2002 (12) TMI 18 - HC - Income Tax

Accrual of income - Whether, Tribunal was right in law in holding that the HUDCO administration service charges collected and retained by the assessee at the time of disbursal of the loans to the urban local bodies had accrued due to the assessee at that stage itself, and therefore, assessable to tax in the year in which the loan amount was disbursed? - question has to be answered in the affirmative, i.e., in favour of the respondent and against the assessee.

Summary

Issues:
Interpretation of income-tax law regarding administration service charges collected by the assessee at the time of loan disbursal.

Analysis:
The judgment pertains to income-tax references arising from a common order of the Income-tax Appellate Tribunal regarding administration service charges (A & S charges) collected by the assessee at the time of disbursal of loans to urban local bodies. The key question for decision was whether these charges accrued to the assessee at the time of loan disbursal and were assessable to tax in the year of disbursement. The assessee, a company set up by the Government of Kerala, acted as a nodal agency for schemes funded by loans from the Housing and Urban Development Corporation (HUDCO). The company deducted three percent A & S charges from the loan amount at disbursal, claiming it should be spread over the loan repayment period. However, the Assessing Officer and appellate authorities disagreed, asserting the charges were assessable in the year of receipt itself.

The assessee argued that its accounting method, spreading the charges over the repayment period, had been accepted by the Income-tax Department for years until the recent dispute. The counsel cited legal precedents emphasizing that income accrual, not receipt, is crucial for assessment under the mercantile system of accounting. The Department's change in stance was questioned, especially since the charges were for services provided over several years based on loan repayment installments. The Department contended that the charges accrued and were received during the relevant assessment years, with no basis for apportionment.

The court examined the facts and submissions, noting the absolute receipt of A & S charges at loan disbursal without conditions for return if obligations were unmet. Despite the assessee's accounting method, the court held that the right to receive the charges and their actual receipt occurred within the assessment period, justifying immediate tax assessment. The Tribunal concurred, emphasizing the finality of the deduction at loan disbursal without conditions for apportionment. Ultimately, the court ruled in favor of the respondent, affirming the assessability of the charges in the year of loan disbursal.

In conclusion, the court answered the legal question in the affirmative, supporting the Tribunal's decision on the assessability of administration service charges collected by the assessee at the time of loan disbursal. The judgment was to be forwarded to the Income-tax Appellate Tribunal for further action.