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G. Gopinathan Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1986)16ITD188(Coch.)
AppellantG. Gopinathan
Respondentincome-tax Officer
Excerpt:
.....income on 29-9-1978 disclosing a loss of rs. 12,925. this return was accompanied by a profit and loss account and the adjusted statement. no balance sheet, capital account, depreciation schedule, etc., have been filed by the assessee. the assessment was completed under section 144 of the income-tax act, 1961 ('the act') on an income of rs. 6,36,700 on 23-3-1981. the assessee filed a petition under section 146 of the act.this was allowed. the assessment was again made on 19-2-1983. during the relevant accounting year, apart from the usual contract receipts, an amount of rs. 6,08,758 has been received by the assessee in terms of an arbitration award dated 17-11-1977. according to the assessee, an amount of rs. 1,53,996 was included in the relevant assessment years' contract receipts and.....
Judgment:
1. This appeal filed by the assessee is against the order of the Commissioner (Appeals) dated 25-5-1983 for the assessment year 1978-79, for which the previous year ended on 31-3-1978.

2. The assessee carries on contracts for manufacture and sale of concrete poles for the Kerala State Electricity Board. For the assessment year 1978-79, the assessee filed a return of income on 29-9-1978 disclosing a loss of Rs. 12,925. This return was accompanied by a profit and loss account and the adjusted statement. No balance sheet, capital account, depreciation schedule, etc., have been filed by the assessee. The assessment was completed under Section 144 of the Income-tax Act, 1961 ('the Act') on an income of Rs. 6,36,700 on 23-3-1981. The assessee filed a petition under Section 146 of the Act.

This was allowed. The assessment was again made on 19-2-1983. During the relevant accounting year, apart from the usual contract receipts, an amount of Rs. 6,08,758 has been received by the assessee in terms of an arbitration award dated 17-11-1977. According to the assessee, an amount of Rs. 1,53,996 was included in the relevant assessment years' contract receipts and the balance amount of Rs. 4,54,762 had been split up for the preceding assessment years 1974-75 to 1977-78 and included in the receipts of those years on the ground that they related to those years. According to the ITO the assessee became entitled to the additional amount of Rs. 6,08,758 only on the issue of the award in November 1977 and that the income arose only consequent to the award.

Hence, the date of accrual was the date of the award. In that view of the matter, he treated the entire receipt as receipt for the assessment year 1978-79. Thus, he made an addition of Rs. 4,54,762 in the assessment for the assessment year 1978-79 under consideration. 3.

Aggrieved by the order of the ITO the assessee preferred an appeal to the Commissioner (Appeals). Before the Commissioner (Appeals) the assessee urged that he filed revised returns for the assessment years 1974-75 to 1977-78 disclosing the following amounts out of Rs. 6,08,758 and offered them for assessment and that the assessments have been completed, accordingly : So the assessee urged that the sum of Rs. 4,54,762 should not have been added in the assessment for 1978-79. The Commissioner (Appeals) held that the additional amount accrued to the assessee only when the award was given in November 1977 and, therefore, the assessee became entitled to receive this amount for the first time only during the previous year and so the amount was assessable as income of the year under appeal.

4. Aggrieved by the order of the Commissioner (Appeals), the assessee preferred the present appeal. At the time of hearing, the assessee's counsel sought permission for raising the following additional grounds : 1. The addition of Rs. 4,54,762 is contrary to law. This amount has been already assessed in the earlier assessment years. So if assessed in this year it will amount to double taxation of the same amount in the hands of the same person which type of assessment is prohibited by law.

2. The amount of Rs. 6,08,758 received by the assessee under the award is a capital receipt. So Rs. 4,54,762 added in this year and Rs. 1,53,996 which is wrongly returned as income of this year is not assessable to tax.

