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Mahalaxmi Sugar Mills Company Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 51, 52, 53, 54 and 55 of 1977
Judge
Reported in(1984)41CTR(Del)104; [1986]157ITR683(Delhi)
ActsIncome Tax Act, 1961 - Sections 37, 41(2) and 256(1); Uttar Pradesh Sugarcane Cess Act, 1956 - Sections 3(3)
AppellantMahalaxmi Sugar Mills Company Ltd.
RespondentCommissioner of Income-tax
Cases ReferredChuni Lal v. Mehta
Excerpt:
(i) direct taxation - assessment - sections 37, 41 (2) and 256 (1) of income tax act, 1961 and section 3 (3) of uttar pradesh sugarcane cess act, 1956 - whether assessed entitled to deduction of commission paid to sole selling agent - in view of decision on similar matter by court assessed entitled to deduction of commission paid to sole selling agent. (ii) interest - whether assessed entitled to deduction of interest paid for non-payment of sugarcane cess and purchase tax in time - in view of decision of apex court on similar matter assessed entitled to deduction of interest paid for non-payment of sugarcane cess and purchase tax in time. (iii) demurrage - whether assessed entitled to deduction of amount paid by way of demurrage to railways in computation of business income - demurrage.....d.p. wadhwa, j.1. the income-tax appellate tribunal, delhi bench 'a', has referred to this court, under section 256(1) of the income-tax act, 1961 (for short 'the act'), the following four questions of law concerning three assessment years 1963-64, 1964-65 and 1965-66 : '1. whether, on the facts and in the circumstances of the case, the assessed is entitled to the deduction in the assessment years 1963-64 and 1964-65 of the sums of rs. 2,49,719 and rs. 2,27,944, respectively, paid by it to its sole selling agents by way of commission 2. whether, on the facts and in the circumstances of the case, the assessed is entitled to the deduction in the computation of its business income of the following amounts of interest paid by the assessed for the non-payment in time of the sugarcane cess and.....
Judgment:

D.P. Wadhwa, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'A', has referred to this court, under section 256(1) of the Income-tax Act, 1961 (for short 'the Act'), the following four questions of law concerning three assessment years 1963-64, 1964-65 and 1965-66 :

'1. Whether, on the facts and in the circumstances of the case, the assessed is entitled to the deduction in the assessment years 1963-64 and 1964-65 of the sums of Rs. 2,49,719 and Rs. 2,27,944, respectively, paid by it to its sole selling agents by way of commission

2. Whether, on the facts and in the circumstances of the case, the assessed is entitled to the deduction in the computation of its business income of the following amounts of interest paid by the assessed for the non-payment in time of the sugarcane cess and the purchase tax payable by it Item 1963-64 1964-65 1965-66Rs. Rs. Rs.Sugarcane cess 2,46,837 2,26,383 1,34,355Purchase tax 53,294 36,844 1,097------------ ------------- ----------3,00,131 2,63,227 1,35,452------------ ------------ -----------

3. Whether, on the facts and in the circumstances of the case, the assessed is entitled to the deduction of the sums of Rs. 5,030 and Rs. 1,244, respectively, for the assessment years 1963-64 and 1964-65 paid by it by way of demurrage to the Railways in computation of its business income for the assessment years in question

4. Whether, on the facts and in the circumstances of the case, any part of the compensation of Rs. 2,75,610 awarded to the assessed in respect of its properties taken over by the Pepsu Government is assessable to income-tax for the assessment year 1963-64 ?'

2. Questions Nos. 1, 3 and 4 have been referred at the instance of the Commissioner of Income-tax and question No. 2 at the instance of the assessed.

