JUDGMENT
K. Shivashankar Bhat, J.
1. The question referred to us under the provisions of the Income-tax Act, 1961, reads thus :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the orders of the Commissioner (Appeals) who held that the sum of Rs. 35,08,380 received by the assessee from Messrs. Mysore Power Corporation Ltd., on account of excess measurement is only a deposit and not income liable to tax, ignoring the fact that the assessee was offering its income on receipt basis ?”
2. On the face of it, the assumption that the amount referred to in the above question was on account of excess measurement and was treated as a deposit and not as income looks to be a finding of fact. However, learned counsel for the Revenue seriously challenged this assumption of ours and contended that the assessee had been maintaining cash system of accounting and, therefore, whatever amount was received for the work done or purported to have been done, such receipt should be assessed during the year of receipt.
3. The relevant findings and the basis thereof could be gathered from the order of the Appellate Tribunal as follows :
(1) The assessee had received a sum of Rs. 1,85,552 from the Mysore Power Corporation Ltd. regarding work executed in respect of the Chakra project. Similarly, in the case of Savehakkalu Project it received Rs. 2,83,26,665. After deducting the cost of material supplied, the assessee made a further deduction of Rs. 16,87,500 from the receipts of Chakra Project and Rs. 18,20,000 from the receipts of Savehakkalu Project and offered only the balance as receipts which could be taken into account for arriving at the profits resulting from the contracts. The assessee’s claim was based on the ground that the payment received from the Karnataka Power Corporation was in excess of the amount due to the assessee on the basis of the actual work done. It was stated that the assessee received extra amounts on account of excess measurements made by the Karnataka Power Corporation. In other words, the Corporation paid the assessee for work which had not actually been done. The figures are give below :
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Total quantity on Excess quantity on
which payment Actual work which payment
was received from done was received from
K. P. C. K. P. C.
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Soft rock 1,79,579.94 cu.m. 1,27,844 cu.m. 67,51,735.3 cu.m.
excavation
Hard rock 3,14,239.27 cu.m. 80,929.29 cu.m. 2,33,309.9 cu.m.
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It was submitted that it was the practice of the Corporation to make payments in excess of what was actually due to the assessee. these were really in the nature of advances. Final adjustments were made at the end of the contract. Payments for excess measurements unless made on the interim period which were not unusual were finally adjusted. However, the Power Corporation, to safeguard itself, had obtained large security deposits which were not returnable to the assessee until the final bill was passed. The security deposit amounted to Rs. 83,87,045. The assessee, after going through the account, estimated such excess receipts, which were really in the nature of advance receipts and deducted them from the taxable receipts. The provision made in this behalf by the assessee amounted to hardly three per cent.
(2) From the facts, it is seen that the assessee did receive amounts over and above what was due to it as per the work done by it. It is, therefore, reasonable to hold that the excess payments made by the Karnataka Power Corporation are in the nature of advances made to the assessee.
(3) In this view, there is no bar in taking the sum of Rs. 35,08,380 as advanced payment made to the assessee on which no profit is assessable in the year of account provided the assessee has offered the sum of Rs. 35,08,380 for assessment in future years. Subject to the verification of the point, we uphold the order of the Commissioner (Appeals).
4. From the above, it is quite clear that the assessee has been receiving amounts continuously as and when certain measurements took place which are to be adjusted at the time of final bill according to actuals and, in the meanwhile, the excess amounts received are kept to be adjusted for the work to be done for the future years. There can be no doubt that such an amount would normally be held as a deposit and not as income. The fact that the assessee had maintained his accounts on cash basis will not convert every kind of receipt to income unless the receipt can be held to have accrued as income because the assessee acquired a right to receive the said sum as income. The finding in the instant case is quite otherwise. In fact, the interest of the Revenue has been safeguarded by the Appellate Tribunal by providing for verification of the adjustments and payments of such amount during the future years also. We may also point out half if, for any reason, this deposit or any part thereof ceases to be held by the assessee as a deposit, for that year the Revenue may proceed to assess the same as income accrued during such year.
5. Hence, the question referred to us is answered in the affirmative.
