TMI Blog1984 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings relating to the years of assessment 1973-74, 1976-77 and 1977-78. These issues now before us are identical to the issues we have already dealt with while answering the question in I.T.Rs. Nos. 279 and 280 of 1979 [CIT v. Kerala Financial Corporation, [1985] 155 ITR 228 (Ker)] which related to the assessment years 1974-75 and 1975-76. The facts stated in that judgment disposing of these cases are not repeated here. The facts which are peculiar to these references alone are stated hereunder: In the year of assessment 1973-74 in making the original assessment, the ITO had not brought to tax the interest credited to the 'suspense account'. He, however, reopened the assessment and brought to tax the interest aforesaid on the finding that inasmuch as the assessee was following mercantile system of accounting, the income must be held to have accrued during the relevant period. For the year of assessment 1976-77, the interest credited to the 'suspense account' had been brought to tax in the original assessment itself. Similarly for the year 1977-78 also such interest had been brought to tax in the assessment. The appellate authority accepted the case of the assessee that such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77] 110 ITR 336 and the unreported decision State Bank of Travancore v. CIT (I.T.R. Nos. 27, 28 and 29 of 1971). The Department also refuted the contention of the assessee that the issue involved in the case was directly covered by a circular of the C.B.D.T. (annex. B). The questions referred to this court have to be tackled in the light of the principles of law we propose to state immediately. Under s. 5 of the Act, income is charged on either " accrual or arisal basis " or " deemed accrual or deemed arisal basis " or " receipt basis " or " deemed receipt basis. " In CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144, the Supreme Court explained this aspect thus (p. 148): " ........... the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt ..........." The meaning of these terms has succinctly been stated by the Supreme Court in Seth Pushalal Mansinghka (P.) Ltd. v. CIT [1967] 66 ITR 159. It reads (p. 164): " The words 'accrue' and 'arise' do not mean actual receipt of the profits or gains. Both these words are used in contradistinction to the word 'receive' and indicate a right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. The profits or gains of the business which are thus credited are not realised but having been earned are treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are book profits. Receipt being not the sole test of chargeability and Profits and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax, the assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen." Section 145, in other words, is only an enabling provision to effectuate the charge. To hold otherwise would be to take chargeable profits/income outside the purview of the charging section, although such profits/income have either accrued or arisen o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different from the mercantile system of accounting. It is not as if the assessee was not aware of the difference between the mercantile system of accounting and cash system of accounting. In this context, it is relevant to note the following findings of the Tribunal: " But in respect of advances for the recovery of which suits have been filed and decrees have been obtained, the assessee has been crediting interest only as and when the same has been received. " The change thus adopted by the assessee under no circumstances could be said to be a change in the method of accounting. It may at best be said that the assessee has introduced a change in the modality of accounting. Virtually, the questions involved in the cases are covered by the decisions of this court in Catholic Bank [1964] KLT 653 and State Bank of Travancore [1977] 110 ITR 336 (Ker). The distinction drawn on facts by the Tribunal to distinguish the above decisions of this court, in the circumstances of the case, is no distinction at all. The Tribunal has thus misdirected itself in law. The counsel for the Revenue, therefore, is right in his submission that the findings of the Tribunal are liable to be reviewed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case on hand, income has not materialised although the assessee has made entries about the same in the " suspense account. " The accrual in such circumstances can only be a hypothetical accrual, he further submits. The income sought to be assessed, therefore, is not exigible to tax as it has not materialised. In support of the above argument, the counsel called our attention to a number of authorities. All relevant authorities have already been dealt with by us in our judgment disposing of I.T.R. Nos. 279 and 280 of 1979. However, we would like to refer to some of those authorities which clinch the issue. They are: H. M. Kashiparekh Co. Ltd. v. CIT [1960] 39 ITR 706 (Bom), CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 (SC); Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC); Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) and CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC). In Birla Gwalior (P.) Ltd.'s case [1973] 89 ITR 266 (SC), the Supreme Court reviewed the case law pertaining to the concept of " real income. " This was a case where the assessee had given up/forgone a portion of the managing agency commission. The question arose whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tile system followed by an assessee has no bearing on the accrual of the income, (3) hypothetical income based on hypothetical accrual is not includible in the total chargeable income of an assessee, and (4) income given up on the ground of commercial expediency, but before accrual, is not chargeable income. Briefly stated, the ratio decidendi of these decisions is that the income given up or forgone by an assessee on the basis of bilateral agreements or under provisions of statutes but before its accrual is not chargeable not withstanding the fact that entries in respect of it has been made in his books of account which are maintained on a mercantile basis. " Hypothetical income" contemplated in these decisions is the income the assessee could have had under the original agreement which was subsequently varied in the course of the current year reducing the quantum before its accrual and once it has accrued, it ceases to be hypothetical income. The concept of " real income " is based on the above dictum. In the case on hand, the assessee had not given up or forgone the interest but, apprehending that it may have to write off the said interest as irrecoverable at a future date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It is by now well-established that a new point or plea which " depends for its validity upon questions of fact which have not been investigated " cannot be raised for the first time before this court in the exercise of its advisory jurisdiction. It has been so held by the Privy Council in Malik Damsaz Khan v. CIT [1947] 15 ITR 445 (PC). The Supreme Court in Dhandhania Kedia Co. v. CIT [1959] 35 ITR 400 (SC), New Jehangir Vakil Mills Ltd. v. CIT (1959] 37 ITR 11 (SC), and CIT v. Paluram Dhanania [1966] 60 ITR 250 (SC) has expressed the same view and hence this point which turns on disputed questions of fact cannot be allowed to be raised at this stage. We shall now deal with the letter of the C.B.D.T., annexure B. taxpayer has a right to enforce beneficial circulars issued by the C.B.D.T. even in courts. It is also well established that subsequent withdrawal of such a circular will not take away the right of a taxpayer to enjoy the benefit conferred on him by the circular during the validity of the circular. Decisions in this respect are many. It is enough if we refer to two decisions of the Supreme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC of LT. [1965] 56 ITR 198 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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