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TMI Blog1983 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... onal, Panipat. 3. Mrs. Nirmal Kanta filed return of her net wealth for the assessment year under appeal on 29th July, 1976 declaring net wealth of Rs. 1,87,058. Mrs. Meenakshi Mahajan filed her return of net wealth on 30th Sept., 1976 declaring net wealth of Rs. 60,984. Mrs. Anita Nagrath submitted the return on 30th Sept., 1976 showing net wealth of Rs. 1,57,083, Mr. G.D. Mahajan filed the return on 30th Sept., 1976 declaring net wealth of Rs. 82,283. 4. When these returns were being processed during the course of assessment proceedings, the WTO/IAC (Asst.) noticed that in the firm of M/s Mahajan Overseas, Panipat, there was no mention of cash incentives receivable in the balance-sheet as on 31st March, 1976. However, cash incentives due to the firm as on 31st March, 1976 were Rs. 5,62,730. Since the assessee had not shown any share of the cash incentives as a part of her net wealth, he asked the assessee to explain it. In the process, the WTO found out that the firm had not shown the cash incentives due to it in its balance-sheet as on 31st March, 1976 because it was following a double system of accounting. The firm had followed mercantile system of accounting for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of s. 4(1)(b) of the WT Act, 1957 r/w s. 7 ibid alongwith the provisions of s. 2 of the WT Rules, 1957. He also took into consideration the authorities cited before him and after a detailed discussion as recorded in paras 2 to 5 of his impugned order in the case of Mrs. Nirmal Kana, came to the conclusion that the assessee should have shown her interest in the cash incentives due to the firm. 8. Before him an alternative contention had been raised on behalf of the assessee that for the sake of argument and without concession if the cash incentives were considered as includible in the net wealth of the assessee, the tax liability of the firm and personal tax of the assessee that could be payable on her share of the cash incentives should have been deducted from the amount receivable by way of cash incentives and only the balance should have been brought to tax. In this regard it was pointed out to the ld. CWT that the sum of Rs. 3,52,730, if included in the income of M/s Mahajan Overseas for the year under appeal, the firm will pay a tax of Rs. 1,48,560. The balance of Rs. 4,14,170 would be the amount of which 18% would come to Rs. 74,550 as share of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 471 (SC) regarding the right of the assessee to receive a portion of the cash incentive and its taxability. He contended that as on the valuation date, each one of the firms was entitled to the cash incentives in which each of the assessees had right, title and interest and thereby value was includible in the net wealth of the assessee irrespective of the system of accounting followed by the firms. He also referred to r. 2(c) of the WT Rules, 1957 and supported the orders of the authorities below. 12. We have given careful consideration to the rival submissions. The authorities cited from both the sides as well as considered in the orders of the authorities below have been considered. Before we proceed further we would like to understand and clarify the nature of the cash incentives which will help us in determining as to when the cash incentives in a particular case can be said to constitute the income asset of the assessee depending upon, of course, the system of accounting followed by an assessee. The cash incentives, mentioned supra, was a type of cash assistance for exporting cotton handloom fabrics and made-ups. This cash assistance scheme was operated by the Handloo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, be open even to such an assessee to treat the amounts involved in the claim so made as due to it only when the Export Promotion Council admitted the claims made as admissible and the amounts involved therein as due to the assessee but did not make the payment immediately. However, where an assessee is following, a cash system of accounts, i.e., a system where an amount due from a party is accounted for only on date of its receipts, even when the claims made before the council are found as admissible involved therein become due, the assessee may not take note thereof for the purpose of determining the total income for a particular assessment year unless the amounts are actually received. 14. It is now well settled that as to what method of accounting the assessee will follow in keeping the books of account in respect of the business or businesses carried on is absolutely his own discretion. The assessee can maintain books of account on mercantile system of accounting or it can maintain books on cash system of accounting. It is also open to an assessee to maintain books of accounts on a mixed system of mercantile as well as cash. However, the assessee has to follow such a syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional fees which were actually received and not those professional fees which were outstanding as on the valuation date. The return of net wealth submitted by the assessee, therefore, did not disclose the assessee's share of the outstanding professional fees of the firm. The assessee's claim before the WTO in this respect was that his share in the outstanding fees of the firm should not be included as the firm followed cash system of accounting. This claim of the assessee was rejected by the WTO on the ground that the outstanding fees in the case of the firm of the professionals was an asset of the firm and the assessee's right, title and interest in outstanding fees was a valuable asset taxable to wealth tax. The WTO also held that in including such value of the assets in the net wealth of the assessee, no deduction could be allowed on account of income tax liabilities in respect of the same. The order of the WTO had been confirmed by the AAC of WT. On further appeal, the Tribunal in the Special Bench held insofar as it is relevant for this appeal, that where the WTO is required to determine the net value of the business in regard to profession carried on by an assessee under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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