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Issues involved: Assessment of damages claimed for non-supply of goods as income for the relevant assessment year.
Summary: The case involved the assessment of damages claimed by a company for non-supply of goods as income for the assessment year 1970-71. The company maintained accounts on the mercantile system and had entered into an agreement with another party for the purchase of specific goods. When the goods were not supplied, the company claimed damages, which the other party repudiated. The company argued that the claimed amount was not assessable as income since it had not been realized in the relevant year and there was uncertainty regarding the success of the claim. The Income-tax Officer added back the claimed amount as income, which was upheld by the Appellate Assistant Commissioner. The company contended that the contract was void and unenforceable, citing a Supreme Court decision. However, the Appellate Assistant Commissioner disagreed, stating that the company should have credited the amount in its accounts and could claim a loss if the legal dispute was resolved against them. The Tribunal, on appeal, ruled in favor of the company, stating that the contract was likely unenforceable and that the claimed amount was not liable to be added back as income. The Tribunal emphasized that a mere claim does not result in income accrual without specific provisions for damages in the contract. The High Court, in its judgment, agreed with the Tribunal's decision, stating that the breach of the void contract did not give rise to a cause of action for claiming damages. Therefore, the claimed amount could not be considered as accrued income for the relevant assessment year. The Court ruled in favor of the company, holding that the amount in question was not liable to be included as income for assessment. The judgment was delivered by SATISH CHANDRA C.J. and MUKUL GOPAL MUKHERJI J., with the Court ruling in favor of the assessee and against the Department. No costs were awarded in the case.
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