Income Tax Appellate Tribunal - Delhi
Sheo Prasad Singhal vs Income-Tax Officer on 28 February, 1986
Equivalent citations: [1986]16ITD167(DELHI)
ORDER
D.D. Vyas, Judicial Member
1. This is an appeal by the assessee relating to the assessment year 1981-82. The facts of the case, in brief are as under :
2. The assessee is a contractor. Sometimes in August 1959, he obtained a contract for construction of an irrigation project in Rajasthan. According to the assessee, the execution of this contract was completed in or about May 1963 and the past payment of Rs. 1,032.56 was received by the assessee on 11-5-1964. In January 1965, the assessee sent a notice under Section 80 of the Code of Civil Procedure 1908 read with Sections 8 and 20 of the Indian Arbitration Act to the said State of Rajasthan, claiming that a sum of Rs. 1,20,130.50 was still due to him in respect of the aforesaid contract and that this amount together with interest of Rs. 11,820.30 should be paid to him or in the alternative the matter should be referred for arbitration. Thereafter, the matter was referred to an arbitrator who by his award dated 27-6-1972, held as under :
1. The defendant, the State of Rajasthan will pay to the claimant/plain tiff a sum of Rs. 1,21,139 for the balance payable to him in respect of the work done under the contract on Bithan Irrigation Project.
2. The State will also pay interest on the said amount at the rate of 6 per cent per annum simple interest from 31-5-1963 to the date of decree.
3. It seems that on this award the Hon'ble Allahabad High Court passed an order on 2-4-1980. As a result of this order, the assessee received an amount of Rs. 1,21,139 towards his outstanding payment and interest of Rs. 1,24,021.
4. So the dispute was whether the said amount was assessable in the hands of the assessee in the previous year relevant to the assessment year 1981-82 or not.
5. The assessing officer after considering all the material and circumstan ces of the case came to the conclusion that the assessee was following cash method of accounting all alone in the past all the assessments were completed on receipt basis. Consequently, the assessing authority asses sed the said income as income of the assessee in the year of account. The Commissioner (Appeals) agreed with the said finding.
6. Before the Tribunal, the contention of the learned counsel for the appellant was that the assessee did not acquire any right to receive the amount in question in the year of account and as such the amount is not assessable in the year of account. According to the learned counsel, the assessee withdrew the amounts from the Court after filing the security to the satisfaction of the Court concerned. Thus, it was conten ded that till this time the dispute is not settled. Thus, it was contended that the receipt in question was assessable at that time when the award was given or it was made rule of the Court. According to the learned counsel on the amount in question the assessee was having only contin gent right. Under circumstances the amount in question is not taxable in the year of account.
7. The learned departmental representative supported the order of the Commissioner (Appeals) and contended that the assessee has been following cash system of account all alone. In the past, all the assessments were completed on cash basis. In the year of accounting, the assessee received the amount in question. After withdrawing the money on the basis of the order of the Court, the assessee has taken FDR in his name. The FDR was taken by the assessee and as such the assessee is owner of the property and the bank will give money only to the owner and to none else. Since the assessee has received the money in this year, it is clearly taxable.
8. We have heard the parties and perused the entire material on record. The learned Commissioner (Appeals) has given in detail the facts of the case and the same were not disputed by the parties at the time of the hearing. Since the facts were given in detail by the learned Commissioner (Appeals) we need not reproduce them again.
9. It is common ground that the assessments of the assessee in the past were made on cash basis. It is equally undisputed facts that the assessee never maintained account on mercantile basis. In the decision of CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC), held that if the method of accounting adopted by the assessee is cash system, it would qualify for deduction only in the year in which it was actually paid. Reference may also be made to the ratio of the decision in the case of CIT v. Devatha Chandraiah & Sons [1985] 154 ITR 893 (AP). It is settled law that income is taxable when it carries or is earned for the assessee's accounts are maintained on mercantile basis. It is taxable when it is received if the assessee's accounts are maintained on cash basis.
