9911796707
TMI Blog1986 (1) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... n contract with DESU on this supply. Total value of the coal supplied was Rs. 16,00,525.25. Against this, the assessee was paid Rs. 10,64,192.10. There was thus a balance of Rs. 5,35,375.15. 3. The above amount of Rs. 5,35,375.15 was withheld by DESU. This was no the plea that the coal supplied was of inferior quality and did not conform to specifications. The assessee filed a suit for recovery and also got 'a decree which was passed for Rs. 3,50,154 by order dated1-2-1978'. 4. Since Rs. 5,35,375.15 was withheld by DESU, the assessee also reduced the purchased and supplied to DESU. In other words, the assessee did not claim as deduction in the trading account for the year concerned, the full purchase price billed by his suppliers. He claimed only the purchase amount so billed less the amount withheld by DESU. Assessment was also completed for that year (1973-74) on that basis. 5. But the above method adopted by the assessee and the reduced claim made in the trading account for purchases was against accounting procedure. The method of accounting following by the assessee was mercantile. The trading account should not, therefore, have been manipulated in the above manner. (It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee : Rs. (a) Being deduction out of bills 1,69,855.91 (b) Due to increase in coal price 90,461.97 (c) Being the cost of one wagon coal 3,135.15 ----------- 2,53,453.03 Interest at the rate of 14 per cent from 1-3-1973 to 5-8-1974 43,580.03 Interest at the rate of 6 per cent from the period the said suit 53,120.97 has been pending ----------- 3,50,154.03 ----------- 4. During the succeeding previous year (assessment year 1979-80), the assessee received Rs. 1,45,000 as compensation out of above amount of Rs. 3,50,154 ordered by the High Court. Rs. 2,05,154 was received during the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been written in 1977-79. Registered letters were sent to the addresses shown therein asking for confirmation of the assessee's version. All the letters came back unserved with the remark that the parties were not known. The assessee was informed of this. 5. The assessee's explanation with regard to the above was that the parties did exist in 1977-79 and their non-availability in 1983-84 did not show that they were not genuine parties. For the assessment year 1973-74 (relating to the financial year 1972-73) the parties were not looked upon as not genuine. There were also acknowledgments of some other letters of 1972-73 from these parties. This showed that they were genuine parties. Sham Sunder Kedia of Associated Trading Corpn. was one of these parties. His address was furnished (but then no request was made for his been summoned under section 131). According to the Commissioner (Appeals) the real question was whether there was any liability to the collieries due from the assessee in respect of the deductions made. 6. To find out the above, the Commissioner (Appeals) records, the assessee was requested again and again to produce the correspondence file with those collieries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of Lakshman Prakash v. CIT [1973] 92 ITR 492 (All.). 9. The question of taxability of the interest portion was then considered by the Commissioner (Appeals). He noted that the contention for the assessee was that the entire interest could not be brought to tax in this year following the decision of the Delhi High Court in Fazilka Electric Supply Co. Ltd. v. CIT [1983] 143 ITR 551. But then this contention was not correct. In the case before the Court, accrual of interest was under the Indian Electricity Act, 1910, read with the Punjab Electricity Act. It did not arise from the award given by the umpire. It was for that reason, the Court held that the interest has to be assessed on accrual basis. In the present case, interest was not under any statute. It was awarded by the Court as a part of an implied contract and to compensate the assessee for not having been in possession of his legitimate moneys for several years. Thus, the right to receive the interest in question along with the right to received the different in the coal supplied, accrued or arose to the assessee only form the decision of the Delhi High Court. Prior to that, it was only a claim and hence, the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed a relevant circumstance. This shown that the assessee departed from the strictly mercantile method but after full disclosure and acceptance by the ITO. So much for the facts. 13. In Motilal Ambaidas's case the assessee did not claim any deduction for sales tax payable by him. Nor did not shot on the credit side of the trading accounts sales tax collected from the customers as part of the trading receipt. Method of accounting was mercantile. There was a refund of sales tax paid, ordered in a subsequent year following a decision of the Supreme Court holding the levy of sales tax there to be unconstitutional. The Gujarat High Court upheld the taxing of the said refund under section 41(1). It held that the expression 'where an allowance or deduction has been made ......' in section 41(1) should be actually read as 'where an allowance or deduction ought to have been made'. With respect, we are reluctant to follow this decision as it apparently results in rewriting the statute. The position in law has, however, been made quite clear by the Supreme court as also by other High Courts. We would notice here some of the relevant decisions briefly. 14.1 Tirunelveli Motor Bus Service C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected this contention holding that - (i) The only right that the assessee had, was to claim money payable under the contract entered into in 1948-49. (ii) The additional amount (Rs. 12,447) became payable not by virtue of the aforesaid contract but under the order dated24-11-1950. 15.2 The main point of distinction one sees here is that unlike in A. Gajapathy Naidu's case the impugned amount relates back to the contract of the assessee with DESU for the earlier assessment year, i.e., 1973-74. No doubt, the Court passed its order on1-2-1978but that was to settle the contractual rights of the litigants, inter se, in dispute before it. The assessee's method of accounting being mercantile it would relate back to the year of contract. Specially so when there was no upward revision of the contractual rates for the assessment year 1973-74 in financial year 1977-78. We, therefore, hold that the impugned amount cannot be taxed this year on the analogy of A. Gajapathy Naidu's case either. 16. This takes us to the finding of the Commissioner (Appeals) to the effect that quite apart from section 41(1) of the ratio disdained of A. Gajapathy Naidu's case the impugned amount was taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sum of Rs. 2,34,000 in November 1955 in terms of clause 14 of the agreement of June 1953 supra. The assessee received the amount in December 1955 and credited it to its profit and loss account for the calendar year 1955 (assessment year 1956-57). The ITO taxed it for that year under section 10(5A). The Supreme Court held it was not taxable for the assessment year 1956-57 because :. 1. The method of accounting adopted by the assessee would be the basis on which he should be assessed. 2. The right to receive the compensation arose in April 1951. It made no difference that the assessee disputed the quantum of compensation. The method of accounting being mercantile, the compensation because 'due' to the assessee in April 1951 and, hence, it was not taxable for the assessment year 1956-57. 3. That the assessee credited its profit and loss account with the compensation amounts for the calendar year 1955 was of no consequence. From this fact it cannot be argued that for this particular receipt the assessee adopted a different system of accounting. Method of maintaining accounts it one thing and the actual entries in accounts maintained is a different thing. What is relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue after hearing the assessee as well as the ITO. To this extent the assessee's appeal succeeds. Income-tax Appeal No. 2326 (Delhi) of 1984 (Assessment year 1978-79) : 19. In this appeal by the department, the only contention is as under : "On the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in excluding a sum of Rs. 1,45,000 out of the total sum of Rs. 3,50,154 received as a result of High Court judgment which was assessed to tax under section 41(1) of the Income-tax Act in the assessment year 1978-79." 20. However, we find the Commissioner (Appeals) has excluded Rs. 1,45,000 following the decisions in Lakshman Prakash's case. In that case, the assessee was a contractor. He followed the mercantile system of accounting. He closed his accounts on 31st of March each year. During the financial year 1943-44, the assessee entered into a contract for the supply of some materials to the Government of India. In April 1944, the Government suspended the contract. There were meetings between the assessee and the authorities for payment for the materials taken over by it. In February 1945, the basis for the payment was fixed. The amount payab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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