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TMI Blog2009 (5) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company in 36 monthly instalments starting from January 1, 2000. The counter-part to the agreement, IBS Software Services Pvt. Ltd. has mentioned in its accounts as on March 31, 2000, that the amount payable by the said company to the assessee-company has been capitalized and amortized at 30 per cent. per year. In its computation of income, the said IBS Software Services Pvt. Ltd. has claimed depreciation allowance of 25 per cent. on this amount treating it as cost incurred for acquiring commercial rights. The Assessing Officer observed that the last leg of instalment payments due to the assessee-company fell within the previous year relevant to the assessment year under appeal, for the period from April 2003 to December 2003. The Assessing Officer converted nine instalments for the above mentioned period receivable by the assessee in US dollars into Indian rupee amounting to Rs. 2,61,96,135. According to the Assessing Officer this amount has become taxable for the impugned assessment year by virtue of section 28(va) inserted in the Income-tax Act with effect from April 1, 2003. The above proviso made applicable with effect from the assessment year 2004-05 provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter-part, IBS Software Services Pvt. Ltd., has capitalized the payment as an intangible asset and amortized over a period of years. The said company has also claimed depreciation and the same was allowed by the assessing authority for income-tax purposes. In tune with the above treatment, the assessee-company has credited the entire amount of consideration to its capital reserve account and properly disclosed it in its account for the assessment year 2000-01. The Commissioner of Income-tax (Appeals) held that the entire amount of compensation has already been accrued in the first assessment year itself, i.e., 2000-01 and there is no reason to assess proportionate compensation for nine months in the impugned assessment year only for the reason that the compensation was paid in instalments. The Commissioner of Income-tax (Appeals) held that the Assessing Officer has taken the particular view only in the light of the amendment to section 28(va) whereby similar payments have been made taxable with effect from the assessment year 2004-05. The Commissioner of Income-tax (Appeals) allowed the compensation on the above grounds and deleted the addition of Rs. 2,61,90,135. The Revenue is agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de of payment as per the agreement is by way of installments over 36 months. That is only a discharge of the obligation of payments by IBS Software Services Pvt. Ltd. The instalments and method of payment do not decide the point at which the compensation amount accrued to the assessee-company. In fact, the compensation accrued to the assessee-company on executing the agreement irrespective of the method of payment. Therefore, the learned chartered accountant contended that without entering into the dispute whether the amount is taxable or not, it is very clear that the compensation amount has to be considered for the assessment year 2000-01 alone and not beyond that. The learned chartered accountant further explained that clause (va) to section 28 has been introduced, with effect from April 1, 2003, i.e., relevant to the assessment year 2004-05 and therefore subsequent legislation does not affect the compensation accrued to the assessee in the assessment year 2000-01. The learned chartered accountant explained that the operation of section 28(va) could not be made retrospective. If the Assessing Officer has treated any portion of the consideration as taxable income for the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived compensation from IBS Software Services Pvt. Ltd. It is for not carrying on similar business in future that the assessee has received a sizable consideration from IBS Software Services Pvt. Ltd. As already stated, therefore, there is no parity between these two points, i.e. point of accrual as canvassed by the assessee and the period of obligation cast on the assessee. Therefore, it is not proper to confine the accrual of the compensation to the first assessment year 2000-01 alone. The parity between physical events and financial implications are necessarily to be considered while recognizing the accrual of income or receipt to an assessee. As the obligation of the assessee is spread over the years to come, it is not proper to say that the entire consideration is attributable to the obligation of the assessee-company for the first assessment year 2000-01 alone. In fact, it is in the light of the above reasoning, that IBS Software Services Pvt. Ltd. has capitalized the compensation payment in its books of account and thereafter amortized on proportionate basis from year to year. Therefore, we do not find much force in the argument of the assessee that the entire compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany till the end of the earlier previous year, i.e., March 31, 2003. That is why she has considered only nine months falling within the impugned previous year from April 2003 to December 2003. The compensation attributable to the nine instalments falling within the impugned previous year has been taken as business income of the assessee for the impugned assessment year. This approach adopted by the Assessing Officer is fair and much reasonable in the absence of any other alternative method. The approach taken by the Assessing Officer is comparable to the obligation discharged by the assessee in not competing with IBS Software Services Pvt. Ltd. from December 1999 till the close of the impugned previous year March 31, 2004. The proportionate allocation of income made by the Assessing Officer maintains the parity between the point of accrual of income and the period of obligation to be discharged by the assessee-company. Therefore, we are in agreement with the Assessing Officer in treating the amount of Rs. 2,61,90,135 as the income of the assessee attributable to the impugned assessment year 2004-05, under the provisions of law contained in section 28(va) of the Act. The order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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