PR. COMMISSIONER OF INCOME TAX vs. M/S. NEW MANGALORE PORT TRUST

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ITA/707/2019HC KarnatakaKAHC01045649201915 November 2022Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeals must fail and dismissed them. The Court found that the CIT(A) and ITAT had rightly held that RCHW dues cannot constitute income on accrual. The Court reasoned that the authority cited by the Revenue, Seth Pushalal Mansinghka (P.) Ltd. Vs. Commissioner of Income Tax, did not lay down a principle that tax is payable on an amount that merely accrues in the assessee's account without crystallization of the right to receive it. Therefore, the cited authority did not support the Revenue's case. The questions of law were answered in favour of the Assessee and against the Revenue. No specific issue was left undecided.

What were the facts?

These appeals by the Revenue challenge the orders of the ITAT for Assessment Years 2010-11 and 2011-12. The assessee, New Mangalore Port Trust, recovered Registered Cargo Handling Wing (RCHW) dues through Additional Levy II and III, following a Special Audit Report. The Assessing Officer (AO) added these amounts to the assessee's income, considering them accrued income. The CIT(A) reversed this, holding that the right to receive income crystallizes only when Additional Levy is raised in invoices. The ITAT confirmed the CIT(A)'s order, stating that mere ascertainment of recoverable amounts does not constitute income. The Revenue argues that the income had accrued to the assessee's benefit.

What were the issues?

1. Whether, on the facts and circumstances and law, the Tribunal is right in deleting the addition made on account of Registered Cargo Handling Wing dues under 'recoverable through additional levy II and additional levy III' for the assessment years 2010-11 and 2011-12, considering that the assessee follows the mercantile system of accounting and thus income should have been offered to tax in the year of accrual? (Question of law turning on Section 5 of the Income Tax Act, 1961). 2. Whether, on the facts and circumstances and law, the Tribunal is right in not accepting that the mechanism evolved for recovery of RCHW dues was only to accommodate the stevedores' difficulties in recovering previous years' dues in bills already issued? (Question of mixed law and fact). Assessee's contentions: The assessee argued that the right to receive income crystallizes only when the Additional Levy is raised in invoices on the stevedores, depending on the cargo handled. The ITAT held that mere ascertainment of the amount recoverable does not constitute income. Revenue's contentions: The Revenue argued that the Port Trust had started recovering the amount and it had accrued to its benefit. They relied on Seth Pushalal Mansinghka (P.) Ltd. Vs. Commissioner of Income Tax to argue that once income accrues to the benefit of the assessee, it can be taxed. They contended that the CIT(A) and ITAT's views were perverse.

Which sections of the Income-tax Act were involved?

Section 5

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, - 4 -

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF NOVEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G.SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 708 OF 2019 C/W INCOME TAX APPEAL NO. 707 OF 2019

IN I.T.A NO. 708 OF 2019

BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX C.R.BUILDING ATTAVARA MANGALORE-575 001 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1) MANGALORE …APPELLANTS (BY SHRI. E.I. SANMATHI, STANDING COUNSEL)

AND:

M/S. NEW MANGALORE PORT TRUST ADMINISTRATIVE BUILDING PANAMBUR MANGALORE-575 010 PAN. AAALN 0057A …RESPONDENT (BY SHRI. M.V. SESHACHALA, SENIOR ADVOCATE FOR SHRI. ARAVIND V CHAVAN.,ADVOCATE)

THIS INCOME TAX APPEAL IS FILED UNDER INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT

Digitally signed by YASHODHA N Location: High Court Of Karnataka

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

OF ORDER DATED 03.05.2019 PASSED IN ITA NO.204/PAN/2016, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND ETC.

IN I.T.A NO.707 OF 2019

BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX C.R.BUILDING ATTAVARA MANGALORE-575 001.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 1(1) MANGALORE. …APPELLANTS

(BY SHRI. E.I. SANMATHI, STANDING COUNSEL)

AND:

M/s. NEW MANGALORE PORT TRUST ADMINISTRATIVE BUILDING PANAMBUR MANGALORE-575 010 PAN. AAALN 0057A …RESPONDENT

(BY SHRI. M.V. SESHACHALA, SENIOR ADVOCATE FOR SHRI. ARAVIND V. CHAVAN, ADVOCATE)

THIS INCOME TAX APPEAL IS FILED UNDER INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 03.05.2019 PASSED IN ITA NO.200/PAN/2016, FOR THE ASSESSMENT YEAR 2010-2011, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND ETC.

