Income-tax---

----Income---Accrual of income---Time of accrual---Work done under contract with State Government---State Government disputing claim for extra payment---Extra amounts claimed did not accrue to assessee---Indian Income Tax Act, 1961.

For the assessment year 1974-75, the assessee contended that Rs.4,67,885 which had been credited in the profit and loss account as the amount due from the Government of Andhra Pradesh in respect of Godawari Barrage Works had not accrued since there was a dispute between the assessee and the Government. A similar contention was taken in respect of the sum of Rs.51,844 credited to the profit and loss account as the amount due from the Government of Andhra Pradesh in respect of the Musi Bridge Works. The Appellate Assistant Commissioner accepted the second contention. Regarding the first contention, he held that Rs.3,50,964 out of Rs.4,67,885 could not be said to have accrued to the assessee during the relevant accounting year and that it could be considered if at all only for the assessment year 1975-76. Regarding the balance of Rs.1,16,912, the Appellate Assistant Commissioner held that it was only a claim against the Government of Andhra Pradesh and since it was not accepted by the latter, it could not be said to have accrued to the assessee. The Appellate Assistant Commissioner directed deletion of both the amounts. For the assessment year 1975-76, the Appellate Assistant Commissioner accepted the assessee's contention that the sum of Rs.57,927 credited by the assessee in the profit and loss account as due from the Government of Andhra Pradesh in respect of Musi Bridge Works had not accrued. The Appellate Assistant Commissioner further held that out of the sum of Rs.3,50,964 relating-to the Godawari Barrage Works a sum of Rs.2,29,889 could be taken as accrued to the assessee in view of the award passed by the arbitrator on May 11, 1,974, which was confirmed by the subordinate Judge. The Appellate Assistant Commissioner, therefore; enhanced the assessment by inclusion of this sum. The Tribunal found that the sum of Rs.1,16,921 represented the claim made by the assessee in respect of the re-excavation work done subsequent to the award passed by PVR on November 28, 1973. The Government of Andhra Pradesh, disputed the- claim. The claim. had hot yet been decided. The Tribunal noticed that these facts were not disputed by the Department. The. Tribunal found that such claim not having been accepted there was no question of the said amount having accrued to the assessee during the relevant previous year. Regarding the sum of Rs.57,927 in the assessment year 1975-76, the Tribunal found that this claim was similar to the claim of Rs.51`,844 relating to the assessment year 1974-75: The Tribunal upheld the decision of the Appellate Assistant Commissioner. On a reference:

Held, (i) that the claim of Rs.1,16,921 related to the work done after the award was passed. The assessee claimed the amount on the basis of the award. The Government of Andhra Pradesh refused to accept the claim made by the assessee. The claim related to the previous year ending with March 31, 1974. Inasmuch, as the Government of-Andhra Pradesh refused to accept the claim, it could not be said that the said amount accrued to the assessee. in the assessment year 1974-75. In so far as the deletion of Rs.51,844. was concerned, it related to the work done with regard to .the Musi Bridge Works. The assessee included a sum of Rs.51,844 in its profit and loss account as contract receipt for this work. This represented the extra claim which the assessee made with' the Government of Andhra Pradesh relating to the well-sinking done in the bed of the river Musi for the construction of a bridge. Inasmuch as this amount was not accepted by the Government of Andhra Pradesh for payment of the same to the assessee in the assessment year under consideration, the Tribunal was correct in holding that this amount could not be included in the assessment year 1974-75.

(ii) That with regard to the sum of Rs.57,927 for the assessment year 1975-76, the Government of Andhra Pradesh disputed this amount. The assessee went to the High. Court of Andhra Pradesh to settle the dispute. Under such circumstances, it could not be said that this amount accrued to the assessee in the assessment year' 1975-76. Therefore, the Tribunal was correct in holding that this sum of Rs.57,927 had to be deleted from the total income of the assessee.

CIT v. Gajapathy Naidu (A.) (1964) 53 ITR 114 (SC) ref.

C.V. Rajan for the Commissioner.

JUDGMENT

K. A. THANIKKACHALAM, J:---In pursuance of the order passed by this Court, dated March 3, 1981, in T.C.P. Nos. 24 .and 25 of 1980, the Tribunal referred the following two questions for the assessment years 1974-75, and 1975-76 for the opinion of this Court under section 256(2) of the Income Tax Act, 1961:

"(1) Whether, on the, facts and in the circumstances of the case, the Appellate Tribunal, is justified in deleting the- sum of Rs.1,16,921 and Rs.51,844 being the amounts due to the assessee in respect of Godawari Barrage Works and Musi, Bridge Works, respectively for

the assessment year 1974-75?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting a sum of Rs.57,927 being the amount due to the assessee in respect of the Musi Bridge Works for the assessment year 1975-76?"

