Date of submission of claim recognised on accrual of cash incentive: Punjab & Haryana HC

CIT Vs Punjab Bone Mills (Punjab and Haryana High Court)

Punjab and Haryana High Court held that date of submission of claim would be recognized on accrual of cash incentive and not from date of submission or receipt of cash incentive.

Facts- Question raised vide the present petition is that whether on the facts and in the circumstances of the case, the ITAT is right in law in holding that cash incentive accrues to the assessee on the date when the application for claim is made to the Competent Authority?

Conclusion- Held that it is apparent that while on facts, it would be for the concerned officer to examine as to what are the cash incentives allowed in each quarter, but so far as the question is concerned, we confirm and take the same view as already taken by this Court in the earlier case of the respondent, and hold that it is on the date of submission of claim that the accrual of cash incentive would be recognized and not from the date of submission or receipt of cash incentive. Thus, the reference is accordingly answered in favour of the assesse e-respondent and against the Revenue.

FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT

We find that notices on the respondent had been served, however, no one appears for the respondent.

2. This is a reference filed by the Commissioner of Income Tax, referred by the Income Tax Appellate Tribunal (ITAT) , before this Court relating to question No.1 alone.

3. Learned counsel for the Revenue has invited attention to the decision of this Court in Commissioner of Income-tax vs. Punjab Bone Mills, reported in [1998] 96 Taxman 555 (Punjab & Haryana) wherein identical question was referred vide reference No.37/1984 relating to the assessment year 1978 -79.

4. The question No.2 in the said reference is the same as question No.1 referred herein which is as under:

“ 1. Whether on the facts and in the circumstances of the case, the ITAT is right in law in holding that cash incentive accrues to the assessee on the date when the application for claim is made to the Competent Authority?”

5. The Court after examining the law relating to accrual of income held as under:

“26. It would appear from the facts of the case at hand before us that the right to receive cash incentive accrued to the assessee on filing the claim. The plea put forward by Shri Gupta that the date of the export would give rise to a right in favour of the assessee, does not appear to be appropriate because the assessee did not lay a claim ascertaining his right. Unless the claim is filed, no right to receive the income can be said to have arisen. Though cash incentive was connected with exports and was in the nature of a trading receipt or a revenue receipt, it cannot be said to accrue or arise unless the exporter made his claim. Cash assistance was given to an exporter to encourage exports. The making of the application was, therefore, an important event so far as the accrual of income was concerned. The date of the export would not by itself give rise to an income unless the assessee laid a claim to receive the income from the Government. The date of the receipt of cash incentive would also be not relevant once it is found that the assessee was maintaining his accounts on the mercantile system. Therefore, the accrual of income would either depend on the date of the making of the export or on the date of the making of application by the assessee claiming cash incentive from the Government. The date of export would not create a right unless the assessee made a claim therefor. If the assessee did not file his claim, there was no accrual in his favour. ”

6. It is further asserted that the said decision of the High Court was challenged before the Supreme Court by the Department titled as Commissioner of Income-tax vs. Punjab Bone Mills, reported in [2001] 119 Taxman 781 (SC) , wherein the Apex Court vide its order dated 19.07.2001 passed the following order:

“1. No interference with the judgment and order of the High Court – CIT v. Punjab Bone Mills [1998] 232 ITR 795 (Punj. & Har) is called for. Having regard to the first question, considering how that question is worded, it is properly answered. As to the second question, the relevant material in regard to the cash incentive for exports does not appear to have been placed before the Tribunal. Without that material, it is not possible to decide that the contention of the revenue is correct.

2. The civil appeals are dismissed with cost.”

7. Thus, it is apparent that the second question in the said reference, which is identical to the question No.1 in the present case, has not been decided one way or the other by the Supreme Court, and w e therefore will have to look into the other aspects relating to the cash incentive provided for the various years to reach to an independent conclusion.

8. We find that the ITAT while deciding the case of the assessee-respondent for the assessment year 1978 -79, vide its order dated 27.04.1984 found as under:

“4. The second question of the Revenue relates to the accrual of cash incentive. The ITO has dealt with the issue in the para marked ‘B’ of his assessment order. According to him, the assessee had accounted for the cash incentive on receipt basis even though it was following mercantile system of accounts and by so doing had short–disclosed an amount of Rs. 240,083/– as part of its income of the assessment year 1978–79. After referring to certain authorities, he held that as the assessee itself had been following the mercantile system of accounting in respect of the cash incentive an addition of Rs. 240,080/– was being made to the income returned by the assessee.. The assessee challenged the decision of the ITO before the CIT (Appeals), who has dealt with it in paras 4 to 6 of his order. It was contended by the assessee before him that it had not changed the system of accounting from the mercantile system to cash, system but the dispute was to which of the cash, system but the dispute was as to which of the cash incentive received could be said to accrue or arise within the accounting period ended on 31.3.1978 relebant to the assessment year 1978–79. However, the CIT (Appeals) dealt with the issue in the particular fashion and ultimately upheld the action of the ITO. The assessee came in appeal to the Tribunal and the Tribunal has dealt with the issue in paras 5, 6 & 6. 1 of its order, which are quoted below:

