Commissioner Of Income Tax-1 Chennai v. M/S.the Coromandel Engineering Co.ltd., Parry House, 3[Rd] Floor

In the High Court of Judicature at Madras Dated : 09.07.2008 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIANandThe Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.930 of 2008 Commissioner of Income Tax-1Chennai. Vs. .. Appellant M/s.The Coromandel Engineering Co.Ltd.,Parry House, 3[rd] Floor, 43, Moore StreetChennai-600 001. .. Respondent TAX CASE (APPEAL) filed under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'C' Benchdated 20.12.2007 in I.T.A.No.598/Mds/2007 for the assessment year2003-2004 against the order of the Commissioner of Income Tax (Appeal -III) Chennai in ITA.No.694/2005-06/A-III, dated 08.12.2006 for theAssessment Year 2003-04 against the order of the Assistant Commissionerof Income-Tax, Company Circle III(2) Chennai - 34 inPA.No./GIR.No.32616/AAACT 7979E forthe Assessment Year 2003-2004. For Appellant : Mrs.Pushya Sitaraman JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue came up on appeal against the order of the IncomeTax Appellate Tribunal Madras 'C' Bench dated 20.12.2007 inI.T.A.No.598/Mds/2007. The relevant assessment year is 2003-2004. Thesubstantial question of law formulated in this appeal is as follows:- "Whether in the facts and circumstances ofthe case, the Tribunal was right in holding thatmoneys retained by the contractors, as a percentageof the bills raised to be paid after the contractis completed are to be treated as income only whenthe moneys are actually received, even though the https://hcservices.ecourts.gov.in/hcservices/ appellant is following a mercantile system ofaccounting? 2. The facts of the case are as follows:- The assessee company filed return of income for the assessmentyear under consideration. The assessing officer inter alia addedportion of the receipts withheld by the parties as retention money onthe ground that since the assessee followed mercantile system ofaccounting, it should have offered the retention of money also forassessment. On appeal by the assesseee, the Commissioner of Income-tax(Appeals) following a decision of this Court in the case of COMMISSIONEROF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006)286 ITR 297, deleted the addition made by the assessing officer. Onfurther appeal by the assessee, the Income-tax Appellate Tribunalallowed the appeal in favour of the assessee following decision of thisCourt in the case of COMMISSIONER OF INCOME-TAX VS. EAST COASTCONSTRUCTIONS & IND. LTD reported in (2006) 286 ITR 297. Thecorrectness of the same is now challenged by the revenue in this appealby formulating the above said question of law. 3. Learned Senior Counsel appearing for the revenue has fairlysubmitted that the issue involved in this appeal is covered by thedecisions of this Court in the case of COMMISSIONER OF INCOME-TAX VS.IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295 and COMMISSIONER OF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR297 3. Learned Senior Counsel appearing for the revenue has fairlysubmitted that the issue involved in this appeal is covered by thedecisions of this Court in the case of COMMISSIONER OF INCOME-TAX VS.IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295 and COMMISSIONER OF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR297 4. In the above said decisions, the facts are identical to thepresent case. In the case of COMMISSIONER OF INCOME-TAX VS. IGNIFLUIDBOILERS (I) LIMITED, 283 ITR 295, which was rendered by us, the assesseecompany carried on the business of erection and sales of boilers. Theassessee entered into a contract with S for erection of boilers whereinthere was a specific clause that 10 percent of the contract price wouldbe retained by the principal contractor and it would be paid after onemonth subject to the satisfactory performance of the boilers. TheAssessing Officer brought into account 10 per cent of the contractamount, which had been retained by the principal contractor and leviedtax on the ground that the assessee was maintaining a mercantile systemof accounting and in respect of 10 percent retention, the bill had beenraised on completion of work and brought it into account on accrualbasis. On appeal by the assessee, the Commissioner (Appeals) deletedthat portion of the amount, and this was further confirmed on appeal bythe Tribunal. On further appeal to the High Court, while dismissing theappeal, this Court held that "ten per cent of the retention money hadnot been received in respect of the relevant assessment year though thework had been completed. The assessee was entitled to receive the amountonly after successful completion of the work. In such circumstances, itcould not be said that 10 percent of the amount retained had accrued tothe assessee. It was not assessable in the assessment year 1994-95." 5. In the other case of COMMISSIONER OF INCOME-TAX VS. EAST COASTCONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297, to which one ofus (P.P.S.Janarthana Raja,J.) was a party, the assessee was a company,carrying on business of construction in various places. The assesseefiled a return of income. 10 percent of the contract amount wasretained by the parties as retention money to be paid after completionof the contract. The Assessing Officer had included the retention moneyfor the purpose of computing the total income on the ground that sincethe assessee followed the mercantile system of accounting, it ought tohave offered the retention money for assessment for the years 1997-98and 1998-99. The Tribunal held that the retained money accrued to theassessee only after completion of the contract and therefore could notbe included in the total income for the assessment years underconsideration, since the contract was not yet completed. On appeal tothis Court, while dismissing the appeal, this Court held that "theassessee was entitled to receive the retention money after completion ofthe contract. On the date of the bills, no enforceable liability hadaccrued or arisen. When the assessee had no right to receive the moneyby virtue of the contract between the parties and the assessee also hadno right to enforce payment, it could not be said that the right toreceive payment of the remaining 10 percent, of the value of job hadaccrued." 6. Hence, following the above decisions of this Court and recordingthe statement of the learned Senior Counsel for the revenue, as thequestion of law formulated in this appeal has already been decidedagainst the revenue, the appeal is dismissed. Sd/Asst.Registrar /true copy/ To Sub Asst.Registrar 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). 2. The Commissioner of Income Tax (Appeals)-III, Chennai 3. The Assistant Commissioner of Income Tax, Central Circle III(2), Chennai. 4. The Commissioner of Income Tax-I, Chennai 6. Hence, following the above decisions of this Court and recordingthe statement of the learned Senior Counsel for the revenue, as thequestion of law formulated in this appeal has already been decidedagainst the revenue, the appeal is dismissed. Sd/Asst.Registrar /true copy/ To Sub Asst.Registrar 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). 2. The Commissioner of Income Tax (Appeals)-III, Chennai 3. The Assistant Commissioner of Income Tax, Central Circle III(2), Chennai. 4. The Commissioner of Income Tax-I, Chennai 1 cc To Mr.Pushya Sitaraman, Standing Counsel for IT-Dept., SR.36633. Tax Case (Appeal) No.930 of 2008VSV(CO)RVL 18.07.2008