2003 (5) TMI 23 - HC - Income Tax

Accrual of income - whether the profits arising under various heads of terminated kuries accrue in the year in which the kuri has terminated - Tribunal ought to have considered the factual situation and entered a finding with regard to the relevant matters. - In the absence of any findings of fact on the relevant matters, we are of the view that the orders of the Tribunal which are the subject-matter of the appeals and references cannot be sustained - Tribunal is directed to consider the matter afresh in accordance with law

Issues Involved
1. Whether the profits arising under various heads of terminated kuries accrue in the year in which the kuri has terminated.
2. Whether the method of accounting followed by the assessees for reporting profits from kuries is justified.
3. Whether the Tribunal was correct in relying on previous decisions without entering specific factual findings.

Issue-wise Detailed Analysis

1. Accrual of Profits from Terminated Kuries
The primary issue was whether the profits from terminated kuries, specifically veetha palisa and auction discount, accrue in the year the kuri terminates. The Assessing Officer contended that these amounts should be considered income either on the date of forfeiture or on the termination of the kuries. The assessees, however, argued that these amounts should only be treated as income after three years from the termination, which is the period of limitation for recovery of dues. The Tribunal upheld the assessees' practice, but the High Court found that the Tribunal had not entered specific factual findings to support this conclusion.

2. Method of Accounting Followed by Assessees
The assessees had been following a method of accounting where profits from kuries were reported after three years from the date of termination. The Commissioner of Income-tax (Appeals) had divergent views on this practice. In some cases, the Commissioner upheld the Assessing Officer's view that the income should be reported on accrual basis, while in others, it was held that the assessees' method was justified. The Tribunal sided with the assessees, stating that the Revenue could not impose a different method of accounting. However, the High Court noted that the Tribunal did not provide a specific factual basis for this decision and relied too heavily on previous rulings without examining the facts of the current cases.

3. Tribunal's Reliance on Previous Decisions
The Tribunal relied on earlier decisions, particularly those in CIT v. Trichur Kuri Syndicate Ltd. and CIT v. Popular Kuries Ltd., to support its rulings in favor of the assessees. The High Court pointed out that these previous decisions were based on specific factual findings which were not present in the current cases. The High Court emphasized that the Tribunal should have entered its own factual findings before applying these precedents. The lack of such findings led the High Court to set aside the Tribunal's orders and remand the cases for reconsideration.

Conclusion
The High Court set aside the appellate orders of the Tribunal and directed it to reconsider the matters afresh, emphasizing the need for specific factual findings. The High Court declined to answer the questions referred in I.T.R. Nos. 33, 36, and 39 of 2000 and allowed the parties to raise all contentions available to them. The Tribunal was instructed to apply previous decisions only if the facts of the current cases aligned with those decisions.

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