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Juggilal Kamlapat, Bankers Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 132 of 1972
Judge
Reported in[1975]101ITR40(All)
ActsIncome Tax Act, 1922 - Sections 10(2A) and 12
AppellantJuggilal Kamlapat, Bankers
RespondentCommissioner of Income-tax
Appellant AdvocateV.B. Upadhya, Adv.
Respondent AdvocateR.R. Misra, Adv.
Excerpt:
- - we are thus clearly of the opinion that the sum of rs. 8,000 could be assessed under section 10(2a) only if it had been allowed as a deduction by way of bad debt in the past and had been realised in the relevant previous year......there was no evidence on record suggesting that the assessee was showing its income from lease rent on accrual basis, the sum of rs. 8,000 was liable to be added to its income as accrued rent or under section 10(2a) of the indian income-tax act, 1922 ?'2. the assessee is a partnership firm and at the material time carried on the business of banking and derived income from interest on securities and property, etc. it owned a factory premises known as j. k. ginning and pressing factory, which was leased out to m/s, naraindass gopaldass on an annual rent of rs. 8,000. in the assessment year 1957-58, which is the assessment year in dispute, the assessee did not show in its total income the sum of rs. 8,000 on the ground that the amount had not been realised from the lessee nor was there.....
Judgment:

Gulati, J.

1. At the instance of the assessee, M/s. Juggilal Kamlapat of Kanpur, the Income-tax Appellate Tribunal, Allahabad Bench, has submitted this statement of the case with the following question of law for the opinion of this court :

'Whether, on the facts and circumstances of the case, on the finding that there was no evidence on record suggesting that the assessee was showing its income from lease rent on accrual basis, the sum of Rs. 8,000 was liable to be added to its income as accrued rent or under Section 10(2A) of the Indian Income-tax Act, 1922 ?'

2. The assessee is a partnership firm and at the material time carried on the business of banking and derived income from interest on securities and property, etc. It owned a factory premises known as J. K. Ginning and Pressing Factory, which was leased out to M/s, Naraindass Gopaldass on an annual rent of Rs. 8,000. In the assessment year 1957-58, which is the assessment year in dispute, the assessee did not show in its total income the sum of Rs. 8,000 on the ground that the amount had not been realised from the lessee nor was there any likelihood of its being realised. The Income-tax Officer, however, included this amount in the total income of the assessee on the ground that the rent had accrued to the assessee and as the assessee had been following the mercantile system of accounting, it was a part of its taxable income; The Tribunal dismissed the assessee's appeal on the finding that 'the admitted fact is that the assessee had been showing its income from lease rent on accrual basis and had been assessed as such'. Later, the assessee applied under Section 35 of the Act for rectification of the Tribunal's order on the ground that the above-quoted observation of the Tribunal was factually incorrect inasmuch as the assessee had never admitted that it was being assessed on accrual basis in respect of the income from lease rent. The Tribunal accepted this contention and found that there was no material on the record suggesting that the assessee was showing its income from lease rent on accrual basis. According to the Tribunal, however, this rectification did not in any way affect its decision inasmuch as the assessee was being assessed on accrual basis on its income from this lease.

3. The contention on behalf of the assessee is that it was following the cash system of accounting in respect of income from this source and had never offered to be assessed on accrual basis, even though the department continued to assess this income on accrual basis. In our opinion the Tribunal has not appreciated the effect of the rectification order passed by it. If an assessee chooses to adopt the cash system of accounting in respect of the income assessable under Section 10 or Section 12 of the Act, he cannot be assessed on accrual basis. The option is with the assessee and not with the department so that the department cannot compel an assessee to adopt the mercantile system of accounting, if the assessee chooses to adopt the cash system. This position has been made clear by this court in J.K. Bankers, Kanpur v. Commissioner of Income-tax : [1974]94ITR107(All) .

4. Income arising from the lease of a factory falls to be assessed under Section 12 and can only be assessed in accordance with the option exercised by the assessee. In the instant case the assessee admittedly never offered its income to be assessed on accrual basis which means that the assessee followed the cash system of accounting in respect of this source of income. The department was not entitled under the law to assess it on accrual basis and the fact that it did so in the past was wholly immaterial. We are thus clearly of the opinion that the sum of Rs. 8,000 was not liable to be taxed in the assessment year in question.

5. As regards the second limb of the question as to whether this amount can be assessed under Section 10(2A) of the Act, it is difficult to understand as to how that provision applies. Section 10(2A) makes a provision for assessment of any loss, expenditure or deductions allowed to an assessee in the past which is realised or received subsequently. The sum of Rs. 8,000 could be assessed under Section 10(2A) only if it had been allowed as a deduction by way of bad debt in the past and had been realised in the relevant previous year. This is not the case here. As such, the question of its being assessed under Section 10(2A) did not arise. This provision applies to the sum of Rs. 4,000 which the assessee received in the relevant previous year from M/s. Naraindass Gopaldass out of a total debt of Rs. 3,30,896 including the arrears of rent which the assessee had written off in the previous year relevant to the assessment year 1956-57. That amount has already been brought to tax under Section 10(2A). There is no question of the sum of Rs. 8,000 which is the subject-matter of this reference being taxed under Section 10(2A) of the Act.

6. We, accordingly, answer the question in the negative, in favour of the assessee and against the department. The assessee is entitled to the costs which we assess at Rs. 200.


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