October 2010
Income : Accrual of : Amount due to assessee in terms of royalty agreement : Dispute between parties and arbitration proceedings pending : No accrual of income : Assessment only on completion of arbitration proceedings.
By K. B. Bhujle | Advocate
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5 Income : Accrual of :
Amount due to assessee in terms of royalty agreement : Dispute between parties
and arbitration proceedings pending : No accrual of income : Assessment only on
completion of arbitration proceedings.
[FGP Ltd. v. CIT, 326
ITR 444 (Bom.)]
The assessee had a royalty
agreement with one M/s. UPT, under which certain amounts were payable to the
assessee. The assessee company had not received any amount as UPT had denied
that any amount was due and payable by it to the assessee-company and
arbitration proceedings were pending. The Assessing Officer added the amount to
the total income of the assessee holding that the income has accrued. The
Tribunal upheld the addition.
On appeal by the assessee,
the Bombay High Court reversed the decision of the Tribunal and held as under :
“(i) The real income of
the assessee can be assessed and the test before the income can be taxed is
whether there is real accrual of income.
(ii) There was no real
accrual of income. There was dispute between the parties which was pending in
arbitration during the assessment year. The income received by the assessee
would be liable to be assessed only after passing of an award.”
