Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922], read with sections 4 and 5 of Excess Profits Tax Act, 1940 - Method of Accounting - System of accounting - Whether right which assessees have under section 13 of having their income, profits or gains computed in accordance with method of accounting regularly employed by them has not been taken away by Excess Profits Tax Act - Held, yes - Whether if ordinary mode of accounting followed by assessee firm was on cash basis, then there was no reason why they should not be allowed to use same mode for making their returns for purpose of Excess Profits tax Act and Department was bound to assess assessee to excess profits tax on cash basis and not on mercantile basis - Held, yes FACTS The assessee-firm, which was of guarantee brokers of a Mill, was maintaining their accounts on cash basis and they credited in their books of accounts the amounts actually received by them from the mills in respect of their brokerage, and these entries were made when the brokeage was actually paid. The Department held that whatever might be the position under the Act under the Excess Profits Tax Act the assessees could not maintain their accounts on the cash basis for accounting and they must make their returns for the Excess Profits Tax Act only on the mercantile basis. In other words according to the Tribunal the assessee must enter in their books of account brokerage when it accrued due to the assessees and not when it was received by them. On reference: HELD The Tribunal had looked upon section 5 of the Excess Profits Tax Act as the charging section and not as a section which dealt with the applicability of the Act. With respect that was a fallacious reasoning which had led the Tribunal to the conclusion that the assessees were not entitled to maintain their accounts on the cash basis. The charging section is not section 5 but section 4 and when one turns to the other provisions of the Act it is clear that the right which the assessees have under section 13 of having their income, profits or gains computed in accordance with the method of accounting regularly employed by them has…

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