By Ajay R. Singh
Advocate
10. The Pr. CIT-2 vs. M/s Rohan Projects [Income
tax Appeal No. 1345 of 2017] Date
of order: 18th November, 2019 (Bombay
High Court)
M/s
Rohan Projects vs. Dy. CIT-2(2); [ITA No. 306/Pun/2015; Date of order: 9th
February, 2017; A.Y.: 2012-13; Mum. ITAT]
Income
accrual – The income accrues only when it becomes due, i.e., it must also be
accompanied by corresponding liability of the other party to pay the amount
The assessee is in
the business of promoter and developer of land. It had sold land to M/s
Symboisis in a transaction that took place in the previous year relevant to the
subject assessment year. The land was sold under a Memorandum of Understanding
(MOU) dated 2nd February, 2012 for a total consideration of Rs. 120
crores. However, the assessee offered only a sum of Rs. 100 crores for tax in
the return for the A.Y. 2012-13. This was because the MOU provided that a sum
of Rs. 20 crores would be paid by the purchaser (M/s Symboisis) on execution of
the sale deed after getting the plan sanctioned and on inclusion of the name of
the purchaser in the 7/12 extract. However, as the assessee was not able to
meet these conditions during the subject assessment year, a sum of Rs. 20
crores, according to the assessee, could not be recognised as income for the
subject assessment year. The AO did not accept the same and held that the
entire sum of Rs. 120 crores was taxable in the subject assessment year.
Aggrieved by this
order, the assessee company filed an appeal to the CIT(A). The CIT(A) dismissed
the appeal, upholding the order of the AO. On further appeal, the Tribunal,
after recording the above facts and relying upon the decision of the Supreme
Court in Morvi Industries Ltd. vs. CIT (1971) 82 ITR 835, held
that the income accrues only when it becomes due, i.e., it must also be
accompanied by corresponding liability of the other party to pay the amount. On
the facts of the case it was found that the amount of Rs. 20 crores was not
payable in the previous year relevant to the subject assessment year as the
assessee had not completed its obligation under the MOU entirely. Moreover, it
also found that Rs. 20 crores was offered to tax in the subsequent assessment
year and also taxed. Thus, the appeal of the assessee was allowed.
But the Revenue was
aggrieved by this order of the ITAT and filed an appeal to the High Court. The
Court found that the assessee was not able to comply with its obligations under
the MOU in the previous year relevant to the subject assessment year so as to
be entitled to receive Rs. 20 crores is not shown to be perverse. In fact, the
issue is covered by the decision of the Apex Court in CIT vs. Shoorji
Vallabdas & Co. (1962) 46 ITR 144 (SC) wherein it is held 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…’
Similarly, in Morvi
Industries Ltd. (Supra) the Supreme Court has held that income accrues
when there is a corresponding liability on the other party. In the present
case, in terms of the MOU there is no liability on the other party to pay the
amount. In any event, the amount of Rs. 20 crores has been offered to tax in
the subsequent assessment year and also taxed. The Bombay High Court in the
case of C.I.T. vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom.)
held that the question as to the year in which a deduction is allowable may be
material when the rate of tax chargeable on the assessee in two different years
is different; but in the case of income of a company, tax is attracted at a
uniform rate, and whether the deduction in respect of bonus was granted in the
A.Y. 1952-53 or in the assessment year corresponding to the accounting year
1952, that is, in the A.Y. 1953- 54, should be a matter of no consequence to
the Department; and one should have thought that the Department would not
fritter away its energies in fighting matters of this kind.
In the aforesaid
circumstances, the tax on the amount of Rs. 20 crores has been paid in the next
year. Therefore, the appeal is dismissed.
