Only amounts that actually accrue or arise are taxable under section 4 of the Income-tax Act.

MAHAJAN, J.

1. This is an application under section 66 (2) of the Income-tax Act by the Commissioner of Income-tax asking this court to issue a mandamus to the Income-tax Tribunal directing it to state the following question of law for the decision of this court :

"Whether on the facts and in the circumstances of the case the sum of Rs. 94,253 or any part of it accrued or arose or could be deemed to accrue or arise or was received or could be deemed to be received by the assessee as income, profits and gains during the previous year."

2. The facts of this case are not in dispute. The assessee company entered into a contract for forward sale of 79 teeps of mustard on February 5, 1952, with a private chamber of commerce, namely, the Bharat Co. Ltd. at the rate of Rs. 27-8-0 per maund. The due date was June 7, 1952. On February 28, 1952, the assessee company sent a telegram to the chamber to the effect that if the chamber did not inform it within four hours of the receipt of the telegram about the acceptance of the settlement of the bargain at the rate of Rs. 16-14-6 per maund, it would presume that the chamber had accepted the settlement of the assessees outstanding bargain at that rate. No response was, however, made by the chamber to this telegram. This led to a suit by the assessee against the chamber for the recovery of Rs. 73,820-12-0 after adjusting a sum of Rs. 20,000 odd due from the assessee to the chamber on account of some earlier transactions. This suit was decreed by the District Judge, Bhatinda, on the 17th/27th of February, 1954. Against this decision an appeal is pending in this court. The present dispute relates to the assessment year 1953-54 and the account year 1952-53. In the return filed by the assessee the following note was appended :

"According to the assessee there is a profit of Rs. 1,09,072 in the account of Bharat Co. Ltd., but the company does not admit its liability. The assessee has filed a suit for Rs. 75,000 after adjusting Rs. 34,072 received by the assessee. Unless the suit is decided, the exact amount of profit cannot be determined until the liability is admitted by the company. The exact profit will be shown when the same is determined by the civil court."

3. It may be mentioned that the method of accounting employed by the assessee is on the mercantile basis. The Income-tax Officer took this amount of Rs. 94,000 odd as income which had accrued in the assessment year 1953-54. Against this inclusion an appeal was preferred by the assessee to the Appellate Assistant Commissioner of Income-tax who agreed with the contention of the Department. The assessee preferred an appeal to the Appellate Tribunal (Delhi Bench). The assessees appeal was allowed and its contention was accepted. While dealing with this matter, the Tribunal has observed as under :

"The liability of the other contracting party to the assessee is yet in dispute. It is not till the assessee becomes indisputably entitled to the sum of Rs. 94,000 odd or another sum, that income, profits and gains can be said to accrue or arise to the assessee in respect of the transaction of February 5, 1952. The sum of Rs. 94,000 odd is, therefore, excluded from the assessment."

4. An application was made to the Tribunal under section 66 (1) of the Act and was refused by the Tribunal on December 28, 1956. While refusing the application, the Tribunal observed as under :

"Before the Tribunal, it was contended on behalf of the assessee that the mere unilateral claims of the assessee for the aforementioned sum did not make that sum the income of the assessee. It was not till the other party had agreed to any figure and there arose a settled liability of the other party in favour of the assessee that any question of income, profits and gains in respect of the forward sale transaction could arise. The Tribunal accepted the assessees contention and concluded that no profit or loss could possibly arise till the dispute between the parties concerned