DCIT, New Delhi V. M/s. Sistema Shyam Teleservices Ltd., New Delhi

ITA 732/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6213 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: ALOK VASANT
• Keywords: Question of law; Revenue expenditure
• Section: 145; 144

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 732/DEL/2016 (ASSESSMENT YEAR: 2010 - 11 ) DCIT, CIRCLE - 23(2), NEW DELHI VS. SISTEMA S H YAM TELESERVICES LTD, A - 60, NARAINA INDUSTRIAL AREA - I, NEW DELHI PAN: AACCS1709H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SURENDER PAL, SR. DR ASSESSEE BY: SHRI ALOK VASANT, CA DATE OF HEARING 11/12 / 2018 DATE OF PRONOUNCEMENT 2 5 / 01 / 2019 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL IS FILED BY THE DEPUTY COMMISSIONER OF INCOME TAX [ THE LD AO ] CIRCLE 23(2), NEW DELHI AGAINST ORDER OF THE LD COMMISSIONER OF INCOME TAX (APPEALS) - 28, [ THE CIT A] NEW DELHI DATED 02/12/2015 WHEREIN, THE ADDITION OF RS. 27,23,43,091/ - ON ACCOUNT OF UN - ACCRUED REVENUE FROM THE SALE OF PREPAID CARDS AS ON 31 - 3 - 2010 ADDED BY THE LD AO WERE DELETED BY THE LD CIT - A . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 27,23,43,091/ - ON ACCOUNT OF UN - ACCRUED REVENUE AS ON 31.03.2010 FROM THE SALE OF PREPAID CARDS AND RECOGNIZED IN THE BOOKS OF ACCOUNTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT 'AS SOON AS TLJE MONEY IS RECEIVED, REVENU E SHOULD BE RECOGNIZED IN P&L ACCOUNT AND TAXES SHOULD BE PAID. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT THERE IS NO LIABILITY ON THE PART OF THE ASSESSEE TO RETURN BACK UNUTILIZED TALK VALUE TO THE PURCHASER/CONSUMER IN ANY CASE AND ALSO THAT THE ASSESSEE IS PAGE | 2 CLAIMING COMMISSION AS EXPENSE IN THE SAME YEAR WHEREAS INCOME HAS BEEN MADE DEPEND ON UTILIZATION OF TALK VALUE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY PROVIDING CDMA BASED TELECOM SERVICES. IT FILED ITS RETURN OF INCOME ON 25 /0 9 / 2010 DECLARING A TOTAL LOSS OF R S. 17 , 22 , 54 , 19 , 768 / - . THIS RETURN WAS SUBSEQUENTLY REVISED ON 16 /0 1 / 2012 DECLARING LOSS OF RS. 17 , 32 , 10 , 33 , 212 / - . THE ASSESSMENT UNDER SECTION 143 ( 3 ) OF THE ACT WAS MADE VIDE ORDER DATED 0 1 /0 3 / 2014 UNDER SECTION 143 ( 3 ) READ WITH SECTION 144 C OF THE ACT DETERMINING TOTAL LOSS OF RS. 17 , 04 , 86 , 90 , 121 / - . THE ONLY ADDITION WAS OF RS. 2 72343091 / - ON ACCOUNT OF UN - ACCRUED REVENUE AS ON 31 /0 3 / 2010. THE LD AO MADE THE ADDITION VIDE PARA NUMBER 5 OF HIS ORDER AS UNDER : - 5. DURING THE YEAR UNDER REVIEW, THE ASSESSEE COMPANY DERIVED INCOME MAINLY FROM MOBILE TELEPHONY SERVICES RENDERED ON CDMA PLATFORM. THE TELEPHONY SERVICES ARE MOSTLY RENDERED THROUGH PREPAID CARDS EXCEPT IN RAJASTHAN TELECOM CIRCLE AS IT IS BEING OPERATED AS PER THE OLD LICENSE REGIME. 