1972 (8) TMI 33 - HC - Income Tax

Compensation is fixed but is not paid date of accrual - it cannot be said that when the compensation was decided to be paid it accrued or arose because compensation became ascertained only on the date on which it was finally fixed

Summary

Issues:
Interpretation of the accrual of income for tax assessment - Whether income accrued on February 26, 1945, or January 25, 1946, and assessable in the year 1945-46 or 1946-47?

Detailed Analysis:
The case involved a contractor following the mercantile system of accounting who obtained a contract for the supply of air tails and precision instruments. The contract was suspended by the Government of India, leading to negotiations between the contractor and military authorities. The basis for compensation was discussed in meetings held in February 1945 and January 1946. The Income-tax Officer assessed a profit of Rs. 43,582 in the year 1945-46, based on the meeting held in February 1945. The Appellate Assistant Commissioner and the Tribunal upheld this assessment, considering the profit accrued in February 1945. However, the High Court analyzed the sequence of events and the finalization of compensation amount in January 1946, determining that the profit became ascertained only in the meeting held on January 28, 1946. Therefore, the profit of Rs. 43,582 was deemed assessable in the year 1946-47.

The court highlighted the clause in the contract providing for compensation upon termination, without specifying the rate. While the basis for payment was established in the February 1945 meeting, the final amount was determined in the January 1946 meeting. The court emphasized that the amount only became certain in the last meeting, making it clear that the profit accrued on January 28, 1946. As this date fell within the relevant accounting year for the assessment year 1946-47, the court concluded that the profit should be assessed in the year 1946-47, not in 1945-46 as previously determined by the lower authorities.

In conclusion, the High Court ruled that the profit of Rs. 43,582 accrued to the assessee on January 28, 1946, and was therefore assessable in the year 1946-47. The court also addressed the incorrect dates mentioned in the question, clarifying that the changed dates would not impact the assessment years. The court awarded costs of Rs. 200 to the assessee, and the question was answered accordingly.