TMI Blog1978 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 36(1)(vii) of the Income-tax Act, 1961. The relevant and material facts in respect of this question are that the assessee had been doing fabrication work for a concern called, Free India Dry Accumulators Ltd. (" Fida " for short) since 1951. By the beginning of 1958 a sum of Rs. 7,721 had become due to the assessee from Fida. Fida had two subsidiary concerns, called M/s. Shanker Sugar Mills, Captainganj, and Shankar Distillery. These were also under the same management as that of Fida. The assessee-company did some fabrication work for these two concerns also. On 1st January, 1958, Rs. 14,711 were due from M/s. Shankar Distillery and Rs. 45,000 from M/s. Shankar Sugar Mills. With the consent of the assessee, these sums which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the other two items, namely, Rs. 14,711 due from M/s. Shankar Distillery, and Rs. 45,000 due from M/s. Shanker Sugar' Mills, the Tribunal found on facts that there was no material on the record to assume that the transfer of these two amounts to the account of Fida was either in cash or made as a deposit. On the materials it was evident that the assessee agreed to the transfer because the new management of Fida insisted upon it and with a view to realise as much of this debt as was under the circumstances possible. It was transfer of a trading debt from one concern to another sister concern, and the true nature and character of the debt did not change by this transfer. The transfer was made by adjustment in books and no amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee fixed the requisite machinery for motor car repairs and sub-leased the property and the machinery to M/s. Poddar Automobiles Ltd. on a monthly rent of Rs. 2,500. The receiver filed a, suit for ejectment and obtained a decree on 1st December, 1949, entitling the receiver to terminate the lease and to recover mesne profits at the rate of Rs. 60 per day from. 28th February, 1947, till possession. The heirs of Nawal Kishore Halwasiya, one of the partners of the assessee-firm, filed a suit against the receiver, namely, M/s. Talbot Co., in the year 1950. This dragged on, and ultimately was settled out of court by a compromise dated 25th July, 1959. Under this compromise M/s. Talbot Co. agreed to pay Rs. 64,680 to the assessee towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in so far as this amount is concerned, the assessee had adopted cash system of accountancy, and, therefore, it was assessable in the year in which it was received. On appeal, the AAC affirmed the finding. The assessee went up to the Tribunal. The Tribunal noticed that the assessee had sold away its rights in the land as well as machineries installed on this plot in the year 1958, and, therefore, the source of this rental income itself had ceased to exist long prior to the accounting period relevant to the assessment year 1961-62. In the next place, it was admitted that the assessee had all along been following the mercantile system of accounting. The assessee was justified in not making any entry of receipt of rent on accrua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the view that in view of the litigations which were pending between the parties the assessee was not in a position to know whether it was at all likely to receive any income from this property during those years. The assessee was justified in not showing in its books of account any income accruing from this source in those years. Further, the action of the ITO in making assessments for 1956-57 and 1957-58, in respect of portions of this income could only be justified on the basis that the mercantile system of accountancy had been accepted for this very source of income on the basis of accrual in each of the years 1950 to 1958, for which the amount was received by the assessee under the compromise. Having passed an assessment order in res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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