Revenue recognition for composite service receipts: income taxable only when related services are rendered under consistent accounting policy.

Composite service receipts for supply, installation, commissioning and extended warranty support were held taxable only in the periods to which the related services pertained, applying Accounting Standard 9 and the proportionate completion method. Because the assessee consistently followed this accounting treatment and the revenue portion attributable to future services was offered in later years, the entire receipt could not be brought to tax in the year of receipt. The addition was therefore deleted and the disallowance was not warranted.

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Issues: Whether the provision for services charges and part of the commission receipts could be deferred and taxed in later years on the basis of revenue recognition principles.

Analysis: The assessee had received composite consideration for supply, installation, commissioning and extended warranty support, but the work was not fully completed in the relevant year. The revenue portion attributable to future services was governed by Accounting Standard 9 and had to be recognised on the proportionate completion method. The assessee had followed this consistent accounting treatment in earlier years as well, and the amount in question was offered to tax in subsequent years, showing that no income had escaped assessment. The receipt therefore remained relatable to future periods and could not be brought to tax in full in the year of receipt.

Conclusion: The deletion of the addition was and the disallowance was not warranted; the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge to the addition failed because the disputed receipt was taxable only in the periods to which the corresponding services related.

Ratio Decidendi: Income arising from composite service receipts must be recognised in the year in which the related services are rendered, where the assessee follows a consistent accounting policy in conformity with the applicable accounting standards.

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