5.1 IN VIEW OF THE FACT THAT THE ASSESSEE COMPANY HAS NOT REPORTED ANY CHANGE IN THE ACCOUNTING POLICY REGARDING TH E TREATMENT OF UN - ACCRUED REVENUE FROM SALE OF PREPAID CARDS, A SPECIFIC QUERY WAS RAISED ON THE ORDER SHEET REGARDING THE SAME AND TO SHOW CAUSE WHY THE UN - ACCRUED REVENUE AS ON 31.03.2010 SHOULD NOT BE ADDED BACK TO THE REVENUE OF THE ASSESSEE IN VIEW OF SIMILAR TREATMENT MADE BY THE DEPARTMENT IN PREVIOUS YEAR. 5.2 IN REPLY TO SAME THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPANY SUBMITTED A DETAILED REPLY VIDE LETTER DATED 25.02.2014 WHICH IS TAKEN ON RECORD. AS THE AFORESAID ISSUE WAS ALSO THE SUB JECT MATTER OF ADDITION IN THE PRECEDING YEARS AND PROCEEDINGS IN RESPECT OF THE SAME ARE ALSO PENDING BEFORE THE APPELLATE AUTHORITIES MID AS THERE IS NO CHANGE IN FACTS AS COMPARED TO THOSE YEARS, HENCE SIMILAR TREATMENT IS REQUIRED TO BE GIVEN IN THE C URRENT YEAR AS WELL. ON GOING THROUGH THE DETAILS PROVIDED BY THE ASSESSEE IT IS SEEN THAT THE UN - ACCRUED REVENUE AS ON 31.03.2010 WAS RS. 34,88,62,307. 5.3 FURTHER THE UN - ACCRUED REVENUE AS ON 31.03.2009 WAS RS. 7,65,19,216 AND WAS TREATED AS INCOME IN A SSESSMENT ORDER OF ASSESSMENT YEAR 2009 - 10. HENCE AFTER GIVING CREDIT FOR THE SAME AS PER THE CLAIM OF THE ASSESSEE THAT THE SAME HAS BEEN UTILIZED AND ALREADY RECOGNIZ ED IN INCOME OF THE CURRENT PAGE | 3 YEAR HENCE BALANCE AMOUNT (RS. 34,88,62,307 - RS. 7,65,19,21 6) I.E. RS. 27,23,43,091 IS THE UN - ACCRUED REVENUE TO BE TREATED AS INCOME AND IS ADDED BACK TO THE TOTAL INCOME IN THE CURRENT YEAR. 4. THE ASSESSEE CHALLENGED THE ISSUE BEFORE THE LD COMMISSIONER OF INCOME TAX ( APPEALS ) . THE LD CIT(A) DELETED THE ADDITION VIDE PARA NUMBER 3 OF HIS ORDER FOLLOWING THE EARLIER ORDERS OF THE CO - ORDINATE BENCH AND ALSO FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF BTA TELECOM LTD. IN ITA NO. 133 / 2009 FOR THE ASSESSMENT YEAR 200 2 - 2003 . THE REVENUE AGG RIEVED WITH THE ORDER OF THE LD C IT(A) HAS PREFERRED THIS APPEAL. 5. THE LD DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LD AO . 6. THE LD AR SIMPLY SUPPORTED THE ORDER OF THE LD CIT(A) AND SUBMIT TED THAT NOW THE ISSUE IS SQUARELY IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN ITA NO. 17 / 2013 DATED 15 / 11 / 2013 IN ASSESSEES OWN CASE FOR EARLIER YEARS . 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE ORDER OF THE LOWER AUTHORIT IES AS WELL AS THE VARIOUS ORDERS OF THE CO - ORDINATE BENCH WHICH TRAVEL LED BEFORE THE HON'BLE DELHI HIGH COURT WHEREIN IN ITA NO 70/2013,73/2013, 1069/2017 FOR AY 2003 - 04, 2004 - 05 AND 2009 - 10 DATED 15 - 11 - 2018 , WHOLE ISSUE HAS BEEN DISCUSSED AND THE DELETION OF THE ADDITION IS CONFIRMED IS AS UNDER : - 8. QUANTUM OR REVENUE EARNED WOULD BE INCOME IN ONE YEAR OR THE OTHER YEAR. COUNSEL FOR THE RESPONDENT - ASSESSEE HAD DRAWN OUR ATTENTION TO TABLES/CHART FILED BEFORE US. RS.44,42,221/ - ADDED TO THE INCOME OF THE ASSESSMENT YEAR 2003 - 04 WAS REQUIRED TO BE REDUCED FROM THE RECEIPTS SHOWN BY THE RESPONDENT - ASSESSEE IN THE ASSESSMENT YEAR 2004 - 05. SIMILARLY, ADDITION OF RS.72,64,139/ - MADE IN THE ASSESSMENT YEAR 2004 - 05 HAS TO BE REDUCED FROM THE INCOME IN THE ASSESSM ENT YEAR 2005 - 06. IN FACT, THE INCOME FOR THE ASSESSMENT YEAR 2005 - 06 WOULD BE LOWER AS THE CARRIED FORWARD TALK TIME OF RS.30,74,152/ - WAS LOWER THAN THE TALK TIME OF RS.72,64,139/ - CARRIED - FORWARD FROM THE ASSESSMENT YEAR 2004 - 05. IN THE ASSESSMENT YEAR 2009 - 10 THE CARRY - FORWARD TALK TIME TAXED BY THE ASSESSING OFFICER WAS RS.7,65,19,216/ - . THIS AMOUNT HAS TO BE REDUCED FROM THE REVENUE RECEIPTS FOR THE ASSESSMENT YEAR 2010 - 11. THE PAGE | 4 AMOUNT CARRIED - FORWARD TO THE ASSESSMENT YEAR 2011 - 12 WAS RS.34,88,62,307/ - . THIS WOULD POSSIBLY EXPLAIN THE REASON WHY THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2011 - 12 ONWARDS. IF THE STAND OF THE REVENUE IS TO BE ACCEPTED, THEN THE RECEIPTS OF THE RESPONDENT - ASSESSEE TO THE TUNE OF RS.34,88,62,307/ - HAVE TO BE REDUCED IN THE NEXT ASSESSMENT YEAR 2011 - 12. 