1991 (7) TMI 29 - HC - Income Tax

Summary

Issues Involved:
The issue involves determining whether the sum received by the assessee from a corporation on account of excess measurement should be treated as income liable to tax or as a deposit.

Judgment Details:

Issue 1: Treatment of Excess Measurement Sum
The Appellate Tribunal upheld the orders of the Commissioner (Appeals) stating that the sum received by the assessee from the corporation on account of excess measurement is considered as a deposit and not income liable to tax. The Tribunal found that the excess payments made by the corporation were in the nature of advances to the assessee, to be adjusted at the end of the contract. The Tribunal concluded that the sum in question should be treated as an advance payment made to the assessee, on which no profit is assessable in the current year, provided the assessee offers it for assessment in future years. The Tribunal emphasized the need for verification of adjustments and payments in future years.

Issue 2: Accounting Basis and Income Recognition
The assessee maintained a cash system of accounting and received amounts over and above what was due for the work done. The excess payments were considered advances to be adjusted later. The court noted that maintaining accounts on a cash basis does not automatically convert every receipt into income unless the assessee acquires a right to receive it as income. In this case, the excess amounts were to be adjusted in future work, indicating they were more in the nature of a deposit than income. The Tribunal ensured the Revenue's interest by providing for verification of adjustments in future years.

Conclusion:
The court affirmed the Tribunal's decision, holding that the sum received on account of excess measurement should be treated as an advance payment and not as income liable to tax in the current year. The court emphasized that if the amount ceases to be held as a deposit in the future, the Revenue can assess it as income accrued during that year. The question was answered in favor of the assessee and against the Revenue.