TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 585
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....ed controversy which relates to the year of taxability of the prepaid cards we need not refer to the assessment order and the appellate orders in each case. 5. Respondent-assessee was engaged in the business of providing basic telecom services in the State of Rajasthan and had both prepaid and postpaid subscribers. Postpaid customers were billed on the basis of actual talk time. There is no dispute regarding year of taxability of the postpaid customers. The dispute raised in the present appeals pertains to accounting treatment in respect of prepaid cards. As per the Revenue, the respondent-assessee must account for and include the entire amount paid on the date of purchase of the prepaid card by the subscriber. Date of purchase of the prepaid card would be the date when income had accrued to the respondent-assessee. The respondent-assessee, however, recognizes revenue on prepaid cards on the basis of actual usage. In other words, unutilized amount outstanding on the prepaid card, if any, at the end of the financial year, was carried forward to the next year. The unutilized amount on the prepaid card was treated as advance in the balance-sheet and recognized as a revenue receipt in....
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....cards or not. In case no discrepancy is found in this regard, no adjustment is called for with the assessee's mode of revenue recognition. In terms of aforementioned observation this ground is partly allowed for statistical purposes." 7. Learned counsel for the respondent-assesee submits that the Revenue has accepted similar directions passed by the Tribunal for Assessment Years 2010-11 onwards. Learned counsel for the Revenue is unable to controvert the submission in the absence of instructions. Revenue it appears has not taken a consistent stand on the question of year of taxability of a particular receipt. Counsel for the respondent-assessee has also submitted that the Assessing Officer while making the addition in one year did not correspondingly reduce the receipt by a similar amount in the next/succeeding year. Counsel for the Revenue is unable to controvert or deny the said position, albeit he states that the respondent-assessee had not made any such claim in the return. Be that as it may, the Assessing Officer while making addition in one year in respect of receipt which was accounted for in the next year should pass a consequential order to ensure that the income or recei....
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.... Standards. Paragraph 7 of Accounting Standards stipulates:- "7. Rendering of Services 7.1 Revenue from service transactions is usually recognised as the service is performed, either by the proportionate completion method or by the completed service contract method. (i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognised on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance. (ii) Completed service contract method-Performance consists of the execution of a single act. Alternatively, services are performed in more than a single act, and the services yet to be performed are so significant in relation to the transaction taken as a whole that performance cannot be deemed to have been com....
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....such year." 13. As is clear from reading of Clause (b) above, even when the income accrues or arises or is deemed to accrue or arise to the assessee in India during previous year, that is to be taxed in that year. It is important, therefore, that receipt of a particular amount in the relevant year should be an "income" under the aforesaid provision. What is the relevant yardstick is the time of accrual or arisal for the purpose of its taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. If income has accrued or arisen, even if actual receipt of the amount is not there, it would be chargeable to tax in the said year. Though the amount may be received later in the succeeding year, the income would be said to accrue or arise if there is a debt owed to the assessee by somebody at that moment. From this, it follows that there must be the "right to receive the income on a particular date, so as to bring about a creditor and debtor relationship on the relevant date". The Court further explained that a right to receive a particular sum under the agreement would not be sufficient unless the right accrued by rendering of serv....
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....r when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks (1888) 21 Q.B.D. 52, 59 [this part of the decision not having been affected by the reversal of the decision by the House of Lords (1889) 14 App. Cas. 493 that both the words are used in contradistinction to the word "receive" and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called 'income." 38. The observations of Lord Justice Fry quoted above by Mr. Mukerji J. were made in Colquhoun v. Brooks (1888) 21 Q.B.D. 52 while construing the provisions of 16 and 17 Victoria Chapter 34 section 2 schedule 'D'. The words to be construed there were 'profits or gains, arising or accruing,' and it was observed by Lord Justice Fry at page 59 : "In the first place, I would observe that the tax is in respect of 'profits or gains arising or accruin....
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....ax [1959] 37 ITR 1 (SC) that when the fee was paid in advance it would be in nature of deposit or an advance. Otherwise, it would lead to an anomalous situation not intended in law, as when the amount was received the expenses to be deducted to arrive at the net income were yet to be incurred, and would be incurred in the next financial year. The following principle was enunciated by the Supreme Court in Calcutta Company Ltd. (supra):- "The expression "profits or gains" in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom - whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date."" 13. In other words, principle of matching between the revenue receipt and the expenditure to be incurred was applied. Reference was also made to the judgment of the Supreme Court in Commissioner of Income Tax Vs. Bilahari Investment (P) Ltd. [2008] 299 ITR 1 (SC), wherein referring to the concept of matching it was ob....
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....rom the decision of Bombay High Court in Commissioner of Income Tax Vs. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom) :- "We have often wondered why the Income tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the income tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 195354, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Departmen....