9. HOWEVER, WE WOULD NOT LIKE TO DISPOSE OF THE PRESENT APPEALS ONLY ON THE AFORESAID BASIS, FOR WE FIND THAT THERE IS MERIT IN THE FINDINGS RECORDED BY THE TRIBUNAL, ACCEP TING THE METHOD OF ACCOUNTING FOLLOWED BY THE RESPONDENT ASSESSEE. THE TRIBUNAL IN THE IMPUGNED ORDER HAS REFERRED TO THE DIFFERENCE BETWEEN RECEIPT OF AN AMOUNT AND ACCRUAL OF INCOME. EVERY RECEIPT IS NOT INCOME, FOR INCOME IS SOMETHING WHICH THE ASSESSEE IS LEGALLY ENTITLED TO APPROPRIATE TO THE EXCLUSION OF THE GIVER. HOWEVER, CONTENTION OF THE REVENUE THAT THE PREPAID AMOUNT ONCE PAID AND RECEIVED BY THE ASSESSEE WAS FORGONE BY THE SUBSCRIBER AND ACCORDINGLY APPROPRIATED BY THE RESPONDENT - ASSESSEE IS SU BSTANTIALLY CORRECT. AT THE SAME TIME, THE PAYMENT WAS AN ADVANCE AND WAS SUBJECT TO THE RESPONDENT - ASSESSEE PROVIDING BASIC TELECOM SERVICE AS PROMISED, FAILING WHICH THE UNUTILIZED AMOUNT WAS REQUIRED TO BE REFUNDED TO THE PRE - PAID SUBSCRIBERS. 10. THE RESPONDENT - ASSESSEE STATES THAT THEY HAVE BEEN FOLLOWING THE PRINCIPLES OF REVENUE RECOGNITION AS PER ACCOUNTING STANDARDS. PARAGRAPH 7 OF ACCOUNTING STANDARDS STIPULATES: - 7. RENDERING OF SERVICES 7.1 REVENUE FROM SERVICE TRANSACTIONS IS USUALLY RECOGNISED AS THE SERVICE IS PERFORMED, EITHER BY THE PROPORTIONATE COMPLETION METHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. (I) PROPORTIONATE COMPLETION METHOD PERFORMANCE CONSISTS OF THE EXECUTION OF MORE THAN ONE ACT. REVENUE IS RECOGNISED PROPOR TIONATELY BY REFERENCE TO THE PERFORMANCE OF EACH ACT. THE REVENUE RECOGNISED UNDER THIS METHOD WOULD BE DETERMINED ON THE BASIS OF CONTRACT VALUE, ASSOCIATED COSTS, NUMBER OF ACTS OR OTHER SUITABLE BASIS. FOR PRACTICAL PURPOSES, WHEN SERVICES ARE PROVIDED BY AN INDETERMINATE NUMBER OF ACTS OVER A SPECIFIC PERIOD OF TIME, REVENUE IS RECOGNISED ON A STRAIGHT LINE BASIS OVER THE SPECIFIC PERIOD UNLESS THERE IS EVIDENCE THAT SOME OTHER METHOD BETTER REPRESENTS THE PATTERN OF PERFORMANCE. (II) COMPLETED SERVICE CONTRACT METHOD PERFORMANCE CONSISTS OF THE EXECUTION OF A SINGLE ACT. ALTERNATIVELY, SERVICES ARE PERFORMED IN MORE THAN A SINGLE ACT, AND THE SERVICES YET TO BE PERFORMED ARE SO SIGNIFICANT IN RELATION TO THE TRANSACTION PAGE | 5 TAKEN AS A WHOLE THAT PERFORMANC E CANNOT BE DEEMED TO HAVE BEEN COMPLETED UNTIL THE EXECUTION OF THOSE ACTS. THE COMPLETED SERVICE CONTRACT METHOD IS RELEVANT TO THESE PATTERNS OF PERFORMANCE AND ACCORDINGLY REVENUE IS RECOGNISED WHEN THE SOLE OR FINAL ACT TAKES PLACE AND THE SERVICE BEC OMES CHARGEABLE. PARAGRAPH 7 STIPULATES THAT REVENUE FROM SERVICE TRANSACTION CAN BE RECOGNIZED EITHER BY PROPORTIONATE COMPLETION METHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. REVENUE IS GENERALLY RECOGNIZED WHEN THE SERVICE IS