2002 (1) TMI 269 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on key tax matters, including business income classification.

The department's appeal was partly allowed for statistical purposes, and the cross-objection of the assessee was allowed. The Tribunal upheld the CIT(A)'s ... Method Of Accounting, Project Completion Method Issues Involved:1. Classification of rental income.2. Exclusion of interest-free benefit from the value of benefits.3. Tax deduction on salary payments made outside India.4. Deletion of addition made on account of supply of barges.Issue-wise Detailed Analysis:1. Classification of Rental Income:The department initially raised a ground concerning the classification of rental income of Rs. 72,252, which was directed by the CIT(A) to be taken as business income instead of income from other sources. However, this ground was later substituted with a new ground regarding the classification of interest income of Rs. 8,87,522. The Tribunal declined the substitution of this new ground as it was not permissible under the law and because the department had accepted a similar decision for the earlier assessment year 1987-88. Consequently, the original ground was disposed of in accordance with the CIT(A)'s direction for the earlier year.2. Exclusion of Interest-Free Benefit:The second ground pertained to the CIT(A)'s direction to exclude Rs. 1,01,912 as an interest-free benefit from the value of benefits. The Tribunal noted that this issue was covered by its decision for the assessment year 1987-88, where the ground was confirmed. Therefore, the Tribunal directed the Assessing Officer to decide afresh in view of the earlier decision.3. Tax Deduction on Salary Payments Made Outside India:The third ground involved the CIT(A)'s decision that no tax needed to be deducted on salary payments made outside India. This issue was also covered by the Tribunal's decision for the assessment year 1987-88, where the ground was restored to the file of the Assessing Officer. The Tribunal directed the Assessing Officer to decide afresh in accordance with the earlier decision.4. Deletion of Addition Made on Account of Supply of Barges:The last ground concerned the deletion of an addition of Rs. 2.8 crores made by the Assessing Officer on account of the supply of barges. The Assessing Officer had estimated expenses and profits related to the sale of two barges during the year, relying on the Supreme Court's decision in CIT v. British Paints India Ltd. The CIT(A) deleted the addition, reasoning that the assessee followed the 'completed work method' and accounted for profits when the contract was completed in the subsequent assessment year 1989-90. The Tribunal upheld the CIT(A)'s decision, noting that the assessee maintained complete books of account without any defects and consistently followed its accounting method. The Tribunal found that the contract was a composite and single contract, which could not be split, and thus, the CIT(A) rightly deleted the addition.Separate Judgments:The Tribunal's members had a difference of opinion on the fourth ground and the related cross-objection. The Judicial Member concurred with the CIT(A)'s decision, while the Accountant Member held a different view, considering the contract as divisible and suggesting the income from two barges should be taxed in the relevant assessment year. The matter was referred to the Third Member, who concurred with the Judicial Member, affirming that the contract was composite and the 'Contract Completion Method' was applicable. Consequently, the CIT(A)'s order was sustained, and the appeal of the department on this issue was dismissed.Conclusion:The appeal of the department was partly allowed for statistical purposes, and the cross-objection of the assessee was allowed accordingly. The Tribunal's final decision upheld the CIT(A)'s order on all contested grounds, particularly affirming the use of the 'Contract Completion Method' for accounting the income from the supply of barges.