Law: Income Tax Act, 1961

Section: 256

Income tax---Real income Accrual of Method of accounting --Relevancy. The theory of real income being liable to taxation, is not based on any accounting principle or accounting entries. If accounting entry is the only criterion, then it would furnish easy means of escape for unscrupulous assessees who, by declining to make an entry, may get out of the net of taxation. Accounting entry does not also create any estoppel as against the assessee and in favour of the department. The liability to taxation is based on the statute and an assessee is not liable to be taxed because of his mistake. The assessee was film distributor. It provided finance to produce certain film. The assessee was to get distribution commission on net realisation of the picture. In view of the agreement between the parties the film having of been completed before stipulated period the assessee took over its further reduction. The actual amount realised from the producer and from exhibition of film was less than the amount invested by the assessee. Held, that no income on account of distribution commission could be said to have accrued to the assessee merely because it was following mercantile system of accounting. The amount realised being less than the amount invested by the assessee the question of realisation of commission contemplat¬3 by the agreement would be a doubtful one. 1981. Tax L R NOC 212 ; (1 981) 127 I T R 572 ; 124I T R 619 (Pb.Har.) ; 110 I T R 336 (Ker.) ; 82 I T R 835 ; (1969) 73 I T R 382 ; 57 T R 521 and 39 I T R 706 ref. JUDGMENT SETHURAMAN, J. At the instance of the Commissioner of Income tax ad in pursuance of the direction of this Court,. two questions have been referred under section 256 (1) (256 (2)3) of the Income tax Act, 1961. The first of them is : "Whether, on the facts and in the circumstances of the case and having regard to the terms of the agreement entered into between the parties and in the light of the entries contained in the accounts of the assessee, the Appellate Tribunal was right in deleting the commission added to the assessee's income for the respective assessment years?" 2. The assessee is private limited company. It derives income inter alia…

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