TaxTMI 
TaxTMI 
2007 (11) TMI 359
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....section 256(1) of the Income-tax Act, 1961 (for short "the Act"), for the assessment year 1983-84: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the income of the assessee to be taxed on receipt basis and not on accrual basis, even though the assessee was following the mercantile system of accountancy?" 2. The facts as narrated in the statement of the case are that the assessee corporation is engaged in the business of development and sale of industrial sheds. The assessee raised certain construction in the form of industrial sheds on the land provided by the State of Punjab and made allotments to the entrepreneurs. As per the conditions of the allotment, 25 per....
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.... capital cost of the industrial sheds arid not on the instalment money actually received by the assessee was to be treated as income of the assessee as it was following the mercantile system of accounting. Learned counsel argued that it is the accrued income which is exigible to tax under the mercantile system of accounting and the actual receipt is of no consequence. 5. Learned counsel for the assessee very vehemently controverted the submission of the Revenue and argued that the gross capital cost of the land was realized in a period of ten years in equated annual instalments and the assessee did not receive the entire price of industrial sheds and in that eventuality it was not exigible to tax in this year. Elaborating further, it was ....
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....evant for the present purposes reads thus: "5.(ii)(b) Leasehold rights in the industrial sheds of the corporation shall be transferred in favour of the lessee after the expiry of 15 years from the date of allotment provided there are no arrears against the lessee on account of premium interest or ground rent. Even after the transfer of land in favour of the lessee, he shall be liable to pay ground rent at the prescribed rate." 9. Further, clause (e) of rule 5 stipulates that in the event of failure on the part of the allottee/lessee in making payment of instalment, the managing director of the assessee-corporation shall be entitled to resume the plot. However, an option has been given to the allottee/lessee to make the payment of the prem....
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....d that the words "accrue" or "arise" are used to contradistinguish the word "receive". Income is said to be received when it reaches the assessee when the right to receive the income becomes vested in the assessee, it is said to accrue or arise. The apex court further held as under (headnote): "income becomes taxable on the footing of accrual only after the right of the taxpayer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or on the happening of a contingency, the fact that the profits are the result of transactions spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entit....
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....he relevant time." 13. In CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC) while analysing the scope of accrual of income, the hon'ble Supreme Court categorically held that in case of an inchoate right to receive income, it does not result in taxable income. A similar view had been expressed in Rama Bai v. CIT [1990] 181 ITR 400 (SC) wherein the apex court went on to hold that interest which accrues on compensation as a result of acquisition of land by virtue of court order is to be spread over a number of years to which it relates. 14. A Division Bench of the Bombay High Court in CIT v. ACE Builders P.Ltd. [1993] 202 1W 324 (Bom), while considering the similar situation as in the present case, held as unde....
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....me Court and need no reiteration. It is well settled that the income is held to accrue only when the assessee acquires a right to receive that income. In other words, or to say it differently, income can be said to accrue on a date when the debt becomes due. As observed by the Supreme Court in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42, unless the right to profits comes into existence there is no accrual of profits. In the instant case, in the face of the clear agreement between the parties contained in clause 9 of the agreement, it cannot be said that the entire amount of Rs. 8 lakhs accrued to the assessee on the date of the agreement." 15. Applying the aforesaid principles to the facts of the present case, it is undisputed that the as....