Kerala High Court
Commissioner Of Income-Tax vs Girishchandraharidas And Ors. on 5 September, 1991
Equivalent citations: [1992]196ITR833(KER)
Author: K. S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K. S. Paripoornan, J.
1. The above referred four cases involve a common question of law. At the instance of the Revenue, the Income-tax Appellate Tribunal (in short, " the Tribunal") has referred the following common question of law in the said four cases for the decision of this court :
" Whether, on the facts and in the circumstances of the case and in view of the mercantile system of accounting followed by the assessee, the Tribunal is right in law and fact in setting aside the assessment made under Section 143(3) read with Section 143(2)(a) on the basis of the original return filed ?"
2. We are concerned with the assessment year 1975-76, for which the accounting period ended on November 13, 1974. The respondents are the members of a Hindu undivided family. Shri Haridas Ramji, the respon-dent-assessee in one of the cases, is the " karta". The other members of the Hindu undivided family are the wife and two sons. The family carried on the business of manufacture and sale of a soft drink by name " goldspot" under the name and style of " Calicut Bottling Co." The business was leased out to a limited company by name " M/s. Peruman Agency Ltd." on a monthly rent of Rs. 9,300 for a period of five years, with option to renew for a like period. The members of the Hindu undivided family divided the assets of this business by a deed dated May 17, 1973. For the assessment year 1975-76, all the four assessees filed returns of income on January 24, 1977, disclosing the proportionate share of rental income arising from the above lease. Subsequently, they filed revised returns showing nil income. It was so done stating that they had not received any rent during the previous year relevant to the assessment year under consideration. This plea was rejected by the Income-tax Officer. He made the assessments under Section 143(1) determining the income at Rs. 18,700 in the case of Girishchandraharidas, at Rs. 21,310 in the case of Smt. Niranjana Haridas, at Rs. 19,031 in the case of Sri Haridas Ramji and at Rs. 20,750 in the case of Shri Bharat Kumar Haridas. The assessees filed applications under Section 143(2)(a) of the Income-tax Act, stating that revised returns should have been accepted as they did not receive any rent. This plea was rejected by the Income-tax Officer, and it was upheld by the Appellate Assistant Commissioner of Income-tax. In the further appeals, the Income-tax Appellate Tribunal (in short, " the Tribunal"), noticed that the assessees had been assessed on " due basis " in respect of the rental income. Even for the immediately preceding assessment year 1974-75, they themselves had filed returns voluntarily on " due basis ". For the assessment year in question, the assessees realised that they had not received any rental income and filed a revised nil return. The Tribunal found that the assessees had shown the method of accounting as "mercantile" and since the Revenue has accepted the nil returns filed by the assessees for the subsequent years 1976-77 and 1977-78 and did not bring to tax the rental income on " due basis " and since no rental income was received during the previous year relevant to the assessment year 1975-76, in the interest of justice, the revised returns filed by the assessees should be accepted. It was directed that the assessments made under Section 143(3) read with Section 143(2)(a) on the basis of the original returns will stand set aside and fresh assessments were directed to be made on the basis of the revised returns. It is thereafter at the instance of the Revenue that the above common question of law, formulated hereinabove, in the case of the four assessees, has been referred for the decision of this court by the Tribunal.
3. We heard counsel. The Tribunal, in its order dated August 11, 1990, proceeds on the basis that the assessees have shown the method of accounting as " mercantile ". It is also common ground that the rental income as per the lease deed was shown even for the year 1974-75 on " due basis". Even for this year 1975-76, the assessees filed voluntary returns on " due basis". It may be that they did not realise the rental income due as per the lease deed. But the fact remains that the assessees maintained the accounts on " mercantile basis " and returned the income accrued as per the lease deed voluntarily even for the year in question 1975-76. The fact that subsequently, realising that the rental income has not been received, the assessees filed the revised return's, is of no avail. The further fact that, for the subsequent years 1976-77 and 1977-78, the Revenue had accepted the nil returns and had not brought to tax the rental income on " due basis" cannot also clinch the question. In so far as the assessee has maintained the accounts on " mercantile " basis, they were bound to file the returns on " accrual" basis regarding the rental income due as per the lease deed. They did so for the previous year 1974-75. That was proper. The Income-tax Officer was justified in effecting the assessments under Section 143(3) read with Section 143(2)(a) on the basis of the original returns. The subsequent returns filed on "receipt" basis has no basis or relevance. The Tribunal was in error in cancelling the assessments made under Section 143(3) read with Section 143(2)(a) of the Act on the basis of the original returns filed and in directing the Income-tax Officer to make fresh assessments on the basis of the revised returns filed by the assessee. We answer the question referred to this court in the negative, against the assessee and in favour of the Revenue.
4. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.