1. In compliance with the order of this court tinder Section 66(2) of the Indian Income-tax Act, 1922, the Income-tax-Appellate Tribunal, Delhi, has submitted this statement of the case with the following question of law for our decision :
'Whether upon a true construction of the documents and other materials on the record the income of Rs. 43,582 accrued on February 26, 1945 or on January 25, 1946, and whether the amount was assessable in the assessment year 1945-46 or in the assessment year 1946-47 ?'
2. This court directed the Income-tax Appellate Tribunal on 25th January, 1962, to submit a statement of the case on the question of law set out above. The Tribunal found that the entire correspondence between the assessee and the military authorities and the minutes of their meetings were not brought on record. It remanded the case to the Appellate Assistant Commissioner of Income-tax who allowed the parties to produce that material before him. On the basis of that material produced he submitted a remand report to the Tribunal. The Tribunal then submitted a statement of the case and made the remand report a part of the statement of the case. When the matter came up for hearing before another Bench of this court, it felt that the material which had been submitted along with the statement of the case was not on the record either of the Income-tax Officer or of the Income-tax Appellate Tribunal. Accordingly, this court returned that statement of the case and directed the Tribunal to draw up a fresh statement of the case based on the documents which were already on the record. The Tribunal has accordingly. submitted a supplementary statement of the case and it is this statement of the case which we have to consider.
3. The assessee is a contractor who followed the mercantile system of accounting and closed his accounts on 31st March, each year. During the financial year 1943-44 he obtained a contract for the supply of air tails, precision instruments for the release of bombs at the rate of Rs. 370 each. No supplies were made during that year and the cost incurred by the assessee in that year was taken over to the following year. On April 10, 1944, the Government of India suspended the contract. The assessee was not prepared for the suspension of the contract and a meeting was held between him and the military authorities on April 21, 1944, when certain arrangements were arrived at subject to the approval of the Director-General of Aviation. On May 12, 1944, the completed and partly completed air tails as well as the raw materials were taken in bond by the Government because they were of military value. This was followed by another meeting in February, 1945, at which the question of payment of compensation to the assessee was considered. 302 pieces were considered to be complete, or deemed to be complete and the amount payable to the assessee was determined at Rs. 1,18,888. The assessee was not satisfied with the amount of compensation and accordingly there was a third meeting on February 20, 1945. At that meeting, the basis for the payment was fixed at cost plus overheads plus a margin of profit and the amount payable to the assessee was determined at Rs. 1,77,000. In pursuance of this arrangement the assessee received part payment. Since the balance was not paid, he took up the matter again with the military authorities. Another meeting was held on 28th January, 1946, at which the compensation payable was finally fixed at Rs. 1,73,767. The Income-tax Officer determined the cost of the assessee at Rs. 1,30,185. Deducting this from the total of Rs. 1,73,767 he computed a profit of Rs. 43,582, which was assessed in the assessment year 1945-46. The assessee's plea that no profit had accrued to him in the assessment year 1945-46 was not accepted. On appeal the Appellate Assistant Commissioner of Income-tax affirmed the assessment order and held that as the basis for the payment of compensation to the assessee had been fixed at the meeting held on 20th February, 1945, the profit accrued to the assessee on that date and fell to be assessed in the assessment year 1945-46. The assessee's contention that the profit accrued when the amount of compensation was finally settled on 28th January, 1946, was not accepted. The matter went up before the Tribunal which endorsed the view of the Appellate Assistant Commissioner. Now the only question to be decided by us is as to whether the profit accrued on 20th February, 1945, or on January 28, 1946. In case the profit accrued on the first date, the income would be assessable in the year 1945-46 and if on the latter date, it would be assessable in the assessment year 1946-47.
4. Now, in the instant case, the liability of the Government to make payment to the assessee for supplies made arose under the contract, which has been annexed to the statement of the case. That statement contains a clause which provides for the payment of compensation when the contract is terminated before it is completed. Under this clause, the assessee is entitled to compensation at a fair and reasonable rate. What would be the fair and reasonable rate has not been mentioned. The basis for the payment was no doubt fixed at the meeting held on February 20, 1945, the basis being the cost plus overheads plus certain marginal profits, but it appears that this basis was not final. The sum of Rs. 1,77,000, which was determined on that basis as the amount of compensation payable to the assessee was eventually referred to the authorities at Delhi, who did not approve of the amount of compensation. This led to a last meeting between the parties held on 28th January, 1946. At that meeting the amount was finally fixed at Rs. 1,73,767. It is thus clear that the amount became ascertained only on the last meeting and since that date fell in the accounting year relevant for the assessment year 1946-47, the profit of Rs. 43,582 was thus assessable in the assessment year 1946-47.
5. We, accordingly, answer the question by saying that the profit of Rs. 43,582 accrued to the assessee on 28th January, 1946, and was thus assessable in the year 1946-47. The assessee is entitled to costs which we assess at Rs. 200.
6. We may mention here that the dates given in the question are wrong. The meeting in February, 1945, took place on 20th February and not on 26th February. Similarly, the meeting held in January, 1946, was held on 28th January, and not on 25th January, 1946. However, nothing turns upon these dates because even the changed dates would not alter the assessment years.
Question answered accordingly.