2001 (12) TMI 206 - AT - Income Tax

Payment not accrued in relevant year deemed erroneous. Correctly upheld by Commissioner of Income-tax (Appeals).

The Tribunal held that the sum of Rs. 61,945 did not accrue to the assessee during the relevant assessment year. The payment received in 1993 was deemed ... Income, Accrual Of Issues Involved:1. Whether the sum of Rs. 61,945 received by the assessee during the financial year 1992-93 accrued during the year.2. The procedural adherence for the distribution of consultancy fees.Issue-wise Detailed Analysis:Issue 1: Accrual of IncomeThe primary issue in this case is whether the sum of Rs. 61,945 received by the assessee during the financial year 1992-93 accrued during the year. The assessee, a distinguished Scientist, had a consultancy agreement with M/s. Sun Pharmaceuticals Ltd., and the payment was routed through CCMB. The assessee admitted only the first instalment of Rs. 47,936 in his return of income and did not admit the second instalment of Rs. 61,945, arguing that CCMB did not follow the prescribed procedure before making the payment, and hence, the amount did not accrue to him.The Assessing Officer rejected this contention, stating, 'The procedural irregularity, if at all any, in the determination of the consultancy fees cannot affect the receipt of income. The assessee's right to receive the income accrued during the year, and he was in fact paid the amount during the year itself.'The Commissioner of Income-tax (Appeals) upheld the claim of the assessee, stating, 'In order that income may be said to have accrued at a particular point of time, it must have ripened into a debt at that moment. The appellant's right to receive consultancy fees will arise only at the point of time when the pattern of distribution as well as the quantum of distribution have become final after proper publicity on the Notice Board of the CCMB and after taking into consideration objections, if any.'Issue 2: Procedural Adherence for Distribution of Consultancy FeesThe procedural adherence for the distribution of consultancy fees was a crucial aspect. The prescribed procedure required the Team Leader to recommend the distribution of fees, which had to be displayed on the notice board for two weeks, allowing participants to file objections. This procedure was not followed for the amount of Rs. 61,945.The Commissioner of Income-tax (Appeals) noted, 'As long as the aforesaid prescribed condition is not observed and complied with, the appellant is not entitled to the receipt of Consultancy Charges. Therefore, the appellant's right to receive consultancy fees will arise only at the point of time when the pattern of distribution as well as the quantum of distribution have become final after proper publicity on the Notice Board of the CCMB and after taking into consideration objections, if any.'Supporting this, a letter dated 13th October 1997 from the Senior Controller of Administration (CCMB) to the Commissioner of Income-tax (Appeals) stated, 'CSIR Headquarters has directed the laboratory to follow the procedure once again and distribute the honorarium to Dr. Bhargava now. Action has now been taken accordingly.'The learned counsel for the assessee provided further evidence, including an Office Memorandum dated 2-8-1997, which confirmed that the prescribed procedure was followed in 1997, leading to the payment of Rs. 59,556 after deducting tax at source.Conclusion:The Tribunal concluded that the right to receive Rs. 61,945 did not accrue to the assessee within the year of account relevant for the assessment year 1993-94. The payment received in 1993 was considered an erroneous payment or at most an advance. The prescribed procedure was finally followed in 1997, regularizing the payment. Hence, the Commissioner of Income-tax (Appeals) was correct in upholding the assessee's claim, and the appeal of the Revenue was dismissed.