Accrual of income disputed-interim restraint on tax recovery permitted subject to bank guarantee and appellate adjudication.

Where the right to receive disputed payments is substantially in issue, those amounts do not prima facie accrue as income; therefore writ relief may be entertained to protect competing interests and to secure early merits adjudication by the appellate forum. The appropriate interim relief is to restrain coercive recovery under assessment orders pending disposal of the appeal on merits, provided the taxpayer furnishes a bank guarantee for the tax amounts to the satisfaction of the tax officer within a fixed period. The petition was entertained and recovery stayed subject to that condition; no costs awarded.

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Issues: (i) Whether the High Court can entertain writ jurisdiction under Articles 226/227 to grant interim relief in an income-tax assessment where the question of accrual of receipt (award made a rule of court) is pending adjudication in other proceedings; and whether coercive recovery under the assessment order should be restrained subject to conditions.

Analysis: The Court examined the admitted facts that awards made a rule of the court were the subject of letters patent appeals pending in the High Court and that the right to receive the amounts was disputed. The Court considered the legal distinction between cases where the right to receive payment is itself in dispute and cases where only quantification is in issue, relying on established authority that where the right to payment is in serious jeopardy the amount cannot be treated as having accrued as income. The Court noted that the petitioner maintained mixed accounts but found no authoritative precedent to hold that mixed accounting would alter the principle that disputed rights not finally determined do not accrue as income. In the circumstances, the Court held that it could prima facie entertain the writ petition to protect the competing interests and direct an early adjudication on the merits by the appellate authority. The Court also considered the appropriateness of interim measures and imposed a condition requiring the petitioner to furnish a bank guarantee for the tax amounts to the satisfaction of the Income-tax Officer within two months as a condition to stay coercive recovery.

Conclusion: The writ petition is entertained and interim relief is granted in favour of the petitioner: coercive recovery under the assessment orders is restrained until the appeal against the assessment is disposed of on merits, subject to the petitioner furnishing a bank guarantee for the tax due within two months. No costs were awarded.

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