1991 (11) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 9,08,787 receivable from M/s Bharat Coking Coal Ltd. (BCCL)
2. Assessment of income based on mercantile system of accounting
3. Concept of "real income" vs. "hypothetical income"
4. Justification of tax liability on unreceived income

Issue-wise Detailed Analysis:

1. Addition of Rs. 9,08,787 Receivable from M/s Bharat Coking Coal Ltd. (BCCL):
The assessee entered into a rate contract for transportation work with BCCL. Due to floods, the assessee incurred additional expenses and raised bills worth Rs. 9,08,787 between September 1982 and December 1982. These bills were not entered into the accounts and were not accepted by BCCL. The Income Tax Officer (ITO) added this amount to the assessee's income, stating that the income accrued since the accounts were maintained on a mercantile basis. However, the CIT(Appeals) deleted the addition, relying on the Supreme Court's decision in CIT v. Shoorji Vallabhdas & Co. and State Bank of India v. CIT, stating that the amount neither accrued nor was received during the relevant year.

2. Assessment of Income Based on Mercantile System of Accounting:
The ITO argued that since the assessee maintained accounts on a mercantile basis, the income accrued upon raising the bills, irrespective of their acceptance or entry into the account books. The departmental representative supported this view, citing various case laws. However, the assessee's counsel argued that mere raising of bills does not constitute income accrual without corresponding entries in the account books and acceptance of the bills. The Tribunal agreed with the assessee, emphasizing that income tax is levied on "real income" and not on hypothetical income.

3. Concept of "Real Income" vs. "Hypothetical Income":
The Tribunal highlighted that under the Income-tax Act, only real income that has either accrued or been received is subject to tax. The Supreme Court's decisions in Shoorji Vallabhdas & Co., Poona Electric Supply Co. Ltd. v. CIT, and ED. Sassoon & Co. Ltd. v. CIT were cited to support this principle. The Tribunal concluded that mere claims or hypothetical income without actual accrual or receipt do not attract tax liability.

4. Justification of Tax Liability on Unreceived Income:
The Tribunal noted that the High Power Committee of Coal India Ltd. (CIL) sanctioned Rs. 18,22,990 against the assessee's total claim, which included the disputed amount of Rs. 9,08,787. The balance amount of Rs. 1,47,990, which was not received, was directed to be assessed in the year of receipt. The Tribunal also directed that if the assessee fails to recover this amount, it should be allowed to write off or set off the sum against future profits.

Conclusion:
The Tribunal ruled that the sum of Rs. 9,08,787 did not accrue to the assessee during the relevant year and thus cannot be taxed. The balance amount of Rs. 1,47,990 should be taxed in the year of receipt, with provisions for write-off if not recovered. The assessee was granted a relief of Rs. 7,60,797.