10. The assessee received the sums in question in the year of account relevant to the assessment year 1981-82. It is correct that the amount was withdrawn by the assessee as a result of the order passed by the Hon'ble High Court. After filing the security, the amount was withdrawn. After withdrawing the amount, the assessee disputed the entire money in fixed deposit and the FRS is in the name of the assessee. So far as the bank is concerned, it will make the payment of the money to the assessee alone. So the assessee is the owner of the money deposited in the fixed deposit. Whether the money is stolen by the assessee or from whatever source he received the money and deposited in the bank, the assessee is the real owner of that amount. Under the circumstances, it cannot be said that the assessee was having only contingent right in respect of that amount.
11. It is common ground that the assessee was carrying on contract business and the dispute arose regarding the payment of such contract work. The assessee was claiming higher amount. The payment in ques tion was made in connection with the trading receipts. Under the circum stances, it was a trading receipt of the assessee and as such was clearly taxable. Similarly, the interest on the principal amount of Rs. 1,21,139 was calculated from 31-3-1963 to 2-4-1964. Since this amount was received in this year, it could only be taxable in the hands of the assessee in this year.
12. We have gone through the order of the learned Commissioner (Appeals) very carefully. We agree with the reasoning given by the lear ned Commissioner (Appeals).
13. Looking to the aforesaid facts, there is no substance in the appeal.
14. In the result, the appeal fails and the same is dismissed.
S.K. Chander, Accountant. Member
1. I have carefully and respectfully gone through the judgment proposed by my learned brother in this appeal. However, with great respect, I find myself unable to agree with the decision arrived at by him and the observations made in arriving at such decision.
2. Since the Tribunal is a final fact finding authority and the issue be fore us is quite contentious and the determination of it being dependent upon complex facts, I consider it necessary to incorporate the same in our order and then adjudicate upon the issue. The relevant facts are as under.
3. The assessee, Shri Sheo Prasad Singhal, was running a proprietary concern of contractors known as Bhartiya Builders. It appears that this concern was run from its head office at Agra. In this business of contrac tors, the assessee concluded a contract with the State of Rajasthan for construction of the main dam including sluice, etc., of Bithan Irrigation Project in Jaswantpura Tehsil of Jaipur District of Rajasthan in August 1959. This contract was in writing and it had a clause numbered 25 which provided for some sort of arbitration in case of disputes arising out of the contract. This contract was executed by the assessee and round about May 1963, it was completed. The assessee received undisputed last payment in respect thereof on 11-5-1964, amounting to Rs. 1,032.56.
4. It appears some dispute arose between the assessee and the Chief Engineer (Irrigation Project) of the State of Rajasthan and the assessee claimed additional amount due to him on account of the contract work. In this regard, the assessee made some correspondence with the concerned authorities for settlement of the dispute. However, the dispute was not amicably settled. The assessee, therefore, sent a notice under Section 80 read with Sections 8 and 20 of the Indian Arbitration Act to the State of Rajasthan, claiming that a sum of Rs. 1,20,130.51 was still due to him in respect of the aforesaid contract. The assessee further claimed that the said amount along with the interest due thereon should be paid to him. The assessee in the alternative, suggested that the dispute may be referred for arbitration under Clause 25 of the contract to the Chief Engi neer of the State. In this notice given under Section 80, the assessee attach ed a schedule giving item-wise narration about the additional payment due from the Government in respect of various jobs claimed to have been completed by him.
5. It appears that there was no positive response from the side of the State to the said notice. The assessee, therefore, moved an application under Sections 8 and 20 before the Civil Judge, Agra and it was regis tered as Suit No. 37 of 1965. The State of Rajasthan opposed this appli cation on the ground that there was no arbitration clause in the contract as according to it Clause 25 of the contract did not amount to an arbitra tion clause. The learned Civil Judge, however, disposed of this applica tion of the assessee by his judgment dated 6-2-1971. By this order, he referred the dispute to the sole arbitration of the Chief Engineer of the Irrigation Department of the Government of Rajasthan. However, the said Chief Engineer did not enter upon the reference.