“5. The last contention of the assesse is about the addition of Rs 2,4,000/– on account of cash in centive in the asstt. year 1978-79. The CIT (Appeals) has dealt with this point in para 4 to 6 of his order. The assessee filed a statement giving particulars about cash incentive and we reproduce the information given below:

The dispute is about adding of the last two amounts of Rs. 135,779/-and Rs. 104,304/- in the assessment year under appeal.

We have heared the rival submissions and perused the order of the C.I.T. (Appeals). Shri Anant Narayanan submitted that his arguments had not been correctly appreciated by the CIT (Appeals) to some extent. He explained that the assessee wanted the claim to be judged under the mercantile system but according to it the amounts of cash incentive in dispute had not accrued as assessee’s income in the assessment year 1978-79 Acvording to him, the cash incentive amount will accrue on the date when the claim was sanctioned. He cited two decisions of Madras High Court, namely, CITI Tamil Nadu Vs Ashoka Lungi Co.-12 OITR 413 and CIT Tamil Nadu Vs Motor Credit Co. P. Ltd. –127 ITR 572. On behalf of the Revenue, it was submitted that cash incentive was allowed by the Government of India according to a duly formulated scheme announced before hand and, therefore, it accrued no sooner the assessee affected the necessary exports and the procedure for claiming that cash incentive merely related to the quantification of amount payable. Cases cited by the ITO in the assessment order were relied upon in support of this submission. It was stated that the facts of Madras decision in 127 ITR 572 were altogether different and that decision would not apply in the case like that of the assessee.

6.1 We have considered the rival submissions. The assessee on our inquiry informed that he could not make available the cash incentive scheme applicable to the assessee but Shri Anant Narayanan submitted on the basis of the chart, the particulars of which are reproduced above, that a claim for cash incentive admissible is to be filled at the end of the each quarter by the assessee and it will be admissible only when the assessee makes the required application each quarter. Taking note of this circumstance and the Madras High Court decision in the case of Ashoka Lungi Co. 120 I. T. R. 413, we will hold that the right to cash incentive of each quarter will become due to the assessee at the time when the application is made. After the application what follows is the verification of assessee’s claim and the quantification of the amouut admissible. Applying this principle, we will hold that cash incentive for the quarter ended on 3 -3-1978 amounting to Rs. 1,04,304/– cannot be said to accrue to the assessee in the assessment year 1978-79 and that amount had, therefore, not been rightly included in the assessment under mercantile system. Consequently, we will reduce the addition made by the ITO by the amount of Rs. 1,04,304/–and partly accept the assessee’s contention.”

5. We refer question No. 2 proposed by the Commissioner for the opinion of the Honourable High Court.

6. The statement of the case is finalised after due notices to the parties.”

9 . It appears that the said aspects were not brought to the knowledge of the Supreme Court, and therefore the Apex Court has made the aforesaid observations.

10. Be that as it may, with regard to assessment year 1979 -80, we find that on facts, the Tribunal made following observations relating to cash incentives and it had remanded the matter to the IAC (Asstt.) for deciding it afresh on the basis approved by the Tribunal for the assessment year 1978 -79.

“5. The second objection of the Revenue is about the relief of Rs. 2,40,083/– given by the CIT (A) in the account of cash incentive. The assessee has also objected in its appeal urging that point regarding cash incentive had not been properly appreciated by the CIT (A). Our attention was invited to the fact that this very issue arose for the preceding assessment year and the Tribunal dealt with it in paras 5,6, and 6.1 of its order. We will consider it proper to set aside the finding of the lower authorities on this issue and restore it to the file of IAC (Asstt.) for deciding it afresh on the basis approved by the Tribunal for the ass easement year 1978-79. This will dispose of the ground of appeal raised by the assessee also.

6. In the result, the appeal of the revenue may be treated to be allowed for satistical purposes only.”

11. Thus, it is apparent that while on facts, it would be for the concerned officer to examine as to what are the cash incentives allowed in each quarter, but so far as the question is concerned, we confirm and take the same view as already taken by this Court in the earlier case of the respondent bearing No. ITR-37-1987 (supra), and hold that it is on the date of submission of claim that the accrual of cash incentive would be recognized and not from the date of submission or receipt of cash incentive.

12. The reference is accordingly answered in favour of the assesse e-respondent and against the Revenue.

13. ITR stands disposed of as above.

14. All pending applications also stand disposed of accordingly.