L. Narasimha Reddy And Challa Kodanda Ram,JJ.

JUDGMENT

The judgment of the court was delivered by

L.Narasimha Reddy-This appeal is preferred by the Revenue against the order, dated 25.06.2002 passed by the Visakhapatnam Bench of the Income Tax Appellate Tribunal, in I.T.A.No.25/V/2002.

The facts, in brief, are as under:

The respondent is a manufacturer of electrical conductors of different categories. An item of conductor manufactured by it was supplied to a purchaser. Under the relevant agreement, 10% of the cost of the goods was to be paid only after final certification of the conductor after erection and charging.

For the assessment year 1998-99, the respondent has shown the income of Rs. 59,30,592/-. The Assessing Officer, however, added a sum of Rs. 64,58,606/-, representing 10% of the cost of the conductor sold by the respondent. The reasons stated by the Assessing Officer was that though the said amount would be paid at a later stage, the respondent has acquired right to receive the same.
The appeal preferred by the respondent before the Commissioner was rejected. In the further appeal being I.T.A.No.25/V/2002, the Tribunal has set aside the order passed by the Assessing Officer in that behalf. Hence, this appeal.

Heard Sri S.R. Ashok, learned Senior Counsel for the appellant, and Smt K. Neeraja, learned counsel for the respondent.

The facts, that gave rise to the filing of the appeal, are not in dispute. The entire controversy turns around the question as to whether the respondent has acquired the right to receive the balance of 10% of the consideration for the conductor supplied to its customer. The plea of the appellant is that the amount of 10% is nothing but part of the consideration so much so, the sales tax was also paid for the entire consideration and, in that view of the matter, it cannot be said that the amount representing 10% is not liable to be taxed at this stage.

The respondent, on the other hand, pleaded that it is only when the final certification is given as to the goods, that amount becomes payable, and till then, it cannot be said that a right has accrued to receive that amount.

There is no denial of the fact that the amount which the appellant sought to add to the income of the respondent is part of the consideration for the conductor supplied by it. However, it was to be paid only on the certification as to the quality and specification of the conductor being found to be in order. That eventuality, admittedly, did not take place within that assessment year.

The Tribunal has dealt with the matter extensively by referring to quite a large number of precedents on the subject. For example, in Seth Pushalal Mansinghka (P.) Ltd., v. Commissioner of Income-tax 66 ITR 159, the Supreme Court explained subtle itself between the words accrued and arise, on the one hand, and actual receipt, on the other hand, in relation to profits of an assessee. It was explained in detail that an assessee can be said to have received the income, only when corresponding right has accrued to him. Recently, in Commissioner of Income Tax vs. Excel Industries 358 ITR 295, the Supreme Court added a further dimension to the concept. It was held that an income accrues to an assessee not only when it is due to him, but also it is accompanied by a corresponding obligation on the part of the other party, to pay it.

Thus, though an assessee may claim a particular amount as of right, it cannot be treated as his income, unless the corresponding obligation is either accepted by, or fastened upon, the other party; in accordance with law. On application of the said principle to the facts of the present case, it emerges that the respondent was no doubt entitled to receive 10% of the consideration for the goods supplied by it. However, the corresponding obligation of the recipient of the goods would have arisen only when a certificate, to the effect that the quality conform to the specifications. That event, admittedly did not take place, by the time the order of assessment was passed. We agree with the finding recorded by the Tribunal and we do not find any basis to interfere with the order passed by the Tribunal.

The Appeal is accordingly dismissed. There shall be no order as to costs.