2001-VIL-355-DEL-DT

Equivalent Citation: [2001] 250 ITR 849, 117 TAXMANN 54

DELHI HIGH COURT

Date: 04.01.2001

COMMISSIONER OF INCOME TAX

Vs

CONSULTING ENGINEERING SERVICES (INDIA) LTD.

BENCH

Judge(s)  : ARIJIT PASAYAT., D. K. JAIN 

JUDGMENT

The judgment of the court was delivered by

ARIJIT PASAYAT C. J.-Pursuant to the direction given by this court, the following question has been referred for the opinion of this court under section 256(2) of the Income-tax Act, 1961 (in short, "the Act"), by the Income-tax Appellate Tribunal, Delhi Bench "E", New Delhi (in short, "the Tribunal") :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the terms of the contract between the assessee-company and the Sultan of Oman, Muscat, cannot be interpreted to mean that Rs. 2,75,700 accrued as the assessee's income in the accounting year relevant to the assessment year 1971-72 ?"

The factual position, in a nutshell, is as follows :

The dispute relates to the assessment year 1971-72. During the assessment year in question the assessee, who runs a consultancy service, entered into an agreement with the Sultan of Oman, Muscat, as consultant for the construction of a building at Muscat including certain other work. The agreement is dated February 10, 1970. The ratio of payment was indicated in the agreement to be payable at different stages. On completion of services rendered by the assessee at stage I and stage 11 of the agreement in terms of clause 5, the assessee obtained payment of Rs. 4,50,000 in two instalments on November 9, 1970, and December 19, 1970, respectively. The assessee treated the said amounts as advance in the balance-sheet and brought to the credit of the profit and loss account a sum of Rs. 1,74,300. The said amount was stated to be relatable to the work-in-progress valued on the basis of booked time records of the staff engage in the execution of the contract as well as other indirect time cost and overheads calculated at a certain percentage of the direct time cost and total time cost respectively. When required by the Income-tax Officer to justify the entries, the assessee explained that since consultancy engineering concerns have very little capital of their own and depend for their operations on fees received, the entire amount received in a year was not generally credited by way of professional fees for the purposes of computing profit and loss. It was also submitted that similar principles of accountancy had been adopted by the assessee in connection with certain other contracts which had been upheld in appeal by the Appellate Assistant Commissioner (in short, "the AAC") in connection with the appeal for the preceding year. For the year under consideration against fees of Rs. 1,74,300 the assessee charged to the accounts a total amount of Rs. 1,24,231 as direct expenses on jobs undertaken. The Income-tax Officer held that since the payment had been received on completion of jobs mentioned as stage I and stage 11 of the contract, to that extent, professional fees had accrued to the assessee and the same had to be taken into consideration for the purpose of computing taxable income. He, therefore, brought to charge a sum of Rs. 2,75,700 being the difference between Rs. 4,50,000 and Rs. 1,74,300 as income of assessee during the assessment year in question. The Appellate Assistant Commissioner upheld the assessee's stand. The matter was carried in further appeal by the Revenue before the Tribunal. Considering the rival stands, the Tribunal was of the view that the assessee employed a particular method of accounting and in accordance with that method, the assessee allocated the receipts in its financial statements. The method of acco unting had been accepted by the Tribunal in the earlier years and the same could not be disturbed being regularly employed. It also noted that the letters of the principals clearly established that a sum of Rs. 4,50,000 was given to the assessee as advance. For the assessment year 1973-74, the assessee had treated similar receipts in the manner as done for the year under consideration and by order dated March 29, 1976, the Assessing Officer accepted the assessee's method. That being the position, the Appellate Assistant Commissioner's order was upheld. The prayer for reference was rejected by the Tribunal.

On being moved under section 256(2) of the Act, the question, as set out above, was directed to be referred.

We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of notice. Learned counsel for the Revenue submitted that the true essence of the transactions had not been considered by the Tribunal in its proper perspective. It was urged that the system of accounting regularly employed clearly indicated that the amount was to be treated as taxable income and not as advance.

We find that the Tribunal has examined the factual aspects and has noted as to why the amount of Rs. 4,50,000 was to be treated as advance.

The factual aspects, highlighted by the Tribunal, cannot be said to be irrelevant. On the contrary, the Tribunal noticed the factual aspects in their proper perspective and came to the conclusion that the sum of Rs. 4,50,000 was to be treated as advance. That being the position and in view of the factual conclusions recorded, we find no question of law arises out of the order of the Tribunal. The question is, therefore, not answered.

This reference stands disposed of.

 

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