Taxing amount based on presumption of future order of Small Causes Court unsustainable

T.V. Patel Pvt. Ltd. Vs DCIT (Bombay High Court)

Bombay High Court held that one cannot tax the amount having not accrued and not been received by the assessee on an assumption and presumption that in the future, the Small Causes Court will at least order the said sum in favour of the Appellant.

Facts-

The Appellant, the lessees of Neville Wadia Pvt. Ltd. entered into an Agreement with Bombay Builders to construct a building at Cumballa Hill and sell 30 flats to the Appellant at an agreed price. On 22^nd April 1980, by a Tripartite Agreement, Bombay Builders as confirming party was substituted with the IDBI as sub-lessee and the Appellant sub-leased the said property at Cumballa Hill in Mumbai on an annual lease rent of Rs. 3,42,720 to IDBI. The Appellant received the rent and offered Rs. 3,42,720/- being lease rent in its return of income for A.Y.1981–82. The said income was offered for tax under the heading “Income from Other Sources.”

In the previous year 1980-81, dispute arose between the Appellant and the IDBI for various breaches alleged to have been committed by the IDBI. This led to the Appellant terminating the sub-lease agreement. Appellant refused to accept the rent from IDBI post-termination. In the year 1981, IDBI filed a Declaratory Suit in the Small Cause Court and obtained injunction against the Appellant for terminating the sub-lease agreement.

Please become a Premium member. If you are already a Premium member, login here to access the full content.