6. The assessee, on account of the above attitude of the State Govern ment made another application to the Hon'ble civil court for appoint ment of some other person as an arbitrator. This application was fixed for hearing but no one put in an appearance on behalf of the State of Rajasthan in opposition to it with the result that the Civil Judge made an ex parte order dated 18-12-1971 appointing one Shri H.S. Mathur, advo cate as the sole arbitrator in the matter. Shri Mathur issued notice to the State of Rajasthan which remained unattended. Finally, he made his award on 29-6-1972 whereby he allowed the assessee's claim for recovery of additional amount of Rs. 1,21,139 as compensation for the work done. He also allowed interest at 6 per cent per annum on the amount due with effect from 31-5-1963. It appears that the interest amount was worked out at Rs. 1,24,051 from the due date to the date of the award. The arbitrator accordingly filed his award in the Court of the Civil Judge, Agra on 7-8-1972. It is pertinent to note that despite the due notice of the award having been given to the State of Rajasthan, no objections on their behalf were filed before the Civil Judge, within the period of limitation.
7. However, on 10-11-1972, objections were filed along with an application for condonation of delay under Section 5 of the Limitation Act, 1963. The learned Civil Judge vide his order dated 10-4-1973, dismissed the application for condonation of delay. The State Government, thereafter, filed an appeal in the High Court against the order of the learned Civil Judge made on 10-4-1973, dismissing the application made under sec tion 5 for admitting the objections under Section 30 of the Indian Arbitration Act after condonation of delay. However, it appears that such an appeal was not pressed before the Hon'ble High Court and was dismissed as such.
8. In the meantime, another development took place. The State Government made an application against the ex parte judgment of the learned Civil Judge dated 18-12-1971 appointing Shri H.S. Mathur as the sole proprietor, and it prayed for setting aside the said order made ex parte quathe State Government. However, the learned Civil Judge rejected this petition by his order dated 24-5-1972 against which the State Govern ment went in revision to the Hon'ble High Court. This revision petition was, however, dismissed on 6-4-1977.
9. The State Government in the meantime had also filed an application under Section 33 of the Indian Arbitration Act with the allegation that there was no valid reference for arbitration and that the reference to Shri H.S. Mathur was as such illegal and without jurisdiction. Some allegations were made against the arbitrator as being guilty of legal misconduct in making the award without jurisdiction. This application of the State was listed in original Suit No. 37 of 1965. The learned Civil Judge, Agra disposed of this miscellaneous petition by his order dated 22-1-1979 dismiss ing the same. The Hon'ble Court held that the reference was valid and the arbitrator did not suffer from any inherent lack of jurisdiction. The tate Government filed an appeal in the Allahabad High Court against this judgment dated 22-1-1979 of the Civil Judge, Agra. The application before the Hon'ble Allahabad High Court was listed as F.A.F.U. 246 of 1979. In this application, the State Government, inter alia, contended that Clause 25 of the contract between the assessee and the Government did not amount to an arbitration clause. It was, thus, projected that the appointment of the arbitrator Shri H.S. Mathur was void ab initio. The relief claimed in this appeal before the Hon'ble High Court was that the Hon'ble Court be pleased to set aside the order of the learned Civil Judge dated 22-1-1979.
