Law:

Section:

Section 145(1) of the income-tax act, 1961-Method of accounting-Assessee sole selling agent of a jute mill-Compensation accrued for damages suffered during April 1957 to august 1958 for violation of agreement by mill-Amount received in assessment year 1970-71-Assessee following mercantile system of accounting-Whether tribunal justified in holding that amount taxable as revenue receipt-Held, yes-Whether tribunal justified in law in holding that amount taxable on receipt basis in assessment year 1970-71-Held, on facts, no Facts The assessee-firm was appointed as the sole selling agent of a jute mill under an agreement dated 1-2-1957 for three years. It was stipulated that it would advance to the mill up to Rs. 2 lakhs and was to receive commission on all sales. As a result of certain disputes between the parties, the arbitrator gave his award on 13-10-1958. This award also ran into rough weather and the matter was ultimately settled by the Supreme Court. Accordingly, the assessee received on various dates a total sum of Rs. 3,46,477.50 allocated as under: a.Rs. 1,50,000 towards repayment of loan, b.Rs. 29,400 towards interest on loan, c.Rs. 25,822.33 towards unpaid credit notes for commission, and d.Rs. 1,41,255.17 towards compensation for agency. On accrual basis, the assessment was made in respect of item (b ) for the assessment years from 1959-60 to 1963-64 and for item (c) for the assessment years 1959-60 and 1960-61. Out of Rs. 1,41,225.17, as per item (d), a sum of Rs. 29,243.13 was shown as profit and assessed in the assessment year 1964-65. After adjusting the litigation expenses of Rs. 41,001, the balance of Rs. 71,010 was brought to tax in the assessment year 1970-71 on receipt basis. The assessee contended before the AAC that (a) the last amount received represented compensation for termination of agency and, being capital receipt, was immune from tax liability and (b ) alternatively, the assessee was following mercantile system of accounting so that the amount relating to the period from April 1957 to August 1958 was not assessable in the assessment year 1970-71. The AAC, accordingly, deleted the addition of Rs. 71,010. The Tribunal, however, reversed…

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