Law:

Section:

I. Section 5, read with section 145 Income-tax Act, 1961 [Corresponding to section 4, read with section 13 of the Indian Income-tax Act, 1922] - Income - Accrual of - Assessment year 1957-58 - During relevant accounting year assessee-company constructed and sold bungalows to various parties, and received part of sale price, leaving balance of some amount - For period under assessment assessee was following mercantile system of accounting - Whether since sales in all cases, except one, had taken place in August, 1956, and with completion of sale deeds assessee must be deemed to have received entire sale price because right to claim balance had arisen in its favour, amount of balance had accrued or arisen in favour of assessee and could be rightly included as income of assessee for assessment year - Held, yes FACTS I In the assessment year 1957-58, the assessee-company, engaged in construction business, constructed seven bungalows on its land and sold them to various parties. It received part of the sale price, leaving a balance of Rs. 1,38,868. On 1-4-1956, the assessee changed its accounting system from cash system to mercantile system. The revenue authorities, therefore, held that the balance had accrued to the assessee and was liable to tax as having been actually received in the accounting year and could be taken into account for determining the assessee's profits. The assessee's contention that the said balance amount being payable only at some future date or dates should not be included in the assessment year, or, alternatively, only the unpaid balance of the consideration of the bungalows sold alone could be taxed, were all rejected. On second appeal, the Tribunal confirmed the assessment. On reference: HELD I For the period under assessment, the assessee's accounts were being maintained on the mercantile basis or accrual basis, and, therefore, it was not necessary that the amount should have been actually realised by the assessee before it could be subjected to tax. From a mercantile point of view, the amount had accrued to the assessee in the year of account relevant to the assessment year 1957-58. The sale in all these cases, except one, had taken…

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