TMI Blog1978 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... d. took place pursuant to their letter to Sonepur Coalfields Ltd., dated the 20th January, 1960, the Tribunal was justified in law in holding that the assessee was liable to be assessed during the relevant year on the income based upon the minimum royalty contemplated during the negotiations as also one year's interest at the rate of 12 per cent. on the unpaid amount for the earlier years? Income-tax Reference No. 19 of 1971 : "(a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that even though entry has been made in the books of account of the assessee for the accounting year 1961, crediting the amount of Rs. 1,47,090 as income from minimum royalty and interest thereon, it cannot be held that the whole of the amount represented assessable income for the year 1961 ? (b) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that out of the sum of Rs. 1,47,090 only such sum as related to the accounting year based on the minimum royalty contemplated during negotiation and one year's interest should be brought under tax for the year, and not the whole of the sum of Rs. 1,47,090 which had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try and had been made by way of a counter claim. The said amount could not be regarded as income of the assessee as a dispute had been raised in respect thereof by Sonepur Coalfields Ltd., who had filed a writ application in the court challenging the right of the assessee to re-enter the said land. He noted further that the entire sum of Rs. 1,47,089.82 could not in any event be held to be the "minimum royalty" payable for the year but should be spread over from 1945. Accordingly, he allowed the appeal of the assessee and directed that the said sum of Rs. 1,47,089.82 be deleted from the total income. The revenue went up on further appeal from this order to the Income-tax Appellate Tribunal. It was contended before the Tribunal that as the assessee maintained its accounts on mercantile basis and had brought in its accounts a sum representing "minimum royalty" and interest the same must be held to form part of its income. It was contended on behalf of the assessee that the amount had not been treated as income in the accounts but had been both credited and debited. The entry merely represented a counter claim in the event the salami collected was directed to be refunded. The Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere book entry and nothing more. The amount was introduced as a debit in the balance-sheet under the head "Sundries" on the asset side and there was a corresponding credit under the head "Suspense" in the balance-sheet on the liability side. Dr. Pal submitted further that the claim of the assessee against the proposed sub-lessee was in any event a tentative claim, not followed by any legal proceedings and was raised by way of a counter-blast against the anticipated claim for return of the amounts paid on account of salami. The claim, therefore, was an inchoate one. In support of his contentions, Dr. Pal cited several decisions as follows : (a) CIT v. Associated Commercial Corporation [1963] 48 ITR 1 (Bom). This case was cited for the following proposition : In our opinion, a profit could be said to have accrued or a liability or loss could be said to have been incurred only when the profit is either actually due or the liability becomes enforceable. A mere claim to a profit or to a liability is not sufficient to make the profit to accrue or the liability to be incurred for the purposes of the Income-tax Act." (b) CIT v. A. Gajapathi Naidu [1964] 53 ITR 114 (SC). The facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of an earlier transaction." (c) CIT v. Swadeshi Cotton Flour Mills [1964] 53 ITR 134 (SC). In this case, the assessee had paid an amount as profit bonus to its employees for the calendar year 1947 in terms of an award made on the 13th January, 1949, under the Industrial Disputes Act and debited the amount in its profit and loss account for the earlier year 1948. The Supreme Court held that as the claim of profit bonus was settled by the award of the Tribunal in 1949, the liability for this payment was incurred in 1949. (d) CIT v. India Discount Co. Ltd. [1970] 75 ITR 191 (SC). This decision was cited for the following proposition laid down by the Supreme Court : "...it is well established that a receipt which in law cannot be regarded as income cannot become so merely because the assessee erroneously credited it to the profit and loss account." (e) CIT v. Nadiad Electric Supply Co. Ltd. [1971] 80 ITR 650 (Bom). The facts in this case were that the assessee carried on the business of supply of electricity at Nadiad and one of its consumers was the Nadiad Municipality. Up to the 31st August, 1960, the assessee supplied electricity to the Municipality at a stipulated r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered was at the rate of 19 paise per unit. In the circumstances, in our opinion, the assessee-company was under no obligation to credit in its books of account, even though they were maintained on the mercantile system, any amount for the electricity supplied by it to the municipality calculated at any rate other than the rate of 19 paise per unit and the only amount which could be brought to tax in this connection would be the amount calculated at the rate of 19 paise per unit." (f) CIT v. Smt. Sankari Manickyamma [1976] 105 ITR 172 (AP). In this case, the facts were that the land of the assessee had been acquired by the Government under the Land Acquisition Act in 1933. The compensation determined was considered by the assessee to be inadequate and legal proceedings were instituted. A compromise decree was ultimately passed for a larger amount in the assessment year 1964-65. Under the terms of that decree, the assessee was entitled to receive an extra compensation along with a further sum on account of interest on the amount of such compensation. The entire amount was paid to the assessee during the same assessment year. The assessee claimed that only that part of this in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reality at this stage the subject-matter of a mere claim or an assertion on the part of the assessee to receive the said amount, but the said claim has yet to be accepted by the court. The fact that the assessee was allowed to withdraw the said amount after furnishing the security bond, does not, in our opinion, affect the position and does not make the amount of compensation either determinate or payable ....... the right of the assessee to receive any further compensation or the amount of the further compensation has not yet been adjudicated upon and decided. The said receipt is really the receipt of a particular sum pursuant to an order of court on the security bond executed by the assessee and on the basis of terms and conditions mentioned in the said bond." Mr. Suhas Sen, learned counsel for the revenue, contended on the other hand that in the instant case, it has been found as a fact that the mining lands which were the subject-matter of the proposed sub-lease had been made over to Sonepur Coalfields Ltd. and further that there was no binding agreement for the sub-lease. On the basis of the aforesaid the assessee itself contended that it was out of possession of its prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f at the end of any year the remuneration was less than 10% of the gross profits the assessee would receive an additional sum to make up the difference. In 1951, the shares of the managed company were acquired by a hostile group and pursuant to a resolution dated the 23rd April, 1951, the managing agency agreement was terminated. The assessee refused to accept the amount offered as compensation calculated at Rs. 6,000 per month and filed a suit claiming Rs. 28 lakhs for unlawful termination of the agency. Ultimately, the suit was decreed for the sum originally offered as compensation and it was held that the assessee was entitled to stipulate liquidated damages at the rate of Rs. 6,000 per month. The assessee received the amount of compensation in December, 1955, and credited the same in its profit and loss account for that year. The question arose in which year the amount accrued to the assessee. On these facts, the Supreme Court held that the compensation became due to the assessee in 1951 though actually received in December, 1955. It was sought to be contended on behalf of the revenue that as the assessee disputed the quantum of compensation to which it was entitled, the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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