1986 PLP 700 (PTD)

SUHAS CHANDRA SEN, J.‑‑The following question 'of law has been referred to by, the Tribunal to this Court under section n 256 (1) of the income‑tax Act, 1961: "Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that the rents receivable by the assessee‑Company in respect of the requisitioned premises of which it was a monthly tenant, as per the award of the Land Acquisition Collector, could not be assessed in the hands of the assessee‑Company maintaining its accounts under the mercantile system?"

2. The assessee is a private limited company. It maintained accounts on mercantile system with the previous year as calendar year. The relevant assessment year was 1970‑71 and the total income was assessed by the I.‑T.O. at Rs.1,44,437 inclusive of Rs.45,996 as income from other sources in respect of the requisitioned portion of the premises at "Stephen House". The I.‑T.O. observed that the circumstances being the same as in the last year, the rent receivable from the Government of West Bengal in respect of a portion of the 4th floor of the "Stephen House" requisitioned by the West Bengal Government was assessed as income of the assessee from other sources.

3. Being aggrieved, the matter was taken in appeal to the Appellate Assistant Commissioner. It was contended before him on behalf of the assessee‑Company that the Income‑tax Officer should not have included any amount of rent in respect of the portion occupied by the said Government in the assessment. The Appellate Assistant Commissioner disapproved the contention and held that as the assessee had been following the mercantile system of accounting and as the rent was receivable during the previous year the contention that there was an injunction under the orders of the High Court could not be a ground for exclusion of the income from the instant assessment. He, however, directed the Income‑tax Officer to substitute the figure of rent by the amount as determined by the High Court.

4. The assessee felt aggrieved and preferred in appeal to the Appellate Tribunal. After hearing both sides on the matter the Tribunal found that a similar point cropped up in respect of the assessments for the assessment years 1965‑66 to 1969‑70 and the Tribunal passed orders, dated 27th April, 1972 and 29th June, 1972, whereby the income by way of rent which was included in the relevant assessments was either deleted or the Appellate Assistant Commissioner's decision deleting the addition was confirmed. Full facts of the case were found to have been discussed in the order of the Tribunal, dated 27th April, 1972. The learned counsel for the assessee submitted that the dispute over the rent was still pending before the Land Acquisition Collector and no portion of the rent was paid to the assessee‑Company during the relevant year. The Departmental Representative on the other hand, supported the Appellate Assistant Commissioner and referred to certain authorities. The Tribunal discussed the case law and the contentions raised by both sides in paras. 5‑‑9 of its order, dated 4th July, 1973. It concluded that no income by way of monthly compensation from the Government of West Bengal accrued to the assessee during the relevant previous year and, therefore, it set aside the Appellate Assistant Commissioner's order and the Income‑tax Officer was directed to delete the addition of Rs.45,996 from the instant assessment.

5. The point which is canvassed before us on behalf of the revenue is that in this case there has actually been a decision of the Land Acquisition Collector holding that the rent is to be paid to the assessee and that the Collector has actually paid rent to the assessee. Furthermore, the Tribunal has held the assessee's right to keep compensation has not been extinguished by the order of the High Court altogether It is submitted that in view of the aforesaid fact and in view of the fact that the assessee was following the mercantile system of accounting the assessee was liable to be assessed on the compensation amount paid by the Land Acquisition Collector on accrual basis. In support of this contention reliance has been placed on the decision of the Bombay High Court in the cask of commissioner of Income‑tax, Bombay City‑II v. Babulal Narottamdas, (1976) 105 I T R

721. Reliance has also beer placed on the decision of the Supreme Court it) the case of Mrs. Khorshed Shapoor Chenai v Assistant Controller of Estate Duty, A.P. (1908) 122 I T R 21; 1980 Tax L R 303 and also on another decision of the Supreme Court in the case of Commissioner of Income‑tax, Bombay City v. Chunilal v. Mehta & Sons P. Ltd. (1971) 82 I T R 54 : 1972 Tax L R 159.

6. The principles that are to be followed in a case involving mercantile system of accounting are well‑settled. The question is whether in the facts of this case the disputed income has accrued to the assessee. According to the facts found by the Tribunal Dalhousie Properties Ltd., the landlord of the property in question in this case made a writ petition challenging the decision of the Land Acquisition Collector to pay compensation to the assessee‑Company. The Calcutta High Court issued a Rule and after hearing the parties made that rule absolute on the ground that there was no order determining the amount of compensation and as such the decision of the Land Acquisition Collector could not be sustained. The Calcutta High Court directed the Land Acquitision Collector to go into the question afresh. This Order was affirmed by the Appeal Court as the assessee did not seriously press the appeal. The Calcutta High Court in the meantime directed the Advocate‑on‑record of the assessee‑Company to hold the amount of compensation of Rs.3,37,372‑

85. Until further order of the Court.

7. In the context of these facts it cannot be said that the assessee is entitled to get the compensation from the Land Acquisition Collector in this case. The assessee's right to get compensation is very much in dispute. This is not a case where the assessee is entitled to get compensation but the quantum of compensation is in dispute. Here the entire right of the assessee to get compensation is under jeopardy. We are of the view that if the assessee's right to get the compensation itself is being disputed and is in jeopardy the assessee cannot be assessed on the compensation amount on the basis of mercantile system of accounting. In view of the facts stated hereinabove it cannot be said that a perfected debt has come into existence in favour of the assessee‑Company in the instant case. The principle applicable in cases like this was stated by the Supreme Court in the case of E. D. Sassoon Company Ltd. v. Commissioner of Income‑tax, Bombay City (19541 26 I T R 27 : A I R 1954 SC 470 at pages 51 and 52 in the following words: "But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he trust have created a debt in his favour. A debt must have come into existence and he must have acquired a right to received the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in praesenti, solvendum in futuro it cannot be said that any income has accrued to him."

8. In this case Dalhousie Properties Limited, the landlord, has claimed that it was entitled to get the compensation for the acquisition of the property. Until and unless the Land Acquisition Collector goes into these questions and decides the issue is to whether Dalhousie Properties Limited, the landlord, or the assessee‑Company, the tenant, will get the compensation it cannot be said that a debt has come into existence in favour of the assessee‑Company. The assessee‑Company's entire claim to get the compensation is under dispute. Therefore, it cannot be said that the assessee‑Company has acquired a right to get the compensation and a debt has come into existence in favour of the assessee‑Company and the income has, therefore, accrued to the assessee‑Company.'

9. An argument was also advanced that in the question raised the Tribunal itself recognised the fact that the rents were receivable by the assessee and, therefore, it was argued that the answer to that question should be given accordingly. But we are of the view that this question has to be considered in the context of the facts and circumstances of this case. The expression "rent receivable by the assessee" has been used by the Tribunal in the context of the facts found by the Tribunal anti that has been made quite clear in the question itself. In that view of the matter, we answer the question by saying that the decision of the Tribunal was right and the question is answered in the affirmative arid in favour of the assessee. In the fact; and circumstances of this case there will be no order as to costs. SABYASACHI MUKHARJI, J.‑‑I agree. M. B. A. Question answered in affirmative.