Gujarat High Court
Director Of Income Tax (International ... vs Ballast Nedam Internationl on 8 April, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)....Appellant(s)V/SBALLAST NEDAM INTERNATIONL B V....Opponent(s) O/TAXAP/307/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 307 of 2013 ================================================================ DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)....Appellant(s) Versus BALLAST NEDAM INTERNATIONL B V....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 08/04/2013 ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI) Aggrieved by the order of the Income Tax Appellate Tribunal dated 26th September, 2012, this tax appeal under section 260-A of the Income Tax Act, 1961 ( the Act hereinafter) is preferred proposing following question of law for our consideration.
Whether the Appellate Tribunal was right in law and on facts in holding that the retention money does not form part of the assessee though the same has been accrued?
Heard learned counsel Mrs. Mauna Bhatt for the revenue and with her assistance, examined the question.
The question pertains to the retention money. The Tribunal, while deciding the same against the revenue, has relied upon its own decision of the earlier year, which the revenue had carried in appeal before this Court in Tax Appeal No.144 of 2013. The said issue has adjudged vide order dated 28.3.2013. It would be necessary to reproduce the relevant findings of this Court.
6. Having heard learned counsel for the Revenue and having perused the documents on record, we find that the issue under consideration is squarely covered by the decision of this Court in the case of Anup Engineering Ltd. Commissioner of Income tax reported in 247 ITR 457.
7. In the said case the agreement that the assessee entered into for execution of a contract for supply and erection of plant specified that full amount would not be paid if the plant was defective. The assessee had debited the sum of Rs. 3 lakhs by crediting the same to the warranty account as some dispute had arisen with respect to the execution of the contract. In such background, the Court considered whether such amount represented assessee s accrued income. In this context, it was held and observed as under:
For the purpose of ascertaining whether income had, in fact, accrued, one has to also see whether there is a real income. It has been also observed by the Hon'ble Supreme Court in C.I.T. v. Bokaro Steel Ltd.,236 ITR 315, that no matter by adopting what method the assessee maintains his accounts, it may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements, or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse or pay. However, in both cases, unless there is real income, there cannot be any income tax. In the instant case also, there is no real income so far as Rs. 3 lacs are concerned because no debt has been created in favour of the assessee by virtue of clause No. 14 of the contract and as the assessee did not get any right to receive the said amount during the previous year in question, it cannot be said that income in respect of the amount in question had been accrued to the assessee during the previous year in question.
Looking to the facts of the present case and in the light of the law laid down by the Hon'ble Supreme Court in the cases referred to hereinabove, it is very clear that unless and until a debt is created in favour of the assessee, which is due by somebody, it cannot be said that the assessee has acquired a right to receive the income or that the income has accrued to him. A debt must have come into existence and the assessee must have acquired a right to receive the payment. In the instant case, the assessee did not get any right to receive a sum of Rs. 4 lacs which could have been retained by Godrej in pursuance of clause No. 14 of the contract. One has to look at the contract and not at the entries made in the books of account. If, upon construction of the contract, one comes to a conclusion that the assessee could not have received Rs. 4 lacs from Godrej, by no stretch of imagination it can be said that the said amount had accrued by way of income to the assessee in the previous year in question. As the plant was not up to the satisfaction of Godrej, Gorej had a right to retain Rs. 4 lacs. It is not in dispute that during the previous year in question the dispute as to quality of the plant had arisen and the assessee had also felt that quality of the plant was not up to the mark and, therefore, believing that Godrej might ultimately retain Rs.3 lacs or under the warranty clause the assessee might have to pay Rs. 3 lacs, the assessee made a provision for Rs. 3 lacs by deducting the said amount from the sales account. In fact, in the previous year in question, the assessee had no vested right to receive Rs. 4 lacs and therefore it cannot be said that income to that extent had accrued to the assessee. We can test the above conclusion in a different manner too. Whether Godrej was liable to pay Rs. 4 lacs to the assessee in spite of the fact that quality of the plant was admittedly not up to the mark? Did the assessee get a vested right to get the said amount? Answer to these questions would be in negative and, therefore, as observed hereinabove, it cannot be said that income had accrued to the assessee.
A similar question had arisen in case of C.I.T. v. Simplex Concrete Piles (India) Pvt. Ltd., 179 ITR 8, (Cal.). Having regard to the facts and circumstances of the case, it was held in that case that, when there is a clause with regard to retention money, the assessee gets no right to claim any part of the retention money till the verification of satisfactory execution of the contract is concluded and, therefore, if there is no immediate right to receive the retention money, the said amount cannot be said to have accrued to the assessee. Even in the instant case, so far as retention money is concerned, the assessee had not to receive the same and therefore it cannot be said that the amount of Rs. 3 lacs had accrued to the assessee.
8. In the result, this Tax Appeal is dismissed.
Without giving separate reasons, this tax appeal also metes the same fate and the same is accordingly dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) shekhar Page 4 of 4