2015 (2) TMI 574 - AT - Income Tax

Accrual of income - advances received against time slots - denial of exemption u/s. 11 - assessee is a company registered u/s. 25 of the Companies Act engaged in broadcasting of television programs - Held that - The income of the assessee should be computed on strict commercial principles. Though the assessee is not entitled for exemption u/s. 11 of the I.T. Act, the main charging section is sec. 4(1) of the I.T. Act which levies income tax as only one tax, on the total income of the assessee as income u/s. 2(45) of the I.T. Act. The income, in order to come within the purview of the definition must satisfy two conditions. Firstly, it must comprise the total amount of the income referred to in sec. 5 and secondly, it must be paid in the manner laid down in this Act . If either of these conditions fails, the income will not form part of the total income that can be brought to tax as held in the case of CIT vs. Harprasad & Co. (1975) (1975 (2) TMI 2 - SUPREME Court & 125) and treatment given by the assessee in its books of accounts is not conclusive or decisive so as to bring it into tax and in order to be computed in accordance with the provisions of the Act as held in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971 (8) TMI 10 - SUPREME Court). We are of the opinion that the Assessing officer shall not include the amount received as advance as income of the assessee if it does not contain the income element in it. With these observations, we are inclined to direct the Assessing officer to examine the above issue in the light of the above observations and decide accordingly. - Decided in favour of assessee for statistical purposes.

Summary

Issues: Disallowance of advances received against time slots

Analysis:
The appeal addressed the disallowance of advances received against time slots, disputed due to conflicting orders regarding registration under section 12AA of the Income Tax Act. The appellant, engaged in TV broadcasting, initially received an exemption based on registration granted by CIT. However, subsequent litigation led to the cancellation of registration, resulting in the denial of exemption and inclusion of a significant amount as income. The appellant argued that the advance received was not income but a liability repayable upon raising time slot invoices. The appellant maintained that as the company operated on a cash basis and lacked a broadcasting license until a later date, the advance was not earned income. The appellant also highlighted legal precedents emphasizing the importance of actual income realization for tax assessment purposes.

The appellant's position was supported by the argument that the advance was specifically for telecasting and broadcasting programs, contingent upon obtaining a broadcast license. The absence of a valid registration under section 12AA led to the denial of exemption, but the nature of the advance as part of the business operation needed careful consideration. The tribunal concluded that the advance did not constitute income for the assessment year, as the activities for which it was advanced had not yet occurred. Emphasizing commercial principles, the tribunal directed the Assessing Officer to evaluate the issue in line with the observations made, ensuring that income inclusion aligns with the provisions of the Income Tax Act.

In summary, the tribunal allowed the appeal for statistical purposes, ruling that the advance received should not be treated as income if lacking the income element. The decision highlighted the necessity for income to meet specific criteria for taxability, emphasizing the importance of actual realization and adherence to statutory provisions for accurate income computation.