Law: Income Tax Act, 1922

Section:

Income-tax---Income---Accounting---Accrual of income---Time of accrual--­Collaboration agreement with non-resident company---Amount received by assessee-company under agreement---Resolution of Board of Directors before entering into agreement that receipts would be treated on a cash basis--­Amounts not received in year---Not assessable---Indian Income Tax Act, 1961. The assessee entered into an agreement with a company in Sri Lanka. Under the agreement, the assessee was to receive Sri Lankan Rs.10 lakhs as technical fees, royalty and export commission within 240 days of the signing of the agreement, which came into effect from September 23, 1982. However, before the period of 240 days was over, the Indian Bank which financed the entire project of the new company by letter, dated December 7, 1982, put a restriction to the effect that no such payment would be allowed to be made to the assessee so long as any loan to the bank was in arrears. The Assessing Officer assessed the amount on the ground that it had accrued. The assessee submitted before the Commissioner of Income-tax (Appeals) that in respect of the income from this portion of the foreign venture, the board had resolved by its resolution, dated .May 20, 1982, that the new source of income of the company from technical fees, royalty and export commission receivable under the agreement with the Sri Lankan company be treated on cash basis. The Commissioner of Income-tax (Appeals), however, sustained the addition of Rs.5 lakhs. The Tribunal found that the assessee had passed a resolution on May 20, 1982, to treat the income receivable from Sri Lanka on cash basis. The resolution indicated clearly that the Board of Directors long before the foreign company carry into existence resolved to account for the income of the company from the agreement on cash basis. The Tribunal also found that the bona fides of the assessee in passing this resolution had not been challenged by the Department. The Tribunal deleted the addition. On a reference: Held, that the resolution passed on May 20, 1982, indicated that the Board of Directors, long before the foreign company came into existence, resolved to account for the…

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