He filed a paper book of 27 pages. His arguments were to the following effect : In the earlier assessment years, the assessee filed revised returns claiming loss. But the assessments were completed at nil income. He pointed out that Rs. 4,54,762 was already assessed. Now by assessing Rs. 4,54,762 again in the assessment year 1978-79 it amounts to double taxation which is not permissible. Income can be taxed in the hands of the same person only once. For this proposition, reliance was placed on Kanga and Palkhivala's Law and Practice of Income-tax, Seventh edn., p. 9 and Sampath Iyengar's Law of Income-tax, Seventh edn., p. 66 and the Supreme Court's decision in State of Uttar Pardesh v. Raza Buland Sugar Co. Ltd. [1979] 118 1TR 50. The additional amount of Rs. 6,08,758 did not accrue to the assessee by the award dated 17-11-1977. It accrued to the assessee even earlier as and when sales were made in the previous years relevant to the assessment years 1974-75 to 1977-78. The sale price accrued at the time of sale. The sale price was only quantified later. The interest granted by the Courts on enhanced compensation is held by various Courts as having accrued in the relevant years but not in the year of receipt. This would equally apply here. Reliance was placed on the decision of the Supreme Court in Mrs. Khorshed Shapoor Chenai v. ACED [1980] 122 ITR 21. The right or liability, as the case may be, exists by itself and is not created by the judgment or decree of a Court as laid down by the Bombay High Court in the case of CITv. Babulal Nawttamdas [1976] 105 ITR 721. The additional amount of Rs. 6,08,758 is a capital receipt as per the decision in IRC v. Ballantine 8 TC 595. If this is accepted the amount of Rs. 1,53,996 included by the assessee as the receipt in the assessment year under appeal should also be excluded.

5. The arguments of the learned departmental representative were to the following effect : In spite of repeated opportunities given to the assessee, the assessee has not produced books of account said to have been maintained by him in support of the profit and loss account filed for the assessment years 1975-76 to 1977-78. So it cannot be said that the amount of Rs. 4,54,762 was taxed earlier and that there would be double taxation. The amount of Rs. 4,54,762 should be taxed in the assessment year 1978-79 as per the decision of the Supreme Court in the case of CIT v. A Gajapathy Naidu [1964] 53 ITR 114. The amount of Rs. 6,08,758 is directly related to the business of the assessee and, therefore, was taxable as a trade receipt as per the decision in the case of A. Gajapathy Naidu (supra) and the assessee's contention that it is a capital receipt falls to the ground. The assessee's counsel replied that the payment in the case of A. Gajapathy Naidu (supra) was an ex gratia payment and was not on the basis of a right or under any arbitration award. The issue of double taxation was not there in that case.

6. We have considered the rival submissions. The ITO stated in his assessment orders dated 28-2-1978 for the assessment years 1975-76 to 1977-78 'that the assessee is a contractor who says that he does not maintain accounts'. When we pointed out this to the assessee's counsel and asked him to produce the books of account alleged to have been maintained by the assessee on the basis of mercantile system of accounting, he pleaded his inability and admitted that no proper books of account have been maintained. In the case of N.R. Sirkcr v. CIT [1978] 111 ITR 281 (Gauhati) it was laid down that where the assessee does not keep proper accounts, it can safely be assumed that he is following cash system of accounting and that in such a case it cannot be presumed that the assessee kept his accounts on mercantile system.

In view of the assessee's own admission that he did not maintain proper books of account, we have to assume that he was following cash system of accounting. It cannot be presumed that the assessee was keeping his accounts on mercantile system. In such circumstances, the whole amount of Rs. 6,08,758 is to be brought to tax in the assessment year 1978-79 only as it was received during the relevant previous year. As the assessee had already included Rs. 1,53,996 in the receipts shown in the profit and loss account, the ITO is perfectly justified in making the addition of the balance of Rs. 4,54,762. Further even if the assessee is presumed to have kept his accounts on mercantile system, the amount of Rs. 6,08,758 is to be taxed in this assessment year only as per the decision of the Supreme Court in the case of A. Gajapathy Naidu (supra). In the case of CIT v. Kali-charan Jagannath [1961] 41 ITR 40 (All.) during the accounting year 1945-46 the assessee entered into a contract with, and supplied fruits and bullock carts to the military authorities at rates fixed by the agreement. The supply resulted in a loss and the assessee submitted.a petition for a review under the terms of the agreement. On 6-11-1947, the military authorities sanctioned the payment of an additional sum which was paid to the assessee on 17-2-1948 and 24-2-1948. The Income-tax Department sought to include the additional sum in the assessment for the assessment year 1946-47.

