Law:

Section:

Section 256(2), read with section 5, of the income-tax act, 1961-Reference-Question of fact-Assessee-firm, which followed mercantile system of accounting, had transferred part of import licence and returned income therefrom in accounting year relevant to assessment year 1969-70-Ito taxed said income in assessment year 1970-71 on ground that transfer was effected to sister concern as a measure to stagger profits over a few years and that transfer had actually taken place in accounting year relevant to assessment year 1970-71-Whether, where it had been found as a fact by tribunal that licence had been acted upon by transferee in accounting year relevant to assessment year 1969-70 and income accrued in that year, any question of law arose qua year of accrual of said income-Held, no Facts During the accounting year ending on 31-8-1968, relevant to the assessment year 1969-70, the assessee-firm, which employed the mercantile system of accounting, sold part of rights in the import licence which it had obtained as its import entitlement. The income arising therefrom was returned by it in the assessment year 1969-70, but the ITO taxed it in the assessment year 1970-71, taking the view that the transfer, which was to a sister concern, was a measure calculated to stagger the profits over a few years and that the assessee had actually transferred the licence during the accounting year relevant to assessment year 1970-71 and not 1969-70. The Tribunal, however, noticing that the first consignment was actually imported by the transferee on 30-8-1968 which fell in the assessment year 1969-70, held the income to be taxable in 1969-70. On application for reference under section 256(2) : Held Since the transferee firm had utilised the import licence and on the strength of it imported goods on 3(1-8-1968, a period which fell in the assessment year 1969-70, the licence had, in fact, been acted upon in that year. The consistent finding of the authorities below was that the assessee employed the mercantile system of accounting and its claim that it had received the profit in the accounting year relevant to the assessment year 1969-70 was supported by the conduct of the…

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