1963 (11) TMI 2 - SC - Income Tax

Whether on the facts and in the circumstances of the case the sum of ₹ 94,253 or any part of it accrued or arose or could be deemed to accrue or arise, or was received or could be deemed to be received by the assessee as income, profits and gains during the previous year? Held that - It seems to us clear that the question of law as framed by the Commissioner does arise on the judgment of the Tribunal. An application under section 66(2) cannot be dealt with by answering that question. This is what the learned judges of the High Court did. We find no reason why the question suggested by the appellant Commissioner should not have been referred. We, therefore, set aside the judgment of the High Court and make an order that the Tribunal do state a case and refer the question mentioned earlier to the High Court for its decision. Appeal allowed.

Summary

Issues:
- Interpretation of section 66(2) of the Income-tax Act, 1922 regarding reference of questions to the High Court for decision.
- Determining whether income can be said to have accrued based on specific facts and circumstances of a contract dispute.
- Dispute over the treatment of a claimed sum as income for the relevant assessment year.
- Applicability of the mercantile basis of accounting in determining the accrual of income.

Analysis:
The Supreme Court judgment involved an appeal against the High Court's refusal to direct the Income-tax Appellate Tribunal to refer a question under section 66(2) of the Income-tax Act, 1922. The case revolved around a contract dispute where the appellant claimed a sum of Rs. 94,253 as income, profits, and gains during the previous year. The appellant's position was based on a settlement reached with the purchaser, despite the dispute still pending resolution. The Income-tax Officer and the Appellate Assistant Commissioner held that the income had accrued to the appellant, as the transaction was considered settled. However, the Tribunal disagreed, emphasizing that income accrual depended on the indisputable entitlement to the sum. The Tribunal's decision was challenged by the Commissioner, leading to the High Court's refusal to refer the question to the Tribunal for decision.

The High Court judges differed in their opinions. Mahajan J. highlighted that no amount could be deemed to accrue unless actually due, emphasizing the outcome of the pending appeal. Khosla C.J. emphasized that the determination of whether an entry represented accrued profits was a factual inquiry based on the case's circumstances. However, the Supreme Court disagreed, stating that the issue was a question of law, not fact, as the relevant facts were established. The Court found that the High Court judges erred in not referring the question under section 66(2) for decision.

The Court referenced the case law to support its decision, distinguishing the interpretation of agreements from the determination of income accrual in the present case. Ultimately, the Supreme Court allowed the appeal, setting aside the High Court's judgment, and directed the Tribunal to refer the question to the High Court for decision. The Court awarded costs to the appellant, emphasizing the importance of correctly interpreting the law in matters of income accrual and dispute resolution under the Income-tax Act, 1922.