Case Law Details
The taxpayer instead of developing the land, transferred the development rights in respect of part of the land to a separate construction company.As per the agreement, the taxpayer jointly with the trust was required to convey the land to the proposed buyers. Instead of developing land, the taxpayer parted with the development rights in respect of part of the land forever. The possession of the land had also been given during the year along with development rights. This was an independent activity having no connection with the development of the remaining part of the land.
The taxpayer was following mercantile system of accounting as per which income accrues when it becomes due for payment. In the instant case, the entire amount became due to the taxpayer in the relevant year on signing of development agreement and on handing over of the possession of the land. Under the mercantile system of accounting the accrual of income does not depend upon receipt of income. Therefore, the income had accrued during the year since the transfer was complete during the year. The postponement of payment does not stop accrual of income. Therefore, even if part of the payments were received in subsequent years, the entire income had accrued during the year. However, the Tribunal allowed the deduction in respect of cost of acquisition of development right.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No. : 402/M/2008 – Assessment Year : 2004-05
ITA No. : 2643/M/2010 – Assessment Year : 2004-05
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The judgement is as per law and accrual system of accounting as per law. But what the Lawer or the CA of the firm failed to guide the client is payment of taxes in the year of accrual and he need cash/money for that. In our Indian system there is no support to the injured party where taxes once levied become a liability and should be paid, but when the actual payment is defaulted by the party entirely including the principal of sale or transaction. There is no remedy to it. Why not the court also look into the aspect of it?