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TMI Blog1985 (7) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as amount receivable from the Government of Kerala on the basis of the recommendation of the Bureau of Industrial Costs and Prices was treated as part of the total receipts derived by the assessee on the ground that the assessee is following the mercantile system of accounting and the credit once taken cannot be excluded on a reconsideration of finalised accounts. However, the ITO observed in his assessment orders that the claim will be examined in the previous year when the Government finally turned down the assessee's claim. Thus, by means of his assessment orders dated 17-4-1982 passed under section 143(3), read with section 144B, of the Income-tax Act, 1961 ('the Act') the amount of Rs. 41,86,349 is taken as part of the total of receipts of the assessee. 3. Against the assessment, thus framed by the ITO, the assessee went in appeal before the Commissioner (Appeals). It was contended that the amount of Rs. 41,86,349 had been taken credit for only on the basis of a claim preferred to the Government of Kerala. It was already intimated in a note that the Government had not admitted the claim of the assessee. Since the claim of the assessee had already been rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central subsidy received by the assessee should not be reduced from the cost of the assets as provided in section 43(1) of the Act in order to determine the actual cost to the assessee of the assets for the purposes of calculating depreciation. 5. Thus, it can be seen that there are two grounds which are to be disposed of in this second appeal. We have heard Shri M.M. Cherian, the learned departmental representative and Shri Venugopal C. Govind, the learned counsel for the assessee. The facts relating to the first point are, as can be seen from the GO. Rt. No. 2896/75/HD dated 10-10-1975 issued by the Health (C) Department, a copy of which is furnished to us on behalf of the assessee-company during the course of the assessee's business it used to supply medicines manufactured by them to the Health Services Department of the Government of Kerala. The practice of settling accounts between the Government of Kerala on the one hand and the assessee-company on the other appears to be as follows. 6. The Kerala Government used to sanction advances to the assessee-company with a view that it should be adjusted against the supply of medicines made by them to the Health Services Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al made by the Director of Health Services in detail passed GO. Rt. No. 2896/75/HD dated 10-10-1975 [Health (C) Department] as follows : " In view of the urgent need for an uninterrupted supplies of essential drugs to the Health Services Department and also in view of the company's need for finance, the proposal of the Director of Health Services to make interim adjustments and to make further advances is accepted. " As can be seen from the above, the adjustment of advances already made prior to 10-10-1975 were made on the basis of tentative price list approved by the assessee-company but subject always to the conditions that if the price structure fixed by the Government of India is lower than the rate now fixed by the assessee-company, excess will be adjusted against future supplies. So also is the case with the further advances made by the Government of Kerala to the assessee-company after 10-10-1975. This arrangement is evidenced by a contract in the shape of an indemnity bond executed by the assessee-company in favour of the Government of Kerala. 7. Therefore, in the face of the above stipulations and the contract between the assessee-company and the Government of Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo companies referred to above and it desired to resign from the managing agency on 20-11-1947. Two shareholders of the Malabar Steamships Co. Ltd. objected to the rate of commission and they proposed that either the commission should be 10 per cent of the profits of the managed company or two and a half per cent of the freight received. On 30-12-1947 extraordinary general meetings of the two managed companies were held and the two private limited companies floated by the assessee were appointed managing agents from 1-1-1948. In the said general meetings the commission was reduced from 10 per cent of the freight to two and a half per cent, consequently the assessee-firm had to give up 75 per cent of its earnings during the relevant years of account amounting to Rs. 1,36,903 from Malabar Steamship Co. Ltd. and Rs. 2,00,625 from New Dholera Steamships Ltd. The question that came up for consideration was whether the above said two sums are income of the previous year ending 31-3-1948. Principally two arguments were advanced on behalf of the revenue, (1) The income had already accrued to the assessee-firm in the year of account and the arrangement amounted to a voluntary gift by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e posting of an entry in the account books of the assessee would not always supply a conclusive nature of evidence on the question whether the disputed amount has accrued to the assessee or not. If there are other facts going to throw light on the question, whether the amount has really accrued to the assessee or not then the posting of a credit entry in the account books of the assessee should be appreciated in the light of that evidence. If that is so, the mere fact that a mercantile system of accounting is adopted by an assessee would not conclude the matter. Each case should be decided on its own peculiar facts and, if these facts reveal that even though the amount in question is credited in the account books of the assessee, the amount had in fact not accrued to him, then it would be open to the assessing authorities to come to the conclusion that, in spite of the adoption of the mercantile system of accounting, the amount has not accrued to the assessee. . . ." Therefore, when the price of the drugs supplied by the assessee-company to the Health Services Department was only tentative but not fixed by contract or otherwise the entries made in accounts represent only mere cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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