10. The Hon'ble High Court stayed the execution of the judgment/decree dated 22-1-1979 passed by the Additional Civil Judge, Agra with the condition that the entire amount in dispute, i.e., the sum total of Rs. 1,21,139 and Rs. 1,24,051 amounting to Rs. 2,45,190 should be deposited with the Court. The State Government did so. On the fulfilment of this condition by the State Government, the Allahabad High Court stayed the execution of the disputed decree. When the amount of Rs. 2,45,190 was deposited with the execution court it was allowed to be withdrawn by the assessee on the assessee furnishing adequate security to the satisfaction of the execu tion court. The assessee filed a bank guarantee before the execution court and took away the disputed amount from the Court. However, in view of the fact that the whole dispute was still sub judice the assessee took a precautionary measure of putting the entire amount so withdrawn in a fixed depo sit with the bank so that in case the judgment of the Hon'ble High Court went against the assessee, the disputed amount could be paid back by the bank to the State Government of Rajasthan. In other words, the assessee got, in the withdrawal of the disputed amount on the facts stated above, an incumbered right, title and interest in the said amount. On the receipt of this amount, by the assessee, it became the subject matter of dispute with the taxing authorities.
11. During the execution of the contract mentioned above, the assessee was showing the income therefrom on receipt basis as no regular books f account were maintained. It so happened that the applicant was still continuing the business of contract though on a small scale and had shown some gross receipts from contract work taken from Dy. Labour Commissioner, Agra. The ITO taxed the amount of Rs. 2,45,190 as in come of the assessment year 1981-82 by taking previous year relevant to this assessment year as financial year ending on 31-3-1981. This was done because it appears that the disputed amount was withdrawn from the premises of the execution court during the financial year relevant to this assessment year. The impugned assessment was made on 27-7-1984. It was challenged in first appeal before the learned Commissioner (Appeals), Agra.
12. On the above facts, within circumscription of law, the issue for our decision is whether the disputed amount of Rs. 2,45,190 which has been brought to tax by the ITO is taxable in this year or not. On this issue, I have no doubt in my mind that the amount is not taxable as income of the assessee for the year under appeal. Income is something which falls within the four corners of what is considered as income under the Income-tax Act, 1961 ('the Act'). Such an income is the amount over which the assessee has absolute right, title and interest. The assessee should have the right of disposal of such an amount without any incum-berances.
13. However, the narration of facts given above, clearly shows that the amount which the assessee has received is burdened with incumberances insofar as there is a direction of the High Court that in case the final decision of the Court goes against the assessee the amount will have to be refunded or reimbursed. It is also to be noted that the amount was determined as payable to the assessee on the basis of arbitration. However, the State Government of Rajasthan is striking at the very route of this arbitration by calling in question before the Hon'ble High Court, the appointment of arbitrator. In fact, the contention of the State of Rajasthan before the Court is that the award given by the arbitrator is not in accordance with law because his appointment as arbitrator was void ab intio. Therefore, it cannot be said that the amount given to the assessee during the year under consideration was the assessee's income taxable in this year. I, therefore, find it difficult to come to the same conclusion which my learned brother has arrived at. Hence, I differ from the view taken by him.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Since there is difference of opinion between the two members. We refer under Section 255(4) of the Act, the following questions for the opinion of the President of the Tribunal :
7. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that sum of Rs. 1,21,139 was a trading receipt ?
2. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that sum of Rs. 1,24,051 was assessable as income of the assessee in the previous year relevant to assessment year 1981-82 on receipt basis ?
ORDER G. Krishnamurihy, Senior Vice President
1. On a difference of opinion between my learned brothers, who heard this appeal originally, the following points of difference of opinion were referred to me by the President of the Tribunal for my opinion as a Third Member under the powers vested in him under Section 255(4) :
1. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that sum of Rs. 1,21,139 was a trading receipt ?
2. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that sum of Rs. 1,24,051 was assessable as income of the assessee in the previous year relevant to the assessment year 1981-82 on receipt basis ?
