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N.R. Sirker Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 24 of 1974
Judge
ActsIncome Tax Act, 1961 - Sections 256(1)
AppellantN.R. Sirker
RespondentCommissioner of Income-tax
Appellant AdvocateJ.P. Bhattacharjee and S.N. Medhi, Advs.
Respondent AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Excerpt:
- - 7. so far as the assessment year 1966-67 was concerned there was no dispute regarding the amount to be considered because the date of the contract as well as the receipt of the amount fell in the financial year 1965-66. 8. this, according to the assessee, the amounts to be considered on account of the sub-letting of contracts were rs. thus, the facts of the case clearly show that the assessee had been in this business of supplying meat, poultry, vegetables, etc......gupta & co, from the army authorities.6. in all these three years the assessee claimed that the amounts received by him as consideration for assigning these contracts were capital receipts, it was further claimed that these amounts would, if at all, be taxable on the dates of the payments of these amounts under the respective agreements. as the agreement relating to the contracts assigned in the financial year 1963-64 provided for payment by twelve monthly instalments from october, 1963, to september, 1964, the assessee claimed that only the instalments totalling rs. 30,000 in respect of both the contracts would be liable to be considered in the assessment year 1964-65 and the balance amount of rs. 30,000 would be liable to be considered in the assessment year 1965-66 along with the.....
Judgment:

Pathak, C.J.

1. The following questions of law have been referred by the Income-tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as 'the Tribunal '), to the High Court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amounts receivable by the asses-see on account of transfer of contracts to third parties were revenue receipts taxable in the assessment years 1964-65, 1965-66 and 1966-67?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount receivable under agreements dated October 1, 1963, and September 30, 1963, accrued to the asses-see on the dates of contracts and not on the dates when the instalments became payable under the agreements ?'

2. The statement of the case discloses the following facts :

The assessee is an individual. The dispute relates to the assessment years 1964-65, 1965-66 and 1966-67 and the corresponding previous years were financial years 1963-64, 1964-65 and 1965-66. During these years, the assessee was carrying on the business of supplying provisions of meat, vegetables, etc., to the various Government and military authorities under contracts obtained from them. No proper accounts were kept by the assessee.

3. During, the financial year 1963-64, corresponding assessment year being 1964-65, the assessee obtained several contracts for supply of provisions of meat, etc., from the various authorities. Some of these contracts related to the supply of meat, poultry, eggs, bread, etc., during the period October 1, 1963, to September 30, 1964. These contracts were obtained from the Commander, Army Service Corps, Z-Area, Shillong. The assessee assigned these contracts to Manilal Gupta for consideration of Rs. 30,000 which was payable to the assessee in twelve monthly instalments of Rs. 2,500 each, vide agreement dated September 30, 1963. Some other similar contracts obtained from the same authority were also assigned to M/s. Supply Associate, vide agreement dated October 1, 1963. Under this agreement also the assessee was to be paid Rs. 30,000 in twelve monthly instalments of Rs. 2,500 each.

4. During the financial year 1964-65, corresponding to the assessment year 1965-66, the assessee had secured several similar contracts some of which were assigned to M/s. Manilal Gupta & Co., vide agreement dated October 1, 1964. These contracts were transferred to that party for a consideration of Rs. 12,000. The agreement provided that this amount of Rs. 12,000 was to be paid by M/s. Manilal Gupta & Co. to the assessee by way of deduction from the payment in respect of supplies made during March, 1965, which were to be received by the assessee from the army authorities on behalf of M/s. Manilal Gupta & Co.

5. In the financial year 1965-66, corresponding assessment year being 1966-67, the assessee secured various contracts for supplies of vegetables, fruits, etc., to the army authorities during the period from April 1, 1965, to March 31, 1966. Some of these contracts were transferred to M/s. Manilal Gupta & Co. for a consideration of Rs. 50,000, vide agreement dated April 1, 1965. The consideration of Rs. 50,000 was to be paid by M/s. Manilal Gupta & Co. to the assessee by way of deduction from the payment in respect of supplies made during March, 1966, received by the assessee on behalf of M/s. Manilal Gupta & Co, from the army authorities.

