PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S M C NALLY SAYAJI ENGINEERING LIMITED

4 With this prelude we proceed to consider the second issue regarding the disallowance of retention money. The assessee’s case was that the retention money is payable after certain period of time on the satisfactory performance of the contract executed by the parties as per the terms of the agreement and could not be said to be accrued to the assessee at the time of raising invoice and could be said to be accrued only after the customer accepts its claim for satisfactory completion of the contract. The assessee contended that the retention money represents certain percentage of delayed amounts retained by the parties in respect of contracts entered by them which will be paid only after satisfactory completion of the contract. The assessee is engaged in the manufacture and supply of heavy equipments and tools under contract. In terms of the contract which have been entered into by the assessee with the third parties a certain percentage of the invoice amount raised by the assessee is retained by the customer/parties as retention money to be paid after the successful completion of the contract or on fulfilment of certain pre-determined conditions mentioned in the purchase order. The assessee produced sample contracts entered into with the customers. These contracts were perused by the CIT(A). Further, the assessee contended that in the assessee’s own case for the assessment years 2008-09 and 2009-10 the tribunal had decided the issue in their favour. The assessee also placed reliance on the decision of this Court in Commissioner of Income Tax Vs. Simplex

5 Concrete Piles (India) Pvt. Ltd., reported in [1989] 179 ITR 8 (Cal.) The contentions advanced by the assessee were considered by the CIT(A) and the sample contract which was produced by the assessee was examined. The law as laid down in Simplex Concrete Piles (India) Pvt. Ltd. was noted and the CIT(A) granted relief to the assessee. While doing so, the CIT(A) took into consideration of the order passed by the tribunal in the assessee’s holding company, M/s. Mc Nally Bharat Engineering Co. Ltd. Kolkata in ITA No.100/Kol/2011 wherein the tribunal dismissed the department’s appeal on the said issue and held that the retention money should not be included in computing book profits under Section 115JB as well as normal provisions. We are informed that the revenue has preferred appeal only with regard to the finding concerning computation of books of account under Section 115JB and not under the normal provisions and the finding to the said effect has attained finality. Mr. Debasish Chowdhury, learned counsel for the revenue submitted that the decision in Simplex Concrete Piles (India) Pvt. Ltd. was rendered in the year 1989 and the law as of now needs to be looked into. We find that the legal principle has not undergone any change. In fact, as recently as on 30th July, 2020, in the case of Commissioner of Income Tax vs. Voltech Projects Pvt. Ltd. reported in [2020] 428 ITR 270 (Mad.) the same issue was considered and the revenue’s appeal was dismissed.

6 The tribunal while considering the correctness of the order passed by the CIT(A) once again re-examined the facts and took note of the conditions of the contract entered into between the assessee and the third parties and affirmed the order passed by the CIT(A). In Simplex Concrete Piles (India) Pvt. Ltd. it was held that the conditions of the contract provide for retaining 10 per cent or 5 per cent of the amount payable to the assessee only upon satisfactory completion of the work as certified by the contracting party. The Court noted that only after the assessee fulfilled their obligations under the contract, the retention money would be released and the assessee would secure the right to receive such retention money. Thus, it was held that when the bills were submitted having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of the bills. Further, it was held that the assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. The above decision would apply with full force to the case on hand. That apart the CIT(A) as well as the tribunal have examined the sample contract produced by the assessee which they have entered into with the third party customers/parties and found on facts that the assessee would be entitled to the amount retained only upon satisfactory completion of the work which would be certified by the contracting parties.

7 Thus, we find that the tribunal rightly rejected the appeal filed by the revenue on the said aspect. Hence, the present appeal on the said issue needs to be rejected. Accordingly, substantial question of law no.B is answered against the appellant/revenue. As prefaced earlier, if substantial question of law no.B is decided against the revenue, then the other questions of law namely, A, C and D all relate to disallowance for delayed payment of employees contribution to the provident fund authorities. The deletion is to the tune of Rs.20,36,637/- and the approximate amount of tax that would become payable on the said amount would be about Rs.6 lakhs. If that is so, the said issue cannot be pursued by the revenue on account of low tax effect. We are conscious of the fact that other appeals have been entertained by this Court to decide this issue which are pending. Therefore, we leave substantial questions of law nos.A, C and D open and they are not decided in this appeal as we are dismissing this appeal by deciding substantial question of law no.B in favour of the assessee and the other three questions are left open. With the dismissal of the appeal, the connected application for stay stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.DasA/s.