For the assessment year' 1974-75, the assessee filed a return claiming loss of Rs.22,371 under the head "Business" without taking into consideration the depreciation and development rate and disclosing income of Rs.36,368 under the head "Other sources". In doing so, the assessee had credited in the profit and loss account Rs.4,67,885 being the amount due from the Government of Andhra Pradesh in respect' of Godawari Barrage Project Works and Rs.51.,844 being the amount due from the Government of Andhra Pradesh in respect of Musi Bridge Works. The Income-tax Officer passed an order, dated February 16, 1976, determining the total loss as Rs.23,02,323. Before the Appellate Assistant Commissioner in appeal the assessee contended that Rs.4,67,885 which had been credited, in the profit and loss account as the amount due from the Government of Andhra Pradesh in respect of Godawari Barrage Works had not accrued since there was a dispute between the assessee and the Government. A similar contention was taken in respect of the sum of Rs.51,844 credited to the profit and loss account as the amount due from the Government of Andhra Pradesh in respect of the Musi Bridge Works. The Appellate Assistant Commissioner accepted the second contention. Regarding the first contention he held that Rs.3,50,964 out of Rs.4,67,885 could not be said to have been accrued to the assessee during the relevant accounting year and that it could be considered if at all only for the assessment year 1975-76. Regarding the balance of Rs.1,16,921, the Appellate Assistant Commissioner held that it was only a claim against the Government of Andhra Pradesh and since it was not accepted by the latter, it cannot be said to have been accrued to the assessee. The Appellate Assistant Commissioner directed deletion of both the amounts.

For the assessment year 1975-76, the assessee had filed a return disclosing the income of Rs.4,69,095 made up of Rs.4,16,502 being the business income and Rs.52,593 being the income assessable under the head "Other sources". But, on March 16, 1976, a revised return was filed disclosing "nil" income. The Income-tax Officer passed an order, dated March 16, 1976, computing the business loss as Rs.83,498 and the income assessable under the head "Other sources" as Rs.52,593 and after setting off the latter against the former determining the total loss as Rs.30,905.

On the assessee's appeal, the Appellate Assistant Commissioner accepted the assessee's contention that the sum of Rs.57,927 credited by the assessee in the profit and loss account as due from the Government of Andhra Pradesh in respect of Musi Bridge. Works had not accrued. The Appellate Assistant Commissioner further held that out of the sum of Rs.3,5Q,964 relating to the Godawari Barrage Works a sum of Rs.2,29,889 could be taken as accrued to the assessee in view of the award passed by Shri P. V. Rao on May 11, 1974, which was confirmed by the Subordinate Judge of Rajamundhry. The Appellate Assistant Commissioner, therefore, enhanced the assessment by inclusion of this sum.

The Revenue appealed to the Tribunal against the deletion of Rs.1,16,921 and Rs.51,844 for the assessment year 1974-75 and Rs.57,927 for the assessment year 1975-76., The Tribunal found that the sum of Rs.1,16,921.represented the claim made by the assessee, in respect of the re?-excavation work done subsequent to the award passed by Shri P. V . Rao on November 28, 1973. The Government of Andhra Pradesh disputed the claim. The claim had not yet been decided. The Tribunal noticed that these facts were not disputed by the Department. The Tribunal found that such claim not having been accepted there was no question of the said amount having accrued to the assessee during the relevant previous year. The Tribunal also noticed that the assessee had been paid certain amounts by the Government for the re-excavation work to question which had been brought into account by the assessee. The Tribunal applied the principles laid down in the case of CIT v. A. Gajapathy Naidu (1964) 53 ITR 114 (SC)

Regarding the sum of Rs.51,844 also the Tribunal noticed that the Government of Andhra Pradesh did not agree with the claim of the assessee and the dispute was before the High Court. The Tribunal held that the amount cannot be said to have accrued to the assessee during this accounting year. Regarding the sum of Rs.57,927 in the year 1975-76 which is the correct figure, the Tribunal 'found that this claim is similar to the claim of Rs.51,844 relating to the assessment year 1974-75. The Tribunal upheld the decision of the Appellate Assistant commissioner.

Before us, learned standing counsel for the Department submitted that inasmuch as the assessee had done its work and made a claim for payment of the above said sums, it would be deemed to have accrued to the assessee in the assessment years under consideration. Therefore, the Tribunal was not correct in stating that these amounts were not relating to the assessment years under consideration. According to learned standing counsel, inasmuch as the assessee followed the mercantile system of accounting, soon after the work done by the assessee, the assessee is entitled to receive the amount for the work done. Therefore, it would be deemed to have accrued to the assessee, in the assessment years under consideration. For these reasons it was stated that the Tribunal was not correct in deleting the amounts accrued to the assessee in both the assessment years under consideration.