3. The assessed is a public limited company and is engaged in the business of manufacture and sale of sugar. The assessed appointed the Sugar Marketing Syndicate, Amritsar, as its sole selling agent. It was in 1947. This firm was reappointed as sole selling agent for the sale of the assessed' products of sugar and molasses for five years commencing form November 1, 1957. An agreement was drawn up under which commission was payable at the rate of 1 per cent. on all sales of sugar and six naya paise per maund on sale of molasses. The agent was made responsible for the sale of assessed's entire produce for the best price to be approved by the assessed on certain conditions that the sales were not to be on credit without the written permission of the assessed and the agent was to ensure the retirement of the assessed's bills by the purchasers. The agreement was terminable at six month's notice on either side. Another similar agreement was entered into on July 8, 1963, whereby the appointment of the agent was renewed for a further period of five years from November 1, 1962. The terms of this agreement were more or less the same as the previous one.

4. The commission paid to the agent was being allowed as a deduction from the beginning till the assessment year 1960-61. On January 27, 1959, control of the distribution and marketing of sugar was introduced by the Government but this was not a permanent feature and the duration of the control varied every year. The period of control during the period relevant to assessment years in question, i.e., 1963-64 and 1964-65, was only about two months in each year. When the control was introduced, the assessed negotiated with the Sugar Marketing Syndicate regarding the payment of commission and it was agreed that the commission would be paid subject to a maximum of annas 8 per Rs. 100 on all sales made to Government allottees. For the assessment year 1961-62, the Income-tax Officer disallowed the commission payment claimed by the assessed. On appeal, the Appellate Assistant Commissioner allowed the commission payment, On further appeal to the Tribunal by the Department, the order of the Income-tax Officer was restored. The Tribunal was of the view that since, according to the agreement, the sole to the selling agent and there was nothing to establish that the commission paid sole selling agent was for the purpose of the assessed's business. The Tribunal followed the same conclusion in the order relating to the assessment year 1962-63.

5. At the instance of the assessed in respect of these two earlier years, the following two question were referred to this court :

Assessment year 1961-62 (I.T.R. No. 25 of 1971) :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of commission of Rs. 83,207 was not incurred for the purpose of the assessed's business and was inadmissible as a deduction ?'

Assessment year 1962-63 (I.T.R. Nos. 15 and 16 of 1972) : 'Whether, on the facts and in the circumstances of the case, the amount of Rs. 98,407 was allowable as a deduction for determining the assessed's business for the assessment year in question ?'

6. The amounts mentioned in these two question had been paid by the assessed as commission to its sole selling agent, M/s. Sugar Marketing syndicate. Both these question were answered in favor of the assessed by a Bench of this court on January 14, 1981. In respect of the assessment years in question, the ITO disallowed the commission payment. The Appellate Assistant Commissioner, however, allowed the same. The appeal of the Department to the Tribunal failed. At the instance of the Department question No. 1 was referred to this court. As will be seen, the facts in the present case are practically the same. we see no reason to differ from the earlier judgment of this court. Following the judgment of this court, we would hold that the assessed was entitled to the deduction in the assessment year 1963-65 of the sums of Rs. 2,49,719 and 2,27,944, respectively, paid to its sole selling agent by way of commission, and we thus answer the question in the affirmative and in favor of the assessed.

7. The second question is common to all the three assessment years 1963-64, 1964-65 and 1965-66. The same question also arose in respect of the assessment years 1959-60, 1960-61 and 1961-62. The Tribunal in these earlier years has allowed interest paid by the assessed on the arrears of sugarcane cess. On a reference, however, this court held that it was not so and answered the question in favor of the Department. The decision of the Delhi High Court is CIT v. Mahalakshmi Sugar Mills Ltd. : [1972]85ITR320(Delhi) . Relying, on this decision, the Tribunal, in the instant case, held that the interest paid by the assessed for the non-payment in time of the sugarcane cess and purchase tax payable by the assessed could not be treated as deduction in the computation of the business income of the assessed. Accordingly, at the instance of the assessed, question No. 2 has been referred for decision. It is unnecessary to detail the facts which are the same as in the earlier years. The decision of this court, referred to above, was, however, reversed by the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT : [1980]123ITR429(SC) . The Supreme Court held that the interest paid on arrears of cess under the U. P. Sugarcane Cess Act, 1956 was really a part and parcel of the liability to pay cess and that the interest provided for under section 3(3) of the Act was in the nature of compensation paid to the Government for delay in the payment of cess. The Supreme Court held that interest paid under 3(3) was not a penalty paid for an infringement of the law and was an allowable deduction.

