The Commissioner Of Income Tax – 4, Mumbai v. M/S.miles Software Solutions Private Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2626 OF 2011 The Commissioner of Income Tax – 4, Mumbai..Appellant. Versus M/s.Miles Software Solutions Private Limited..Respondent. Mr.A.R. Malhotra for the appellant.Mr.F.V. Irani with Mr.Atul K. Jasani for the respondent. CORAM : J.P. Devadhar &M.S. Sanklecha, JJ. DATE : 13[th] March 2013 P.C. : 1.In this appeal by the Revenue for assessment year 2006-07, following questions of law have been proposed for our consideration. “a)Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that in mercantile system of accounting income / expenditure is accrued when it becomes receivable / payable, even though the benefit of such income / expenditure are spread over a number of years ?Tribunal was justified in holding that in mercantile system of accounting income / expenditure is accrued when it becomes receivable / payable, even though the benefit of such income / expenditure are spread over a number of years ? b)Whether under the mercantile system of accounting, the entire premium is to be allowed with respect to a keyman insurance policy where in the benefit accrues for 40 years ?”premium is to be allowed with respect to a keyman insurance policy where in the benefit accrues for 40 years ?” 2.The respondent – assessee had taken a Keyman Insurance Policy for 40 years in respect of which premium was payable was Rs.50 lakhs per year for a period of three years. The first instalment of the premium of Rs.50 lakhs was paid on 28[th] March 2006. The assessing officer allowed only a proportion of the premium amount attributable to the period of three days as revenue expenditure during the subject assessment year. In appeal, the Commissioner of Income Tax (A) upheld the order of the assessing officer. 3.On further appeal, the Tribunal by the impugned order held that in the mercantile system of accounting the income / expenditure is accounted when it becomes receivable / payable. The amount of Rs.50 lakhs paid as premium was payable during the assessment year and, therefore, in the mercantile system of accounting, entire payment has to be allowed as an expenditure for the year. In the present case, the Revenue does not dispute the fact that the premium was payable during the assessment year and is otherwise allowable as revenue expenditure. 4.Mr.Malhotra, counsel for the Revenue seeks to justify the order of the assessing officer on the basis of the decision of this Court in the matter of Taparia Tools Limited V/s. Commissioner of Income Tax reported in 260 ITR 202. The above case would have no application, as it dealt with upfront payment of interest payable over a period of five years i.e. deferred revenue expenditure. The Court held that in a mercantile system of accounting, the income and expenditure has to be accounted on accrual basis and not on the basis of when the payment was actually made. Therefore, the above decision does not assist the Revenue as the payment of Rs.50 lakhs was payable during the assessment year and has to be recorded as an expenditure for the subject assessment year. 4.In these circumstances, we see no reason to interfere with the order of the Tribunal. Accordingly, the appeal is dismissed with no order as to costs. (M.S. Sanklecha, J.) (J.P. Devadhar, J.)