CIT Vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Delhi)(High Court)
The assessee running coaching classes followed mercantile system of accounting. Total fees for the entire course, which may be of two years duration was taken in advance at the time of admission of the students. For the A.Y. 1997-1998, the assessee claimed that the fees received in the relevant year were to be carried forward to the next assessment year as they related to the next financial year. The Assessing Officer rejected the claim on the ground that the assessee was following the mercantile system of accounting. The Tribunal allowed the assessee’s claim.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under :
“(i) The relevant yardstick for the purpose of taxation is the time of accrual or arisal. In order to be chargeable, the income should accrue or arise to the assessee during the previous year. Unless the revenue is earned, it is not accrued; likewise, unless the expenses are incurred, cost in respect thereof cannot be treated as accrued. Under Accounting Standard 9, revenue is recognised only when the services are actually rendered. If the services are rendered partially, revenue is to be shown proportionate with the degree of completion of services.
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