8. As regards the question as to whether the assessed was entitled to the deduction in the computation of its business income of the amount of interest paid by it for non-payment in time of the purchase tax, reference was made to the provision of the U. P. Sugarcane (Purchase Tax) Act, 1961. We find that the provisions of this Act for levy of interest on late payment of purchase tax are similar to those relating to payment of interest in respect of late payment of cess under the U.P. Sugarcane Cess Act, 1956. As noticed above, the Supreme Court in the case of this very assessed in Mahalakshmi Sugar Mills Co.'s case : [1980]123ITR429(SC) , held that the interest paid under the U.P. Sugarcane Cess Act, 1956, was not a penalty paid for an infringement of the law and was an allowable deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. Applying the same principles, it has to be held that interest paid for late payment of purchase tax is also allowable deduction for computing the business income of the assessed. We find support from a decision of the Calcutta High Court in Balrampur Sugar Co. Ltd. v. CIT : [1982]135ITR227(Cal) and a full Bench decision of the Allahabad High Court in Triveni Engineering Works Ltd. v. CIT : [1983]144ITR732(All) , decided on October 6, 1983. Thus, we answer question No. 2 in the affirmative, i.e., in favor of the assessed and against the Department.

9. Question No. 3 is common for the assessment years 1963-64 and 1964-65 and relates to the deductibility of the demurrage paid by the assessed-company to the Railways. For the assessment year 1963-64, the assessed had claimed a sum of Rs. 5,030 and for 1964-65 the assessed claimed Rs. 1,244 as demurrage paid to the Railways for not lifting the goods consigned to it in time. The Income-tax Officer disallowed the claim which was, however, allowed by the Appellate Assistant Commissioner in appeal. On appeal by the Department, the Tribunal held the claim of the assessed as correct and observed that the claim was allowed in earlier years as well. In doing so, the Tribunal applied its decision in relation to the allowability of the interest on the arrears of cess. On the other hand, it was contended by the Department before the Tribunal that this expenditure was of the same nature as interest paid by the assessed on the arrears of sugarcane cess and purchase tax. It may at once be seen that the payment of demurrage was not in the nature of damage or penalty amount and that it was merely a charge made by the Railway administration to compensate itself for keeping the goods of the assessed in its custody beyond a particular time. The payment of demurrage was incidental to business and its impact was to increase the cost to the assessed of the goods transported. Shri S. N. Kumar, learned counsel for the assessed, referred to a decision of the Allahabad High Court in Nanhoomal Jyoti Prasad v. CIT : [1980]123ITR269(All) . In this case, the port authorities charged demurrage for delay in clearing the goods from the godowns of the port authorities which included charges for storage and safe custody of the good by the port authorities. It was held that when demurrage is paid by a trader, he pays the amount for storage and safe custody of the goods by the port authorities or the railways and also an additional amount for delayed clearance and the payment essentially is by way of liquidated damages for use of the port facilities beyond the period allowed under the port Rules. It was held that the demurrage paid was not a fine for infraction of any law but was by way of compensation for use of port facilities beyond the period allowed under the Port Trust Rules, and that the expenditure on this account was laid out wholly and exclusively for the assessed's business. We would follow the reasoning adopted by the Allahabad High Court in this judgment. We thus answer question No. 3 in the affirmative, i.e., in favor of the assessed and hold that the assessed is entitled to deduction of sums of Rs. 5,030 and Rs. 1,244, respectively, for the assessment years 1963-64 and 1964-65 paid by it by way of demurrage to the Railways in the computation of its business income for the assessment years in question.

