TMI Blog1979 (8) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee would have earned under the agreement if it was implemented, was a revenue receipt taxable under the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the aforesaid amount of Rs. 71,000 was taxable as the income of the assessee for assessment year 1970-71 ? " The brief facts are these : The assessee, a partnership firm, had entered into an agreement with M/s.Gaya Cotton Jute Mills Ltd. (hereinafter referred to as " the Jute Mills ") on February 1, 1957. By means of that agreement the Jute Mills appointed the assessee as the sole selling agent of pieces of all sorts and yarn manufactured by them. The assessee was to advance a loan of Rs. 1,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of costs and the matter went to the Supreme Court where some modification was ultimately made and admittedly the assessee received, on various dates, a total sum of Rs. 3,46,477.50. The assessee allocated that sum as under, Rs. (a) 1,50,000.00 for loan ; (b) 29,400.00 for interest already taxed ; (c) 25,822.33 unpaid credit notes for commission already taxed ; and (d) 1,41,255.17 compensation for agency. The sum of Rs. 29,400 was assessed on accrual basis in the assessments for 1959-60 to 1963-64 and the sum of Rs. 25,822.33 was also assessed on the same basis in assessment years 1959-60 and 1960-61. The sum of Rs. 29,243.13 was shown as profits and assessed in the assessment year 1964-65. The litigation expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, this amount of Rs. 71,010 on that basis was rightly taxed in the year under consideration. So far as the facts of the case are concerned, there is no dispute and they have been narrated in detail above. The first question to which we would like to address ourselves is whether the amount in dispute could be assessed in the year under consideration. This can be done if it is taken that in respect of commission the assessee follows cash system of accounting. If, on the other hand, it follows mercantile system, then this amount cannot be taxed in this year because, admittedly, it related to the period prior to the termination of the agreement, which as noted above, took place on August 31, 1958. It was submitted before us on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disbursements for the period in question. In the case of mercantile accounting system net profit or net loss is calculated after taking into consideration all the income and all the expenditure relating to the period, whether such income has actually been received or whether such expenditure had actually been paid or not. In the case of an assessee, who is following a method of accounting regularly, income is to be computed in accordance with such method. The department having adopted one basis of assessment cannot switch over to another basis. In Rattan Chand Dhawan v. CIT [1973] 87 ITR 660 (Punj), the assessee had given a loan in 1944 of Rs. 55,000 on a mortgage. No interest was received. He did not maintain any accounts. In the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a suit for recovery of compensation. That suit was decreed and the assessee received the amount in December, 1955, and credited it in its profit and loss account for the year 1955. The question was whether the amount accrued to the assessee, which had maintained its accounts on the mercantile system on April 3, 1951, or whether it was liable to pay tax on the amount under s. 10(5A) of the Indian I.T. Act, 1922, in the assessment year 1956-57. On a reference, the view taken by the High Court was that the amount accrued to the assessee on April 23, 1951, and that that amount was not taxable but the interest thereon was taxable under s. 10(5A) in the assessment year 1956-57. On appeal, the Supreme Court affirmed that view. It also held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy of that award is annex. " C " in the paper book and the figures are given at page 16. In column No. 1 the figures represent commission on production and in column No. 2 balance of credit and debit notes has been mentioned and column No. 3 contains the difference of the first two columns, that is, the net amount of compensation to which the assessee was entitled. Thus, the total amount was for the period from April, 1957, to the end of August, 1958, there being no dispute that unpaid credit notes for commission had been assessed on accrual basis. In other words, in regard to this source of income the assessee was following mercantile basis and the same was accepted by the department also. That being so, when subsequently the entire amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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