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TMI Blog2014 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... popular cinemas throughout the State - in absence of any notification or instructions issued by CBDT under Section 119 of the Act, the income shall become due for the relevant assessment year and as such the same accrued to the assessee - This income was based on contractual corresponding obligation and liability to pay the interest accrued on unpaid amount of sale consideration by the purchaser to the appellant - The rate of interest is fixed - The realization/recovery of income of interest is not time barred in the relevant assessment year - The State Government is not so defunct that it may knee down before the purchasers of the property under Deferred Payment Plan – there is no substance in the appeal and no substantial question of law arises for consideration – Decided against Assessee. - Income Tax Appeal No. 1 of 2008 - - - Dated:- 31-3-2014 - Hon'ble Shri Narayan Shukla And Hon'ble Vishnu Chandra Gupta,JJ. For the Appellant : Sri Shalabh Singh For the Respondent : Sri Manish Misra JUDGMENT (Delivered by Hon'ble Vishnu Chandra Gupta ,J) 1. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as 'the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arisen from the transactions, then its taxability cannot be postponed on the ground of improbability of recovery; (4) The issue, whether income has resulted or not to the assessee, should be decided after considering all the facts and circumstances of the case including the subsequent events; (5) Considering the genuine hardship of the assessee, if the Board exercise its option under section 119 and issues a circular to mitigate the hardship then the above legal position shall not be applied and the assessee would be entitled to relief in terms of the circular instructions of the Board (Para 19) 7. Thus, from the above, it is clear that if the income had accrued or arisen from the transaction, then its taxability cannot be postponed on the ground of impossibility of recovery. We, therefore, do not find any infirmity in the orders of the lower Revenue authorities. The grounds are dismissed. 2. The present appeal was admitted by this Court vide order dated 18.01.2008 on the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case the learned ITAT erred in law by treating hypothetical interest income of Rs.627969/- as taxable inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on recovery against the amount. The real income theory has no role to play if once the income has accrued to assessee. Relying upon the judgement in Poysha Oxygen (P) Ltd vs Dy. CIT, 91 ITD 616, the authorities found that the interest income accrued is not hypothetical income and the same is arisen from transaction, therefore, the taxability over it cannot be postponed on the ground of improbability of recovery. 5. We have heard Sri Shalabh Singh, learned counsel for the appellant and Sri Manish Misra, learned counsel for the Revenue. 6. Learned counsel for the appellant submits that irrespective of adopting any system of accounting income which could not be realised shall not be subject to liability of tax. In support of his contention, learned counsel for the appellant relied upon several judgements of the Apex Court as well as jurisdictional High Court of Allahabad and other courts, the reference of which are as under: 1. Godhra Electricity Co. Ltd vs Commissioner of Income Tax; (1997) 225 ITR 746 (SC) 2. Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. Commissioner of Income Tax; (1997) 227 ITR 172 (SC) 3. Commissioner of Income Tax, Bombay City Vs. Messrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons so considered was a letter addressed by the Under Secretary of the Government of Gujarat, to the assessee whereby the assessee was advised to maintain status quo in respect of enhanced charges for at least six months. This Court took the view that though the letter had no legal binding effect but one had to look at things from a practical point of view. (See R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax [1971] 82 ITR 570 (SC)). This Court took the view that the probability or improbability of realisation has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decision of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged income of interest is virtually the income fall within the meaning of Section 2(24) of the Act and if so, whether the same would be taxable in accordance with the Act? 13. While dealing with the case of Excel Industries Ltd. (supra), their Lordships' of Hon'ble Supreme Court in paragraph 20 ruled as under: 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 14. The Apex Court in Excel Industries Ltd. (supra) after considering the several authorities, most of which have been relied upon by both the parties in this case, observed that for taxability of income following are the necessary things which must have occurred: (a) The income accrues when it becomes due. (b) Such income must also be accompanied by corresponding liability of the other party to pay the amount to assessee , which is taken to be as income. 15. If these two ingredients are fulfilled, the income would be taxable in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest shown is actually due in the assessment year in question is not in dispute because the property was sold in previous assessment year to the present assessment year and if this amount is due, then certainly it become accrues to the appellant as provided under Section 5 of the Act which reads as under: 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision. The amount has not been declared to be bad debt within the meaning of Section 36(1)(vii) nor the same has been written off. The relevant provisions of Section 36 (1)(vii) read as under: 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) ..... (ii) ..... (iii) ..... (iv) ..... (v) ..... (vi) ...... (vii) subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]; 19. It has been submitted by learned counsel for the appellant that properties have been purchased by muscle-men and, therefore, the interest as well as the principal amount could not be recovered. Therefore, it shall be presumed that there shall be no income to the Corporation, which is in a bad shape, having financial crunch and the Corporation has no fund even to pay the salary to the employees. This argument is not capable of extending any help to the assessee for the reason that if this situation is accepted in favour of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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