10. This brings us to the last question which is relevant only for 1963-64.

11. The assessed had established its factory for manufacture of sugar at Hamira in the then State of Kapurthala in 1950. As the assessed could not get adequate supply of sugarcane of quality, the assessed decided to shift its factory to Iqbalpur in District Saharanpur, U.P. The process of dismantling the factory started at the end of 1953-54 season. The request of the assessed to install a small sugar factory at Hamira was rejected by the Government and instead a license to set up a sugar factory at Hamira was granted to another party. The Deputy Commissioner, Kapurthala, acting under the PEPSU Requisitioning and Acquisition of Immovable Property Act, 1954 (for short 'the PEPSU Act'),after notice to the assessed passed orders for requisitioning of the assessed's property at Hamira for the benefit of the new party to whom the license was granted. In pursuance of the requisitioning order possession of a number of buildings of the assessed was taken by the Government on December 25, 1954, and possession of some other buildings was taken on later dates in the months of March to September, 1955. For a period of about four years, the order requisitioning the properties operated and thereafter the Government started passing orders for derequisitioning of the properties piecemeal and by August 4, 1958, all the properties were released. It was not disputed that compensation under the Pepsu Act for requisitioning of the properties would be payable for the period the Government retained actual physical possession of the different items of the property and that the dates of the requisitioning and derequisitioning order would not be material for the purpose. The Pepsu Act provided for payment of compensation for requisitioning of the property. Section 8 of the Pepsu Act, which is relevant, may be reproduced :

'8. Principles and method of determining compensation. - (1) Where any property is requisitioned or acquired under this Act, there shall be paid compensation the amount of which shall be determined in the manner and in accordance with the principles hereinafter set out, that is to say :

(a) where the amount of compensation can be fixed by agreement, it shall be paid in accordance with such agreement;

(b) where no such agreement can be reached, the State Government shall appoint as arbitrator a person who is, or has been, or is qualified for appointment as, a Judge of a High Court;

(c) the State Government may, in any particular case, nominate a person having expert knowledge as to the nature of the property requisitioned or acquired to assist the arbitrator, and where such nomination is made, the person to be compensated may also nominate an assessor for the same purpose;

(d) at the commencement of the proceedings before the arbitrator, the State Government and the person to be compensated shall state what in their respective opinion is a fair amount of compensation;

(e) the arbitrator shall, after hearing the dispute, make an award determining the amount of compensation which appears to him to be just and specifying the person or persons to whom such compensation shall be paid; and in making the award, he shall have regard to the circumstances of each case and the provisions of sub-sections (2) and (3), so far as they are applicable;

(f) where there is any dispute as to the person or persons who are entitled to the compensation, the arbitrator shall decide such dispute and if the arbitrator finds that more persons that one are entitled to compensation, he shall apportion the amount thereof amongst such persons;

(g) nothing in the Arbitration Act, 1940 (X of 1940), shall apply to arbitrations under this section.

(2) The amount of compensation payable for the requisitioning of any property shall consist of -

(a) a recurring payment, in respect of the period of requisition, of a sum equal to the rent which would have been payable for the use and occupation of the property, if it had been taken on lease for that period; and

(b) such sum or sums, if any, as may be found necessary to compensate the person interested for all or any of the following matters, namely :

(i) pecuniary loss due to requisitioning;

(ii) expenses on account of vacating the requisitioned premises;

(iii) expenses on account of reoccupying the premises upon release from requisition; and

(iv) damage (other than normal wear and tear) caused to the property during the period of requisition, including the expenses that may have to be incurred for restoring the property to the condition in which it was at the time of requisition.

(3) The compensation payable for the acquisition of any property under section 7 shall be -

(a) the price which the requisitioned property would have fetched in the open market, if it had remained in the same condition as it was at the time of requisitioning and been sold on the date of acquisition, or

(b) twice the price which the requisitioned property would have fetched in the open market if it had been sold on the of requisition, whichever is less.'