PERFORMED. PROPORTION ATE COMPLETION METHOD IS A RECOGNIZED ACCOUNTING METHOD, AS PER WHICH REVENUE IS RECOGNIZED PROPORTIONATELY BY REFERENCE TO THE PERFORMANCE OF EACH ACT. UNDER THIS METHOD, REVENUE IS DETERMINED ON THE BASIS OF CONTRACT VALUE, ASSOCIATED COSTS, NUMBER OF ACTS OR OTHER SUITABLE CRITERIA. IN OTHER WORDS, WHEN SERVICES ARE PROVIDED BY AN INDETERMINATE NUMBER OF ACTS OVER A SPECIFIC PERIOD OF TIME, REVENUE IS RECOGNIZED ON A STRAIGHT LINE BASIS OVER THE SPECIFIC PER IOD. THIS IS SUBJECT TO ANY EVIDENCE THAT SOME OTHER METHOD WOULD BE BETTER AND MORE APPROPRIATE FOR REPRESENTING THE PATTERN OF PERFORMANCE. 11. A DIVISION BENCH OF DELHI HIGH COURT HAD OCCASION TO DEAL WITH ACCOUNTING STANDARD 9 IN COMMISSIONER OF INCOM E - TAX VS. DINESH KUMAR GOEL [2011] 331 ITR 10 (DEL). THIS WAS A CASE OF A COACHING INSTITUTE THAT HAD RECEIVED ENTIRE FEE FOR THE COURSE SPREAD OVER TWO YEARS DURATION AT THE TIME OF ADMISSION OF THE STUDENTS. HOWEVER, THE ENTIRE FEE WAS NOT ACCOUNTED IN THE YEAR OF RECEIPT WHEN THE ENTIRE PAYMENT WAS MADE, BUT WAS SPREAD OVER THE ENTIRE DURATION OF THE COURSE AND ACCORDINGLY ACCOUNTED IN THE BOOKS OF ACCOUNTS AND INCOME TAX RETURNS. WE WOULD CLARIFY THAT THE ASSESSEE THEREIN WAS FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING. REFERENCE WAS MADE TO E.D. SASSOON AND CO. LTD. VS COMMISSIONER OF INCOME TAX [1954] 26 ITR 27 (SC) TO OBSERVE AS UNDER: - 12. SECTION 5 OF THE ACT GIVES THE SCOPE OF TOTAL INCOME . SUB - SECTION (1) THEREOF, WITH WHICH WE ARE CONCERNED, RE ADS AS UNDER: 1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON B EHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR; OR (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING SUCH YEAR. 13. AS IS CLEAR FROM READING OF CLAUSE (B) ABOVE, EVEN WHEN THE INCOME ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE PAGE | 6 TO THE ASSESSEE IN INDIA DURING PREVIOUS YEAR, THAT IS TO BE TAXED IN THAT YEAR. IT IS IMPORTANT, THEREFORE, THAT RECEIPT OF A PARTICUL AR AMOUNT IN THE RELEVANT YEAR SHOULD BE AN INCOME UNDER THE AFORESAID PROVISION. WHAT IS THE RELEVANT YARDSTICK IS THE TIME OF ACCRUAL OR ARISAL FOR THE PURPOSE OF ITS TAXATION, VIZ., IN ORDER TO BE CHARGEABLE, THE INCOME SHOULD ACCRUE OR ARISE TO THE A SSESSEE DURING THE PREVIOUS YEAR. IF INCOME HAS ACCRUED OR ARISEN, EVEN IF ACTUAL RECEIPT OF THE AMOUNT IS NOT THERE, IT WOULD BE CHARGEABLE TO TAX IN THE SAID YEAR. THOUGH THE AMOUNT MAY BE RECEIVED LATER IN THE SUCCEEDING YEAR, THE INCOME WOULD BE SAID T O ACCRUE OR ARISE IF THERE IS A DEBT OWED TO THE ASSESSEE BY SOMEBODY AT THAT MOMENT. FROM THIS, IT FOLLOWS THAT THERE MUST BE THE RIGHT TO RECEIVE THE INCOME ON A PARTICULAR DATE, SO AS TO BRING ABOUT A CREDITOR AND DEBTOR RELATIONSHIP ON THE RELEVANT DA TE. THE COURT FURTHER EXPLAINED THAT A RIGHT TO RECEIVE A PARTICULAR SUM UNDER THE AGREEMENT WOULD NOT BE SUFFICIENT UNLESS THE RIGHT ACCRUED BY RENDERING OF SERVICES AND NOT BY PROMISING FOR SERVICES AND WHERE THE RIGHT TO RECEIVE IS ANTERIOR TO RENDERIN G OF SERVICE, THE INCOME, THEREFORE, WOULD ACCRUE ON RENDERING OF SERVICES. FOLLOWING DISCUSSION IN THIS JUDGMENT WOULD DEMONSTRATE THE PRINCIPLE WHICH WE HAVE