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

THESE INCOME TAX APPEALS, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING:

JUDGMENT

These appeals by the Revenue, challenging the order dated 03.05.2019 in ITA No.200 and 204/PAN/2016 respectively, passed by the ITAT1, 'C' Bench, Bangalore, have been admitted to consider the following questions of law: "1. Whether on the facts and circumstances of the case and law, the Tribunal is right in deleting the addition made on account of Registered Cargo Handling Wing dues under "recoverable through additional levy II and additional levy III for the assessment years 2010-11 and 2011-12" by not appreciating the fact that the assessee is following Mercantile system of accounting and, as such, the income from Registered Cargo handling Workers dues should have been offered to tax in the year of accrual?" 2. Whether on the facts and circumstances of the case and law, the Tribunal is right in not accepting the fact that the mechanism evolved for recovery of RCHW dues was only to accommodate the stevedores difficulties in recovery of previous years dues in bills already issued?"

1 Income Tax Appellate Tribunal

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

2.

Heard Shri E.I.Sanmathi, learned Standing Counsel for the appellants-Revenue and Shri M.V.Seshachala, learned Senior Advocate for the respondent-Assessee. 3. Shri Sanmathi submitted that Assessee is New Mangalore Port Trust. Pursuant to the Special Audit Report of the Comptroller & Auditor General, the amount in respect of RCHW2 was being recovered through Additional Levy II and III. The assessee was called upon to show cause as why the said income from RCHW relating to Additional Levy II & III should not be added back. The assessee replied stating that Port Trust had started recovering the said amount and the same had to be collected from Stevedores who were large in number. The A.O3 has held the said income as 'accrued income' and added the same to the assessment years 2010-11 and

2 Registered Cargo Handling Wing 3 Assessing Officer

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

2011-12. The CIT(A)4 has reversed the said finding and allowed the appeal holding that right to receive income crystallizes only when the Additional levy was raised in the invoices on the stevedores depending on the cargo handled and accordingly deleted the additions made by the AO. 4. On further appeal, ITAT5 has confirmed the order passed by the CIT(A) by the impugned order holding that mere ascertainment of the amount recoverable through Additional levy II and III towards RCWH does not constitute income. 5. Shri Sanmathi submitted that it is not in dispute that Port Trust had started recovering the amount and the amount had accrued to its benefit. On this proposition, he has placed reliance on the decision in Seth Pushalal Mansinghka (P.) Ltd. Vs. Commissioner of Income Tax6 and

4 Commissioner of Income Tax (Appeals)

5 Income Tax Appellate Tribunal 6 (1967) 66 ITR 0159- Para 8

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

argued that once the income accrues to the benefit of the assessee, the same can be taxed. Therefore, the view taken by the CIT and confirmed by the ITAT are perverse. Accordingly, he prayed for allowing this appeal.

6.

Shri M.V.Seshachala, argued in support of the impugned order.

7.

We have carefully considered rival submissions and perused the records. 8. It is not in dispute that Port Trust had taken action to recover the amount pursuant to the Special Audit Report of the Comptroller and Auditor General. The AO on the premise that amount had accrued to the benefit of the Port Trust, added back the recoverable amount. In our considered view, CIT(A) and ITAT have rightly held that RCWH dues cannot constitute income on accrual.

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ITA No. 708 of 2019 C/W ITA No. 707 of 2019

9.

In the authority cited by Shri Sanmathi, there is no law laid down to the effect that tax is payable on the amount which accrues in the account of assessee. Therefore, said authority does not lend any support to the case of the appellant. Therefore, these appeals must fail and hence the following: ORDER i) The appeals stand dismissed; ii) The questions of law are answered in favour of the Assessee and against the Revenue. No costs.

Sd/- JUDGE

Sd/- JUDGE

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