1961 (8) TMI 50

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....iod: April 1, 1955, to March 31, 1956). In the accounts of the applicant for the accounting year April 1, 1955, to March 31, 1956, a sum of ₹ 56,496 was shown as the excess received from the Coffee Board in respect of the season 1953-54. The contention of the department which has found favour with the Appellate Tribunal is that the said amount is assessable in the assessment year 1956-57. Sub-section (1) of section 25 of the Coffee Act, 1942, omitting the provisos thereto, reads as follows: "All coffee produced by a registered estate in excess of the amount specified in the internal sale quota allotted to the estate or when no internal sale quotas have been allotted to estates, all coffee produced by the estate, shall be deli....

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....eneral put it, the taxable event is the conversion of the coffee produce into money. This kind of income will fall under section 2(a)(2)(iii) of the Act that is, it is income derived from lands in the State by the sale by a cultivator of the produce raised by him. Now it is obvious that the transaction of sale takes place when the produce is delivered to the Coffee Board. The price is tentatively fixed at the time but it is liable to adjustment subsequently. Often it takes time before the entire sale price is realised. Keeping in mind these facts, if we take a particular accounting year, the computation of income will in a way depend upon the system of account keeping adopted by an assessee. If it is the mercantile system the income from th....

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....etween the two has been clearly brought out by Sir Courtney Terrell C.J. in Dhakeshwar Prasad Narain Singh v. Commissioner of Income-tax [1936] 4 I.T.R. 71 and Iqbal Ahmad C.J. in Commissioner of Income-tax v. Shrimati Singari Bai [1945] 13 I.T.R. 224, 227. The relevant passage from the judgment of Iqbal Ahmad C.J. reads as follows: "Under this system (mercantile accounting system) the net profit or loss is calculated after taking into account all the income and all the expenditure relating to the period, whether such income has been actually received or not and, whether such expenditure has been actually paid or not. That is to say, the profit computed under this system is the profit actually earned, though not necessarily realised ....

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....treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are book profits. Receipt being not the sole test of chargeability and profits and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax the assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen." In Gajapathi Naidu v. Commissioner of Income-tax [1960] 40 I.T.R. 282 the Madras High Court had to consider the implications of an account kept under the mercantile system of accounting. In that case a sum of ₹ 12,447 was received in the accounting year....