2. The relevant facts are : The assessee Shri Sheo Prasad Singhal was a contractor carrying on the contracts in the name and style of Bhartiya Builders. It had its head office at Agra. The assessee concluded a contract with the State of Rajasthan for the construction of a main dam of Bithan Irrigation Project in Jaswantpura Tehsil, Jaipur District of Rajasthan in August 1959. There was a clause in the contract entered into by the assessee with the Government of Rajasthan providing for some sort of arbitration in case of disputes numbered as Clause 25. By about May 1963 the execution of the contract was completed and on 11-5-1964 the assessee received the last payment of about Rs. 1,032. In the meantime some disputes arose between the assessee and the Chief Engineer, Irrigation Project of the State of Rajasthan, in which the assessee claimed some additional amounts as due to him in the execution of the contract. On the failure of the assessee to settle this dispute by correspondence, the assessee issued a notice under Section 80 read with Sections 8 and 20 to the State of Rajasthan claiming an additional sum of Rs. 1,20,130 as due to him together with interest. The assessee also suggested in the alternative that the matter be referred to the arbitration under the said Clause 25. As there was no positive response from the side of the State Government, the assessee moved an application before the Civil Judge, Agra under the Indian Arbitration Act as Suit No. 37 of 1965. The State of Rajasthan opposed this application on the plea that there was no clause providing for arbitration in the contract contending that Clause 25 referred to above did not provide for any arbitration. The Civil Judge disposed of this application on 6-2-1971 by rejecting the claim of the State of Rajasthan and referring the matter to the sole arbitration of the Chief Engineer of the Irrigation Department of the Government of Rajasthan, who, however, did not enter upon the reference for a long time. The assessee then moved another application before the Civil Judge for appointment of another person as an arbitrator. Even though this application was posted for hearing as none was present on behalf of the Government of Rajasthan, the Civil Judge made an ex parte order on 18-12-1971 appointing one Shri H.S. Mathur, the advocate as the sole arbitrator. He issued notices to the Government of Rajasthan but in vain. Finally, he gave his award on 29-6-1972 allowing the assessee's claim for the recovery of additional amount of Rs. 1,21,139, as compensation for the work done and simultaneously allowed interest at 6 per cent per annum on the amount due with effect from 31-5-1963 and the interest worked out to Rs. 1,24,051. The arbitrator filed his award in the Court of the Civil Judge, Agra on 7-8-1972. The Civil Judge gave notice to the State of Rajasthan to appear but no objections were filed within the period of limitation. However, on 10-11-1972 objections were filed by the State of Rajasthan requesting for condonation of delay under Section 5. By his order dated 10-4-1973 the Civil Judge dismissed the application for condonation of delay. The State Government then filed an appeal in the High Court against the order of the learned Civil Judge but however, that was not Dressed before the High Court and it was dismissed as not pressed. In the meantime the State Government made an application before the Civil Judge urging that the appointment of Mr. Mathur as the sole arbitrator was unjust and praying for setting aside the award given by him. The Civil Judge rejected this petition against which the State Government went in revision to the Hon'ble High Court, which was, however, dismissed on 6-4-1977. In the meantime the award was made the rule of Court by the order passed on 22-1-1979.
3. The State Government again filed an application under Section 37 of the Indian Arbitration Act, alleging that no valid reference for arbitration was made and the reference to Mr. Mathur was illegal and without jurisdiction. The Civil Judge disposed of this petition against the Government. The State Government filed an appeal in the Allahabad High Court against the judgment praying, inter alia, that Clause 25 of the contract did not amount to an arbitration clause and that the appoint ment of an arbitrator was void ab initio. The prayer made before the High Court was that the award must be set aside. The High Court stayed the execution of the judgment passed by the Civil Judge, Agra with the condition that the entire amount in dispute, namely, Rs. 1,21,139 and Rs. 1,24,051 amounting to Rs. 2,45,190 should be deposited with the Court. The State Government complied with this order. After the amount was deposited, the execution court allowed the assessee to withdraw this sum on the assessee furnishing a bank guarantee before the execution court. Thereafter the assessee by way of precaution deposited the entire amount with the bank so that as claimed by him in case the judgment of the Hon'ble High Court went against him, the amount could be immediately paid back by the assessee to the Government of Rajasthan.