HIGHLIGHTED ABOVE: 37. MUKERJI J. HAS DEFINED THESE TERMS IN ROGERS PYATT SHELLAC & CO. V. SECR ETARY OF STATE FOR INDIA 1 I.T.C. 363: 'NOW WHAT IS INCOME? THE TERM IS NOWHERE DEFINED IN THE ACT IN THE ABSENCE OF A STATUTORY DEFINITION WE MUST TAKE ITS ORDINARY DICTIONARY MEANING - 'THAT WHICH COMES IN AS THE PERIODICAL PRODUCE OF ONE'S WORK, BUSINES S, LANDS OR INVESTMENTS (CONSIDERED IN REFERENCE TO ITS AMOUNT AND COMMONLY EXPRESSED IN TERMS OF MONEY); ANNUAL OR PERIODICAL RECEIPTS ACCRUING TO A PERSON OR CORPORATION' (OXFORD DICTIONARY). THE WORD CLEARLY IMPLIES THE IDEAL OF RECEIPT, ACTUAL OR CONST RUCTIVE. THE POLICY OF THE ACT IS TO MAKE THE AMOUNT TAXABLE WHEN IT IS PAID OR RECEIVED EITHER ACTUALLY OR CONSTRUCTIVELY. 'ACCRUES,' 'ARISES' AND 'IS RECEIVED' ARE THREE DISTINCT TERMS. SO FAR AS RECEIVING OF INCOME IS CONCERNED THERE CAN BE NO DIFFICULT Y; IT CONVEYS A CLEAR AND DEFINITE MEANING, AND I CAN THINK OF NO EXPRESSION WHICH MAKES ITS MEANING PLAINER THAN THE WORD 'RECEIVING' ITSELF. THE WORDS 'ACCRUE' AND 'ARISE' ALSO ARE NOT DEFINED IN THE ACT. THE ORDINARY DICTIONARY MEANINGS OF THESE WORDS H AVE GOT TO BE TAKEN AS THE MEANINGS ATTACHING TO THEM. 'ACCRUING' IS SYNONYMOUS WITH 'ARISING' IN THE SENSE OF SPRINGING AS A NATURAL GROWTH OR RESULT. THE THREE EXPRESSIONS 'ACCRUES,' 'ARISES' AND 'IS RECEIVED' HAVING BEEN USED IN THE SECTION, STRICTLY SP EAKING 'ACCRUES' SHOULD NOT BE TAKEN AS SYNONYMOUS WITH 'ARISES' BUT IN THE DISTINCT SENSE OF GROWING UP BY WAY OF PAGE | 7 ADDITION OR INCREASE OR AS AN ACCESSION OR ADVANTAGE; WHILE THE WORD 'ARISES' MEANS COMES INTO EXISTENCE OR NOTICE OR PRESENTS ITSELF. THE FO RMER CONNOTES THE IDEA OF A GROWTH OR ACCUMULATION AND THE LATTER OF THE GROWTH OR ACCUMULATION WITH A TANGIBLE SHAPE SO AS TO BE RECEIVABLE. IT IS DIFFICULT TO SAY THAT THIS DISTINCTION HAS BEEN THROUGHOUT MAINTAINED IN THE ACT AND PERHAPS THE TWO WORDS S EEM TO DENOTE THE SAME IDEA OR IDEAS VERY SIMILAR, AND THE DIFFERENCE ONLY LIES IN THIS THAT ONE IS MORE APPROPRIATE THAN THE OTHER WHEN APPLIED TO PARTICULAR CASES. IT IS CLEAR, HOWEVER, AS POINTED OUT BY FRY L.J. IN COLQUHOUN V. BROOKS (1888) 21 Q.B.D. 5 2, 59 [THIS PART OF THE DECISION NOT HAVING BEEN AFFECTED BY THE REVERSAL OF THE DECISION BY THE HOUSE OF LORDS (1889) 14 APP. CAS. 493 THAT BOTH THE WORDS ARE USED IN CONTRADISTINCTION TO THE WORD 'RECEIVE' AND INDICATE A RIGHT TO RECEIVE. THEY REPRESENT A STAGE ANTERIOR TO THE POINT OF TIME WHEN THE INCOME BECOMES RECEIVABLE AND CONNOTE A CHARACTER OF THE INCOME WHICH IS MORE OR LESS INCHOATE. ONE OTHER MATTER NEED BE REFERRED TO IN CONNECTION WITH THE SECTION. WHAT IS SOUGHT TO BE TAXED MUST BE INCOME AN D IT CANNOT BE TAXED UNLESS IT HAS ARRIVED AT A STAGE WHEN IT CAN BE CALLED 'INCOME.' 