1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as ' the Act'). the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 28,000 on account of the hire charges on dumpers did not accrue to the assessee and, therefore, was not liable to inclusion in the total income of the assessee for the assessment year 1976-77 '
2. The material facts giving rise to this reference briefly are as follows :
The assessee is an individual. The assessee filed her return of income for the assessment year 1976-77. In the balance-sheet, under the head 'Current Liabilities', the assessee bad shown a sum of Rs. 28,000 as dumper hire suspense account. The contention of the assessee was that two dumpers had been let on hire from 1st November, 1974, to one Shri Ajit Kumar Kasliwal but in November, 1975, the assessee took possession of the dumpers, that the dispute arising between the parties had been referred to arbitration and a sum of Rs. 28,000 on account of hire charges from December, 1975, to March, 1976, was credited to the Dumper Hire Suspense Account. The contention advanced on behalf of the assessee was that the sum of Rs. 28,000 had not accrued to the assessee and hence was not includible in her total income. This contention was rejected by the ITO ; and, on appeal, the decision of the ITO was affirmed. On further appeal before the Tribunal, the Tribunal held that the assessee had taken possession of the dumpers in November, 1975, and that the stipulation in the agreement entered into by the assessee with Shri Kasliwal entitling the assessee to recover hire charges even after taking possession of the dumpers, was in the nature of a penal clause and all that the assessee would have been entitled to recover was damages for breach of contract. The Tribunalfurther found that the dispute regarding hire charges of dumpers was referred to arbitration and that the assessee had not been awarded hire charges from the date of taking possession of the dumpers. In this view of the matter, the Tribunal held that the claim of the assessee, that the sum of Rs. 28,000 was not includible in her total income, was justified. Aggrieved by the order passed by the Tribunal in this behalf, the Department sought a reference and it is at the instance of the Department that the aforesaid question of law has been referred to this court for its opinion.
3. Having heard learned counsel for the parties, we have come to the conclusion that this reference deserves to be answered in favour of the assessee. The learned counsel for the Department contended that the assessee followed the mercantile system of accounting and hence the Tribunal erred in holding that the sum of Rs. 28,000 was not includible in the total income of the assessee. The contention cannot be upheld. On the facts found by the Tribunal, the income of Rs. 28,000 had not accrued to the assessee and was, in fact, not received by her. The assessee had credited the amount of Rs. 28,000 under a suspense account, as the assessee had lodged a claim in that behalf. The right to recover the same had not accrued to the assessee. In our opinion, therefore, our answer to the question referred to us by the Tribunal is in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.