Law:

Section:

Section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1957-58 - Assessee-firm dealt in iron goods and also ran a steel rolling mill - During war years price of iron and steel goods had been controlled and assessee had sold goods at price fixed by Iron and steel Controller - During relevant assessment year, Steel Controller gave assessee reimbursements for loss or reduction in profits as a result of enforcement of control on goods sold during war years - Whether amount so received was assessable to tax as business income during assessment year in question - Held, yes FACTS The assessee, a registered firm, dealt in iron goods and also ran a steel rolling mill. During the war years the price of the iron and steel goods had been controlled and the assessee had sold the goods at prices fixed by the iron and Steel Controller. In the relevant assessment year, the assessee received the reimbursements from the Government on account of the difference in the price of goods supplied by the assessee to permit holders. The ITO treated the payment as the business income. On appeal, the AAC confirmed the order of the ITO. On second appeal, the Tribunal confirmed the order of the AAC. On reference: HELD It is well-settled that, income only accrues when a person has acquired a right to receive it, i.e., he must have created a debt in his favour which may be payable later, i.e., debitum in praesenti solvendum in futuro . In the instant case, there was certainly no debt created in favour of the assessee during the war years and, there was no question of any payment having been made later in respect thereof. The Steel Controller had, certain principles in mind on the basis of which he hoped to give the iron and steel rolling mills some relief for the loss or reduction in profits as a result of the enforcement of controls. The assessee also had correctly understood the position that there was really no agreement or contract much less a debt created in his favour. Otherwise, its system of accounting being mercantile, it would most certainly have raised suitable entries in its…

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