INCOME TAX ACT, 1961

Income - Accrual -Retention money

Held: As per terms and conditions of the contract as examined by Tribunal, it cannot be held that either 10 per cent or 5 per cent., as the case may be, being the retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfils the obligation under the contract, that the retention money would be released and the assessee would acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability had accrued or arisen and, accordingly, it cannot be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills, even though assessee was following mercantile system of accounting . Thus, assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract.'

Income-tax Act, 1961, Section 5

A.Y. :1997-98 and 1998-99
Decision: In favour of assessee.

Case Law Analysis:CIT v. Simplex Concrete Piles (India) (P.) Ltd. [1989] 179 ITR 8/ 45 Taxman 370 (Cal.) [Para 3].

CIT v. East Coast Constructions & Ind. Ltd.