1985 (8) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Double taxation of the amount Rs. 4,54,762.
2. Nature of the amount Rs. 6,08,758 received under the arbitration award - whether it is a capital receipt or income.
3. The accounting method used by the assessee and its implications on the assessment.

Issue-wise Detailed Analysis:

1. Double Taxation of the Amount Rs. 4,54,762:
The assessee argued that the addition of Rs. 4,54,762 for the assessment year 1978-79 is contrary to law as this amount had already been assessed in the earlier assessment years 1974-75 to 1977-78. The assessee contended that assessing this amount again in 1978-79 would result in double taxation, which is prohibited by law. The assessee cited various legal references, including Kanga and Palkhivala's Law and Practice of Income-tax and the Supreme Court decision in State of Uttar Pradesh v. Raza Buland Sugar Co. Ltd., to support this claim.

The Tribunal, however, rejected this argument, stating that the assessee had not maintained proper books of account and thus could not prove that the amount was taxed in earlier years. The Tribunal noted that the assessee had filed revised returns for the earlier years but did not accurately reflect the additional amounts in the profit and loss accounts. Consequently, the Tribunal concluded that there was no double taxation and upheld the addition of Rs. 4,54,762 for the assessment year 1978-79.

2. Nature of the Amount Rs. 6,08,758 Received Under the Arbitration Award:
The assessee claimed that the amount of Rs. 6,08,758 received under the arbitration award was a capital receipt and not assessable to tax. The Tribunal examined this claim and referred to the Supreme Court decision in CIT v. A. Gajapathy Naidu, which held that such amounts related to business transactions are taxable as trade receipts. The Tribunal also cited the case of CIT v. Kalicharan Jagannath, where the additional amount sanctioned after a review was held taxable in the year of receipt.

The Tribunal concluded that the amount of Rs. 6,08,758 was directly related to the business of the assessee and thus taxable as income. The argument that it was a capital receipt was rejected based on the Supreme Court's precedent.

3. The Accounting Method Used by the Assessee:
The Tribunal noted that the assessee did not maintain proper books of account and, therefore, it could not be assumed that the assessee followed the mercantile system of accounting. The Tribunal referred to the case of N.R. Sirker v. CIT, which established that in the absence of proper accounts, it is assumed that the assessee follows the cash system of accounting.

Given this, the Tribunal held that the entire amount of Rs. 6,08,758 should be taxed in the assessment year 1978-79, as it was received during the relevant previous year. Even if the mercantile system was assumed, the Supreme Court's decision in A. Gajapathy Naidu would still require the amount to be taxed in the year of receipt.

Conclusion:
The Tribunal dismissed the appeal, upholding the ITO's addition of Rs. 4,54,762 to the assessment for the year 1978-79. The Tribunal found no evidence of double taxation, determined that the amount received under the arbitration award was taxable income, and concluded that the assessee followed the cash system of accounting due to the lack of proper records.