12. As the amount of compensation could not be fixed by an agreement between the parties, the Government appointed the District Judge, Kapurthala, as the arbitrator for the purpose. The assessed filed before the arbitrator its claim amounting to Rs. 6,60,777.56 as compensation for use and occupation of its factory premises, damage and demolition of the property during the period of occupation and removal of certain fittings and movable properties, etc. Compensation was also claimed towards cost for clearing out of the property and also for reoccupation after the same was derequisitioned. Compensation for development of the land was also claimed. By award dated June 7, 1962, the arbitrator determined the amount of the compensation payable to the assessed at Rs. 2,75,610. Six months' time was granted to the Government to make the payment. The amount awarded included compensation for expenses on account of reoccupying the de-requisitioned property though the major portion of compensation was towards use and occupation of the requisitioned property. Under section 8(2)(a) of the Pepsu Act, the amount of compensation payable for use and occupation of the requisitioned property is a recurring payment and, in fact, the arbitrator awarded compensation on the basis of monthly rent of various properties during the period the possession remained with the Government. The matter was taken in appeal to the High Court for the State of Punjab at Chandigarh against the award of the arbitrator by both the parties, i.e., the assessed and the State. The High Court by its judgment dated November 24, 1965, reduced the amount of compensation payable to the assessed to Rs. 2,31,682. It may, however, be noted that during the pendency of the appeal before the High Court, an interim order was passed on January 14, 1963, directing payment of compensation awarded to the assessed on its furnishing security to the satisfaction of the court. The assessed received the payment on January 7, 1964, after the assessed had furnished the requisite security. The amount of Rs. 2,31,682 which was finally determined by the High Court was adjusted by the assessed in its books of account for the year ending June 30, 1966, relevant to the assessment year 1967-68.

13. The Income-tax officer took the view that the assessed became entitled to the amount of Rs. 2,75,610 when the award was made on June 7, 1962, and held this amount to be assessment year 1963-64. On appeal by the assessed, the Appellate Assistant Commissioner held that the amount of compensation was finally determined in 1965 and could be considered only in the assessment year 1967-68, and the Appellate Assistant Commissioner did not go into the question as to whether the whole or any part of the compensation was not liable to tax. The Department appealed to the Tribunal. During the hearing of the appeal before the Tribunal, it was noticed that the Income-tax Officer also included the amount of Rs. 2,31,682 determined by the High Court in the assessment year 1967-68. The Income-tax Officer rejected the contention of the assessed that the amount was not taxable at all and, in any event, it could not be wholly taxed. The assessed appealed to the Appellate Assistant Commissioner who held that the Income-tax officer had rightly assessed the amount in the assessment year 1967-68,He was, however, of the opinion that the compensation paid for the use and occupation of the premises of sugar factory and the compensation paid for vacation and reoccupation of the properties amounting to Rs. 1,50,709 would be liable to tax as the same was of revenue nature. As regards the compensation for demolition of building and the removal of articles, the Appellate Assistant Commissioner held that it was difficult to agree with the assessed that the entire compensation of Rs. 80,972 represented a capital receipt, He, however, estimated the profit under section 41(2) of the Income-tax Act, 1961, at Rs. 25,000 in respect of building, machinery, railway siding, fittings, etc., and thus granted a relief of Rs. 55,972 to the assessed. The assessed filed further appeal to the Tribunal which was pending when the appeal of the assessment year 1963-64 came to be heard by the Tribunal. The Tribunal, thereforee, considered the limited question before it, viz., on the assumption that if the compensation or part thereof was assessable to tax, as to in which assessment year it was so assessable.

