TMI Blog1992 (11) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... . Under clause 13 of the memorandum of association of the company it could enter into any agreement for sharing of profits, union of interest, joint ventures, etc., with any other business entity. Pursuant to the above clause the company entered into an agreement with the partners of the firm, Messrs. Ace Builders, to take over the entire business and in particular to get transferred in the name of the company the right of lease granted to the said firm in respect of plot No. 239 situated at Backbay Reclamation, Nariman Point, Bombay. It may be observed that the firm had been allotted a plot of land by the Maharashtra Government by allotment letter dated March 28, 1970. As per the said letter the firm agreed to take the said plot in exchange for previous plot allotted to it at Foreshore Road, Bombay, and agreed not to claim any compensation for the expenditure incurred in respect of the previous plot which was to be surrendered to the Government. It was stipulated in the agreement that the firm shall make an immediate deposit of Rs. 50,000 and shall further deposit one year's full ground rent for the said plot which amounted to Rs. 6 lakhs. The rent-free period of lease was to run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire construction was completed and the society was formed in whose favour the lease of the plot along with the building itself was to be transferred. The assessee had credited to its profit and loss account the difference between the amount it was paying to the firm of Messrs. Ace Builders for transfer of the lease and the amount it was receiving from year to year towards the guaranteed profits. In the first year ended on 30-6-1971 (the assessment year 1972-73), the assessee showed a loss of Rs. 970 being establishment expenses, the account being debited and credited respectively with the sum of Rs. 6,25,000 described as purchase of lease plot and lease plot at close. During the second year, i.e., previous year ended on June 30, 1972 (assessment year 1973-74), the assessee received a sum of Rs. 7,10,000 towards guaranteed profits. It debited Rs. 6,25,000 towards the cost of the lease plot brought forward and after deducting the cost of establishment and other expenses from the balance of Rs. 85,000 the net profit of Rs. 30,570 was shown in the return for assessment year 1973-74. In the third year ended on June 30, 1973, i.e., assessment year 1974-75, the guaranteed profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crued to the assessee only on dates when they fell due as per the terms of the agreement. Before that date the assessee had no enforceable right. It was also contended before the Tribunal that the assessee had offered the amount received by it for the assessment year on receipt basis. A sum of Rs. 6,25,000 fell due to the assessee in the previous year ending on June 30, 1972, but the assessee received a sum of Rs. 7,10,000. Thus some amount was received even before it was due. The assessee offered the entire amount received for assessment. So even if the income is taken on accrual basis also, in the assessment year 1972-73, as per the agreement, it will not bring any change in the computation of income because nothing accrued during that year. The submissions of the assessee found favour with the Tribunal. The Tribunal considered the agreement dated March 4, 1971, between the assessee and the builder and referring to clause 9 thereof held that the guaranteed profits were scheduled to be paid in different instalments on different dates before December 31, 1973. It was also observed that though the building was completed in December, 1975, the amount was paid on the due dates. The Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 85,000 received before execution of this agreement which the owners hereby acknowledge 1,00,000 Before 1-4-1971 1,50,000 Before 1-5-1971 3,50,000 Before 1-5-1972 50,000 Before 31-3-1973 40,000 Before 30-9-1973 25,000 Before 31-12-1973 ----------------- 8,00,000 ----------------- If there is any surplus left, the builders shall be entitled to appropriate the sums in full towards their profits in the construction work and commission on sale of tenements. The builders shall be bound to pay the said sum of Rs. 8,00,000 to the owners irrespective of the fact whether there is any profit available for such payment of Rs. 8,00,000, the said profit being guaranteed by the builders. From a plain reading of this clause it is clear that it was the total guaranteed profit that was determined at Rs. 8 lakhs. From the agreement it is also evident that the work in connection with which the guaranteed profits were to be given to the assessee was not expected to be completed immediately on execution of the agreement or within the previous year during which the agreement was executed. It was to take a number of years. It is in this context that the profits were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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