2014 (7) TMI 46 - HC - Income Tax

Advance money in books of accounts - accrual of income Held that - Tribunal rightly held that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character, when the amount becomes the assessee s own money because of limitation or by any other statutory or contractual right - When such a thing happens, the commonsense demands that the amount should be treated as income of the assessee - the amount was assessable as income of the assessee under the head income from business and not as unexplained credits u/s 68 of the Act. The entries which had been shown in the books of account of the assessee were not treated to be income u/s 41(1) or 68 of the Act Relying upon Commissioner of Income-Tax Versus TV Sundaram Iyengar And Sons Limited 1996 (9) TMI 1 - SUPREME Court - where the amount which was initially of capital nature but had changed its character to be of revenue nature, it was treated to be taxable income of the assessee - the amount found credited in the books of account of the assessee, the liability to pay back the same had ceased to exist - the Tribunal had rightly treated it to be assessee s taxable income as such no substantial question of law arises for consideration Decided against assessee.

Summary

Issues:
1. Whether the amount of Rs. 1,03,648/- was assessable as business income of the assessee for the assessment year 1993-94?
2. Whether the amount was liable to be taxed as 'income from business' under the Income Tax Act, 1961?
3. Whether the Tribunal was legally correct in concluding that the amount was assessable as income under the head 'income from business'?
4. Whether the amount was chargeable to tax as business income in the assessment year 1993-94 under Section 41(1) of the Act?
5. Whether the amount was still assessable as income under the head 'income from business' during the assessment year 1993-94?
6. Whether the Tribunal misdirected itself in law by applying a specific Supreme Court decision?

Analysis:
1. The appeal involved a dispute regarding the assessability of Rs. 1,03,648/- as business income for the assessment year 1993-94. The Tribunal had held that the amount was taxable income of the assessee under the head 'income from business' and not as unexplained credits under Section 68 of the Income Tax Act, 1961.
2. The appellant argued that neither Section 68 nor Section 41(1) of the Act were applicable, claiming the amount was not income. The appellant distinguished a Supreme Court judgment cited by the Tribunal, stating it was not applicable to the present case.
3. The primary issue was whether the credited amount was assessable as income. The Tribunal had previously remanded the case to the Assessing Officer, concluding that Section 41(1) was not applicable, and the income could not be taxed under Section 68.
4. The Tribunal found that the amount had changed character from capital to revenue nature, making it taxable income. The liability to pay back the amount had ceased to exist, justifying its treatment as the assessee's taxable income.
5. The Tribunal's decision was based on the principle that when an amount received in a trading transaction changes character to become the assessee's own money, it should be treated as income. The Tribunal correctly applied this principle from a Supreme Court judgment.
6. The appellant's argument of bonafide belief regarding the non-declaration of income was considered plausible but did not alter the Tribunal's decision. The appeal was dismissed, upholding the Tribunal's findings on the assessability of the amount as income from business.