We have heard learned standing counsel for the Department and perused the records carefully. The first disputed amount is Rs.1,16,921. There was an award, dated November, 1973, by Shri P.V. Rao. Superintending Engineer, who acted as an arbitrator. One of the disputes between the Government of Andhra Pradesh and the assessee is regarding the charges for re-excavation in the portion occupied by the structure after normal floods during the third season, i.e., 11 of 1972 to 7 of 1973. For this purpose, Shri P.V. Rao, has fixed up certain criteria for the purposes of fixing extra amount to be paid to the assessee. The Government of Andhra Pradesh took the stand that the award of Shri P.V. Rao, dated November 22, 1973, will be applicable only in respect of the work carried out and which is mentioned in the award. In respect of the word done after the award was passed, it is the contention of the Government of Andhra Pradesh that the terms of the award will not apply. It is the plea of the assessee that the principle laid down by Shri P.V. Rao to his award dated November 22. 1973, will equally apply to the work done even after the passing of the award and hence based on principles formulated by him, they made a claim, for an extra amount of Rs.1,16,921 with the Government of Andhra Pradesh for the work done after the award and till March 31, ,1974. This was also only in the realm of the claim in the previous year ending on March 31, 1974. The Government of Andhra Pradesh has not accepted this claim. In these circumstances, the Appellate Assistant Commissioner held that there is no case to tax this amount of Rs.1,16,921 as a revenue receipt for, the assessment year 1974-75. In the result, the, Income-tax Officer was directed to delete the amount of Rs.4,67,885 which was taken into account by him as a receipt, but, which really was only in the realm of a claim and had not accrued to the assessee in this assessee in this assessment year. On appeal, the Tribunal confirmed the order passed by the Appellate Assistant Commissioner.

It remains to be seen that the claim of Rs.1,16,921 relates to the work done after the award was passed. The assessee claimed the amount on the basis of the award. The Government of Andhra Pradesh refused to accept the claim made by the assessee. The claim related to the previous year ending with March 31, 1974. Inasmuch as the Government of the Andhra Pradesh refused to accept the claim, it cannot be said that the said amount accrued to the assessment year 1974-75.

In so far as the deletion of Rs.51,844 is concerned, it related to the work done with regard to the Musi Bridge Works, the assessee included a sum of Rs.51,844 in its profit and loss account as contract receipt for this work. This represents the extra claim which the assessee made with the Government of Andhra Pradesh relating to the well-sinking done in the bed of the river Musi for the construction of a bridge. The claim relates to the classification of the soil where the work was carried out. The assessee claimed payment at a uniform rate in respect of the excavation done in rocky regions. The Government of Andhra Pradesh was of the view that even when rock is encountered such rocky region will have to be accepted in different categories and different rates will have to be paid. According to the assessee, "they are entitled to Rs.51,844 and this was claimed from the Government, who did not accept this. The assessee, thereafter, went to the High Court, on this issue. Therefore, the fact remains that the assessee did not get the right to receive this amount of Rs.51,844 and hence it cannot be said that this amount has accrued to the assessee in the assessment year 1974-75. Therefore, the Income-tax Officer was directed to delete this amount from the total income. Inasmuch as this amount was not accepted by the Government of Andhra Pradesh for payment of the same to the assessee in the assessment year under consideration the Tribunal was correct in holding that this amount cannot be included in the assessment year 1974-75. Accordingly, we answer question No. l in. the affirmative and against the Department.

In so far as question No.2 is concerned, it relates to the inclusion of a sum of Rs.57,927 from the total income of the assessee in the assessment year 1975-76. The assessee in its profit and loss account mentioned an amount of Rs.57,927 representing the value of the claim relating to the well sinking done in the bed of the river Musi for the purpose of construction of a bridge. The claim made in this assessment year is similar to the claim made in the earlier assessment year with regard to the claim of Rs.51,844. The assessee claimed this amount for the work done after the award was passed by the arbitrator. The Government disputed the claim made. by the assessee, with the result the matter has now gone to the High Court. Therefore, the Appellate Assistant Commissioner as well as the Tribunal came to the conclusion that this amount cannot be included as income in the assessment year 1975-76.

The fact remains that the assessee made a claim of Rs.57,927. The Government of Andhra Pradesh disputed this amount. The assessee went to the High Court of Andhra Pradesh to settle the dispute. Under such circumstances, it cannot be said that this amount accrued to the assessee in the assessment year 1975-76. Therefore, the Tribunal was correct in holding that this sum of Rs.57,927 has got to be deleted from the total income of the assessee. Accordingly, we see no infirmity in the order passed by the Tribunal with regard to the deletion of the above said amount. We answer question No.2 also in the affirmative and against the Department. No. costs.

M.B.A./4015/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered.