TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 702
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....ibunal), in I.T.A.No.40/Hyd/2000. The facts that gave rise to filing of the appeal are as under: The respondent is a Civil Contractor. It was awarded a contract by the Hyderabad Municipal Water Supply and Sewerage Board. The terms of the contract provided for deduction of 7.5%, on each bill. Out of this, 5% would be released to the respondent on successful completion of the work and the remaining 2.5%, on expiry of the defect liability period, on finding that no defects in the work are noticed during that period. In its returns, filed for the assessment year 1996-97, the respondent did not include amount representing 2.5% of the bills. According to them, such amount can be shown as income, only on its being received. The Assessing Office....
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....e upon certain precedents, he submits that an amount can be said to have accrued to an assessee, as income, only when the corresponding right to receive it, arises and not otherwise. Section 145 of the Act gives the liberty, to an assessee to follow either mercantile system or cash system of accounting. The distinction between these two, is too well-known. At the same time, certain niceties involved in understanding the true purport of certain expressions, which are used in the process, present some amount of difficulty. An assessee, who follows the cash system, would be under obligation to pay tax only on the amount received by him, after assessment, in accordance with law. In contrast, an assessee, who follows the mercantile system, wou....
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....athy Naidu , Chief Justice Sri Subba Rao K., in his inimitable style, explained the distinction between the two, succinctly, by addressing the root of the matter. The discussion was commenced by taking note of Section 4(1)(b)(i) of the Act, as it stood then. The provision reads as under: Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which - . (b) if such person is resident in the taxable territories during such year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. The concentration was on sub-clause (i). The following passage from Rogers Pyatt Shellac and Co. v. Secre....
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.... he should ask himself, inter alia, two questions, namely : (i) what is the system of accountancy adopted by the assessee? and (ii) if it is the mercantile system of accountancy subject to the deemed provisions, when has the right to receive that amount accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the ....
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....the amounts are paid under four bills of Rs. 25.00 lakhs each. From each of the first 3 bills, sums representing 7.5% are deducted. On successful completion of the work, the amounts representing 5% deducted from the first three bills, would become payable along with the final bill. However, even from the final bill, 2.5% would be deducted. This amount of 2.5%, which stood deducted from all the four bills, becomes payable, only on expiry of the defect free period. If such period is one year, the amount becomes payable only when no defects whatever are found or noticed, during that period. The controversy, in the instant case, is about the year in which the amount representing 2.5% had accrued to the respondent. It is, no doubt, true that in....