TMI Blog1964 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 per lb. As the respondent was maintaining his accounts on mercantile basis, it is common case that the amount due from the Government under the terms of the said contract was credited in the accounts of the respondent for that year. For the assessment year 1949-50 the Income-tax Officer assessed the respondent to income-tax on the basis of the accounts so made. It appears that some time after March 31, 1949, representations were made to the Government for relieving the respondent from the loss sustained in the supply of bread to the hospital. The Government by its order dated November 24, 1950, directed payment of compensation for the loss sustained by the respondent in respect of the supply of bread to the hospital during the year 1948-49 under the said contract. The respondent received on that account payment of Rs. 12,447 during the year of account 1950-51. In the assessment year 1951-52 the Income-tax Officer included the said amount in the assessment of that year. The assessee, inter alia, contended that he received the said sum in respect of the contract that was entered into by him with the Government during the accounting year 1948-49, and, therefore, it could not be incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was paid. The Commissioner of Income-tax has preferred the present appeal against the said order of the High Court. Learned counsel for the revenue contended that the High Court misdirected itself on the basis of English decisions and that on its finding that the amount accrued to the assessee only during the accounting year 1949-50 it should have held that the Income-tax Officer had correctly included it in the assessee's income for the year 1950-51. Learned counsel for the respondent argued that the said amount was paid in respect of the contract entered into between the assessee and the Government and, therefore, the said amount should properly belong to the accounting year 1948-49, and should not have been included in the assessment of the year 1951-52. To sustain his argument he relied upon certain English decisions referred to by the High Court which held that in such circumstances the relevant account of the year when the amount was due under the contract could be reopened and the additional amount, though an ex gratia payment, could be included therein. With great respect to the learned judges of the High Court we must point out that the decision of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave a decision of this court which has clearly enunciated the principles underlying the said expression : that is the decision in E. D. Sassoon and Co. Ltd. v. Commissioner of Income-tax. In that decision this court accepted the definition given to the words " accrue " and " arise " by Mukerji J. in Rogers Pyatt Shellac and Co. v. Secretary of State for India, which is as follows : " . . . . both the words are used in contradistinction to the word ' receive ' and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate." Under this definition accepted by this court, an income accrues or arises when the assessee acquires a right to receive the same. It is commonplace that there are two principal methods of accounting for the income, profits and gains of a business ; one is the cash basis and the other, the mercantile basis. The latter system of accountancy " 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 incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Section 34 of the Act empowers the Income-tax Officer to assess the income which escaped assessment or was under-assessed in the relevant assessment year. Subject to the provisions of the section and following the procedure prescribed thereunder, he can include the escaped income and reassess the assessee on the basis of which the earlier assessment was made. So, too, under section 35 of the Act officers mentioned therein can rectify mistakes either of their own motion or when such mistakes are brought to their notice by a party to the proceedings. For that purpose the correct item may be taken into consideration in the matter of assessment. But strictly speaking even in those cases there is no reopening of the accounts of the assessee, but a reassessment is made or the mistake is corrected on the basis of the actual income accrued or received by the assessee. We do not see any relevancy of the question of reopening of accounts in considering the question when an assessee acquired a right to receive an amount. We shall now proceed to notice some of the decisions cited at the Bar. P. Hall and Co. v. Commissioners of Inland Revenue is a decision of the Court of Appeal under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent. Though it could be distinguished on the ground that in that case it was found that the payment for the work already done had not been finally settled whereas in the present case there is nothing on the record to disclose that it was not finally settled. We would prefer to base our conclusion on the ground that we cannot extend the meaning of the word " accrue " or " arise " in section 4(1)(b)(i) of the Act so as to take in amounts received by the assessee in a later year, though the receipt was not on the basis of the right accrued in the earlier year. Such amounts are in law received by the assessee only in the year when they are paid. We cannot apply the English decisions in the matter of construction of the provisions of the Indian Act, particularly when they have received an authoritative interpretation from this court, In this view, it is not necessary to consider further English decisions cited by learned counsel for the respondent in support of his contention. Before a Division Bench of the Allahabad High Court, in Commissioner of Income-tax v. Kalicharan, when a similar question arose, learned counsel appearing for the revenue relied upon the said English d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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