4. The amount was received by the assessee in the year under appeal by furnishing this bank guarantee. The ITO taxed the entire amount as in come of the assessment year 1981-82 by taking the previous year relevant to the assessment year as financial year ending on 31-3-1981. The assessee objected to the taxing of this sum by submitting that the assessee did not acquire any right to this sum so that it could be deemed as his income, that the amount received by furnishing bank guarantee subject to the condition that it should be returned in case the decision went against him could not be regarded as income. But these contentions were rejected and the amount was treated as the income of the assessee. The main argument of the department was that the assessee was following cash system of accounting and under that system of accounting, the receipts as and when received become the income of the assessee and they should be taxed in the year in which they were received and according to that system of accounting the receipts received by the assessee albeit by furnishing a bank guarantee became the income of the assessee. The assessee then filed appeal before the Commissioner (Appeals), who held that the order of the arbitrator was made a rule of the Court on 22-1-1979, the assessee's right to receive the compensation and interest accrued on the date and even though it was made a subject-matter of appeal before the High Court, the accrual of the right in favour of the assessee to receive the amount could not be held to have been suspended. When the assessee withdrew the amount even by furnishing a bank guarantee, it must be held that he was receiving the amount due to him and as he was following cash system of accounting and since receipts were in the course of his business, they were rightly held as taxable. Against the decision of the Commissioner (Appeals) there was a further appeal by the assessee before the Tribunal.
5. The learned Judicial Member was of the opinion that the view taken by the revenue was right. He held that since the assessee had deposited this money in a fixed deposit with a bank, it must be held that the assessee became the real owner of the money and under those circumstances it could not be said that the assessee was only having a contingent interest or right in respect of this amount. For the same reason he held that the interest also was taxable in ths year under appeal. The learned Accountant Member, however, held to the contrary. He held that under the Act income is something which falls within the four corners of what is considered income under the Act, such income must be the amount over which the assessee had absolute right, title and interest. The assessee should have the right of disposal of such amount without any encumberances. The facts of the case showed that the amount received by the assessee was burdened with encumberances because there was a direc tion in the High Court order that in case final decision of the Court went against the assessee, the amount would have to be refunded to the Government. The Government of Rajasthan was questioning the very validity of the appointment of arbitrator and it was that point that was sub judice in the High Court and, therefore, an amount received by an award given by an arbitrator, whose validity of appointment was in jeo pardy in further litigation, could not be said to have been received by the assessee as income although it is a receipt. It is on account of these divergent opinions expressed that the matter has been referred to me by the Hon'ble President.
6. I have heard the parties at great length, perused the orders written by the authorities below, which are quite long and detailed and I have also considered the decisions relied upon by both the sides before me. On a careful consideration of these, I am of the opinion that the view taken by the learned Accountant Member appears to be just and correct. The order of the ITO as well as the Commissioner (Appeals) suggest that the award given by the arbitrator was made the rule of the Court by an order passed by the High Court on 22-1-1979. This does not seem to be correct. Actually it was the order passed by the First Additional Civil Judge, Agra on that date which was an ex parte order. It is no doubt true that once the award becomes the rule of the Court, it becomes enforceable and acquires validity. The Delhi High Court held in the case of Fazilka Electric Supply Co. Ltd. v. CIT [1983] 143 ITR 551 that an award of an arbitrator that is not filed in the Court and made a rule of the Court has no force or validity. It cannot create, extinguish or pass any title or interest. Nobody can rely on such award by way of attack or defence in any proceeding whatsoever. No party can be prejudiced or benefited by the mere existence of such an award. Since this award has become the rule of the court as per the order passed by the First Additional Civil Judge on 22-1-1979, this has become enforceable. But the position has to be seen, what would happen when the operation of the decree passed consequent on making the award rule of the Court, was stayed passed by the High Court. After staying the operation of the decree, the Allahabad High Court by a subsequent order passed on 2-4-1980 directed the Government to deposit entire decretal amount in the execution court and permitted the assessee to withdraw the money only on furnishing an adequate security with the stipulation that if the amount was not deposited within the period mentioned, the stay order granted would be automatically discharged. Thereafter by furnishing a bank guarantee, the assessee was permitted to withdraw the money. The bank guarantee given by the Central Bank of India provided that that bank would undertake to pay the entire amount of Rs. 2,45,190 without any demur merely on the demand of the Hon'ble High Court if the revision was allowed by it. The