COMMISSIONER OF INCOME TAX vs. M/S S.A. BUILDERS LTD

ITA/62/2004HC Punjab & HaryanaPHHC01051583200406 May 2013Author: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI2 pages
AI SummaryDismissed

What were the facts?

The Revenue, Commissioner of Income Tax (Central), Ludhiana, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, dated April 4, 2003. The appeal pertained to the assessment year 1993-94. The assessee, M/s S.A. Builders Limited, a construction company, had declared a net loss of Rs. 85,57,966/-. The Assessing Officer had made additions, including disallowing retention money amounting to Rs. 10,06,692/- which was retained by the client pending successful completion of the work. The Commissioner of Income Tax (Appeals) had set aside this disallowance, and the ITAT affirmed that order.

What did the High Court hold?

The High Court held that there was no substantial question of law arising for consideration. The Court agreed with the consistent view of various High Courts, as cited by the assessee, which held that retention money does not accrue to the assessee until the contractual obligations are fulfilled. Therefore, the amount retained by the authorities could not be treated as the assessee's income for the assessment year in question. The reasoning was that the right to receive the retention money is contingent upon the successful completion of the work and fulfillment of all contractual obligations. The ratio decidendi is that income, for the purpose of accrual, must be ascertained and the right to receive it must be absolute. The operative direction was that the appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 10,06,692/- retained by the authorities could not be treated as assessee's income for the year, despite the income being assessed on an accrual basis? (Question of law turning on Section 2(24) and Section 5 of the Income Tax Act, 1961). Assessee's Contention: The assessee relied on several High Court judgments, including Commissioner of Income Tax vs. Chanchani Brothers (Contractors) Pvt. Ltd, Commissioner of Income Tax, Simplex Concrete Piles (India) Pvt. Ltd., Commissioner of Income Tax vs. East Coast Constructions and Ind. Ltd, Commissioner of Income Tax vs. Associated Cables P. Ltd, and Commissioner of Income Tax vs. P & C Constructions (P) Ltd. These judgments held that the right to receive retention money accrues only after the contractual obligations are fulfilled, and therefore, it does not constitute income in the year of retention. Revenue's Contention: The revenue argued that the amount retained should be treated as the assessee's income for the year, given that income was being assessed on an accrual basis.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 2(24),Section 5

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 06.05.2013 ITA No. 62 of 2004

Commissioner of Income Tax (Central), Ludhiana ......Appellant vs. M/s S.A. Builders Limited, Sector 26, Chandigarh .....Respondents CORAM: - HON’BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI

Present: - Ms. Urvashi Dhugga, Advocate for the appellant. M/s Akshay Bhan and Alok Mittal, Advocates for respondent. Hemant Gupta, J ....... Present appeal under Section 260-A of the Income Tax Act, 1961 (for short the 'Act') arises out of an order passed by Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh on 4.4.2003 for the assessment year 1993-94. The revenue has claimed following substantial question of law: - “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 10,06,692/- retained by the authorities, could not be treated as assessee's income for the year inspite of fact that income was being assessed on accrual basis”? Respondent-company is engaged in construction work. For the relevant accounting year, the assessee filed its return of income declaring net loss of

The order continues below.

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