Disputed COPE Scheme claim not taxable in AY 1975-76 as no income accrued u/s 5

HC held that the additional amount claimed by the non-resident petroleum distributor under the COPE Scheme did not accrue as income in AY 1975-76. Although the assessee followed the mercantile system, there was no crystallized legal right to receive the amount, as the claim was contrary to the Ministry of Petroleum's directive and had neither been accepted by the Government nor adjudicated or settled. Mere raising of a claim or accounting entry could not constitute accrual of income. The disputed sum was thus not taxable in AY 1975-76. HC noted that the assessee accepted its taxability in AY 1978-79, where the assessment had attained finality.

---

---

Issues Involved:
1. Accrual of Income
2. Taxability of the Additional Claim

Summary:

Issue 1: Accrual of Income
The primary issue was whether the sum of Rs. 44,47,482, representing an additional claim under the COPE Scheme, accrued to the assessee during the previous year relevant to the assessment year 1975-76. The Tribunal held that this amount did not accrue to the assessee during the relevant year. The assessee, a non-resident company, derived income from the distribution and marketing of petroleum products in India. The COPE Scheme was introduced by the Ministry of Petroleum to adjust the variations between the approved actual cost of crude oil and the cost assumed in the pricing scheme. The assessee's additional claim of Rs. 44,47,482 was not settled or cleared by the Government during the accounting year, and thus, the claim did not ripen into income receivable during the year. The Tribunal concluded that the amount did not accrue to the assessee and was not taxable.

Issue 2: Taxability of the Additional Claim
The second issue was whether the sum of Rs. 44,47,482 was assessable in the hands of the assessee in the assessment year 1975-76. The Tribunal, after considering various submissions, circulars, and case law, held that the sum was not assessable. The additional claim was based on the COPE Scheme, which allowed adjustments through an account termed as the COPE account. The assessee's claim was in clear violation of the Ministry of Petroleum's directive, which required the use of the "first in first out" (FIFO) principle. The additional claim was a mere claim and did not give rise to any right to receive the amount during the relevant accounting year. The Tribunal held that the amount could not be treated as the income of the assessee for the assessment year 1975-76. The assessee offered the sum for taxation in the assessment year 1978-79, and the inclusion of the amount in that year became final.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the sum of Rs. 44,47,482 could not be included in the assessment year 1975-76. The questions were answered in the affirmative and in favor of the assessee. The court recorded the statement of the assessee's counsel that the sum was rightly assessed for the assessment year 1978-79, and such assessment had become final.

---