1960 (5) TMI 41 - HC - Income Tax

Court rules income accrual based on right to receive; cautions against English case reliance

Commissioner of Income-tax Versus Kalicharan Jagannath

Commissioner of Income-tax Versus Kalicharan Jagannath - [1961] 41 ITR 40 (Allahabad) Issues Involved:1. Whether the sum of Rs. 72,637 is liable to be assessed in the assessment year 1946-47.Detailed Analysis:Issue 1: Whether the sum of Rs. 72,637 is liable to be assessed in the assessment year 1946-47The question referred for opinion was whether the sum of Rs. 72,637 is liable to be assessed in the assessment year 1946-47. The assessee entered into a contract to supply fruits and bullock carts to the military department during the previous year 1st April 1945 to 31st March 1946. Initially, the assessee incurred a loss of Rs. 13,164 on supplies of Rs. 1,84,583. Subsequently, the assessee submitted a petition for a review under the agreement terms, and the military authorities sanctioned an additional payment of Rs. 72,637 on 6th November 1947, which was paid on 17th and 24th February 1948.The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal held that this sum should be included in the assessment for the year 1946-47. They based their decision on the clause of the agreement that provided for a review of rates for annual contracts. The clause stated that rates would be subject to review according to the rise or fall of market rates by referees appointed by the Government Reviewing Tribunal. The final recommendation would rest with the officer sanctioning the contract.However, the court noted that the initial payment resulted in a loss, and the additional sum was sanctioned after a review petition by the assessee. The court distinguished between a petition for review and a claim for enhancement, stating that the assessee was not entitled to enhancement as of right under the agreement. The right to receive additional payment arose only after the review order was passed on 6th November 1947.The court referred to the Supreme Court's decision in E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, which discussed the scope and meaning of 'income arising or accruing.' The Supreme Court held that income may accrue to an assessee without actual receipt if the assessee acquires a right to receive it. The basic conception is that there must be a debt owed to the assessee, creating a right to receive the income.Applying this principle, the court concluded that the right to receive the additional sum of Rs. 72,637 did not arise during the previous year relevant to the assessment year 1946-47. The income arose or accrued only when the review order was passed on 6th November 1947, which was outside the relevant previous year. Therefore, the sum could not be included in the assessment for the year 1946-47.The court also referred to other Supreme Court decisions, including Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co. and Commissioner of Income-tax v. Thiagaraja Chetty & Co., which supported the view that income accrues when the right to receive it arises. The court distinguished these cases from the present case, emphasizing that the right to receive the additional payment had not accrued during the relevant previous year.Additionally, the court considered English cases, including Isaac Holden & Sons Ltd. v. Commissioners of Inland Revenue and Commissioners of Inland Revenue v. Gardner Mountain & D'Ambrumenil Ltd., which dealt with excess profits tax duty. The court noted that these cases were decided under different statutory provisions and were not directly applicable to the Indian Income-tax Act. The court emphasized the caution advised by the Supreme Court in relying on English decisions when interpreting the Indian Income-tax Act.In conclusion, the court answered the question in the negative, holding that the sum of Rs. 72,637 could not be assessed in the assessment year 1946-47. The assessee was entitled to the costs of the reference, fixed at Rs. 400, and the fee of learned counsel for the Department was also assessed at the same amount.