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September 2013

Income: Accrual: Retention money: Sections 4 and 5: A. Y. 2003-04: Amount retained to ensure satisfactory performance of contract does not accrue: Not income of that year:

By K. B. Bhujle, Advocate
Reading Time 1 mins
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DIT vs. Ballast Nedam International; 355 ITR 300 (Guj):

The assessee executed contracts. In terms of the contracts, the amounts at the rate of 10% on the onshore activities, and at the rate of 15% on the construction and erection activities, were withheld by the principal towards retention money. For the A. Y. 2003-04, the assessee claimed that the retention money of Rs. 14.31 crore did not accrue and accordingly cannot be assessed as income. However, the Assessing Officer held that the amount is the accrued income and made addition. The Commissioner and the Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) Unless and until a debt is created in favour of the assessee, which is due by somebody, it cannot be said that the assessee has acquired a right to receive the income or that the income has accrued to him.
ii) The amount retained had not accrued to the assessee in the accounting year relevant to the A.Y. 2003-04.”

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