to it. If that was so, there would be nothing to transfer part of the income to the suspense account. 15. The Allahabad High Court in CIT vs. Govind Prasad Prabhu Nath (1988) 72 CTR (All) 62 : (1988) 171 ITR 417 (All) : TC 39R.301, noticed, in the case of an assessee-firm selling fertilisers and maintaining its accounts on the mercantile system, that certain money, received by way of excess price, had been deposited under the orders of the Supreme Court with the district magistrate in a separate account. The claim of the assessee was that this amount did not represent its income. It was held that till the claim of the assessee was decided by the Supreme Court, it could not be said that there was in existence a right in favour of the assessee to receive the amount in question. Amount had not accrued or arisen to the assessee nor was it received. It was, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not received in British India by establishing that it arose or accrued there". 18. The Supreme Court in CIT vs. Ashokbhai Chimanbhai, (1965) 56 ITR 42 (SC): TC 39R.904, has held that the words "accrue" and "arise" are used to contra-distinguish the word "receive". Income is said to be received when it reaches the assessee. When the right to receive the income becomes vested in the assessee, it is said to accrue or arise. 19. In Morvi Industries Ltd. vs. CIT 1974 CTR (SC) 149 : (1971) 82 ITR 835 (SC) : TC 39R.720, the Supreme Court had again an occasion to examine a case of accrual of income to an assessee maintaining mercantile system of accounting. It was held that, under the mercantile system, credit entries are made in respect of amounts due immediately they become legally due and before they are actually received. 20. In CIT vs. Hindustan Housing Land Development Trust Limited (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC) : TC 39R.624, the Supreme Court was examining a case of compulsory acquisition of land. Additional compensation was fixed by the arbitrator. But an appeal was filed by the Government against the award and, therefore, the amount was deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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