1992 (11) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the agreement dated March 4, 1971.
2. Accrual of income and its timing.
3. Basis of taxation (receipt vs. accrual).

Summary:

1. Interpretation of the Agreement Dated March 4, 1971:
The primary issue was whether the Income-tax Officer's interpretation of the agreement dated March 4, 1971, was erroneous. The Tribunal held that the Income-tax Officer was wrong in assessing a profit of Rs. 1,75,000 in the assessee's hands for the assessment year 1972-73. The agreement involved the transfer of a lease and the construction of a building, with guaranteed profits scheduled to be paid in installments.

2. Accrual of Income and Its Timing:
The core question was when the amount of Rs. 8,00,000 accrued to the assessee. The Tribunal found that the guaranteed profits were scheduled to be paid on different dates as specified in clause 9 of the agreement. The Tribunal did not agree with the Income-tax Officer's finding that the entire guaranteed profits accrued on March 4, 1971, the date of the agreement. Instead, the Tribunal held that the amounts accrued to the assessee only on the dates when they fell due as per the terms of the agreement.

3. Basis of Taxation (Receipt vs. Accrual):
The assessee had credited to its profit and loss account the difference between the amount it was paying to the firm of Messrs. Ace Builders for the transfer of the lease and the amount it was receiving from year to year towards the guaranteed profits. The Appellate Assistant Commissioner and the Tribunal both held that there was no loss to the Revenue by following a receipt basis for taxation, as the taxation rate for the assessee-company remained the same. The Tribunal upheld the assessee's contention that the income should be taxed on a receipt basis, as the amounts accrued only on the dates specified in the agreement.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the entire amount of Rs. 8 lakhs did not accrue to the assessee on the date of the agreement. The income accrued only when the debt became due, as per the specified dates in the agreement. The question referred to the court was answered in the affirmative and in favor of the assessee.