1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred I
' Whether, on the facts and circumstances of the case, it has been rightly held by the Appellate Tribunal that the assessee became entitled to cash incentives from the Government on the various dates when the applications were made by it therefor and that consequently only Rs. 18,340 could be considered as its income for the assessment year 1967-68 '
2. The assessee is a firm carrying on business of sale and export of lunghis. It exported handloom fabrics during the quarters ending March 31, 1965, December 31, 1965, March 31, 1966, and June 30, 1966. Under a scheme formulated by the Government of India for the development of such exports, the exporters of handloom fabrics were given licences to importcotton of the value of 40% of the f.o.b. value of the exported fabrics. The scheme stipulated that such exporters should surrender the licences to import cotton to the Textile Commissioner in lieu of cash incentives. The cash incentives were originally at the rate of 21% of the value of the cotton that could be imported, but later on it was reduced to 6%.
3. In pursuance of the said scheme, the assessee applied for cash incentives and obtained the payments therefor as follows :
Quarter ending onDate of applicationAmount receivedDate of receipt
4. The receipts totalled to Rs. 63,834. We are concerned in the present reference with the assessment year 1967-68 for which the previous year ended oa 13th April, 1967.
5. The assessee filed a return disclosing an income of Rs. 1,15,906 and in doing so included the said sum of Rs. 63,834. However, during the course of the assessment, the assessee contended before the ITO that only a sum of Rs. 18,340 received for the quarter ending on 30th June, 1966, could be included in the assessment, the rest of the amount being liable to be assessed in the earlier year. The ITO rejected this contention on the ground that the assessee had not made entries in its books regarding the cash incentives due to it with reference to the exports made during the earlier years. He, accordingly, determined the total income to be Rs. 1,15,910 by his order dated 6th August, 1970.
6. The AAC on appeal confirmed the assessment so made.
7. The assessee appealed to the Tribunal, and the Tribunal pointed out that a person exporting handloom fabrics had to make the necessary application to the concerned authority for the issue of import entitlements in the prescribed form and accompanied by the necessary documents and that if such an application was made, such exporter would be entitled to import licences and that in view of the above the right to receive the import entitlements arose when a proper application was made therefor. The result was that only Rs. 18,340 was found to be assessable in this year and the balance in the earlier year. The assessment was modified accordingly. This order of the Tribunal has given rise to the reference of the question set out above.
8. The question for our consideration is as to whether the income by way of these cash incentives accrued to the assessee during the accounting year commencing from April 14, 1966, and ending on April 13, 1967. The assessee maintains its accounts on mercantile basis and, therefore, irrespective of the receipt of any amount as and by way of cash incentives, the assessee would be liable to be assessed in case these amounts were due to the assessee during the accounting period under consideration. The scheme has to be examined to find out when the cash incentives became due to the assessee. The Tribunal has extracted the relevant portion of the scheme, which runs as follows :
' Registered customers may, against export of various products, included in the Export Promotion Scheme, claim import entitlement as specified under the various schemes. A list of items covered by the Export Promotion Scheme is at appendix 31. Broadly speaking, the entitlements are allowed to exporters registered under the scheme, on production of proof of export and/or receipt of payment for the export.'
9. The scheme shows that entitlements are allowed to the exporters on production of the proof for the export of goods outside India. Cash incentives would thus accrue to the assessee as soon as the necessary proof is tendered. The fact that there was some delay on the part of the authorities concerned in making the actual disbursement will not stand in the way of the assessee being assessed with reference to the said amount, which became due to the assessee at the time of the application. The right to the amount was established on the date of the application. In so far as the assessee had made the application and produced the proof in respect of exports prior to the commencement of the relevant accounting period (i.e., prior to April 14, 1966), the amount could not be said to have accrued in the year April 14, 1966, to April 13, 1967. In this view, the Tribunal acted rightly in sustaining the addition only to the extent of Rs. 18,340 and deleting the balance of the income. The question is, accordingly, answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 500.