COMMISSIONER OF INCOME TAX Vs. BENGAL WATERPROOF LTD

JUDGEMENT

(1.) Rule was issued on the following question ;

(2.) It is not in dispute that in terms of the agreement between the assessee and the Sri Lankan company Rs. 5 lakhs was to be paid by the Sri Lankan company to the assessee-company. The claim of the assessee that due to stipulation by Indian Bank as a term of the loan and deferred payment Government facility extended by them laying down a covenant, the royalty and consultancy fees due to the assessee-company stood modified to the extent was not accepted by the Assessing Officer and the Assessing Officer held that at best such remittance may be held back but would nevertheless remain income accrued in the hands of the assessee-company as the accounts are maintained on the mercantile basis.

(3.) Before the Commissioner of Income-tax (Appeals) it was submitted that as per the agreement between the assessee and Bansri Rubber Products (P.) Ltd. of Sri Lanka, the assessee was to receive Sri Lankan Rs. 10 lakhs as technical fees, royalty and export commission within 240 days of the signing of the agreement, which came into effect from September 23, 1982. However, before the period of 240 days was over, the Indian Bank who financed the entire project of the new company vide their letter dated December 7, 1982, put a restriction to the effect that no such payment will be allowed to be paid to Bengal Water Proof Ltd. so long as any loan to the bank is in arrears. As a result, the agreement stood amended to this extent and no payments were received. It was further submitted that in respect of the income from this portion of foreign venture, the board had resolved vide its resolution dated May 20, 1982, that the new source of income of the company from technical fees, royalty and export commission receivable under the agreement with Bansri Rubber Products P. Ltd. be treated on cash basis. In view of these arguments, the assessee submitted that the addition made by the Assessing Officer was unjustified.