Commissioner Of Income Tax Chennai v. M/S.texcel Engineers Private Limited G

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.888 of 2008 Commissioner of Income TaxChennai. .. Appellant /RespondentVs. M/s.Texcel Engineers Private LimitedG-59, 12[th] StreetNear ChinthamaniAnnanagarChennai-600 102... Respondent / Appellant TAX CASE (APPEAL) filed under Section 260A of the Income TaxAct against the order of the Income Tax Appellate Tribunal Madras'C' Bench dated 14.12.2007 in I.T.A.No.205/Mds/2007 for theassessment year 2003-2004 against the order of the Commissioner ofIncome Tax, (Appeals III) 121, Mahatma Gandhi Road, Chennai 34dated 7.12.2006 in ITA.No.719/2005-2006/A-III against the order ofthe Asst Commissioner of Income Tax Company Circle III (2) Chennaidated 30.1.2006 in PAN.No.AAACT/27ID. For Appellant : Mrs.Pushya SitaramanJUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue came up on appeal against the order of theIncome Tax Appellate Tribunal Madras 'C' Bench dated 14.12.2007in I.T.A.No.205/Mds/2007. The relevant assessment year is 2003-2004. The substantial question of law formulated in this appeal isas follows:-"Whetherinthefactsandcircumstances of the case, the Tribunal wasright in holding that moneys retained by thecontractors, as a percentage of the billsraised to be paid after the contract iscompleted are to be treated as income onlywhen the moneys are actually received, even https://hcservices.ecourts.gov.in/hcservices/ though the appellant is following amercantile system of accounting? 2. The facts of the case are as follows:- The assessee company filed return of income for theassessment year under consideration. The Company excluded securitydeposit retention money of Rs.7,25,366/- in the memo of income onthe ground that the income to this extent is not accrued. Theassessing officer inter alia added portion of the receipts withheldby the parties as retention money on the ground that since theassessee followed mercantile system of accounting, it should haveoffered the retention of money also for assessment. On appeal bythe assesseee, the Commissioner of Income-tax (Appeals) upheld theaction of the assessing officer. However, the Tribunal on furtherappeal held in favour of the assessee following a decision of thisCourt in the case of COMMISSIONER OF INCOME-TAX VS. EAST COASTCONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297. Thecorrectness of the same is now challenged by the revenue in thisappeal by 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-TAXVS. IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295 and COMMISSIONER OFINCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in(2006) 283 ITR 297 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-TAXVS. IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295 and COMMISSIONER OFINCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in(2006) 283 ITR 297 4. In the above said decisions, the facts are identical to thepresent case. In the case of COMMISSIONER OF INCOME-TAX VS.IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295, which was rendered byus, the assessee company carried on the business of erection andsales of boilers. The assessee entered into a contract with S forerection of boilers wherein there was a specific clause that 10percent of the contract price would be retained by the principalcontractor and it would be paid after one month subject to thesatisfactory performance of the boilers. The Assessing Officerbrought into account 10 per cent of the contract amount, which hadbeen retained by the principal contractor and levied tax on theground that the assessee was maintaining a mercantile system ofaccounting and in respect of 10 percent retention, the bill hadbeen raised on completion of work and brought it into account onaccrual basis. On appeal by the assessee, the Commissioner(Appeals) deleted that portion of the amount, and this was furtherconfirmed on appeal by the Tribunal. On further appeal to the HighCourt, while dismissing the appeal, this Court held that "ten percent of the retention money had not been received in respect of therelevant assessment year though the work had been completed. Theassessee was entitled to receive the amount only after successfulcompletion of the work. In such circumstances, it could not be said that 10 percent of the amount retained had accrued to the assessee.It was not assessable in the assessment year 1994-95." 5. In the other case of COMMISSIONER OF INCOME-TAX VS. EASTCOAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297, towhich one of us (P.P.S.Janarthana Raja,J.) was a party, theassessee was a company, carrying on business of construction invarious places. The assessee filed a return of income. 10 percentof the contract amount was retained by the parties as retentionmoney to be paid after completion of the contract. The AssessingOfficer had included the retention money for the purpose ofcomputing the total income on the ground that since the assesseefollowed the mercantile system of accounting, it ought to haveoffered the retention money for assessment for the years 1997-98and 1998-99. The Tribunal held that the retained money accrued tothe assessee only after completion of the contract and thereforecould not be included in the total income for the assessment yearsunder consideration, since the contract was not yet completed. Onappeal to this Court, while dismissing the appeal, this Court heldthat "the assessee was entitled to receive the retention moneyafter completion of the contract. On the date of the bills, noenforceable liability had accrued or arisen. When the assessee hadno right to receive the money by virtue of the contract between theparties and the assessee also had no right to enforce payment, itcould not be said that the right to receive payment of theremaining 10 percent, of the value of job had accrued." 6. Hence, following the above decisions of this Court andrecording the statement of the learned Senior Counsel for therevenue, as the question of law formulated in this appeal hasalready been decided against the revenue, the appeal is dismissed. Sd/Asst.Registrar /true copy/ 1.The Assistant Registrar, Income-Tax Appellate Tribunal, IIIFloor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records fivecopies). 2.The Commissioner of Income Tax (Appeals)-III, Chennai 3.The Assistant Commissioner of Income Tax, Central Circle III(2),Chennai.Chennai. 4.The Commissioner of Income Tax, Chennai + 1 cc to Mr. Pushya Sitaraman, Advocate SR No. 36634 6. Hence, following the above decisions of this Court andrecording the statement of the learned Senior Counsel for therevenue, as the question of law formulated in this appeal hasalready been decided against the revenue, the appeal is dismissed. Sd/Asst.Registrar /true copy/ 1.The Assistant Registrar, Income-Tax Appellate Tribunal, IIIFloor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records fivecopies). 2.The Commissioner of Income Tax (Appeals)-III, Chennai 3.The Assistant Commissioner of Income Tax, Central Circle III(2),Chennai.Chennai. 4.The Commissioner of Income Tax, Chennai + 1 cc to Mr. Pushya Sitaraman, Advocate SR No. 36634 Tax Case (Appeal) No.888 of 2008GV(CO)SR/21.7.2008