14. The principles which have been given for calculating the amount of compensation payable for the requisitioning of a property are : (1) a recurring payment of a sum equal to the rent which would have been payable for the use and occupation of the property, (2) expenses on account of vacating the requisitioned premises, (3) expenditure on account of reoccupying the premises on being released from requisition, (4) pecuniary loss due to requisition, and (5) damage caused to the property during the period of requisition in view of the expenses that may have to be incurred for restoring the property to the condition in which it was at the time of requisition, normal wear and tear, however excepting. It may be noticed at this stage that the provisions in this respect of the Pepsu Act are pari materia with the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952, (hereinafter referred to as 'the Requisitioning Act'). There are various judgments under the Requisitioning Act of various High Courts where it is said that the standard rent should be the basis for fixation of compensation (of course, where rent legislation would be in force) which has to be the recurring payment for the use and occupation of the requisitioned property. In Humayun Mirza v. All India Radio, : AIR1975Kant124 , it was held that section 8 of the Requisitioning Act, which is similar to section 8 of the Pepsu Act, contemplates payment of different amounts of compensation for different periods. The language of section 8 also clearly shows that a recurring payment is to be made which is to be equal to the amount of rent if the requisitioned property had been taken on lease for the period of requisition. Then, as mentioned above, the arbitrator has to take into account the expenses for vacating and reoccupying the property, etc. All these amounts will have to be differently calculated and differently dealt with. As a matter of fact, the arbitrator has determined the recurring payment on the basis of the rent payable each month during the period of requisition in respect of the properties requisitioned under the Pepsu Act. The arbitrator has also determined other amounts like the expenses for vacating and reoccupying the premises, etc. Unfortunately, the Tribunal has not examined the amount of compensation awarded to the assessed from this angle though in the assessment year 1967-68, the Appellate Assistant Commissioner did attempt to find out the amounts falling under these heads. The Tribunal was of the view that the compensation accrued to the assessed in the assessment year 1955-56. In coming to such a conclusion, the Tribunal relied on a decision of the Supreme Court in CIT v. Chuni Lal v. Mehta & Sons P. Ltd. : [1971]82ITR54(SC) and also in E. D. Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) . The Tribunal did not examine as to whether the income could also be said to accrue only after it was quantified. If that was so, then in the instant case, it could be said to have accrued only after January 7, 1964, i.e., after the previous year relevant to the assessment year 1963-64.

15. In CIT v. Deoki Nandan & Sons : [1982]138ITR225(Delhi) , this court held with reference to the amount of interest payable on enhanced compensation under section 28 of the Land Acquisition Act, 1894, that the assessed's right to receive interest there under accrued to him day to day throughout the years from the date of taking over possession of the land by the Collector till the payment of compensation. It was held that the Government was obliged to pay interest and the assessed acquired a right to receive it and it was a debt owed by the Government, its liability to pay was certain, although the amount was yet to be quantified. The Tribunal may, thus, be not right when it reached the conclusion that compensation accrued to the assessed in the assessment year 1955-56. But, this question is not before us in these terms. The Government became liable to pay compensation immediately it took possession if the requisitioned properties from the assessed. It was to be a recurring payment spread over four years during which the property remained in the possession of the Government. Thus, on the requisitioning of the property, it was only the amount which remained to be ascertained when there was a dispute in regard to the amount of rent and which could be ascertained correctly only by an award which was also appealable under the Pepsu Act. This, however, did not postpone the accrual of the compensation in favor of the assessed. In Kedarnath Jute Mfg. Co. Ltd. v. CIT : [1971]82ITR363(SC) , the Supreme Court held that the liability to pay sales tax accrued on the basis of the statute and the existence of a dispute regarding the liability could not postpone the same. In the instant case, a liability to pay compensation on the part of the Government had accrued immediately on taking over the possession of the requisitioned property and correspondingly there accrued a right of the assessed to receive compensation. In Sassoon & Co. Ltd.'s case : [1954]26ITR27(SC) , it was held by the Supreme Court that income accrued at the time when a right to receive income arose to the assessed and the accrual was not held in abeyance merely because the quantification was postponed. In Morvi Industries Ltd. v. CIT : [1971]82ITR835(SC) , the Supreme Court held that the income accrued when it became due. The postponement of the date of payment did not affect the accrual of income. The fact that the amount of income is not subsequently received by the assessed would not also detract from or efface the accrual of income although non-receipt may, in appropriate cases, be a valid ground for claiming deductions. In CIT v. Chuni Lal v. Mehta & Sons P. Ltd. : [1971]82ITR54(SC) , the assessed was the managing agent of a company. Under the agreement of managing agency, the assessed was to continue as managing agent for 21 years. It was a term of the agreement that if the assessed was deprived of the managing agency, except on certain grounds mentioned in the agreement, it would be entitled to receive as compensation or liquidated damages certain amounts specified in the agreement. The managing agency agreement was entered into in 1951 the appointment of the assessed as managing agent was terminated. There was a dispute regarding the amount of compensation. The managed company wanted to pay a certain sum as per the agreement but the assessed wanted something more because of the alleged unlawful termination of the agreement. After four years of litigation, the court in 1955 awarded the amount which was offered by the managed company under the agreement. A question arose as to whether the amount of compensation accrued to the assessed in 1951 or in 1955. The Supreme Court held that the assessed was entitled to a definite sum as liquidated damages under the agreement and that the same became due to the assessed in 1951, though it was actually received in 1955. The fact that the assessed was claiming an exorbitant sum to which it was not entitled, did not convert its right into a contingent right. Thus, the assessed's right to get the compensation arose in 1951 and, thereforee, it was held that the compensation amount was not taxable in the assessment year 1956-57 even though the assessed actually received the amount in 1955. The fact that the assessed had included the receipt in question in the profit and loss account in 1955 was held to be a wholly immaterial circumstance. The Supreme Court observed that the method of maintenance of accounts was one thing and actual entries in the account books maintained was a different thing. What was relevant was the method of accountancy and not the actual entries.

