1976 (6) TMI 8 - HC - Income Tax

Court rules amounts from contract transfers as taxable revenue receipts under ordinary course of business

NR. Sirker Versus Commissioner Of Income-Tax, Assam

NR. Sirker Versus Commissioner Of Income-Tax, Assam - [1978] 111 ITR 281, 1976 CTR 386 Issues Involved:1. Whether the amounts receivable by the assessee on account of transfer of contracts to third parties were revenue receipts taxable in the assessment years 1964-65, 1965-66, and 1966-67.2. Whether the amounts receivable under agreements dated October 1, 1963, and September 30, 1963, accrued to the assessee on the dates of contracts or on the dates when the instalments became payable under the agreements.Issue-wise Detailed Analysis:1. Revenue Receipts Taxable in Relevant Assessment Years:The Tribunal found that the assessee was engaged in the business of supplying meat, poultry, vegetables, etc., to various Government and military authorities. The contracts assigned to third parties were obtained in the course of this business. The Tribunal concluded that the transfer of these contracts did not affect the structure of the assessee's business. The amounts received by the assessee for these contracts were considered revenue receipts because they were obtained in the ordinary course of business. The Tribunal held that these receipts were taxable in the respective assessment years.The High Court agreed with the Tribunal's findings. It noted that the assessee had been engaged in this line of business for several years and had entered into contracts for supplying the commodities in question. The agreements with third parties were made in the ordinary course of business, and the amounts received were what the assessee would normally get from his business. Therefore, these amounts were revenue receipts and taxable in the assessment years 1964-65, 1965-66, and 1966-67.2. Accrual of Amounts Receivable:The Tribunal held that the full amount of consideration accrued to the assessee on the dates of the contracts, rejecting the contention that the amounts became due only when the instalments payable under the agreements became due. The High Court examined whether the assessee maintained accounts in the cash system or mercantile system. It found that no proper accounts were kept by the assessee, and it was not established that the assessee's accounts were kept in the mercantile system.The High Court concluded that income-tax is normally paid on money actually received, except in cases where accounts are kept in the mercantile system. Since the assessee did not maintain accounts in the mercantile system, the amounts receivable under the agreements dated October 1, 1963, and September 30, 1963, should be considered based on the dates when the instalments became payable. Therefore, the amounts should be included in the assessment years based on the actual receipt of instalments.Conclusion:The High Court answered the first question in the affirmative, holding that the amounts receivable by the assessee on account of transfer of contracts to third parties were revenue receipts taxable in the assessment years 1964-65, 1965-66, and 1966-67. The second question was answered in the negative, holding that the amounts receivable under the agreements dated October 1, 1963, and September 30, 1963, accrued to the assessee on the dates when the instalments became payable under the agreements, not on the dates of the contracts. The reference was answered accordingly, with no order as to costs.