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TMI Blog2001 (12) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... r registration charges of plots by the assessee in its accounts were chargeable as accrued liabilities against this income? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in treating the assessee-company as an industrial company for the purpose of rate of tax?" The basic facts of the matter are not in dispute. An auction was held by the Delhi Development Authority (in short, "the DDA"), on February 6, 1973, for perpetual leasehold rights of certain plots and the assessee made bids for plots Nos. 39, 40 and 41 for Rs.7,00,000, Rs.7,75,000 and Rs.8,00,000, respectively, and further paid the earnest money amounting to Rs.5,68,750, i.e., 25 per cent. of bid amount. Vide letter dated March 2, 1973, the assessee retracted its bids for the aforesaid three plots stating as under: "On going through the details of these plots, we find that all these plots are too small to have any proper planning. Total covered area also being very small, we being the promoters do not feel it worth marketing the flats to the public. We, therefore, request your goodself to kindly treat our bid for the above plots as withdrawn and refund our money at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: "The assessee's business itself was the construction and sale of multistoreyed commercial flats. It has been doing this business in respect of other similar plots acquired from the Delhi Development Authority. There is, therefore, no doubt that the assessee bid for these plots in the auction held on February 6, 1973, in the course of its business with a view to acquire stock-intrade for his business." "The bid itself was a contract according to which the assessee should have paid the full amount of the bid to the Delhi Development Authority. It is this contract in respect of which there was a breach and as pointed out earlier it is in respect of this breach, which arose in the course of the assessee's business, that the Delhi Development Authority forfeited the amount of Rs.3,66,000. There has thus clearly been a breach of contract in the course of the assessee's business as was the case in the various High Courts' judgments relied upon by the learned representative. It appears to me that the Incometax Officer has merely brushed aside the applicability of the High Courts judgments to the facts of the assessee's case." "Both the reduction and the actual forfeiture by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above and the specific provisions of section 41(1) of the Act, the amount obtained can certainly be brought to tax in the year in which such receipt takes place. Section 41(1) is specifically intended to deal with cases of this type and cannot in my opinion be controverted into a dead letter by disallowing the loss in the year in which it was really incurred in accordance with the commercial principles of accounting and the assessee's own method of accounting." The assessee filed a suit on September 16, 1973, in this court for recovery of a sum of Rs.5,68,750 besides interest, which was registered as Suit No. 409 of 1973. The learned single judge decreed the said suit for Rs.3,66,000 with interest at 6 per cent. per annum from the date of the suit till payment along with the costs against the Delhi Development Authority. The matter, however, was taken up in appeal by the Delhi Development Authority before this court having been referred to a Full Bench, which is still pending. Thus, the question of refund of the amount of Rs.3,66,000 forfeited by the Delhi Development Authority is sub judice even now. Whether the purported loss incurred by the assessee to the extent of Rs.3,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration fees to the accounts for this year. No deduction is admissible for the provision for expenses. The expenditure cannot be said to have been incurred in this year even under the mercantile system of accounting particularly in the face of the above facts. The Inspecting Assistant Commissioner has upheld the above disallowance and has further observed that there was no definite obligation of the assessee-company for the impugned expenditure in view of clause 33 of the agreement of sale between the assessee-company and the buyers of flats. The expenses on registration if at all they were to be incurred by the assessee-company, were chargeable in the accounting year when the flats were purchased, i.e., 1974-75 assessment year. In other words, if registration of the plots was the liability of the assessee-company, then it was definitely incurred in the assessment year 1974-75. Reliance is placed on the ratio given in Calcutta Company Ltd v. CIT [1959] 37 ITR 1 (SC), wherein it was held that if a liability has been definitely incurred in the accounting year, e.g., an unconditional contractual liability, it cannot be regarded as contingent merely because it is to be discharged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who purchased the flats from the assessee, section 41(1) would certainly operate and the assessee can then be taxed in respect of the benefit obtained or accruing by way of such remission, revision or cessation. However, the mere possibility of such a remission or cessation taking place in the future cannot be a reason for disallowing the claim of Rs.2,42,000 in the order under appeal. The Income-tax Officer has stated that the expenses on registration were chargeable in the accounting year relevant for the year 1974-75 assessment on the ground that the plots were acquired in that year. I considered this to be erroneous as all the expenses incurred last year were not carried to the profit and loss account but to project account in the balance-sheet. It is only in the year under appeal when the construction gathered momentum and substantial receipts of more than 50 per cent. of the total bookings value of the flats received that the assessee started the profit and loss account transferring the project account also thereto. Having accepted this method of accounting, even if the registration charges were debited in the earlier accounting year they would again come up for debit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent was an industrial undertaking. It was further held that the assesssee was not entitled to the benefit provided under section 80HH, because the activity of construction of a dam could not be characterised as manufacture or production of an article or articles within the meaning of section 80HH(2)(i) of the Act. Yet again in Minocha Bros P. Ltd. v. CIT [1993] 204 ITR 628, the apex court observed that in order to be entitled to the lower rate of tax on an 'industrial company", it is for the assessee-company to adduce material to establish that its income attributable to the activities of manufacture or production of goods is not less than 51 per cent. of the total income. It was further held that the company engaged in the construction of buildings was not an industrial company entitled to be taxed at the concessional rate because it had failed to adduce material to establish that the income attributable to the manufacturing activity undertaken by it represented not less than 51 per cent. of its total income. The aforesaid principle has been reiterated in Builders Associations of India v. Union of India [1994] 204 ITR 877 (SC). The third question, therefore, must also b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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