learned Accountant Member felt that when as a consequence of application filed in the High Court challenging the very validity of the appointment of arbitrator and when the High Court stayed the operation of the decree, no right to those amounts accrued to the assessee within the meaning of Section 5 of the Act, so as to say that those amounts were the income of the assessee. The mere receipt of the money by furnishing a bank guarantee does not mean that the assessee received the amount as and by way of income. It is only tentative receipt attached with the liability of repayment in case the suit was decided against it. While the learned Judicial Member took the view that because the amount was received by the assessee, it constituted his income. In other words, while according to the learned Accountant Member no right to receive the income accrued to the assessee consequent on the filing of a suit by the Government in the High Court, the learned Judicial Member felt otherwise. The question, therefore, boils down to whether in a situation like this a right to receive the income accrued to the assessee or not. In other words when a suit is filed in the High Court questioning the decree passed by the lower authorities and when the High Court stayed the very operation of the decree, could a right to receive the income be said to have accrued within the meaning of Section 5 because it is that section that permits the levy of tax. Section 5 states that the total income of any previous year of a person, who is a resident includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India during such year or accrues or arises to him outside India during such year. Other partners of Section 5 are not quoted here as they are not relevant here for the present purpose. It, therefore, follows that any receipt in order to be income must be a receipt received as income or in the alternative a right to receive that income must accrue to him or arise to him and the accrual or arisal of that right must be during the previous year. It is now settled law that there is not much of a difference between the expressions 'accrue' or 'arise' while there is not much of overlapping also. What is, therefore, to be seen is whether any right accrued to the assessee to receive this amount as income. This question is a very vexed one and it engaged the attention of several High Courts in the country. Identical questions arose under several Acts, e.g., Land Acquisition Act, 1894, but the underlying principle is that when an appeal is filed, whether the amount decreed by a lower court in favour of an assessee could be said to have given him a right to receive it. In other words whether a right accrue to him or not. Dealing with the question arising under the Land Acquisition Act but involving an identical question as now before me, the Delhi High Court in the case of Harish Chandra v. CIT [1985] 154 ITR 478 held that so long as the appeals were pending the enhanced compensation determined by the District Judge could not be said to have accrued and could not be taken into account in computing the capital gains. That was a case where land was acquired by the Government under the Land Acquisition Act. A notification under Section 4 of that Act was made. Thereafter a declaration under Section 6 was also made. The assessee then filed their claims before the Land Acquisition Collector for a sum of about Rs. 241/2 lakhs. The Land Acquisition Collector after due enquiry gave an award for a sum of Rs. 12,13,000. After this award the amount was deposited but the assessee did not accept this award of compensation. He moved reference petition under Section 18 of the Land Acquisition Act for the determination of compensation by the Government. The Additional District Judge determined the compensation by enhancing it by Rs. 3.58 lakhs. Still dissatisfied the assessee filed an appeal for further enhancement in the High Court. The Government also filed a counter appeal against the enhancement granted by the Additional District Judge in the High Court. Both the appeals were pending in the High Court. During the pendency of the appeals the assessee was allowed to withdraw the enhanced compensation by furnishing securities for restitution. Then the question arose before the High Court (i) whether on the facts and in the circumstances of the case it could be held that capital gain was assessable in the hands of each assessee for the present year under Section 45 (for the assessment year 1966-67), and (ii) whether, on the facts and in the circumstances of the case the Tribunal was right in taking into account the compensation received by each of the assessee pursuant to the order of the District Judge. It so happened in this case that the compensation awarded by the District Judge was taken into account by the Tribunal while making the assessment for the assessment year 1966-67 even though the enhanced compensation was awarded much later and was received still much later. The additional compensation was awarded on 12-9-1969 and received by the assessee in September 1970. Neither of these dates fell in the assessment year 1966-67 but still the Tribunal held that the enhanced compensation was to relate back to the assessment year 1966-67 and, consequently, assessable in that year. The assessee questions this conclusion of the Tribunal and, therefore, the matter went up before the High Court to decide the broad question whether in a case where appeals are filed could it be said that a right to receive that amount accrued. Dealing with this question, the Delhi High Court held :
Under the Act, income is taxable when it accrues, arises or is received, or when it is by fiction deemed to accrue, arise or is deemed to be received. Receipt is the only test of chargeability. If income accrues or arises it may become liable to tax -- see CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC) ...
