TMI Blog1987 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... e had deposited Rs. 1,07,957 in a post office savings bank account which had been pledged to the District Magistrate, Sultanpur. In reply to the queries put by the Income-tax Officer, the assessee replied that the selling price of fertilizer was raised by the Government of India with effect from June 1, 1974. Later on, the U.P. Government, however, issued an Ordinance saying that the stock of fertilizer which the dealers held as on May 31, 1974, will have to be sold at the old rates. The fertilizer dealers, however, challenged this Ordinance of the U.P. Government unsuccessfully before the High Court. Aggrieved against the said judgment of the High Court, the dealers filed an appeal before the Supreme Court. In the appeals as filed by the said fertilizer dealers, the Supreme Court passed the following interim order on September 23, 1974 : "Sale of fertilizers may be made by the appellants-petitioners on permits issued by the Officer concerned at the new rates. The excess price in respect of the fertilizers which were in possession of the appellants before 1st June, 1974, should be deposited by the appellants with the District Magistrate concerned within a fortnight after the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel Industries [1987] 164 ITR 388, According to him, it was the real income of an assessee which was liable to be taxed. For this proposition, he relied upon a decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102. We shall advert to these authorities relied upon by standing counsel in the latter part of this judgment to show that these cases do not touch at all upon the controversy involved in the present case. Let us now advert to the relevant provisions of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). Section 4 of the Act is the charging section. Under this section, income-tax is chargeable for any assessment year in accordance with the provisions of the Act in respect of the total income of the previous year of every person. The relevant portion of section 5 of the Act reads as follows : " 5. Scope of total income.-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by ... such person; or (b) accrues or arises or is deemed to accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the word 'receiving' itself. The words 'accrue' and arise' also are not defined in the Act...' Accruing' is synonymous with arising ' in the sense of springing as a natural growth or result. The three expressions " accrues ' ' arises' and ' is received' having been used in the section, strictly speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word ' arises ' means comes into existence or notice or presents itself. The former connotes the idea of growth or accumulation and the latter of the growth or accumulation with a tangible shape as to be receivable." The observations of Lord justice Fry in the case of Colquhoun v. Brooks [1888] 21 QBD 52 at 59 were also quoted by Mukerji J. in the aforesaid case of Rogers Pyatt Shellac and Co. [1925] 1 ITC 363 as follows: " In the first place, I would observe that the tax is in respect of profits or gains arising or accruing'. I cannot read those words as meaning 'received by '. If the enactment were limited to profits and gains 'received by' the person to be charged, that limitation would apply as much to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in futuro (emphasis supplied): see W. S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532 at 529 and Webb v. Stenton and Others, Garnishees [1883] 11 QBD 518 at 522, 527. Unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. " The question to be considered in the present case is when did the income or right to receive payment in dispute accrue or arise. According to the Oxford English Dictionary, the meaning of the word " accrue " is "to fall as a natural growth or increment ; to come as an accession or advantage ". The word " arise " is defined as " to spring up, to come into existence ". The words " accrue " and " arise. " do not mean actual receipt of profits or gains. Both these words are used in contradistinction to the word " receive " and indicate a right to receive. Thus, it is manifest that if an assessee acquires a right to receive the income, the income can be said to accrue to him though it may be received later on. In the present case, therefore, what is to be examined is as to whether the assessee had any right to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1954] 26 ITR 27, the Supreme Court has in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 at 527, reiterated the said principles and has held that unless and until there is a debt created in favour of an assessee due by somebody, it cannot be said that he has acquired a right to receive the income. In the aforesaid case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC), although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the assessee on account of compulsory acquisition of land, the entire amount was in dispute in the appeal filed by the State Government. On this aspect of the matter in the aforesaid case of Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC), the Supreme Court has observed at page 527 thus : " Indeed the dispute was regarded by the court as real and substantial, because the assessee was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on April 25, 1956, without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the Tribunal was justified in its conclusion that the amount of Rs. 8,76,277 did not partake of the nature of a trading receipt and on that ground itself the amount fell to be excluded from the total income of the assessee. It may be pointed out that the right to collect the amount in excess of the price fixed by the control order was saddled with the obligation to deposit the amount in a separate account and the assessee is always held accountable for the excess collection, pending decision of the Supreme Court. " In view of what has been stated above, therefore, it is crystal clear that on the admitted facts of the present case, till the claim of the assessee is 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 and that, therefore, a debt was created in favour of the assessee. In our opinion, therefore, the Income-tax Tribunal was right in law in holding that on the facts of the present case, the assessee did not acquire a right to receive the disputed amount nor can the said amount be taxed as income " accrued " or " arisen " to the assessee. Let us now take stock of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as interest without treating it as a bad debt and by keeping it in a suspense account, it could not be said that the said amount was not the income of the assessee. It was ultimately held that the interest on " sticky advances " was rightly treated as income which has accrued to the appellant. The first question referred in the case of State Batik of Travancore [1986] 158 ITR 102 (SC) was as to whether the amounts representing interest on " sticky advances " was the income of the assessee. On this question, in the majority opinion at page 146 of the report, the Supreme Court has observed as follows : " In our view, therefore, the concept of real income cannot be so used as to make accrued income non-income simply because after the event of accrual, the assessee neither decides to treat it as a bad debt nor claims deductions under section 36(2) of the Act, but still enters the same with diminished hope of recovery in the suspense account.' ..Extension of the concept of real income to this field to negate accrual after the amount bad become payable is contrary to the postulates of the Act." Thereafter, at page 152, it was ultimately held: " The concept of reality of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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