COMMISSIONER OF INCOME-TAX vs. BAVLA GOPALAK VIVIDH KARYAKARISAHAKARI MANDLI LIMITED

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ITR/65/1985HC GujaratGJHC24012197198507 September 2000Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE D.M.DHARMADHIKARI,HONOURABLE MR. JUSTICE ANIL R. DAVE4 pages
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What did the High Court hold?

The High Court held that the view taken by the Tribunal in favour of the assessee was correct. The Court relied on the Supreme Court decision in CIT, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524. In that case, disputed enhanced compensation was not considered income until the dispute was finally resolved. Similarly, in the present case, although a civil court decreed the subsidy amount, the Government's appeal was pending, and the grant of subsidy remained a subject of dispute. The assessee had not received the payment, and there was no absolute right to receive the amount at that stage. Therefore, the subsidy amount had not accrued to the assessee. The mere crediting of the amount in the assessee's account books was not decisive. The Court answered both questions in favour of the assessee and against the revenue.

What were the facts?

The Commissioner of Income-tax (CIT) has filed a reference before the High Court of Gujarat against an order of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Year 1974-75. The dispute pertains to an amount of Rs. 5,69,777 claimed as subsidy by the assessee, Bavla Gopalak Vividh Karyakarisahakari Mandli Limited. The Government had a scheme to provide subsidy for maintaining cattle during drought. The assessee claimed subsidy for 54 Wadas, but the Government refused payment, alleging non-compliance with scheme conditions. The assessee filed a civil suit, which was decreed, but the Government's appeal is pending before the High Court. The Assessing Officer taxed the subsidy amount, which was upheld by the CIT(A). The ITAT, however, ruled in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has been right in law in holding that the amount of Rs. 5,69,777 could not be taxed as income during the accounting period relevant to the assessment year in question since the dispute regarding subsidy was not yet decided? 2. Whether the view of the Appellate Tribunal that till the final decision on the dispute regarding subsidy is reached, it cannot be said that income has accrued to the assessee and it can be taxed only in the year of accrual when the issue is decided or settled, is correct in law? Assessee's Contention: The assessee argued, as upheld by the ITAT, that the subsidy amount could not be taxed as income until the dispute regarding its entitlement was finally decided or settled. Income accrues only when the issue is decided or settled. Revenue's Contention: The revenue contended, as reflected in the Assessing Officer's and CIT(A)'s orders, that the subsidy amount had become due to the assessee in the previous year relevant to the assessment year in question, as bills had been submitted, and it was not credited without basis.

Which sections of the Income-tax Act were involved?

Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 65 of 1985

For Approval and Signature:

Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE A.R.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO 1 to 5 No -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus BAVLA GOPALAK VIVIDH KARYAKARISAHAKARI MANDLI LIMITED -------------------------------------------------------------- Appearance: MR AKIL QURESHI for MR MANISH R BHATT for Petitioner NOTICE SERVED for Respondent No. 1

--------------------------------------------------------------

CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE A.R.DAVE

Date of decision: 07/09/2000

ORAL JUDGEMENT

(per D.M. Dharmadhikari, C.J.)

In this reference made under sec. 256(1) of the Income-tax Act, 1961, arising out of the order of the Tribunal in favour of the assessee for the Assessment Year 1974-75, at the instance of the department, the following two questions of law arise for decision of this Court :

"1 Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has been right in law in holding that the amount of Rs. 5,69,777/- could not be taxed as income during the accounting period relevant to the assessment year in question since the dispute regarding subsidy was not yet decided?

2.

Whether the view of the Appellate Tribunal that till the final decision on the dispute regarding subsidy is reached, it cannot be said that income has accrued to the assessee and it can be taxed only in the year of accrual when the issue is decided or settled and amount received by the assessee is correct in law?"

2.

The two questions are virtually interconnected and common answer can be given.

3.

The facts giving rise to this reference are as under :

3.

1 The Government had passed a resolution on 20th October 1972 wherein it was decided that on account of drought and famine there was scarcity of fodder for the cattle and, therefore, in order to save the cattle in the affected areas, the Government started various relief schemes. Under one of the schemes, fodder was to be provided to the cattle by the Government itself or by some other agencies. If the Wada was run by other agencies, the Government agreed to pay 75 ps. per cattle per day subject to certain conditions to be fulfilled by that agency. This payment was in the nature of a subsidy to be made subject to the conditions prescribed by the Government and to be fulfilled by the agency.

3.

2 The assessee, on the basis of the scheme, got 54 Wadas registered and claimed subsidy in the sum of Rs. 5,69,777/-. The Government did not pay the subsidy on the ground that the Wadas were not maintained by the assessee in accordance with the scheme. The assessee

was, therefore, required to file a civil suit praying for grant of decree towards subsidy in the sum of Rs. 5,69,777. The Civil Court decreed the suit, but an appeal preferred by the Government is pending in the High Court.

4.

The question that arose before the Assessing Officer was whether the Assessee is liable to pay income-tax on the amount in question in the Assessment Year under consideration. The Assessing Officer brought the income to tax. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals), who confirmed the order of the Assessment Officer by recording his conclusion thus :

"I am of the view that the sum of Rs. 5,69,777 being the amount of the subsidy for which the bills had been submitted by the appellant to the Government had become due to the appellant in the previous year relevant to the assessment year under consideration itself. It is not that the appellant has credited this amount in its accounts without any basis."

5.

The assessee then carried the mater to the Income Tax Appellate Tribunal. The Tribunal relied on a decision of the Bombay High Court reported in 106 ITR 473 and held that "till the final decision on the dispute regarding subsidy is reached, it cannot be said that the income has accrued to the assessee in the year under consideration. Income cannot be accrued unless the dispute is finally decided or amicably settled by both the parties and it can be taxed only in the year of accrual when the issue is decided or settled and amount received by the assessee."

6.

After hearing the learned counsel appearing for the revenue, we find that the view taken by the Tribunal, relying on a decision of the Bombay High Court, has full support from the decision of the Supreme Court in the case of CIT, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd., (1986) 161 ITR 524. There, on a disputable amount of enhanced compensation payable in land acquisition proceedings, the question arose as to when the income can be said to have accrued by award of compensation. The decision of the High Court of Calcutta was affirmed by the Supreme Court by saying that "although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government. And the dispute was regarded by the court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen together. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the assessment year 1956-57."

7.

The case of the present assessee is on a stronger foundation based on the facts which we have gathered from various orders placed before us that although a decree was passed by the civil court for the amount of subsidy, the assessee did not receive the payment of subsidy under the scheme and the grant of subsidy was a subject-matter of dispute in the pending appeal. This is not a case where the income had actually accrued to the assessee and the mere fact that he has credited the said amount in his account books, therefore, is not decisive.

8.

To conclude, therefore, we answer the two questions referred to us in favour of the assessee and against the revenue.

In the circumstances, however, we make no order as to costs.

______

(D.M. Dharmadhikari, C.J.)

(A.R. Dave, J.) (hn)

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