Then the High Court held :
It is thus clear that unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. In cases of claims for determination of compensation by the Court, no debt is due or was due until the amount of compensation is judicially determined at all stages provided in the Acquisition Act. The offer made by the Collector by his award, if not accepted by the assessee, would not result automatically in a liability to pay enhanced compensation as claimed by the assessee. The claim made by the assessee is in respect of an inchoate right and unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determina-ble and payable, the amount cannot be said to arise or accrue. With the filing of the appeal by the Government against the determination of compensation by the district court, the amount is in jeopardy. The right to receive the enhanced compensation by the assessee is clearly unsettled. The assessee has withdrawn it only on furnishing security for restitution. The withdrawal of the amount is contingent inasmuch as it is likely to be defeated by the acceptance of the appeal of the Government. The liability to pay additional or enhanced compensation is an inchoate or contingent right not creating a debt. (p. 486) It will be seen from this judgment that with the filing of the appeal by the Government against the determination of compensation by the District Judge, the amount fell into jeopardy, that the right to receive the enhanced compensation was clearly unsettled, that the withdrawal of the amount was subject to the contingent right inasmuch as it was likely to be defeated by the acceptance of the appeal of the Government. The liability to pay additionl or enhanced compensation was, then an inchoate or contingent right not creating a debt. This pronouncement of law by the Delhi High Court even though under the Land Acquisition Act settles in my opinion the issue that when an appeal is filed by the Government the amount in question becomes unsettled and the right of the assessee becomes contingent and the fact that the amount was withdrawn by the assessee or was allowed to be withdrawn by the assessee was likely to be defeated and, therefore, no right accrues to the assessee insofar as that amount was concerned. If this is the correct position of law in regard to the present matter, as I understand it is to be, then the assessee in this case did not acquire any right to receive the money in question although the High Court had permitted the assessee to withdraw the money by furnishing a bank guarantee and the assessee withdrew the money in accordance therewith. The context of the Government of Rajasthan was that the appointment of the arbitrator invoking Clause 25 of the agreement for the execution of the contract works was clearly untenable and beyond jurisdiction and the whole proceedings were arbitrary and one-sided and were liable to be set aside. The finality of the decree passed by the Additional District Judge was so disturbed with the grant of the order by the High Court staying the operation of the decree that it cannot be said that any enforceable right to receive the sum in question accrued to the assessee. Unless such a right accrued to the assessee, the amount received cannot be brought to tax under Section 5. In this context, the question whether the assessee is following mercantile system of accounting or cash system of accounting or hybrid system of accounting does not really matter as the system only helps computing the income. If the assessee ultimately succeeds in the High Court, then it can be said that a right to receive those amounts accrued to the assessee and those amounts could then be brought to tax but not till then. I am, therefore, of the opinion that the view expressed by the learned Accountant Member is fair, reasonable and correct and I would endorse it. This will settle both the questions because both the questions are so interconnected that the decision of one will govern the decision of the other. Since the receipt of the amount is itself jeopardy, the question of taxing interest attributable to that amount cannot be said to have accrued.
7. The matter will now go before the regular Bench for disposal of the appeal in accordance with the opinion of the majority.