Commissioner of Income-tax Vs. S.A. Builders P. Ltd. - Court Judgment

Excerpt:
- haryana urban(control of rent and eviction)act,1973[har.act no.11/1973] -- section 4(2)(b): [m.m. kumar, hemant gupta, ajay & kumar mittal, jj] determination of fair rent held, the fair rent of building under the section is to be determined on the basis of rent agreed between landlord and tenant preceding the date of application. in the absence of rent agreed between parties the basic rent is required to be determined on the basis of rent prevailing in locality for a similar building or rented land on the date of application. if on the date of filing of the application under section 4 of the act for determination of fair rent, the agreed rent was still in vogue thus, it has to be regarded as the basic rent and the same would be constituted as the basis for determining fair rent. thus, where rs.500/- was paid as rent by tenant to the landlord, the same would be regarded as agreed rate of rent and the agreed rate of rent has to be regarded as basic rent within the meaning of section 4(2)(b) of the act in the process of fixing fair rent irrespective of the fact whether the lease period stipulated in a lease deed has expired.g.s. singhvi, j.1. this is a petition under section 256(2) of the income-tax act, 1961 (for short, 'the act'), for directing the income-tax appellate tribunal, chandigarh bench, chandigarh (for short, 'the tribunal'), to draw up the statement of the case and refer the following question of law for the opinion of this court :'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was right in law in holding that the amount of rs. 51,72,000 retained by the authorities from the contract payment receivable by the assessee on accrual basis this year could not be treated as the assessee's income for the year inspite of the fact that income was being assessed on accrual basis ?'2. the facts of the case are that the respondent-assessee is engaged in the construction of tunnels, dams, etc. for the assessment year 1988-89, it filed a return on july 28, 1988, declaring a loss of rs. 47,48,047. by an order dated march 14, 1988, the assessing officer finalised the assessment under section 143(3) disallowing the assessee's claim for deduction of rs. 51,72,000 which was debited in its profit and loss account in the security for successful execution of the contracts. the appeal filed by the assessee against the order of assessment was allowed by the commissioner of income-tax (appeals), chandigarh, vide his order dated february 16, 1989. he held that the amount of rs. 51,72,000 is deductible from the gross payments for tax purposes, but the same shall be charged to tax in the year of receipt. the revenue as well as the assessee challenged that order by filing appeals before the tribunal which were partly allowed by a common order dated november 14, 1995. the tribunal upheld the view taken by the commissioner of income-tax (appeals) that the amount of rs. 51,72,000 would be taxable only when the whole or part of it actually becomes receivable by the assessee. the application filed by the revenue under section 256(1) of the act for reference of the question of law was rejected by the tribunal on june 17, 1996.3. shri r.p. sawhney, senior advocate, argued that the view taken by the commissioner of income-tax (appeals) and the tribunal on the issue of taxability of rs. 51,72,000 is per se erroneous and legally unsustainable because neither of them has considered the matter in the light of the fact that the assessee had been following the mercantile system of accounting and in that system, the money retained by the authorities from the contract payments made to the assessee constitutes income accrued to it and is taxable in the relevant year irrespective of the fact that the actual money may not have been received in that year. he submitted that the question sought by the revenue is a pure question of law and as there is no direct decision of this court on the issue the tribunal may be directed to make reference thereof to this court.4. shri m.l. sarin, senior advocate, appearing for the respondent-assessee, argued that the question sought by the revenue has already been answered in favour of the assessee by different courts and, therefore, this petition should be dismissed. he submitted that the amount of rs. 51,72,000 retained by the authorities by way of security for successful completion of the contract cannot be treated as an income of the assessee for the assessment year 1986-87 and, therefore, the commissioner of income-tax (appeals) and the tribunal have rightly deleted the same from the assessment order. learned, counsel submitted that as per the conditions of the contract entered into between the assessee and the authority concerned, the latter had the right to retain the money for a period of six months and, therefore, the same cannot be treated as income of the assessee for the assessment year 1988-89. in support of his argument, shri sarin relied on the following decisions :(1) cit v. jai parkash om parkash company ltd. : [1964]52itr23(sc) ; (2) cit v. ashokbhai chimanbhai : [1965]56itr42(sc) ; and (3) killick nixon and co. v. cit : [1967]66itr714(sc) .5. we have given serious thought to the respective submissions and carefully perused the record. we have also gone through the decisions relied upon by shri sarin and also the decision of the supreme court in morvi industries ltd. v. c1t : [1971]82itr835(sc) .6. it is a settled proposition of law that while deciding an application under section 256(2), the only issue required to be considered by the court is whether a referable question of law arises from the order of the tribunal and not whether it would be finally decided in favour of the revenue or the assessee. therefore, the only point which needs to be examined in this case is whether the question sought by the revenue is a question of law requiring determination by this court. there is no dispute between the parties that the petitioner has been adopting the mercantile system of accounting. this system substantially differs from the cash system of accounting. under the mercantile system, credit entries are made in respect of the amounts due immediately they become legally due though they may be received at a later point of time. as against this, under the cash system, it is only the actual cash receipts and actual cash payments that are recorded as credits and debits. therefore, the amount which became legally due to the assessee on successful completion of work will prima facie be deemed as its income liable to be assessed during the relevant assessment year. that is an issue on which we do not want to express final opinion at this stage, but, we are convinced that the question sought by the revenue is a question of law requiring determination by this court.7. hence, the petition is allowed. the tribunal is directed to draw up a statement of the case and refer the question noted hereinabove to this court for its opinion. the tribunal is also directed to remit the record of the case to this court.