The Allahabad High Court held that the additional sum was not liable to be assessed for the assessment year 1946-47. It held that until the order of review the only right that the assessee had was to claim the money payable at the rates laid down in the agreement itself, that the additional amount became payable to the assessee not by virtue of any right conferred by the agreement, but because of the order passed in review under the terms of the agreement directing the payment of the amount and, thus, creating a right to this amount in favour of the assessee, that even though the amount was payable because the assessee had carried out the contract in the accounting year 1945-46 in accordance with the agreement entered into in that year, the mere execution of the agreement and performance of the contract in that year did not entitle the assessee to receive that amount. It also held that the right to receive payment of the additional sum could at the earliest have arisen or accrued on 6-11-1947 after the close of the accounting year 1945-46 and that the income did not accrue or arise to the assessce in that accounting year. This was approved by the Supreme Court in the case of A. Gajapathy Naidu (supra). In the case of A.Gajapathy Naidu {supra) the assessee was maintaining accounts on mercantile basis. Even then in similar circumstances, the Supreme Court held that the additional amount could not be related back to the earlier years during which the assessee actually supplied articles to the hospital.

7. But here in the assessee's case, it is not proved by the assessee that he was following mercantile system of accounting by maintaining proper books of account. Even assuming that he has proved thatjhe was following mercantile system of accounting, according to the Supreme Court the whole of the additional amount, viz., Rs. 6,08,758 is to be taxed in the assessment year 1978-79 only. The assessee's argument that the whole of the additional amount is a capital receipt has also to be rejected in view of the Supreme Court's decision in the case of A.Gajapathy Naidu (supra) as the same directly related to the business of the assessee. In CIT v. Swadeshi Cotton and Flour Mills (P.) Ltd. [1964] 53 ITR 134, the assessee claimed that under Section 10(2)(X) of the Indian Income-tax Act, 1922, it was entitled to the allowance in respect of the sum of Rs. 1,08,325 which it had paid as bonus for the year 1947 in the calendar year 1949 as a result of the award of the Industrial Tribunal dated 13-1-1949. On these facts, the Supreme Court held that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial Tribunal and, therefore, the only year the liability can be properly attributed is 1949.

8. The assessee's argument that if the amount of Rs. 4,54,762 is to be taxed in the assessment year 1978-79 it would amount to double taxation as it had already been taxed in the earlier years is also to be rejected for the following reasons. For the assessment year 1975-76 the assessee filed the original return on 31-7-1976. In the profit and loss account for the year ended 31-3-1975 enclosed to the return of income the assessee has shown the net loss at Rs. 16,397. In the said profit and loss account the following figures were exhibited : 1.

Opening stock of materials and work Rs. Rs. in progress 4,900 According to the assessee's letter dated 6-12-1977 placed in the ITO's records for the assessment year 1977-78, which was filed in the Income-tax Office on 7-12-1977, the assessee had filed revised returns for the assessment years 1974-75 to 1977-78 stating as under : Due to the award of an arbitrator proceeds which mainly gives effect to enhancement of rates of poles, that I manufacture and supply to electricity board my sales turnover for the years 1973-74 to 1976-77 have substantially increased and as a result of which 1 have to file revised income-tax return with relevant profit and loss account for the year which I am enclosing herewith.

As stated by the assessee before the Commissioner (Appeals), the additional amount attributable to the assessment year 1975-76 was Rs. 89,466. If the assessee really intended to add this amount by filing a revised return, the assessee should have shown Rs. 1,97,654 as sales in the revised profit and loss account instead of Rs. 1,08,188 shown in the original profit and less account and should have shown Rs. 73,069 as net profit in the revised profit and loss account instead of Rs. 16,397 as net loss in the original profit and loss account. But he has shown the net loss in the revised profit and loss account at Rs. 13,673 only. For reasons best known to him, the following figures were shown in the profit and loss account enclosed to the revised return for the assessment year 1975-76 on 7-12-1977 : By these figures, it cannot be said that the assessee filed the revised returns for the earlier assessment years showing the additional amounts attributable to those years as contended by him before the Commissioner (Appeals) and he cannot say that these additional amounts have been assessed and that if Rs. 4,54,762 is added in the assessment year 1978-79 it amounts to double taxation. Similar is the position with the earlier assessment years 1976-77 and 1977-78. Thus, there is no double taxation at all.

9. For all these reasons and on the facts and in the circumstances of the case, we hold that the ITO is justified in making the addition of Rs. 4,54,762 in the assessment for the year 1978-79.


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