COMMISSIONER OF INCOME TAX vs. DAKSHIN HARYANA BIJLI VITRAN NIGAM

ITA

-209-2014

[ 1 ] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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-209-2014 (O&M)

Date of decision: 01.10.2014

The Commissioner of Income Tax, Hisar ..... Appellant

VERSUS Dakshin Haryana Bijli Vitran Nigam Ltd., Hisar ..... Respondent

CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE AMIT RAWAL Present: Mr.Tejender K.Joshi, Advocate, for the appellant.

******* RAJIVE BHALLA, J. (ORAL) CM-14665-CII-2014 Prayer in this application is to condone delay of 666 days in refiling the appeal. We have heard counsel for the applicant/appellant and in view of averments in the application duly supported by an affidavit filed by Mr.T.K.Joshi, Advocate, allow the application and condone delay of 666 days in refiling the appeal. ITA-209-2014 The revenue is before us challenging order dated 30.11.2011, passed by the Income Tax Appellate Tribunal, Delhi Bench 'B' New Delhi, (hereinafter referred to as the 'ITAT') dismissing an appeal filed by the revenue, thereby confirming order dated 06.11.2009, passed by the Commissioner of Income Tax

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[ 2 ] (Appeals), Rohtak (hereinafter referred to as the 'CIT(Appeals)'. Counsel for the revenue submits that as the assessee maintains a mercantile system of accounting, the mere fact that receipts may have not been realised, does not absolve the assessee of its liability to pay tax on surcharge levied for delayed payment and reflected in the bills raised by the assessee. It is further submitted that the mere fact that the assessee is a Government entity or that surcharge is debatable or may not eventually be paid or may be waived, cannot be a ground to set aside the order passed by the Assessing Officer. The ITAT and the CIT(Appeals) have, therefore, erred in deleting the addition made by the Assessing Officer. We have heard counsel for the revenue, appraised the impugned order as well as orders passed by the CIT(Appeals), Rohtak and the Assessing Officer, Hisar. The question that calls for an answer, in the facts of this case, is whether surcharge for delayed payment reflected in the bills raised by the assessee and its accounts, would invite payment of a tax dehors recovery/payment/receipt of surcharge. The Assessing Officer, took a view that as surcharge levied upon delayed payments of bills is reflected in the bills and the accounts of the assessee, the fact that the surcharge may or may not be paid or recovered or may eventually be waived, is entirely irrelevant as the assessee maintains a mercantile system of accounting.

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[ 3 ] Aggrieved by the aforesaid finding, the assessee filed an appeal. The CIT(Appeals) vide order dated 06.11.2009, set aside the addition made by the Assessing Officer by holding as follows: - “The issue involved and the submissions made by the appellant have been considered. It is undisputed that the appellant is following mercantile system of accounting; it is levying surcharge on delayed payment of bills by the consumers; the surcharge is taken as income as and when it is collected; however a provision for charge is made as noted above under the head 'provision of surcharge not realized'. This method has been regularly followed by the appellant. During appeal proceedings before the undersigned the appellant has produced bills pertaining to as many as 50 parties of various places and has shown that the bills are accepted even without payment of surcharge by the consumers and that surcharge is shown in the books as income as and when it is collected/received. It is settled law that, “Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a 'hypothetical income”. Which does not materialize. Where income has, in fact, been received and is subsequently given up, in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect

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-209-2014

[ 4 ] might, in certain circumstances, have been made in the books of account”. In view of the aforesaid and the Accounting Standard (AS)-I and Accounting Standard (AS)-9, issued by the institute of Chartered Accountant of India the addition made by the Assessing Officer is deleted.” The revenue thereafter filed an appeal before the ITAT, which affirmed the order passed by the CIT (Appeals) and dismissed the appeal. A relevant extract from the order passed by the ITAT is as follows: - “In our considered opinion, all the above judgment clearly favour the stand taken by the assessee. We may hasten to mention that looking at the intricacies the facts may vary, therefore, basic principles of accrual or mercantile system as laid down by various authorities are to be applied in a careful manner. The assessee being a sate PSU; the sur-charge on delayed payment being disputable item; was not mandatorily payable at the time of payment of electricity consumption bill; was not an accrued receipt in view of the accounting policy accepted by the revenue. Therefore, such amount of surcharge cannot be held to be taxable as it is not the real income of the assessee and is hypothetical by nature in given facts and circumstances. In view of the foregoing, we are of the view that the amount of surcharge not realized by the assessee, does not amount to accrued of receipt taxable as income, CIT(A) has rightly deleted the addition, which we uphold.”

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-209-2014

[ 5 ] We have duly considered the arguments but are unable to accept the contentions advanced by counsel for the appellant. Admittedly, Rs.2,25,18,23,535/- was added by the assessing officer as reflecting levy of surcharge on delayed payment of bills. Admittedly, this amount has neither been paid nor recovered by the assessee. Admittedly, the surcharge is a disputable item and may at any time be reduced or waived and, therefore, despite the fact that the assessee maintains a mercantile system of accounting, the ITAT and the CIT (Appeals) have rightly set aside the order passed by the assessing officer adding surcharge to the income of the assessee. It would be appropriate to point out that income tax is fundamentally a levy on income and though the Act may prescribe different points in time at which liability to taxation enures still remains a tax on receipt of income. A hypothetical income that may or may not materialise should not be made subject matter of tax merely because of an entry in the accounts books maintained by an assessee. A reference in this regard may be made to a judgment of the Hon'ble Supreme Court in “Commissioner of Income-tax Vs. Shoorji Vallabhdas and Co.” [1962] 046 ITR 0144, wherein it has held as follows: - “Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a

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-209-2014

[ 6 ] “hypothetical income”, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.” In view of what has been recorded hereinabove, we find no error in the impugned orders and while dismissing the appeal record that as and when the assessee receives payment of surcharge, it would be obliged to pay tax on such amount.

[ RAJIVE BHALLA ]

JUDGE 01.10.2014

[ AMIT RAWAL ] Shamsher S.Sabharwal

JUDGE SHAMSHER SINGH 2014.10.27 16:22 I attest to the accuracy and authenticity of this document Chandigarh