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TMI Blog2019 (1) TMI 1597X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. - ITA No. 732/Del/2016 - - - Dated:- 25-1-2019 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Appellant : Shri Surender Pal, Sr. DR For the Respondent : Shri Alok Vasant, CA ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by The Deputy Commissioner of Income tax [ The ld AO ] Circle 23(2), New Delhi against order of the ld Commissioner of Income Tax (Appeals)-28, [ the CIT A] New Delhi dated 02/12/2015 wherein, the addition of ₹ 27,23,43,091/- on account of un-accrued revenue from the sale of prepaid cards as on 31-3-2010 added by the ld AO were deleted by the ld CIT- A. 2. The revenue has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of ₹ 27,23,43,091/- on account of un-accrued revenue as on 31.03.2010 from the sale of prepaid cards and recognized in the books of accounts. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in not appreciating that 'as soon as tlje money is received, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is seen that the un-accrued revenue as on 31.03.2010 was ₹ 34,88,62,307. 5.3 Further the un-accrued revenue as on 31.03.2009 was ₹ 7,65,19,216 and was treated as income in assessment order of assessment year 2009-10. Hence after giving credit for the same as per the claim of the assessee that the same has been utilized and already recognized in income of the current year hence balance amount (₹ 34,88,62,307 - ₹ 7,65,19,216) i.e. ₹ 27,23,43,091 is the un-accrued revenue to be treated as income and is added back to the total income in the current year. 4. The assessee challenged the issue before the ld Commissioner of Income Tax (Appeals). The ld CIT(A) deleted the addition vide para number 3 of his order following the earlier orders of the co-ordinate bench and also followed the decision of the Hon ble jurisdictional High Court in case of BTA Telecom Ltd. in ITA No. 133/2009 for the Assessment Year 2002- 2003. The revenue aggrieved with the order of the ld CIT(A) has preferred this appeal. 5. The ld DR vehemently supported the orders of the ld AO. 6. The ld AR simply supported the order of the ld CIT(A) and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is legally entitled to appropriate to the exclusion of the giver. However, contention of the Revenue that the prepaid amount once paid and received by the assessee was forgone by the subscriber and accordingly appropriated by the respondent-assessee is substantially correct. At the same time, the payment was an advance and was subject to the respondent-assessee providing basic telecom service as promised, failing which the unutilized amount was required to be refunded to the pre-paid subscribers. 10. The respondent-assessee states that they have been following the principles of Revenue Recognition as per Accounting Standards. Paragraph 7 of Accounting Standards stipulates:- 7. Rendering of Services 7.1 Revenue from service transactions is usually recognised as the service is performed, either by the proportionate completion method or by the completed service contract method. (i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be determined on the basis of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le system of accounting. Reference was made to E.D. Sassoon and Co. Ltd. Vs Commissioner of Income Tax [1954] 26 ITR 27 (SC) to observe as under:- 12. Section 5 of the Act gives the ―scope of total income‖. Sub-Section (1) thereof, with which we are concerned, reads as under: 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. 13. As is clear from reading of Clause (b) above, even when the income accrues or arises or is deemed to accrue or arise to the assessee in India during previous year, that is to be taxed in that year. It is important, therefore, that receipt of a particular amount in the relevant year should be an income under the aforesaid provision. What is the relevant yardstick is the time of accrual or arisal for the purpose of its taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee expressions 'accrues,' 'arises' and 'is received' having been used in the section, strictly speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks (1888) 21 Q.B.D. 52, 59 [this part of the decision not having been affected by the reversal of the decision by the House of Lords (1889) 14 App. Cas. 493 that both the words are used in contradistinction to the word receive and indicate a right to receive. They represent a stage anterior to the point o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 A.E.R. 532 , and Webb v. Stenton and Others, Garnishees 11 Q.B.D. 518 . Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income had accrued to him. 12. The argument of the Revenue that as per the agreements signed by the students, they were called upon and were required to pay the entire fee upfront for the entire course at the time of admission and, therefore, the assessee had earned full fee at that stage itself was rejected observing and referring to the principle of law laid down in E.D. Sassoon and Co. Ltd. (supra) that fee was debt due at the time of deposit. The fee was paid in advance though services were yet to be rendered. Reference was made to Calcutta Company Ltd. Vs. Commissioner of Income Tax [1959] 37 ITR 1 (SC) that when the fee was paid in advance it would be in nature of deposit or an advance. Otherwise, it would lead to an anomalous situation not intended in law, as when the amount was received the expenses to be deducted to arrive at the net income were yet to be incurred, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Accounting Standards, in Dinesh Kumar Goel (supra) it was observed:- 28. Reading of the aforesaid (AS) 9 makes it clear that revenue is recognized only when the services are actually rendered. If the services are rendered partially, revenue is to be shown proportionate with the degree of completion of the services. This really clinches the issue in favour of the assessee. 29. Though our discussion on the issue is complete, the parting comments need to be made. The receipts relate to the unexecuted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year. Still issues are raised and much outcry is made for nothing. 15. Thereafter, the Delhi High Court in Dinesh Kumar Goel (supra) had quoted the following passage from the decision of Bombay High Court in Commissioner of Income Tax Vs. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom) :- We have often wondered why the Income tax authorities, in a matter such as this where the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dward Governor India P. Ltd. [2009] 312 ITR 254 (SC), the Supreme Court has emphasized that the accounting standards as framed and followed by the auditors should be respected, for they provide harmonization of concepts and accounting principles and ensure discipline. Accounting methods followed continuously by the assessee for given period of time would ensure revenue neutrality and reflect true and correct income or profits. 19. Counsel for the Revenue has submitted that in some cases the prepaid cards would have lapsed and the subscribers may not have utilized or availed of services/talk time. Unutilized amount when the prepaid card lapses has to be treated as income or receipt of the respondent-assessee on the date when the card had lapsed. The respondent-assessee has accepted this position. Assessing Officer would be accordingly entitled to examine this aspect when passing the appeal effect order. 20. Looked at from all angles, we do not find any reason or good ground to interfere with the order passed by the Tribunal. The substantial question of law is accordingly answered in favour of the respondent-assessee and against the Revenue. The appeals are dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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