2022 (8) TMI 141 - HC - Income Tax

Deemed Income / accrual of income - income on account of retention money - consideration as income of the assessee for the assessment year under consideration A.Y. 2014-15 - appellant contended that the retention money was withheld by the principal in accordance with the terms of contract did not accrue to the assessee as income in the assessment year under consideration and only because the principal deducted tax u/s 194C AO ought not to have held that the retention money was includible in the gross receipts as income - HELD THAT - In the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. We hold that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the assessee had no vested right to receive the same in this assessment year, therefore, it would not amount to an income of the assessee in the year in which it is retained. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and so, we confirm it and dismiss the appeal of the Revenue.

Summary

Issues:
1. Interpretation of income tax provisions regarding retention money inclusion in taxable income for assessment year 2014-15.

Analysis:
The appeal before the High Court of Calcutta involved the interpretation of the Income Tax Act, 1961 regarding the treatment of retention money in the assessment year 2014-15. The revenue raised substantial questions of law challenging the Income Tax Appellate Tribunal's decision. The first issue was whether the Tribunal erred in holding that the retention money of Rs.142.53 crores did not arise in the relevant assessment year despite being credited by the Principal Contractors with TDS deducted and claimed by the assessee. The second issue raised was whether the Tribunal failed to consider the distinction in the case due to the absence of TDS provisions at the time of a previous decision relied upon. The third issue was whether the Tribunal overlooked the assessee's change in the method of income computation for reducing retention money from taxable income in AY 2014-15.

The CIT(A) concluded that the retention money should be excluded from the income of the assessee for the assessment year in question, following judicial precedents such as the cases of Mcnally Bharat Ltd and Simplex Concrete (Piles) India Pvt. Ltd. The Tribunal, after considering the contractual terms and factual position, upheld the CIT(A)'s decision. It noted that the right to receive retention money only accrued after contract obligations were fulfilled, and therefore, it did not constitute income for the assessment year. The Tribunal cited various High Court judgments to support its decision, including those of Gujarat and Bombay High Courts.

The High Court affirmed the decisions of the CIT(A) and the Tribunal, emphasizing that both had correctly applied legal principles and considered undisputed facts. The Court found no grounds for interference with the tribunal's order and dismissed the revenue's appeal. Consequently, the substantial questions of law were answered against the revenue, leading to the closure of the connected application for stay.

In conclusion, the High Court's judgment clarified the treatment of retention money for the assessment year 2014-15 under the Income Tax Act, affirming the exclusion of such amounts from the assessee's taxable income based on contractual terms and legal precedents.