1998 (1) TMI 3 - SC - Income Tax

In which assessment year the appellant is liable to be assessed in respect of mesne profits which were awarded in his favour - liability became ascertained only with the order of the trial court on December 22, 1962, and not earlier - Following the mercantile system of accounting, the mesne profits awarded by order dated December 22, 1962, were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was in fact realised by the assessee

Summary

Issues:
1. Assessment year for taxing mesne profits awarded in a specific performance suit.

Detailed Analysis:
The Supreme Court considered the issue of determining the assessment year for taxing mesne profits awarded in a specific performance suit. The appellant had entered into an agreement to purchase a tile factory, and when the vendor failed to convey the property, the appellant filed a suit for specific performance. The suit was decreed in appeal by the Supreme Court, which also awarded mesne profits to the appellant. The trial court determined the quantum of mesne profits for the assessment year 1963-64, but the amount was received in the subsequent accounting year relevant to the assessment year 1964-65. The Income-tax Officer assessed this sum in the earlier assessment year, leading to a dispute regarding the assessment year for taxation.

The primary contention was whether the right to receive mesne profits accrued to the appellant when the Supreme Court decreed the suit or when the trial court determined the amount. The appellant argued that the right accrued upon the decree, while the respondent contended that it accrued only upon the determination of the amount by the trial court. The High Court held that the mesne profits were rightly taxed in the assessment year 1963-64, following the principle that income accrues when the right to receive it becomes ascertained.

The Supreme Court analyzed the legal principles governing the accrual of income in such cases. Referring to previous judgments, the Court emphasized that income accrues when there is a tangible, ascertained amount to be received, not merely a right to receive compensation. Applying the mercantile system of accounting, the Court held that the right to receive mesne profits accrued only upon the determination of the amount by the trial court, not earlier. Therefore, the mesne profits awarded by the trial court were rightly taxed in the assessment year 1963-64, irrespective of the actual receipt of the amount by the assessee in a later accounting year.

In conclusion, the Supreme Court upheld the High Court's decision, ruling that the mesne profits were correctly taxed in the assessment year 1963-64 when the amount was ascertained by the trial court. The Court dismissed the appeals and awarded no costs, affirming that the timing of actual realization was irrelevant for tax assessment purposes.