1982 (5) TMI 123 - AT - Income Tax

Summary

Issues:
1. Assessment under section 263 of the IT Act, 1961 for non-disclosure of income from dubbing rights.
2. Permissibility of changing accounting method from mercantile to cash system.
3. Accrual of income from agreements for dubbing rights.

Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-C was directed against the order of the CIT under section 263 of the IT Act, 1961. The assessee, a firm, had leased out dubbing rights for a picture to different parties but did not disclose income from these agreements for the relevant assessment year. The CIT concluded that the assessee had switched from the mercantile system to the cash system for certain agreements, leading to non-disclosure of income. The CIT directed the ITO to include the income from these agreements in the total income for the relevant assessment year.

The assessee contended that there was no change in the accounting method and that income did not accrue in the previous year as per the terms of the agreements. The assessee argued that the agreements were executor contracts, and income would only accrue when the assessee fulfilled its obligations under the agreements. The assessee maintained that the method of accounting followed was consistent with the mercantile system and did not require revision.

The Tribunal, however, rejected the assessee's contention based on the Supreme Court's decision in the case of Union of India vs. M/s Chaman Lal Loona and Co. The Tribunal held that income from the agreements accrued when the mutual promises were exchanged, irrespective of the actual delivery of prints for dubbing purposes. Therefore, the CIT was correct in directing the inclusion of income from these agreements in the assessment for the relevant year. The Tribunal also noted that subsequent assessment years should be revised to exclude the income already assessed, which is now directed to be included in the initial assessment year.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT's decision to include the income from dubbing rights agreements in the assessment for the relevant year. The Tribunal also directed the revision of subsequent assessment years to adjust for the inclusion of this income in the initial assessment year.