TMI Blog1982 (7) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... servicing of their tractors after the warranty period was over. It was open to the purchasers of tractors to withdraw from the scheme before the end of the warranty period. 2. During the previous year ending on 30th June, 1977 relevant to the asst. yr. 1978-79, the assessee received from its customers a sum of Rs.1,64,810 towards the "Post-Warranty Service Charges". There were certain outgoings by way of refunds and the net amount of Rs. 1,45,490 was taken by the assessee to the balance-sheet without showing it as a part of the assessee's profit. From the earlier year, there was a balance of Rs. 55,746 in this account and thus the total in this account was Rs. 2,21,236. At the time of assessment, the ITO enquired into this account and it was found by him that the assessee was receiving advances from the purchasers of tractors. He further found that the assessee was under obligation to give free service for one full year and the normal number of services were twelve. The ITO found that in respect of such items where the payments were made towards the later part of the year it was not possible to provide twelve services to the purchasers. He analysed the Post-Warranty Service Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to those parties, who desired to leave the scheme and in fact Rs. 19,320 had been refunded to such parties. 5. It was further contended that though the receipt related to the trade it was not a trading receipt at the point of receipt and it became the income of the assessee only when the services were to be rendered under the agreement. It was contended that the assessee does not become the owner of this amount. As the trader till the agreement under which the payment has been made come into force, it was pointed out that it is what reaches the assessee as income that could be charged to tax under the IT Act. It was explained that at the time of the receipt, the payments received were merely advances and they become the income at the time of the rendering of service in the later year. According to the assessee, the deposits under the Post-Warranty Service Scheme become the trading receipt when the assessee becomes entitled to appropriate them as its income. According to the assessee, only after such services were given to the members that the assessee could legally claim the right over these amounts. It was further pointed out that in the next accounting year when the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not become the member of this scheme. Thus he held that the assessee had a right to recover the service charges in advance in pursuant to the contract entered into with the assessee and the intending member. According to the Commr., the service charges are recovered as a matter of right by the assessee in terms of the contract from the intending members. According to the Commr., the fact that a person could withdraw from the scheme and could get refund could not change the nature of the payment. The Commr., therefore, held that Rs. 1,45,490 received by the assessee by way of Post-Warranty Service Charges had to be included as the assessee's income in place of Rs. 15,953 and the outgoings had been allowed separately. 8. On the question of the allowance of perquisites allowed to Shri Harsharan Singh the CIT did not consider any action to be necessary. However, he was of the view that the ITO did not make any enquiry regarding the cash payment of Rs. 15,400 to Shri Harsharan Singh on 30th June, 1977. He was of the view that the absence of such enquiries made the order of the ITO was prejudicial to the interest of revenue. On the above material, the CIT set aside the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he genuineness of the payment was never in doubt. Reliance was placed on the decision of the Bangalore Bench in ITA No. 640/1978-79 in the case of Mysore Sugar Co. Ltd. In that case the question was regarding the inclusion of extra price of sugar fixed by the Government. The assessee had claimed that the amount represented current liabilities and the ITO had accepted that position. The Commr. had further taken action under s. 263 on the ground that the liability was only contingent liability. It was held that the amount was not taxable in that year. 11. On behalf of the Department, it was submitted that the income accrued to the assessee as soon as the payment was made on the basis of that agreement. It was submitted that the nature of the income could not change only because it was by way of advance. It was also contended by the Departmental Representative that the income was not dependent on the system of accounting followed by the assessee. It was pointed out that the amount in question was admittedly revenue receipt and the assessee was only trying to contend that the amount was income of a later year. 12. We have carefully considered the facts of the case. The CIT has ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charges had to be taken as assessee's income at the time of the receipt of such service charges and not at the time when services were to be rendered under the agreement. In the present case, there is no dispute that the receipt is basically of revenue nature and is related to the trade of the assessee. The question is about the time when it has to be treated as assessee's income. The assessee has regularly followed the system of adjusting it towards the income on the basis of the period when the actual services were to be rendered. There was nothing wrong in the system followed by the assessee. We take an example. A manufacturer may register the claims of the parties for the supply of goods on the payment of some advance and the goods are supplied as and when they are manufactured and the advance paid is adjusted towards the cost at that point of time. The question would arise whether the advance paid should be treated as the income at the time when it is received as advance or when the goods are manufactured and actually sold and the advances are adjusted towards the sale price. In our view, it can be taken as the income when the goods are supplied and the advance is adjusted tow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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