Ajay Kumar Mittal, J. - (1.) AT the instance of Revenue, the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity "the Tribunal") vide its order dt. 23rd July, 1993 in ITA No. 207/Chd/1988 has referred the following question of law to this Court for its opinion under Section 256(1) of the IT Act, 1961 (for short "the Act") for the asst. yr. 1983 -84: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the income of the assessee to be taxed on receipt basis and not on accrual basis even though the assessee was following mercantile system of accountancy?
(2.) THE facts as narrated in the statement of the case are that the assessee corporation is engaged in the business of development and sale of industrial sheds. The assessee raised certain construction in the form of industrial sheds on the land provided by the State of Punjab and made allotments to the entrepreneurs. As per the conditions of the allotment, 25 per cent of the price was to be paid by the allottees at the time of allotment and remaining 75 per cent was payable in ten annual instalments and the land was to be allotted for 99 years on lease. The leasehold rights were to be finally transferred after 15 years from the date of allotment. During the assessment year under consideration, the assessee allotted 49 industrial sheds measuring 5 Marias and an equal number of sheds measuring 15 Marias. The assessee declared 15 per cent profit on the allotment money received. The assessee claimed that the income on receipt basis must be assessed and not on accrual basis and the assessee declared profit at Rs. 1,16,987 but it was calculated at Rs. 4,85,100 in respect of industrial sheds measuring 5 Marias. Similarly, the profit declared by the assessee to the tune of Rs. 3,99,091 in respect of industrial sheds measuring 15 Marias but was determined by the AO at Rs. 14,04,188. The assessee took the matter in appeal and the CIT(A) accepted the appeal and held that the income on receipt basis must be brought to tax in view of the nature of transactions. Feeling dissatisfied, the Revenue filed appeal before the Tribunal and the Tribunal upholding the view of the CIT(A) dismissed the appeal vide its order dt. 23rd July, 1993. We have heard learned Counsel for the parties. According to the learned Counsel for the Revenue, the 15 per cent profit on the gross capital cost of the industrial sheds and not on the instalment money actually received by the assessee was to be treated as income of the assessee as it was following mercantile system of accounting. Learned Counsel argued that it is the accrued income which is exigible to tax under mercantile system of accounting and the actual receipt is of no consequence.
(3.) LEARNED Counsel for the assessee very vehemently controverted the submission of the Revenue and argued that gross capital cost of the land was realized in a period of ten years in equated annual instalments and the assessee did not receive the entire price of industrial sheds and in that eventuality it was not exigible to tax in this year. Elaborating further, it was contended that the sale of the industrial sheds was not complete at the time of allotment in view of the terms and conditions and in case any person defaulted in making payment of the annual instalments or violated any terms and conditions, the industrial sheds were liable to be resumed by the assessee and, therefore, the right in the land did not stand transferred to the allottees finally till the last instalment was paid. Further, the allottees were not permitted to transfer the industrial sheds without the permission of the assessee and they had only right of possession. Learned Counsel relied upon the Chandigarh Industrial and General Development Corporation Ltd. - -Allotment of Industrial Shed Rules, 1977 (for short, "Allotment Rules") in support of her submission. It was further submitted that according to the consistent method adopted by the assessee since 1979, the profits accruing on the allotment of industrial shed have been accented by the Department on the basis of accrual of profits from year to year till the final instalment is paid.;