In the High Court of Judicature at Madras Dated : 09.07.2008 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIAN and The Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.888 of 2008 Commissioner of Income Tax Chennai. .. Appellant /Respondent Vs. M/s.Texcel Engineers Private Limited G-59, 12th Street Near Chinthamani Annanagar Chennai-600 102. .. Respondent / Appellant TAX CASE (APPEAL) filed under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 14.12.2007 in I.T.A.No.205/Mds/2007 for the assessment year 2003-2004 against the order of the Commissioner of Income Tax, (Appeals III) 121, Mahatma Gandhi Road, Chennai 34 dated 7.12.2006 in ITA.No.719/2005-2006/A-III against the order of the Asst Commissioner of Income Tax Company Circle III (2) Chennai dated 30.1.2006 in PAN.No.AAACT/27ID. For Appellant : Mrs.Pushya Sitaraman JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue came up on appeal against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 14.12.2007 in I.T.A.No.205/Mds/2007. The relevant assessment year is 2003- 2004. The substantial question of law formulated in this appeal is as follows:- "Whether in the facts and circumstances of the case, the Tribunal was right in holding that moneys retained by the contractors, as a percentage of the bills raised to be paid after the contract is completed are to be treated as income only when the moneys are actually received, even https://hcservices.ecourts.gov.in/hcservices/ though the appellant is following a mercantile system of accounting? 2. The facts of the case are as follows:- The assessee company filed return of income for the assessment year under consideration. The Company excluded security deposit retention money of Rs.7,25,366/- in the memo of income on the ground that the income to this extent is not accrued. The assessing officer inter alia added portion of the receipts withheld by the parties as retention money on the ground that since the assessee followed mercantile system of accounting, it should have offered the retention of money also for assessment. On appeal by the assesseee, the Commissioner of Income-tax (Appeals) upheld the action of the assessing officer. However, the Tribunal on further appeal held in favour of the assessee following a decision of this Court in the case of COMMISSIONER OF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297. The correctness of the same is now challenged by the revenue in this appeal by formulating the above said question of law. 3. Learned Senior Counsel appearing for the revenue has fairly submitted that the issue involved in this appeal is covered by the decisions of this Court in the case of COMMISSIONER OF INCOME-TAX VS. IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295 and COMMISSIONER OF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297 4. In the above said decisions, the facts are identical to the present case. In the case of COMMISSIONER OF INCOME-TAX VS. IGNIFLUID BOILERS (I) LIMITED, 283 ITR 295, which was rendered by us, the assessee company carried on the business of erection and sales of boilers. The assessee entered into a contract with S for erection of boilers wherein there was a specific clause that 10 percent of the contract price would be retained by the principal contractor and it would be paid after one month subject to the satisfactory performance of the boilers. The Assessing Officer brought into account 10 per cent of the contract amount, which had been retained by the principal contractor and levied tax on the ground that the assessee was maintaining a mercantile system of accounting and in respect of 10 percent retention, the bill had been raised on completion of work and brought it into account on accrual basis. On appeal by the assessee, the Commissioner (Appeals) deleted that portion of the amount, and this was further confirmed on appeal by the Tribunal. On further appeal to the High Court, while dismissing the appeal, this Court held that "ten per cent of the retention money had not been received in respect of the relevant assessment year though the work had been completed. The assessee was entitled to receive the amount only after successful completion of the work. In such circumstances, it could not be said https://hcservices.ecourts.gov.in/hcservices/ that 10 percent of the amount retained had accrued to the assessee. It was not assessable in the assessment year 1994-95." 5. In the other case of COMMISSIONER OF INCOME-TAX VS. EAST COAST CONSTRUCTIONS & IND. LTD reported in (2006) 283 ITR 297, to which one of us (P.P.S.Janarthana Raja,J.) was a party, the assessee was a company, carrying on business of construction in various places. The assessee filed a return of income. 10 percent of the contract amount was retained by the parties as retention money to be paid after completion of the contract. The Assessing Officer had included the retention money for the purpose of computing the total income on the ground that since the assessee followed the mercantile system of accounting, it ought to have offered the retention money for assessment for the years 1997-98 and 1998-99. The Tribunal held that the retained money accrued to the assessee only after completion of the contract and therefore could not be included in the total income for the assessment years under consideration, since the contract was not yet completed. On appeal to this Court, while dismissing the appeal, this Court held that "the assessee was entitled to receive the retention money after completion of the contract. On the date of the bills, no enforceable liability had accrued or arisen. When the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no right to enforce payment, it could not be said that the right to receive payment of the remaining 10 percent, of the value of job had accrued." 6. Hence, following the above decisions of this Court and recording the statement of the learned Senior Counsel for the revenue, as the question of law formulated in this appeal has already been decided against the revenue, the appeal is dismissed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar To 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). https://hcservices.ecourts.gov.in/hcservices/ 2.The Commissioner of Income Tax (Appeals)-III, Chennai 3.The Assistant Commissioner of Income Tax, Central Circle III(2), Chennai. 4.The Commissioner of Income Tax, Chennai + 1 cc to Mr. Pushya Sitaraman, Advocate SR No. 36634 Tax Case (Appeal) No.888 of 2008 GV(CO) SR/21.7.2008 https://hcservices.ecourts.gov.in/hcservices/