1962 (7) TMI 41 - HC - Income Tax

Private Company's Income Accrual Upheld Despite Government Dispute

VISHNU AGENCIES PRIVATE LTD. Versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY I.

VISHNU AGENCIES PRIVATE LTD. Versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY I. - [1963] 48 ITR 444 (Bom) Issues:1. Accrual of income in relation to transport contracts with the Government.2. Allowance of partnership business loss against other business income.Detailed Analysis:1. Accrual of Income:The case involved a private limited company acting as transport contractors for the Government, transporting sugar from docks to godowns. The company claimed an amount of Rs. 1,45,395 due from the Government for work done during the assessment year 1956-57. The company maintained accounts under the mercantile system, but the income was not taken to the revenue account due to a dispute raised by the Government regarding breach of contract. The Tribunal held that the income had accrued to the company and was taxable in the relevant year. The company contended that the payment was withheld by the Government due to the claim of damages for breach of contract. However, the court found that the mere assertion of a claim by the Government was not sufficient to affect the accrual of income. The court emphasized that until the dispute was resolved through arbitration, no enforceable claim existed against the payment due to the company. Therefore, the income was deemed to have accrued to the company despite the claim by the Government.2. Partnership Business Loss:The company also claimed a loss of Rs. 89,440 from a partnership business with another individual. The income-tax authorities disallowed this claim, stating it was not proven. The company argued that regardless of the partnership's registration status, it was entitled to set off the partnership loss against other business income. However, the Tribunal overruled this contention. Subsequently, the Tribunal referred two questions to the High Court, one of which was related to the partnership loss set-off. However, as the partnership firm was later held to be registered, the question became unnecessary and was not pursued further. The High Court did not address this question in its judgment.In conclusion, the High Court affirmed that the income had accrued to the company despite the Government's claim for damages. The court held that the mere assertion of a claim was not sufficient to prevent the income from accruing. The court also noted that the partnership loss set-off issue was rendered moot due to the partnership firm being deemed registered.