2000 (3) TMI 24 - HC - Income Tax

Summary

Issues:
1. Whether the amount of advance received by the assessee-company should be brought to tax as income or considered as an advance towards remuneration?
2. Whether the income accrued to the assessee only when its principal accepts the bill, and thus the assessee is not liable to be assessed on the sum received from its principal?

Analysis:

Issue 1:
The case involved a private limited company following the mercantile system of accounting, receiving advances from principals for services rendered. The Income-tax Officer contended that the advances received were income, as they were received after completing the work and submitting bills to the principals. The Commissioner (Appeals) and the Tribunal, however, held that income accrues only when the bills are passed by the principals, not upon receiving advances. The Tribunal emphasized that remuneration for work done cannot accrue solely upon bill presentation, requiring acceptance by the principals for income to accrue. The Revenue argued that the advance amounts received were indeed income, as they were for work completed, and should be taxed accordingly. The court found that the income accrued when the assessee received 90% of the bill amount, contrary to the Commissioner and Tribunal's view that income accrues post bill passing.

Issue 2:
Regarding the second issue, the court considered the practice followed by the assessee in previous years, which was accepted by the Department. The Revenue argued that the Assessing Officer is not bound by previous practices and cited a Supreme Court decision to support this stance. The court agreed with the Revenue, stating that the Assessing Officer has the right and duty to ensure accurate income assessment, regardless of past practices. The court ruled against the assessee, stating that the Tribunal was incorrect in holding that the advance amounts received should not be taxed as income, ultimately deciding in favor of the Revenue.

In conclusion, the court ruled in favor of the Revenue, holding that the advance amounts received by the assessee should be considered as income and brought to tax, rejecting the arguments presented by the assessee regarding the timing of income accrual and past practices accepted by the Department.