Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessee sold leasehold rights in respect of film to lessee for a consideration that was to be paid immediately on execution of agreement - However, terms of agreement stipulated that said amount should be adjusted in five years in proportion specified therein - ITO opined that entire amount was taxable in year of receipt - Tribunal also held that right of receiving entire amount accrued to assessee when agreement was made and, it accordingly upheld ITO's order - Whether in terms of agreement between assessee and lessee entire amount became due on its execution, and in absence of any mechanism laid down in agreement by which that amount could be recovered or held by way of deposit by assessee same was taxable in year of receipt - Held, yes FACTS The assessee sold the leasehold rights in respect of a film to the lessee for a consideration that was to be paid immediately on execution of the agreement. The agreement stipulated that the said amount should be adjusted in five years in the proportion specified therein. The Income-tax Officer came to the conclusion that the assessee was following the cash system of accounting and it was not under an obligation to return the deposit under any circumstances to the lessee and the assessee was not entitled to reacquire the leasehold right during the year of lease and thus, the intention of the assessee in spreading the said sum over the period of five years was only to reduce its tax and also to have the benefit of set off of the accrued profits of the current year against the future losses, if any. On appeal, the Commissioner (Appeals) reversed the decision. On further appeal, the Tribunal while restoring the ITO's orders observed that the right of receiving the entire amount accrued to the assessee when the agreement was made, i.e., during the year under appeal; only inter se agreement could not change the character of right and determination of taxability. On reference: HELD In accordance with the agreement between the assessee and the lessee, the entire amount became due on the execution of the agreement. There was no mechanism laid down in the agreement by…

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