Law:

Section:

Section 145, read with section 5, of the income-tax act, 1961-Method of accounting-Charge on accrual or receipt basis-Assessee-company was tenant of certain property part of which was requisitioned by government-Dispute arose whether assessee-company or landlord would get compensation-Whether pending final settlement of dispute in court, rents receivable from requisitioned portion could be said to be accrued income of assessee-company and could be assessed in its hands on the ground that it was following mercantile system of accounting-Held, on facts, no Facts The assessee-company was a tenant of a certain property owned by DP. Part of the tenanted property was requisitioned by the Government as a consequence of which a dispute arose between the assessee-company and DP as to who was entitled to receive compensation. While the dispute was pending final adjudication in the Court, the ITO assessed the assessee-company on the amounts of rent receivable in respect of the requisitioned portion of the premises. The AAC rejected its appeal on the ground that as the assessee was following the mercantile system of accounting and as the rent was receivable during the said previous year, any court injunction could not be a ground for exclusion of the income from the instant assessment. On second appeal, the Tribunal set aside the AAC's order and held that since the dispute over the rent was still pending before the Land Acquisition Collector, no income by way of monthly compensation from the Government had accrued to the assessee during the relevant previous year. The addition made by the ITO on this account was, therefore, deleted by the Tribunal. On reference : Held In view of the facts found by the Tribunal, the assessee's entire right to get compensation from the Land Acquisition Collector was very much in dispute and was in jeopardy because of which the assessee could not be assessed on the compensation amount on the basis of mercantile system of accounting. Pending final settlement by the Court as to whether the assessee or the landlord would get the compensation, it could not be said that a perfected debt had come into existence in favour of the assessee-company or…

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