Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessee was supplying railway sleepers to railways and under terms of agreement, it was entitled to increase price on account of escalation in cost of pig iron - During assessment year 1968-69 (accounting year ending 6-4-1968), assessee submitted to railways supple- mentary bills due to cost escalation in respect of sleepers supplied during relevant accounting year - Railways lodged counter claim against assessee for late supply of sleepers but in arbitration award, counter-claim of railways was substantially reduced - Assessee received payments in January 1969, March 1969 and December 1970 - Assessee was maintaining accounts on mercantile basis - Whether entire amount received against supplementary bill was taxable in assessment year 1968-69 and not on actual receipt basis - Held, yes Facts The assessee was regularly supplying railway sleepers to the railways. Under the terms of contract, the assessee was entitled to increase the price of the sleepers on the increase in the cost of pig iron. During the year relevant to the assessment year 1968-69 (accounting period ending 6-4-1968) the assessee submitted supplementary bill for its additional claim on account of escalation in price, aggregating Rs. 2,02,309 in respect of sleepers supplied between 28-6-1967 and 18-8-1967. The Railway Board informed the assessee about late supply of sleepers and made a counter-claim of Bs. 73,731.09 and withheld payment. In arbitration, an award was given in favour of the assessee and the counter-claim of the railways was reduced substantially. The assessee received the payments on 16-1-1969, 26-3-1969 and 16-12-1970. In its income-tax return for the assessment year 1968-69, the assessee did not include the amount of its claim contained in the supplementary bills on the ground that the said amounts had been shown on receipt basis in the subsequent years. The ITO held that as the assessee maintained its accounts on mercantile basis, it was liable to income-tax on the entire amount of Bs. 2,02,309 in the said assessment year. On appeal, the Tribunal, however, allowed the assessee's claim that the amounts received…

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