6. In all these three years the assessee claimed that the amounts received by him as consideration for assigning these contracts were capital receipts, It was further claimed that these amounts would, if at all, be taxable on the dates of the payments of these amounts under the respective agreements. As the agreement relating to the contracts assigned in the financial year 1963-64 provided for payment by twelve monthly instalments from October, 1963, to September, 1964, the assessee claimed that only the instalments totalling Rs. 30,000 in respect of both the contracts would be liable to be considered in the assessment year 1964-65 and the balance amount of Rs. 30,000 would be liable to be considered in the assessment year 1965-66 along with the amount of Rs. 12,000 relating to the contract assigned in that year.

7. So far as the assessment year 1966-67 was concerned there was no dispute regarding the amount to be considered because the date of the contract as well as the receipt of the amount fell in the financial year 1965-66.

8. This, according to the assessee, the amounts to be considered on account of the sub-letting of contracts were Rs. 30,000 in the assessment year 1964-65, Rs. 42,000 in the assessment year 1965-66 and Rs. 50,000 in the assessment year 1966-67.

9. The Income-tax Officer rejected both the contentions of the assessee. The Income-tax Officer held that the amounts received by the assessee in lieu of these contracts were revenue receipts and not capital receipts. The Income-tax Officer further held that the amounts accrued to the assessee

on the dates on which the respective agreements for transfer of these contracts were executed. The contention of the assessee that these amounts should be considered on the basis of the dates of receipt was rejected.

10. On the above basis the Income-tax Officer included Rs. 60,000 in the assessment year 1964-65, Rs. 12,000 in the assessment year 1965-66 and Rs. 50,000 in the assessment year 1966-67.

11. Against the orders of the Income-tax Officer the assessee appealed to the Appellate Assistant Commissioner, who agreed with the Income-tax Officer and the assessee's contentions were rejected and the appeals were dismissed.

12. Against the said orders of the Appellate Assistant Commissioner, the assessee appealed to the Tribunal, which disposed of all the three appeals by a consolidated order.

13. The Tribunal found that the assessee was carrying on the business of supplying provisions, meat, poultry, etc., to the various military authorities. The contracts which the assessee had assigned to the sub-contractors were obtained in the course of his business. The transfer of these contracts did not effect the assessee's structure of business and, therefore, after considering the various issues, the Tribunal held that the amounts received by the assessee in lieu of these contracts were revenue receipts.

14. Dealing with the contention of the assessee that the amounts receivable under the contracts dated October 1, 1963, and September 30, 1963, could be taxable only on the basis of receipts of instalments, the Tribunal held that the full amount of consideration accrued to the assessee on the dates of the contracts. The contention that the amount of consideration became due to the assessee only when the instalments payable under these agreements became due was rejected.

15. On the above facts the above-mentioned two questions of law have been referred by the Tribunal.

16. For answering the first question of law, the point that requires consideration is whether the amounts received on account of the transfer of the contracts to the third party, were revenue receipts and taxable in the relevant assessment years as such.

17. The Tribunal, on consideration of the materials on record, has found that the assessee's business is that of supplying meat, poultry, vegetables, etc., to various Government and military authorities.

18. In the preamble to the agreements between the assessee and the third party the assessee had mentioned that he had been doing business as suppliers to various Government and military authorities under the name and style of N. R. Sirker. In all the three accounting years concerned the assessee had been doing business of the very commodities to different

departments. Thus, the facts of the case clearly show that the assessee had been in this business of supplying meat, poultry, vegetables, etc., to the Government and military authorities for several years and in the course of that business he had entered into contracts for effecting supplies and sales of the commodities in question. Some of these contracts were carried on by him personally. It was open to the assessee to supply the commodities, for which he had contracted with the departments either by himself or through some agent. Depending upon the business expediency, the assessee may fulfil the contract by himself or through some other person with whom he may have some sub-contracts. The assessee, had entered into agreements with a third party for supply of the commodities for the three periods under consideration. The third party would supply the commodities on behalf of the assessee to the military departments. The bills would be prepared in the name of the assessee and the payment would be received by the assessee. Thus, it is found that the structure and nature of the business of the assessee to supply the commodities to the military departments remains intact and does not undergo any change. What has been done by the agreements with the third party is that instead of himself supplying the commodities to the military departments, the assessee has asked the third party to supply the commodities in the assessee's name to the military departments. So, in form and substance, the assessee remains the contractor under the military departments for supplying the commodities in question. So it cannot at all be said that there was any change in the nature of the business of the assessee when he entered into the agreements in question with the third party.

