BHARGAVA, J. - The question referred for our opinion by the Income-tax Appellate Tribunal is :
'Whether the income received as compensation for closure of the rolling will would be assessable in the year of assessment 1945-46, relevant to the accounting year during which the mills were closed down, or would be assessable in the assessment year 1947-48, relevant to the accounting year in which the money was actually received ?'
The assessee is a registered firm which was carrying on dealings in iron and ore rolling mill. The assessees previous year relevant to the assessment year 1945-46 was from that January 31, 1944, to the January 18, 1945. The assessee under some orders of the Government of India had to cease production in the rolling mill on account of shortage of coal as a result of which the mill remained closed from the August 16, 1944, to the June 30, 1945. For this compulsory closure the Steel Rolling Mills Association of India on behalf of the assessee made representations to the Government of India for compensation. The Government agreed to pay the compensation, and this consent of the Government to pay the compensation was communicated to the assessee firm by the letter dated the April 26, 1945, by the Steel Rolling Association of India. Subsequently by the letter dated the December 28, 1945, sent by the Steel Rolling Mills Association of India the assays was informed that the compensation would be paid at the rate of Rs. 2074-1-0 per month. Finally some time in November, 1946, a closure of the assessees rolling mill during the period from the August 16, 1944, to the June 30, 1945. By this time the proceedings for assessment of the income of the assessee for the assessment year 1945-46 had not yet been completed and consequently the Income-tax Officer sought to include the due of Rs. 25,978 in the taxable income of the assessee for the year 1945-46. It appears from the statement of the case that no objection was raised by the assessee on the ground that the sum of Rs. 25,978 was not assessable to income-tax at all. The objection taken was that this amount could not be assessed in the assessment for the assessment year 1945-46. This contention raised by the assessee was rejected by the Income-tax Officer and the decision of the Income-tax Officer was ultimately upheld by the Tribunal. Thereupon at the request of the assessee the question mentioned above was referred by the Tribunal for our opinion under section 66(I) of the Income-tax Act. The second part of the question appears to have been framed because of the plea taken by the assessee that this sum of Rs. 25,978 was assessable lie the proceedings for assessment for the year 1947-48.
At the outset we may say that the second part of the question has been referred for our opinion wrongly in these proceedings and there is no reason why we should answer that part of the question. The appellate order of the Tribunal out of which this preference arose was made in proceedings of reassessment for the assessment year 1945-46 and consequently the only question which could arise in the appeal before the Tribunal was whether this sum of Rs. 25,978 could be included in the assessment for the year 1945-46. If it was held that it could be included, that decision could be challenged by this reference land this court could be properly requested to give its opinion on the correctness of that decision. On the other hand, if the Tribunal held that this sum was not liable to be included in the assessment year 1945-46, the appeal before the Tribunal filed by the assessee should have succeeded without any further finding as to whether it could or could not be included in the assessment year 1947-48. The Tribunal in the appeal was, therefore, not called upon to pronounce at all as to whether this amount could be included in the assessment for the year 1947-48 even when allowing the appeal which could be allowed on the sole finding that this amount could not be rightly included in the assessment for the year 1945-46. The question of inclusion of this amount in the proceedings for the assessment year 1947-48 did not thus properly arise in the appeal before the Tribunal and a reference of that question to this court is, therefore, in appropriated. In the circumstances, we hold that we should not answer this part of the question. The question which we are required to answer is whether the sum of Rs. 25,978 received as compensation for closure of the rolling mill was assessable in the year of assessment 1945-46. On this question an important point to be considered was whether the account of the assessee was maintained on mercantile system or cash system. The Tribunal in the statement of the case has given on information on this point but we had found in the Appellate order passed by the Accounting Member of the Tribunal, Lucknow, that the assessee maintained account books on the mercantile system. Learned counsel for the parties before us also admitted that the assessee way maintaining accounts on the mercantile system. Under the mercantile system, an amount becomes a receipt as soon as the right to receive an amount accrues to the person entitled to receive it. In this case, therefore, we have to see when the right to receive compensation accrued to the assessee. It appears that the Tribunal has held that this amount of compensation so liable to be included in the assessment for the year 1945-46 on the basis that this amount accrued on the same date on which the order of the Government of India directing the closure of the rolling mill was communicated to the assessee, because that date falls within the previous year relevant to correct. The statement of the case itself makes it clear that, when the order for the closure of the mill was communicated to the assessee, the assessee had to make a representation for compensation from the Government. It is not stated that there was any law or rule having the force of law under which the right to receive compensation accrued to the assessee as soon as he complied with that order for closure of the mill. In fact, the statement of the case at no stage mentions that this compensation was ever granted in recognition of any legal right which vested in the assessee to receive compensation. All the is stated is that the Government of India agreed to pay compensation. In the circumstances, it has to be held that, at least until the time when the Government of India agreed to pay compensation, no right to compensation could possibly accrued to the assessee. The Government of Indias willingness to pay the compensation was communicated to the assessee by the letter dated April 26, 1945, and consequently that is the earliest date which may possibly be the date when the right to receive compensation accrued to the assessee. There are of course alternative subsequent dates which have to be taken into account when determining the date of accrual of the right to the assessee. On the April 26, 1945, the amount of compensation was not determined, nor was the amount of compensation paid. It may possible be held that the right to receive the compensation accrued and the amount of compensation became taxable income only when on the December 28, 1945 the amount of compensation was communicated to the assessee. It may even possibly be held that the compensation becomes a receipt only when in fact the amount was revived by the assessee in November, 1946. These are, however, various points on which we need express an opinion in the present case. So far as this case is concerned, the finding already arrived at by us that in no cause can it be held that the right to this money accrued to the assesseee earlier that the April 26, 1945, is sufficient for deciding this case. The date April 26, 1945 does not fall within the previous year relevant to the assessment year 1945-46, as that previous year ended on the January 18, 1945. This date is subsequent to the previous year in question. Consequently, even the earliest date which may be held to the the date of the right to receive this amount falls subsequent to the previous year relevant to the assessment year 1945-46, and clearly therefore this amount of compensation cannot be taken into account when assessing the income for the assessment year 1945-46. In the circumstances we answer the first part of the question in the negative.
For the reasons we have indicated earlier, we refrain from answering the second part of the questions. Since the answer to the question answered is in favour of the assessee, we direct that the assessee would be entitled to the costs of this reference which we fix at Rs. 200.
Reference answered accordingly.