38. THE OBSERVATIONS OF LORD JUSTICE FRY QUOTED ABOVE BY MR. MUKERJI J. WERE MADE IN COLQUHOUN V. BROOKS (1888) 21 Q.B.D. 52 WHILE CONSTRUING THE PROVISIONS OF 16 AND 17 VICTORIA CHAPTER 34 SECTION 2 SCHEDULE 'D'. THE WORDS TO BE CONSTRUED THERE WERE 'PROFITS OR GAINS, ARISING OR ACCRUING,' AND IT WAS OBSERVED BY LORD JUSTICE FRY AT PAGE 59 : 'IN THE FIRST PLACE, I WOULD OBSERVE THAT THE TAX IS IN RESPECT OF 'PROFITS OR GA INS ARISING OR ACCRUING.' I CANNOT READ THOSE WORDS AS MEANING 'RECEIVED BY.' IF THE ENACTMENTS WERE LIMITED TO PROFITS AND GAINS 'RECEIVED BY' THE PERSON TO BE CHARGED, THAT LIMITATION WOULD APPLY AS MUCH TO ALL HER MAJESTY'S SUBJECTS AS TO FOREIGNERS RES IDING IN THIS COUNTY. THE RESULT WOULD BE THAT NO INCOME - TAX WOULD BE PAYABLE UPON PROFITS WHICH ACCRUED BUT WHICH WERE NOT ACTUALLY RECEIVED, ALTHOUGH PROFITS MIGHT HAVE BEEN EARNED IN THE KINGDOM AND MIGHT HAVE ACCRUED IN THE KINGDOM. I THINK, THEREFORE, THAT THE WORDS 'ARISING OR ACCRUING' ARE GENERAL WORDS DESCRIPTIVE OF A RIGHT TO RECEIVE PROFITS.' 39. TO THE SAME EFFECT ARE THE OBSERVATIONS OF SATYANARAYANA RAO J. IN COMMISSIONER OF INCOME - TAX, MADRAS V. ANAMALLAIS TIMBER TRUST LTD. [1950]18ITR333(MA D) AND MUKHERJEA J. IN COMMISSIONER OF INCOME - TAX, BOMBAY V. PAGE | 8 AHMEDBHAI UMARBHAI & CO., BOMBAY [1950]181ITR472(SC) WHERE THIS PASSAGE FROM THE JUDGMENT OF MUKERJI J. IN ROGERS PYATT SHELLAC & CO. V. SECRETARY OF STATE FOR INDIA 1 I.T.C. 363 , IS APPROVED AND ADOPTED. IT IS CLEAR THEREFORE THAT INCOME MAY ACCRUE TO AN ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SAME. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUGH IT MAY BE RECEIVED LA TER ON ITS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBODY. THERE MUST BE AS IS OTHERWISE EXPRESSED DEBITUM IN PRESENTI, SOLVENDUM IN FUTURE; SEE W. S. TRY LT D. V. JOHNSON (INSPECTOR OF TAXES) [1946] 1 A.E.R. 532 , AND WEBB V. STENTON AND OTHERS, GARNISHEES 11 Q.B.D. 518 . UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT DUE BY SOMEBODY IT CANNOT BE SAID THAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE INCOME OR THAT INCOME HAD ACCRUED TO HIM. 12. THE ARGUMENT OF THE REVENUE THAT AS PER THE AGREEMENTS SIGNED BY THE STUDENTS, THEY WERE CALLED UPON AND WERE REQUIRED TO PAY THE ENTIRE FEE UPFRONT FOR THE ENTIRE COURSE AT THE TIME OF ADMISSION AND, THE REFORE, THE ASSESSEE HAD EARNED FULL FEE AT THAT STAGE ITSELF WAS REJECTED OBSERVING AND REFERRING TO THE PRINCIPLE OF LAW LAID DOWN IN E.D. SASSOON AND CO. LTD. (SUPRA) THAT FEE WAS DEBT DUE AT THE TIME OF DEPOSIT. THE FEE WAS PAID IN ADVANCE THOUGH SERVI CES WERE YET TO BE RENDERED. REFERENCE WAS MADE TO CALCUTTA COMPANY LTD. VS. COMMISSIONER OF INCOME TAX [1959] 37 ITR 1 (SC) THAT WHEN THE FEE WAS PAID IN ADVANCE IT WOULD BE IN NATURE OF DEPOSIT OR AN ADVANCE. OTHERWISE, IT WOULD LEAD TO AN ANOMALOUS SITU ATION NOT INTENDED IN LAW, AS WHEN THE AMOUNT WAS RECEIVED THE EXPENSES TO BE DEDUCTED TO ARRIVE AT THE NET INCOME WERE YET TO BE INCURRED, AND WOULD BE INCURRED IN THE NEXT FINANCIAL YEAR. THE FOLLOWING PRINCIPLE WAS ENUNCIATED BY THE SUPREME COURT IN CALCUTTA COMPANY LTD. (SUPRA): - THE EXPRESSION PROFITS OR GAINS IN SECTION 10(1) OF THE INCOME - TAX ACT HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR TH E PURPOSE OF EARNING THE RECEIPTS IS DEDUCTED THEREFROM - WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. 