TMI Blog1982 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ept the stand taken by the Department and treated them as distinct and different entities and that controversy is not before us. This reference arises out of the assessment of the Delhi firm. It was stipulated between the Kanpur firm and the assessee-firm that all import licences held by the Kanpur firm shall be utilized by the assessee-firm in consideration of the assessee-firm's paying to the Kanpur firm a net commission at the rate of 1% on the value of imports under the licences in the name of the Kanpur firm. In the assessment proceedings for the assessment year 1967-68 (ending on May 31, 1966), the ITO noticed that the assessee-firm had debited its purchases by an amount of Rs. 6,39,124 on the basis of an advice note dated June 11, 1966, from the Delhi branch of the Kanpur firm. It was claimed that this sum represented the assessee's additional liability to foreign suppliers in respect of books imported by it on credit up to the end of the previous year, i.e., up to 31st May, 1966, on account of devaluation of Indian currency by the Government of India on June 6, 1966. The assessee-firm also increased the value of its closing stock of the imported books by Rs. 2,06,806. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... felt no difficulty in taking the correct amount into account as against the estimated or a hypothetical amount. In that view of the matter, the Tribunal upheld the stand taken by the assessee that though the devaluation of the Indian currency was announced by the Govt. of India six days after the end of the previous year, the assessee was justified in determining its liability on the basis of the actual figures available particularly when the accounts for that year had not been finalised. At the instance of the Revenue, the Tribunal has referred the following question for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 4,32,318 was allowable in the assessment year 1967-68 ? " Income-tax is a levy on income. It is well settled that what is assessed to tax in a business are not profits considered from a theoretical, academic or legalistic sense, but commercial profits, i.e., profits which are made in business by the carrying on of the business which a commercial man would accept as profits of that business (CIT v. Bai Shirinbai K. Kooka [1956] 30 ITR 753 (Bom)). This principle was ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, these amounts were credited to itself and debited to the managed companies. Subsequently, the assessee desired to have the managing agency transferred to two private companies and in this connection agreed to accept 2 1/2 per cent. as commission and gave up 75 percent. of its earnings. The Department sought to assess this 75 per cent. on the ground that the commission at 10 per cent. had already accrued to the assessee in the year of account and the amount given up after the close of the previous year could not save that portion from liability to income-tax. It was held that the subsequent agreement had altered the rate of commission in such way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration than what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable, on the principle that if income does not result at all, there canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. CIT [1971] 82 ITR 363. A similar question came up for consideration before the Punjab and Haryana High Court in Addl. CIT v. Jai Bajranj Nail Industries [1974] 95 ITR 415. In the original return for the assessment year 1965-66, for which the previous year was 1964-65, the claim for payment of bonus to employees was limited by the assessee to Rs. 2,000. The provisions regarding payment of bonus under the Payment of Bonus Act, 1965, were made applicable in respect of every " accounting year " commencing on any day in the year 1964. In view of this, the assessee filed a revised return on March 28, 1966, and claimed additional bonus of Rs. 6,200. The ITO rejected this claim but it was allowed on second appeal by the Appellate Tribunal. On a reference before the High Court, it was contended for the Revenue that the liability though it accrued for the year ending March 31, 1965, the same not having been reflected in the account books nor any provision having been made for the same, could not be accounted for in that year. It was held that the assessee was entitled to make adjustment in his accounts, which would relate back to the last date of the accounting period on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the loan was to commence from June 1, 1967. The assessee claimed that for the purpose of allowing development rebate, the additional liability, which was relatable to the cost of the machinery acquired in the calendar year 1966 (previous year) was required to be taken into account. This claim was disallowed right up to the Tribunal on the grounds: (i) the machineries were acquired before devaluation and additional liability subsequently arising on account of devaluation could not add to the original cost of acquisition ; (ii) no instalment of loan was repayable in the year of account and the question of recomputation of the cost of the machinery in view of the additional liability did not arise; and (iii) the additional liability could not be taken into account as it was not relatable to the cost of the acquisition of machineries but to repayment of loan taken from the ICICI. It was held that the increased liability, which arose on account of devaluation, was an integral part of the original arrangement between the parties. The assessee, who maintained it accounts, according to the mercantile system, can be said to have incurred such liability, when it started drawing upon the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il 1, 1948, to March 31, 1949. He made representations to the Government after the close of the year that he had incurred loss. The Government directed the payment of a certain sum to the assessee by way of compensation for the loss sustained in respect of the supply of bread. That amount was received by the assessee in the accounting year 1950-51. It was held that since the amount received was not on the basis of a right accrued in an earlier year it could be taken into account only in the year in which it was received by the assessee, i.e., in the accounting year 1950-51, and it could not be related back to the earlier year during which the assessee actually supplied bread to the hospital. In Swadeshi Cotton and Flour Mill's case [1964] 53 ITR 134 (SC), the assessee paid a certain sum by way of profit bonus to its employees for the calendar year 1947 in terms of an award made on January 13, 1949, under the Industrial Disputes Act. It debited the amount in its profit and loss account for the year 1948 but in fact paid it to the employees in the calendar year 1949. It was held that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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