Skip to content


Commissioner of Income-tax Vs. Barjatya Family Charitable Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference Application No. 66 of 1982
Judge
Reported in[1987]163ITR269(Raj)
ActsIncome Tax Act, 1961 - Sections 256(2)
AppellantCommissioner of Income-tax
RespondentBarjatya Family Charitable Trust
Appellant Advocate R.N. Surolia, Adv.
Respondent Advocate N.K. Jain,; Anant Kasliwal and; M.L. Borad, Advs.
Excerpt:
- - the tribunal has held that there are only two well-known methods of accounting, namely, the mercantile system and the cash system, and when the latter, i. the said application was dismissed by the tribunal by order dated june 30, 1981. the tribunal held that the admitted facts are that when the assessee followed the cash system for maintaining the accounts, the assessee is required to disclose only that income which he had actually received during the previous year and that since the legal position is well-settled, no useful purpose would be served by referring the proposed question to this court......was to be paid on or before march 31, 1977. in pursuance of the aforesaid agreement, the assessee received rs. 4,75,000 out of the total lease amount up to march 31, 1976, and the said amount was included by the assessee in the return filed by it for the assessment year 1976-77. the case of the assessee was that it was maintaining accounts on cash basis and, therefore, whatever amount or consideration was received during the year was accounted for. the income-tax officer, trust circle, jaipur, in his assessment order dated september 7, 1979, did not accept the said plea of the assessee and included the sum of rs. 2,50,000 in the income of the assessee on the view that the entire consideration/profit is to be taxed in the year in which the transaction is finalised and the profit.....
Judgment:

1. This reference application has been moved by the Revenue under Section 256(2) of the Income-tax Act, 1961, ('the Act') for directing the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') to refer the following question to this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that under the method of accounting regularly followed by the assessee, the lease amount of Rs. 2,50,000 which was receivable in 10 yearly instalments as per agreement dated November 5, 1975, was not taxable in the assessment year 1976-77?'

2. M/s. Barjatya Family Charitable Trust, the assessee, was carrying on business of cinematograph film distribution during the assessment year 1976-77. The assessee entered into an agreement dated November 5, 1975, whereby it leased out the right of distribution, exhibition and exploitation in respect of various pictures mentioned in the said agreement to M/s. Rajshree Pictures Pvt Ltd. on the terms and conditions set out in the said agreement. A supplementary agreement was arrived at on November 12, 1975, wherein the assessee disclosed the names of the films in respect of which the right of distribution and exhibition was teased out. The agreement dated November 5, 1975, provided for a consideration of Rs. 7,25,000 out of which Rs. 50,000 was to be paid on the signing of the agreement and Rs. 4,25,000 were to be paid on or before March 31, 1976, in suitable instalments as may be mutually agreed upon. The balance amount of Rs. 2,50,000 was to be paid in ten yearly instalments at the rate of Rs. 25,000 per year. The first of such instalments was to be paid on or before March 31, 1977. In pursuance of the aforesaid agreement, the assessee received Rs. 4,75,000 out of the total lease amount up to March 31, 1976, and the said amount was included by the assessee in the return filed by it for the assessment year 1976-77. The case of the assessee was that it was maintaining accounts on cash basis and, therefore, whatever amount or consideration was received during the year was accounted for. The Income-tax Officer, Trust Circle, Jaipur, in his assessment order dated September 7, 1979, did not accept the said plea of the assessee and included the sum of Rs. 2,50,000 in the income of the assessee on the view that the entire consideration/profit is to be taxed in the year in which the transaction is finalised and the profit or consideration, as the case may be, cannot be allowed to be diversified in a number of years for the purpose of taxability on the basis of instalment granted for clearing the outstanding consideration/profit amount. According to the Income-tax Officer, the provision for payment which is cleared in instalments spread over a period of ten years was merely a facility allowed by the lessor to the lessee for the payment of consideration which had assumed the character of an outstanding debt on March 1, 1976, and the transaction was completed in all respects in pursuance of the terms of the agreement dated November 5, 1975. The said order of the Income-tax Officer was affirmed in appeal by the Commissioner of Income-tax (A), Rajasthan, Jaipur, by order dated January 8, 1980. Thereafter the assessee filed an appeal before the Tribunal which was allowed by the Tribunal by order dated September 29, 1980. The Tribunal has observed that it was not disputed before it that the assessee maintained its accounts on cash system. According to the Tribunal, if cash method of accounting is being followed by the assessee, then the assessee was right in showing only the actual receipt as income of the year and as the sum of Rs. 2,50,000 was to be received in the future, the assessee, under the law, was entitled not to show this amount as income of the year under appeal. The Tribunal has observed that no cogent reason had been given by the Income-tax Officer in support of his view that the assessee was required to show the entire lease amount as income of the year under appeal. The Tribunal has held that there are only two well-known methods of accounting, namely, the mercantile system and the cash system, and when the latter, i.e., cash system is followed, then, only the actual receipt of the relevant year is to be shown as income. In view of the aforesaid finding, the Tribunal held that the assessee had rightly excluded the sum of Rs. 2,50,000 which was to be received in the future. The Revenue filed an application before the Tribunal for referring the question aforesaid to this court. The said application was dismissed by the Tribunal by order dated June 30, 1981. The Tribunal held that the admitted facts are that when the assessee followed the cash system for maintaining the accounts, the assessee is required to disclose only that income which he had actually received during the previous year and that since the legal position is well-settled, no useful purpose would be served by referring the proposed question to this court. Thereupon, the Revenue has filed this application.

3. We have heard Shri R. N. Surolia, the learned counsel for the Revenue, and Shri Kasliwal, the learned counsel for the assessee. During the course of his submission, Shri Surolia did not dispute that the assessee was following the cash system for maintaining the accounts. In view of the fact that the assessee was following the cash system for maintaining the accounts, which fact has not been disputed by the Revenue, the Tribunal was justified in holding that the assessee was required to disclose only the income which it had received during the relevant year. In the circumstances, we agree with the Tribunal that no question of law arises out of the order of the Tribunal which may call for reference to this court. The application is, therefore, dismissed. No order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //