TaxTMI 
TaxTMI 
2021 (12) TMI 782
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....iated the fixed cost of Rs. 4 crores did not accrue to the Assessee in the relevant year even by considering the terms of the old agreement dated 23.09.20 10 and accordingly the impugned addition as confirmed is uncalled for and liable to be deleted. 4. The learned CIT(A) ought to have appreciated that the method followed by the Assessee was strictly in accordance with the contract between the parties duly agreed to between them and it was also accepted by the Revenue for the preceding years and thus the impugned addition confirmed is opposed to law and liable to be deleted. 5. The learned CIT(A) ought to have appreciated that even the other contracting party did not claim deductions for the impugned addition as expenditure in the relevant assessment year and consequently confirming the inclusion of income in the hands of the Assessee is opposed to law and unwarranted. 6. Without prejudice, the learned CIT(A) having confirmed the conversion charges in accordance with the agreement dated 23.09.2010 ought to have excluded the additional income offered by the Assessee for the period from 01.10.2012 to 31.03.2013 in accordance with the duly agreed terms which....
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.... paid as per the two components viz., fixed cost and variable cost in accordance with production of silicomanganese as per the previous agreement. The parties hereto have clearly understood that the payment tariff was on the basis of actual production agreement by the Assessee for SMIORE. The months in which there is no production SWORE has no obligation to make any payment. 5. Accordingly, the conversion charges receivable by the Assessee was worked out, accounted and offered for taxation by the Assessee. The method of computation of conversion charges in pursuance of the agreements between the Assessee and SMIORE has been declared and offered for taxation after claiming expenditure by the Assessee. The method followed by the Assessee had been accepted by the Revenue for the assessment years 2011-12 and 2012-13 and the assessments had been concluded. For the relevant assessment year in similar manner when the income was offered for taxation, the ld.AO declined to accept the income declared and proceeded to estimate the fixed cost on the basis of Rs. 40 lakhs per month as provided in the agreement dated 29.09.2010 and arrived at Rs. 4,80,00,000/- for the relevant assessment year....
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....to be confirmed. 8. We have heard both the parties and perused the materials on record. Under the Income-tax Act, liability to pay Income-tax arises on the accrual of income and it is not from the computation made by the assessee or AO. The section 4 of the Income-tax Act, is the charging provision in the Income-tax Act. The charge arises when the person earns income and computation of income there upon to be made. According to the provisions of Income-tax Act, 1961, when the final income envisaged by sec. 2(45) r.w section 2(24) of the Income-tax Act is also relevant. Section 2(45) As per Section 2(45) of Income Tax Act, 1961, unless the context otherwise requires, the term "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act. "Section 2(24) "income includes (i) profits and gains (ii) dividend; [(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes 39[or by an association or institution referred to in clause (21) or clause (23)11, or by....
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....) any sum chargeable to income-tax under clause (iiic) of section 28;] [(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28; [(ve) any sum chargeable to income-tax under clause (v) of section 28;] (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; [(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;] (viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub- clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;] [(ix) any winnings from lotteries54, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.] [Explanation.-For the purposes of this sub-clause,- (i) "lottery" includes winn....
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....l Government or a State Government or any authority or body or agency in cash or kind to the assessee 61 [other than,- (a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by The central Government or State Government, as the cse may be];] 9. Now, it is necessary to go through the provisions of sec. 5 of the Act. "In order to appreciate the rival submissions, it is necessary to take note of s. 5 of the IT Act and ss. 4 and 5 of the Interest-tax Act, which read thus: "5. Scope of total income.-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) ac....
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....nd right to receive such an income is accrued, then it is chargeable to tax and receipt of such amount, whether before or after accrual is of no consequences. In the similar way, some amount has been received, which does not represent income accrued for the year, it shall not be charged to tax and will assume the nature of liability till the time of its accrual. Only when such amount accrues as income, the earlier liability will get converted into income. Till that time, it will continue as liability, despite the fact that it was received. Thus, receipts relevant to tax under mercantile system of accounting are the fact of accrual of income during the financial year and actual receipt of income is irrelevant. In other words, receipt or non receipt of amount during the financial year is irrelevant consideration in determining whether income has accrued or not. In the present case, as per agreement entered by the assessee with the SMIORE Ltd., on 29/9/2010 fee to be determined in two part viz.,, (i) fixed cost per month to meet manpower, administration, finance cost etc., and (ii( a variable cost per tonne of ferroalloy produced. The said agreement reads as follows:- "4.1 Fu....
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....maintenance, administration and other fixed costs, power. other raw materials, spares. consumables etc., used by SMPPL for production of ferroalloys other than Mn Ore, coke, electrode paste which shall be supplied free of cost by SMIORE to SMPPL. Conversion costs shall also include internal transportation, product handling, packing, loading, unloading etc." 11. The explanation of assessee is that it has not received that income. The explanation offered by the assessee has been perused and found against the facts of the case. As per Clause-K, SMEORE is agreeable to pay to SMPPL a conversion fee to be determined in two parts, namely, fixed cost per month to meet manpower, administration, finance cost etc., and a variable cost per tonne of ferroalloy produced. Conversion costs payable as determined on the date of execution of this agreement is at Rs. 40 lakh per month towards fixed costs and Rs. 20,000 per tonne towards variable costs. From this, it is evident that the SMIORE has to pay fixed conversion fee of Rs. 40.00 lakh per month to the assessee to meet manpower, administration, finance cost etc. irrespective the ferroalloy produced. Therefore, receipt of fixed conversion fee ....