13. IN OTHER WORDS, PRINCIPLE OF MATCHING BETWEEN THE REVENUE RECEIPT AND THE EXPENDITURE TO BE INCURRED WAS APPLIED. REFERENCE WAS ALSO MADE TO THE JUDGMENT OF THE SUPREME COURT IN PAGE | 9 COMMISSIONER OF INCOME TAX VS. BILAHARI INVESTMENT (P) LTD. [2008] 299 ITR 1 (SC), WHEREIN REFERRING TO THE CONCEPT OF MATCHING IT WAS OBSERVED: - 82. MATCHING CONCEPT IS BASED ON THE ACCOUNTING PERIOD CONCEPT. THE PARAMOUNT OBJECT OF RUNNING A BUSINESS IS TO EARN PROFIT. IN ORDER TO ASCERTAIN THE PROFIT MADE BY THE BUSINESS DURING A PERIOD, IT IS NECESSARY THAT 'REVEN UES' OF THE PERIOD SHOULD BE MATCHED WITH THE COSTS (EXPENSES) OF THAT PERIOD. IN OTHER WORDS, INCOME MADE BY THE BUSINESS DURING A PERIOD CAN BE MEASURED ONLY WITH THE REVENUE EARNED DURING A PERIOD IS COMPARED WITH THE EXPENDITURE INCURRED FOR EARNING TH AT REVENUE. HOWEVER, IN CASES OF MERGERS AND ACQUISITIONS, COMPANIES SOMETIMES UNDERTAKE TO DEFER REVENUE EXPENDITURE OVER FUTURE YEARS WHICH BRINGS IN THE CONCEPT OF DEFERRED TAX ACCOUNTING. THEREFORE, TODAY IT CANNOT BE SAID THAT THE CONCEPT OF ACCRUAL I S LIMITED TO ONE YEAR. 83. IT IS A PRINCIPLE OF RECOGNIZING COSTS (EXPENSES) AGAINST REVENUES OR AGAINST THE RELEVANT TIME PERIOD IN ORDER TO DETERMINE THE PERIODIC INCOME. THIS PRINCIPLE IS AN IMPORTANT COMPONENT OF ACCRUAL BASIS OF ACCOUNTING. AS STATED ABOVE, THE OBJECT OF AS 22 IS TO RECONCILE THE MATCHING PRINCIPLE WITH THE FAIR VALUATION PRINCIPLES. IT MAY BE NOTED THAT RECOGNITION, MEASUREMENT AND DISCLOSURE OF VARIOUS ITEMS OF INCOME, EXPENSES, ASSETS AND LIABILITIES IS DONE ONLY BY ACCOUNTING STAND ARDS AND NOT BY PROVISIONS OF THE COMPANIES ACT. 14. ON THE QUESTION OF APPLICATION OF THE ACCOUNTING PRINCIPLES, SECTION 145 OF THE ACT AND MANDATE OF THE COMPANIES ACT AND PARAGRAPH 9 OF THE ACCOUNTING STANDARDS, IN DINESH KUMAR GOEL (SUPRA) IT WAS OBSE RVED: - 28. READING OF THE AFORESAID (AS) 9 MAKES IT CLEAR THAT REVENUE IS RECOGNIZED ONLY WHEN THE SERVICES ARE ACTUALLY RENDERED. IF THE SERVICES ARE RENDERED PARTIALLY, REVENUE IS TO BE SHOWN PROPORTIONATE WITH THE DEGREE OF COMPLETION OF THE SERVICES. THIS REALLY CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE. 29. THOUGH OUR DISCUSSION ON THE ISSUE IS COMPLETE, THE PARTING COMMENTS NEED TO BE MADE. THE RECEIPTS RELATE TO THE UNEXECUTED PACKAGES, WHICH ARE NOT SHOWN IN THE INSTANT YEAR WOULD BE SHOWN IN TH E SUCCEEDING YEAR. RATE OF TAX IN RESPECT OF COMPANIES REMAINS THE SAME IN ALL THESE YEARS. THEREFORE, THE REVENUE DOES NOT LOSE ANYTHING, AS IT WOULD RECEIVE THE TAX ON THIS INCOME IN THE SUCCEEDING YEAR. STILL ISSUES ARE RAISED AND MUCH OUTCRY IS MADE FO R NOTHING. PAGE | 10 15. THEREAFTER, THE DELHI HIGH COURT IN DINESH KUMAR GOEL (SUPRA) HAD QUOTED THE FOLLOWING PASSAGE FROM THE DECISION OF BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. NAGRI MILLS CO. LTD. [1958] 33 ITR 681 (BOM) : - WE HAVE OFTEN WONDERED WHY THE INCOME TAX AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDU CTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952 - 53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 195354, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRIT TER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSES SEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 16. IN BILAHARI INVESTMENT (P) LTD. (SUPRA), THE SUPREME COURT HAD ELUCIDATED THAT REVENUE RECOGNITION WAS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. THE SAME RESULT COULD BE ATTAINED BY ANY ONE OF THE ACCOUNTING METHODS. COMPLETED CONTRACT METHOD WAS ONE SUCH METHOD. SIMILARLY, PERCENTAGE OF COMPLETION METHOD WAS ANOTHER SUCH METHOD. PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCOME IN ORDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZED UNDER THIS METHOD IS DETERMINED BY REFERENCE TO THE STAGE OF COMPLETION OF THE CONTRACT. 