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 lakh was to be paid by the Sri Lankan company to the assessee-company. The claim of the assessee that due to stipulation by the Indian Bank as a term of the loans 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 mercantile basis.

(3.) Before the Commissioner (Appeals) it was submitted that as per the agreement between the assessee and Bansari Rubber Products (P.) Ltd. of Sri Lanka, the assessee was to receive Sri Lankan Rs. 10 lakh as technical fees, royalty and export commission within 240 days of the signing of the agreement, which came into effect from 23-9-1982. 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 7-12-1982 put a restriction to the effect that no such payment will be allowed to be paid to Bengal Waterproof 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 20-5-1982 that the new source of income of the company from technical fees, royalty and export commission receivable under agreement with Bansari 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.