16. In the present case, the amount under the award dated June 7, 1962, of the District Judge was actually received on January 7, 1964, on the orders of the High Court after the assessed had furnished the security. Ultimately, the High Court had reduced the amount of compensation by its judgment dated November 24, 1965. The assessed refunded the excess amount to the Government. The amount of Rs. 2,31,682 finally determined by the High Court was adjusted by the assessed in its books of account for the year ending June 30, 1966, relevant to the assessment year 1967-68. The Income-tax officer held that as the right to receive the compensation accrued to the assessed on the making of the award by the District Judge on June 7, 1962 (assessment year 1963-64), it was a legally enforceable right and he assessed the compensation in the assessment year 1963-64. The Appellate Assistant Commissioner was, however, of the view that it was only when the matter was finally settled by the High Court that the amount paid to the assessed was finally determined and as this happened on November 24, 1965, it was only on this date that the liability crystallised so far as the Government was concerned and the same income finally accrued to the assessed. According to the Appellate Assistant Commissioner, the amount was to be considered in the assessment year 1967-68. He held that the inclusion of this amount in the assessment year 1963-64 by the Income-tax officer was not justified and he deleted the addition. The Tribunal was of the view as already noticed above that the amount of compensation was assessable in the assessment year 1955-56. We have already pointed out above that the Tribunal was perhaps not correct in its approach. We cannot accept the argument advanced on behalf of the Department that a right accrued in favor of the assessed to receive compensation on the making of the award and if the compensation or part thereof represented income, such income accrued on June 7, 1962, and that the pendency of the appeal against the award did not postpone the right and, consequently, the accrual. This may be so in a case where the property is acquired when the amount of compensation is quantified and not in a case where the property is requisitioned, as in the instant case. The compensation was also assessed in the assessment year 1967-68 and the appeal before the Tribunal was pending in respect of the assessment year 1967-68, when the present reference arose. We do not know the fate of that appeal. Thus, it would appear to us that the amount of compensation awarded is certainly not assessable in the assessment year 1963-64, and, thereforee, we restrict our answer to the question referred to us and would not say in which particular year this amount has to be assessed.

17. In this view of the matter, we answer the question referred to us in the negative, i.e., in favor of the assessed and against the Department. The assessed will be entitled to costs of this reference. Counsel's fee Rs. 500.


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