Sections 143(3), 144, — Non-refundable amounts received for services to be provided in future cannot be taxed as income in the year of receipt. Such amounts received cannot be regarded as debt due till such time as services are provided.

Sections 143(3), 144, — Non-refundable amounts received for services to be provided in future cannot be taxed as income in the year of receipt. Such amounts received cannot be regarded as debt due till such time as services are provided.

The assessee was engaged in the business of providing cellular mobile telecommunication services. It had received advances from customers against prepaid calling services, sim processing fees and recharge fees. The amounts received as advances were reflected in the balance sheet under the head Current Liabilities. Since these amounts were not refundable to the customers, the AO taxed them as income. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved the assessee preferred an appeal to the Tribunal. Held: The Tribunal noted that the Delhi High Court has in the case of CIT v. Dinesh Kumar Goel come to a conclusion that the fees paid by the students, at the time of admission, for the entire course was only a deposit or advance. It held that it could not be said that this fee had become due at the time of deposit. It also noted that the ITAT has in the case of ACIT v. Mahindra Holidays & Resorts India Ltd. come to a conclusion that two conditions are necessary to say that income has accrued or earned by the assessee viz.

(i) it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise and

(ii) a debt must have come into existence and the assessee must have acquired a right to receive the payment. In that case, according to the ITAT, a debt was created in favour of the assessee immediately on execution of the agreement for becoming the member of resort under the policy, but the assessee had not fully contributed to its accruing by rendering services. Having noted the ratio of these two decisions, the Tribunal held that if the services are to be rendered for a future period, then the amount received by an assessee cannot be said as debt due. It held that the right to enforce the debt is subject to ifs and buts. It is not crystallised.

The Tribunal also noted that the AO was disturbing the accounting policy consistently followed by the assessee. Disturbing the accounting policy would disturb the accounts of all other years. It also noted that the amount has ultimately been offered for tax at the time of rendering of the services by the assessee. The Tribunal held that the Revenue should not have disturbed the method of accountancy adopted by the assessee in one assessment year when it is accepted in the earlier assessment year and also in the subsequent assessment years. The appeal filed by the assessee was allowed.