1995 (2) TMI 141 - AT - Income Tax

Assessing Officer, Business Income, Cash Compensatory Support, Orders Passed, Previous Year, Right To Receive

Issues Involved:
1. Treatment of cash compensatory support and duty drawback on receipt basis versus receivable basis.
2. Double taxation concerns.
3. Legal right to receive incentives.

Detailed Analysis:

Issue 1: Treatment of Cash Compensatory Support and Duty Drawback on Receipt Basis versus Receivable Basis

The primary issue revolves around whether cash compensatory support and duty drawback should be taxed on a receipt basis or a receivable basis. The assessee, a firm engaged in exporting garments, had historically accounted for these incentives on a receipt basis, which was accepted by the department up to the assessment year 1986-87. However, for the assessment year 1987-88, the assessee initially filed a return on a receipt basis but later revised it, claiming that tax was not exigible on these items based on a precedent set by the ITAT, Delhi Bench-A (Special Bench) in the case of Gedore Tools (India) (P.) Ltd. v. IAC [1988] 25 ITD 193. The CIT(A) held that due to retrospective amendments to section 28 of the Income-tax Act, 1961, by the Finance Act, 1990, tax was exigible on these items, thereby bringing an aggregate of Rs. 13,63,895 to charge on a receipt basis.

For the assessment year 1988-89, the Assessing Officer found sums of Rs. 20,84,969 and Rs. 15,52,979 as receivable on account of cash compensatory support and duty drawback, respectively, and brought these to tax on a receivable basis, citing sections 28(iiib) and 28(iiic). The assessee's submission that it had always accounted for these items on a receipt basis was rejected by the Assessing Officer, who argued that specific enactments override general accounting principles.

For the assessment year 1989-90, the Assessing Officer similarly brought to charge an aggregate sum of Rs. 30,95,213 on a receivable basis, which was upheld by the CIT(A).

Issue 2: Double Taxation Concerns

The assessee argued that if incentives received and receivable were both taxed, it would lead to double taxation, which was not envisaged by the scheme of the Act. The Assessing Officer dismissed this argument, stating that the issue would not have arisen if the assessee had followed the correct accounting method from the beginning.

Issue 3: Legal Right to Receive Incentives

The Tribunal examined whether the legislative intent behind sections 28(iiib) and 28(iiic) was to equate the claim made by the assessee with "cash assistance receivable" or "duty repayable as drawback". It was pointed out that an amount could be said to be "receivable" only when a legal right to receive it had accrued, not merely when a claim was made. The Tribunal concluded that the true legislative intent was that a legal right to receive the sum accrues only when the concerned authorities verify and approve the claim.

Conclusion:

The Tribunal found that the lower authorities misdirected themselves by equating the claim made by the assessee with the right to receive the incentives. The amounts claimed by the assessee were incorrectly shown in Form 3CD, and the authorities had not allowed the full claims, imposing cuts instead. Thus, the Tribunal held that it was incorrect to equate the claim with the right to receive the amounts.

The Tribunal deleted the additions of Rs. 36,37,948 and Rs. 30,95,213 made on a receivable basis for the assessment years 1988-89 and 1989-90, respectively, and directed the Assessing Officer to bring the incentives to charge only on a receipt basis.

Final Decision:

Both the cross-objection and the appeal filed by the assessee were partly allowed, with the related grounds concerning the receipt versus receivable basis being upheld in favor of the assessee. Other grounds were dismissed.

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