19. In the agreement with the third parties for the financial year 1963-64, the third parties were to give and the assessee was to receive a sum of Rs. 60,000 in 12 monthly instalments of Rs. 2,500 in each agreement. In the agreement for the financial year 1964-65, between the assessee and the third party, the third party was liable to pay and the assessee was entitled to receive Rs. 12,000 and this amount was to be paid and received by way of deduction from the payment of the bills in respect of supplies made during March, 1965, and these payments were to be received from the military departments by the assessee. For the financial year 1965-66, the assessee entered into agreement with the third party for supplying of vegetables, etc., and the assessee was to receive and the third party was to pay Rs. 50,000 as consideration and this was also to be deducted from the payment in respect of supplies made during March, 1966, and the bills in this connection would be submitted in the name of the assessee and payment would be received by the assessee from the military departments.

20. The Tribunal has, therefore, correctly concluded that the agreements with the third parties in the instant case were entered into by the assessee

in the ordinary course of the assessee's business and what he was entitled to get under the agreements with the third parties was what he would normally get from his business. Therefore, these amounts are receipts arising in the normal carrying out of the assessee's business. So these receipts cannot but be taken to be revenue receipts liable to be taxed.

21. In the circumstances, we hold that the Tribunal was correct in holding that the amounts receivable by the assessee on account of transfer of contracts to third parties in the instant case were revenue receipts taxable in the assessment years 1964-65, 1965-66 and 1966-67.

22. The first question of law in thus answered in the affirmative and against the assessee.

23. For consideration of the second question of law, the first question of fact to be taken into consideration is whether the accounts maintained by the assessee were kept in cash system or mercantile system.

24. In the assessment order for the assessment year 1964-65, item No. 5, method of accounting, is not filled up. In the assessment order for the assessment year 1965-66 in item No. 5, method of accounting, it has been stated as 'no proper accounts'. In the assessment order for the assessment year 1966-67, in item No. 5, method of accounting, it has been stated that 'no proper accounts kept'.

25. It can safely be assumed that ordinarily people keep accounts in cash system, that is to say, when certain sum is received, it is entered in his account and in the case of firms, etc., where regular method of accounting is adopted, we find sometimes accounts are kept in mercantile system. In the instant case it is not the case of the department that the assessee's accounts were kept in mercantile system. On the other hand, the assessment orders show that no proper accounts were kept. That being so it would not be justified to presume that the assessee kept his accounts in the mercantile system. Income-tax is normally paid on money actually received as income after deducting the allowable deductions. In the case of an assessee maintaining accounts in mercantile system, there is some variation, inasmuch as moneys receivable and payable are also shown as received and paid in the books. In order to apply this method, the proved or admitted position must be that the assessee keeps his accounts in mercantile system.

26. The first two agreements relate to contracts from October 1, 1963, to September 30, 1964, and for this period the assessee is entitled to get Rs. 60,000 in twelve monthly instalments of Rs. 2,500 under each contract. The period from October 1, 1963, to March 31, 1964, falls in the financial year 1963-64, that is, six months were included in the financial year 1963-64 (assessment year 1964-65), and for these six months the assessee was paid Rs. 30,000 out of the stipulated amount of Rs. 60,000. The

remaining six months would fall in the financial year 1964-65 (assessment year 1965-66). So, Rs. 30,000 under the first two agreements would be included in the assessment year 1965-66. Along with this the sum that was payable in March, 1965, would be added. Thus, the amount of Rs. 42,000 would fall in the assessment year 1965-66. This would be the correct position about the receipt of the amounts mentioned hereinabove in view of the fact that the assessee cannot be legally said to have kept his accounts in the mercantile system.

27. In the circumstances, we hold that the Tribunal was wrong in holding that the amounts receivable under the agreements dated October 1, 1963, and September 30, 1963, accrued to the assessee on the dates of contracts and not on the dates when the instalments became payable under the agreements.

27. The second question of law is thus answered in the negative and against the department.

28. The reference is answered accordingly. We make no order as to costs.

D. Pathak, J.

29. I agree.


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