TaxTMI 
TaxTMI 
2017 (11) TMI 1222
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.... AO made a trading addition of Rs. 2,47,680/- on contract receipt of Rs. 30,96,012/- by applying the profit rate of 8%. Further, it was noticed by the AO that the assessee had undertaken contract work with the Irrigation Department, Dausa. The said work could not be completed by the stipulated period and hence a dispute arose between the assessee and the Irrigation Department. The cost of this work was estimated at Rs. 60,48,691/- out of which Rs. 14,31,728/- was received by the assessee and balance remained unpaid for which irrigation was going on. On 26.10.05, the District & Sessions Judge, Jaipur City decided the award of Rs. 3,046,94/- against the cost of work Rs. 46,16,763/- and further interest of Rs. 60,24,042/- towards late payment. Pursuant to a decree, the said payment was received by the assessee during the financial year 2006-07 relevant to A.Y. 2007-08. The State Government went in appeal against this decision before the Hon'ble High Court, which was pending during the pendency of the assessment proceedings. 3.1 During the course of assessment proceedings, it was observed that since the above said income had accrued to the assessee in the financial year relevant to as....
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....ness carried on by the assessee, and therefore, a receipt of a revenue nature liable to tax. The Appellate Tribunal, however, accepted the other contention that the sum of Rs. 7,24,914 was not taxable in the assessment year 1956-57. It allowed the appeal accordingly by its order dated February 22, 1964. At the instance of the Revenue the Appellate Tribunal referred the question of law set out earlier to the Calcutta High Court for its opinion, and by its judgment dated January 9, 1973 the High Court answered the question in favour of the assessee and against the Revenue. 5. The question raised in this appeal is limited to the point whether on the facts and circumstances of the case the Revenue can claim that the sum of Rs. 7,24,914 payable to the assessee as compensation can be said to have accrued to it as income during the previous year ended March 31, 1956 relevant to the assessment year 1956-57. Now as long ago as E.D. Sassoon and Company Ltd. and Ors. v. Commissioner of Income-tax, BombayCity MANU/SC/0088/1954 :[1954]26ITR27(SC) this Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Inc....
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.... inchoate right until the compensation had been actually determined and had become payable. It was observed that the enhanced compensation accrued to an assessee only when the Court accepted the claim and not when the land was taken over by the Government. Examining the question whether income could be said to have accrued to the assessee on the date when possession of the land was taken by the Government for the purpose of assessment to tax in the year of assessment P. Jaganmohan Reddy, C.J., speaking for the Court, said: If the actual amount of compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking of possession, at a particular rate or for a certain sum is the compensation. It is the amount actually awarded by the Collector or subsequently decreed by the court which accrues to him, and the respective amounts, whether awarded by the Collector or the court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obliga....
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....the award was made by the Civil Judge although an appeal was pending against that award. The learned Judges referred to the nature of an award made by the Collector, and adverting to the opinion of this Court in Harish Chandra Raj Singh v. The Deputy Land Acquisition Officer and Anr. MANU/SC/0386/1961 : [1962]1SCR676 that the award made by the Collector was merely an offer or tender of the compensation determined by the Collector to the owner of the property on the acquisition, the High Court observed: .. the legal position which emerges is that there is no liability in praesenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes, at what rate is in flux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by Land Acquisition Officer, by his award, if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by party aggrieved. ....
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....he appeal, the State Government deposited in the Court Rs. 7,36,691/- being the additional amount payable under the award and the assessee was permitted to withdraw that additional amount on furnishing a security bond for refunding the amount in the event of the said Appeal being allowed. On receiving the amount, the assessee credited it in its suspense account on the same date. The question was : whether the additional amount of Rs. 7,24,914/- could be taxed as the income on the ground that it became payable pursuant to the award of the Arbitrator. The Tribunal held that the amount did not accrue to the assessee as its income and was, therefore, not taxable in the assessment year 1956-57. The financial year in which the additional amount came to be withdrawn ended on 31.3.56. It was held by this Court that although award was made on 29.7.1955, enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State. Therefore, there was no absolute right to receive the amount at that stage. It was held that if the Appeal was to be allowed in its entirety, the right to payment of enhanced compensation would have fallen altogeth....
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....insertion of Clause (c) in Section 45(5) w.e.f. 1.4.04 and Section 155(16) which refers to a situation of a subsequent reduction by the Court, Tribunal or other authority and recomputation/amendment of the assessment order. Section 45(5) read as a whole (including clause "c") not only deals with re- working as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under Section 28 of the 1894 Act) becomes payable/paid under 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the Court/Tribunal/Authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under Section 45(5) of the 1961 Act. This is the scheme of Section 45(5) and Section 155(16) of the 196....
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....sed in view of the judgment of the Supreme Court judgment in Rama Bai (2 supra)." 10. However, counsel for the respondent has contended that the assessee has suffered actual loss and it has been contended that the assesse has incurred loss as observed by the AO which reads as under:- 11. He further contended that while considering the case, the tribunal has rightly held in favour of the assessee observing as under:- "After considering the orders of the AO and ld. CIT(A) we find that ld. CIT(A) has rightly deleted both the additions. As per District Curt order, Award was given in favour of the assessee for Rs. 91,20,054/-. This award contains two items i.e. Rs. 30,46,914/- for work+Rs.60,24,042/- for interest. It is a matter of fact that this award was awarded by District Court for a dispute of contract work which was related to assessment year 1981-82. The entire order of the District Court is challenged before the Hon'ble High Court. Copy of the award given by District Court as well as copy of petition filed by the Rajasthan Government before the Hon'ble High Court are placed on record. We further noted that even the AO himself admitted at page 4 of his order that the dispute ....