Madras High Court
Commissioner Of Income-Tax vs Shaik Mohamed Rowther Shipping And ... on 24 March, 2000
Equivalent citations: [2000]246ITR161(MAD)
JUDGMENT A. Subbulakshmy, J.
1. The question referred to us at the instance of the Revenue in T. C. No. 1445 of 1986, relates to the assessment year 1979-80, and is as follows :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the amount of advance received by the assessee-company should not be brought to tax as it is not income but only an advance to be adjusted towards remuneration as and when work is done ?"
2. The question referred to us at the instance of the Revenue in T. C. No. 1903 of 1986, relates to the assessment year 1978-79, and is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income accrued to the assessee only when its principal accepts the bill and, therefore, the assessee was not liable to be assessed on the sum of Rs. 5,70,416 received from its principal especially when the relevant expenses were debited already to the profit and loss account of the assessee for the year under consideration ?"
3. Since the parties in both the cases are one and the same and the point involved is also one and the same, both the cases are dealt with in common.
4. The assessee is a private limited company. It follows the mercantile system of accounting. It performs services for its principals and gets income or remuneration by way of commission. The assessee takes advance from the principals and then submits bills for payments. Only after the bills are passed the amounts so passed are taken as income and credited to the profit and loss account till then the amounts received as advance are shown only as advance. The assessee has been following this practice for a number of years and the Department used to accept it. However, in the year under reference, the Income-tax Officer stated that what the assessee received as advance was really its income.
5. The Income-tax Officer held that the company received the so-called advance only after completing the work and after submitting the bills to the principals, and, therefore, for the work done the income had already accrued. The assessee took up the matter in appeal.
6. The Commissioner (Appeals) held that it becomes income only when the bills were passed by the principals. Therefore, he deleted the addition of Rs. 5,70,416 made by the Income-tax Officer in this regard. Aggrieved by the order of the Commissioner (Appeals) the Department preferred the appeal before the Tribunal and the Tribunal confirmed the order of the Commissioner.
7. The Tribunal considered the point, when does the income accrue for the work, done by the assessee, and found that the advance receipt is certainly not income and the advance is received by the assessee after the execution of work and presentation of the bills is very material and remuneration for the work done cannot accrue on the mere presentation of the bills. The Income-tax Officer in the assessment order has quoted a letter dated December 17, 1980, from Scindia Steam Navigation Company Ltd., to the effect that the assessee is entitled to commission only when the bills are passed for payment by Scindia. Counsel for the assessee submits that unless the principals accept the bills, income cannot accrue. Commission or remuneration for the work done accrues due only when the bills are passed by the principals and till then they can deny the assessee the remuneration for the work done on the ground that the work is not satisfactory or that required work has not been done or that the quantum or measurement is incorrect and it cannot till the bills are passed be appropriated as income of the assessee. He further submits that till the bills are passed the assessee only gets a right to get an unascertained amount as remuneration and the exact remuneration is not known.
8. Learned counsel for the Revenue submitted that for the work done by the assessee he had received advance amount and since the work was completed the assessee submits the bills to the principal and before scrutinising the bills the principal paid the advance amount on the basis of the bills which were sent by the assessee and the assessee receives the balance amount after the bills are passed and the advance received by the assessee amounts to remuneration and all the amounts received by the assessee is accrued to his income and the assessee received the income only for the work done by him and 90 per cent, advance received by the assessee is nothing but income and so the amount received as advance accrues as income to the assessee for that assessment year.
9. We asked counsel to produce the agreement entered into between the assessee and the principal but the agreement has not been produced before the court.
10. A perusal of the records shows that the assessee-company receives the amount as remuneration for the work done by it and the income received by the assessee accrues as income for that year. The assessee received 90 per cent, of the bill amount and certainly it amounts to income. We find that the view taken by the Commissioner and the Tribunal that the income accrues only after the passing of the bill is not proper. The law laid down in CIT v. Seshasayee Bros. (P.) ltd. [1999] 239 ITR 471 (Mad), relied on by learned counsel for the assessee is not applicable to the facts of the case, since the above decision relates to assessment on additional remuneration which was based on the profit unless the amount of profit was known, it was not possible to hold that the additional remuneration accrued at the end of the relevant accounting year. The income accrued during the year is taxable for the assessment year.
11. Learned counsel for the assessee submitted that the assessee is following the mercantile system of accounting and the same practice was followed for the earlier assessment years and was accepted by the Department all along and hence the Department cannot deviate from its stand for the assessment years under question. Learned counsel for the Revenue submitted that the Assessing Officer is not bound to follow the order which was followed in the previous year and relies upon the decision of the Supreme Court in CIT v. British Paints India Ltd. , wherein the Supreme Court has held that (page 53) :
"It is not only the right but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deduced therefrom. It is incorrect to say, as contended on behalf of the assessee, that the officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years."
12. Following the decision of the Supreme Court we find that the argument advanced by counsel for the assessee in this respect does not hold good and the Assessing Officer is entitled to consider afresh and the question of estoppel does not arise. The Tribunal is not correct in holding that the amount received is not income and it should not be brought to tax. We answer the questions referred to us in favour of the Revenue and against the assessee.