17. THE APPROPRIATION OF PREPAID AMOUNT WAS CONTINGENT UPON THE RESPONDENT - ASSESSEE P ERFORMING ITS OBLIGATION AND RENDERING SERVICES TO THE PREPAID CUSTOMERS AS PER THE TERMS. IF THE RESPONDENT - ASSESSEE HAD FAILED TO PERFORM THE SERVICES AS PROMISED, IT WOULD BE LIABLE AND UNDER AN OBLIGATION TO REFUND THE ADVANCE PAYMENT RECIEVED UNDER TH E ORDINARY LAW OF CONTRACT OR SPECIAL ENACTMENTS, LIKE THE CONSUMER PROTECTION ACT. THE AFORESAID LEGAL POSITION WOULD MEET THE ARGUMENT OF THE REVENUE THAT THE PREPAID AMOUNT RECEIVED WAS NOT LIABLE TO BE REFUNDED OR REPAID, WHETHER OR NOT ANY SERVICES WE RE RENDERED. 18. IN J.K. INDUSTRIES LTD. AND ANR. VS. UNION OF INDIA AND ORS. [2008] 297 ITR 176 (SC) AND COMMISSIONER OF INCOME TAX VS. WOODWARD GOVERNOR INDIA P. LTD. [2009] 312 ITR 254 (SC), THE SUPREME COURT HAS EMPHASIZED THAT THE ACCOUNTING STANDARD S AS PAGE | 11 FRAMED AND FOLLOWED BY THE AUDITORS SHOULD BE RESPECTED, FOR THEY PROVIDE HARMONIZATION OF CONCEPTS AND ACCOUNTING PRINCIPLES AND ENSURE DISCIPLINE. ACCOUNTING METHODS FOLLOWED CONTINUOUSLY BY THE ASSESSEE FOR GIVEN PERIOD OF TIME WOULD ENSURE REVENUE NEUTRALITY AND REFLECT TRUE AND CORRECT INCOME OR PROFITS. 19. COUNSEL FOR THE REVENUE HAS SUBMITTED THAT IN SOME CASES THE PREPAID CARDS WOULD HAVE LAPSED AND THE SUBSCRIBERS MAY NOT HAVE UTILIZED OR AVAILED OF SERVICES/TALK TIME. UNUTILIZED AMOUNT WHEN THE PREPAID CARD LAPSES HAS TO BE TREATED AS INCOME OR RECEIPT OF THE RESPONDENT - ASSESSEE ON THE DATE WHEN THE CARD HAD LAPSED. THE RESPONDENT - ASSESSEE HAS ACCEPTED THIS POSITION. ASSESSING OFFICER WOULD BE ACCORDINGLY ENTITLED TO EXAMINE THIS ASPECT WHEN PASSING THE APPEAL EFFECT ORDER. 20. LOOKED AT FROM ALL ANGLES, WE DO NOT FIND ANY REASON OR GOOD GROUND TO INTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL. THE SUBSTANTIAL QUESTION OF LAW IS ACCORDINGLY ANSWERED IN FAVOUR OF THE RESPONDENT - ASSESSEE AND A GAINST THE REVENUE. THE APPEALS ARE DISPOSED OF. WE WOULD CLARIFY THAT THE ASSESSING OFFICER WHILE PASSING THE APPEAL EFFECT ORDER, WOULD ENSURE THAT THE UNUTILIZED TALK TIME HAS BEEN ACCOUNTED FOR AND INCLUDED IN THE RECEIPT OF THE YEAR IN WHICH THE AMOUN T HAD LAPSED AND WAS FORGONE. IN THE FACTS OF THE PRESENT CASE, THERE WOULD BE NO ORDER AS TO COSTS. 8. IN VIEW OF THE ABOVE THE ISSUE BEING SQUARELY COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN ASSESSEE OWN CASE , RESPECTFULLY FOLLOWING THE DECISION OF THE SAME , WE DISMISS ALL THE GROUNDS OF TH E APPEAL RAISED BY THE REVENUE. 9. IN THE RESULT APPEAL OF THE LD AO IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 / 01 / 2019 . - SD/ - - SD/ - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 5 / 01 / 2019 A K KEO T COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI