This appeal by Revenue arises out of order passed by learned CIT(A) on 4th Feb., 2002 in relation to asst. yr. 1996-97. only ground raised by Revenue in this appeal is against deletion of addition of Rs. 1,35,00,000 made on account of royalty accrued as per agreement entered into between M/s UP Twiga Fibreglass (hereinafter called as UPT) and assessee. Briefly stated, facts of this ground are that assessee appended note to Annex. 1 to its tax audit report stating that it had not accounted for royalty income as it was unable to ascertain amount due to non-availability of necessary information and same would be accounted for as and when it become ascertainable. It was also disclosed that royalty agreement was in force upto 31st Dec., 1995. assessee, in course of assessment proceedings was required to file copy of royalty agreement along with other details including copy of suit filed by UPT. assessee filed same and contended that no amount was received towards royalty in year and hence, it should not be brought to tax. After perusal of royalty agreement, AO observed that such agreement was already in force since earlier years and hence income had accrued and become payable to assessee. As royalty was @ Rs. 9 per kg. of sale by UPT from 1st April, 1995 to 31st Dec., 1995 in this year, AO, in absence of non-supply of correct figures of sales of UPT, worked out average monthly royalty for earlier 29 months at Rs. 15.07 lakhs per month and on this basis royalty income for nine months of this year, being from 1st April, 1995 to 31st Dec., 1995, was held to be includable at Rs. 1.35 crores, subject to rectification on availability of receipt of actual sale figures of party. learned CIT(A) by relying on judgment of Hon ble Supreme Court in case of Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564: (1997) 225 ITR 746 (SC) and that of Hon ble jurisdictional High Court in case of CIT vs. Smt. Vimla D. Sonwane & Ors. (1995) 212 ITR 489 (Bom) came to hold that addition was not sustainable. Before us, learned Departmental Representative, strenuously argued that it was case in which assessee was following mercantile system of accounting and accrual of royalty was justified as per royalty agreement between assessee and UPT. He relied on certain decisions in support of his case. In opposition, learned counsel for assessee contended that no services were rendered by assessee, as was evident from copy of suit filed by UPT before Hon ble Bombay High Court, in which it had claimed that assessee had not supplied any technical services as their own glasswool manufacturing unit was completely closed before January, 1993 and hence, th e r e was no technical support or services from assessee company. Elaborating further, learned counsel explained that on filing of suit before Hon ble Bombay High Court, matter was referred to arbitration and no award has come so far. It was submitted that since no amount has been received till date, assessee cannot be said to have earned any income on this count. We have considered rival submissions in light of material placed before us and precedents relied upon. Before we proceed to determine taxability or otherwise of sum of Rs. 1.35 crores, it would be relevant to note down certain clauses of royalty agreement dt. 19th Jan., 1993, copy of which is available at pp. 1 to 9 of paper book. As per this agreement, UPT had set up plant for manufacture of glasswool based on process know-how and basic engineering supplied by Mehr & Held of FRG and UPT was desirous of obtaining on-going technical support and services from assessee company for optimizing their production. assessee (i.e. FGP) was to provide technical support and service to UPT comprising of assistance and suggestions in different areas of operation as recorded under cl. 1.2 of agreement. Apart from that assessee was to depute its technical personnel, if required by UPT for total duration of 20 man days year. In consideration of services to be provided by assessee to UPT as noted above, UPT agreed to pay assessee royalty, as per cl. 3 which is extracted as under: "3.0 Payment of royalty In consideration for services to be provided by FGP to UPT as contained hereinabove UPT hereby agrees to pay to FGP royalty at following rates: Rs. 7.50/kg of sale from 1st Nov., 1992 to 31st Dec., 1993 Rs. 8.50/kg of sale from 1st Jan., 1994 to 31st Dec., 1994 Rs. 9.00/kg of sale from 1st Jan., 1995 to 31st Dec., 1995 royalty payment due to FGP will be payable monthly 90 days in arrear, first such payment being due on 28th Feb., 1993 for period ending 30st Nov., 1992. For purposes of calculation of royalty quantity of sales will be determined on basis of date of invoices. UPT will also furnish to FGP every month statement of royalty calculation, duly certified by chartered accountant. If royalty payment, as stated hereinabove, is not made by UPT within 9 0 days of due date, FGP will be at liberty to terminate this agreement forthwith. UPT will establish standby acceptable revolving letter of credit(s) for Rs. 15 lacs in favour of FGP as security for royalty payment. All bank charges and other expenses would be payable by UPT alone." There is no dispute regarding offering by assessee amount of royalty for taxation from 1st Nov., 1992 upto 31st March, 1995, which comprises period of three months from 1st Jan., 1995 to 31st March, 1995 @ Rs. 9 per kg of sale. assessee did not offer amount of royalty for remaining nine months @ Rs. 9 per kg of sale for period from 1st April, 1995 to 31st Dec., 1995, which period falls in this year and is disputed in this appeal. Though note was appended to tax audit report mentioning that it had not accounted for royalty income, as it was unable to ascertain amount due to non-availability of necessary information, learned CIT(A) has held that assessee had not earned any income on this count because right to receive was in jeopardy. At this stage, we would like to mention that assessee is following mercantile system of accounting, which fact is not disputed. As per mercantile system of accounting, income is recognized on accrual basis, whether or not it is actually received. crucial point for inclusion of income is that when right to receive income is received (sic acquired). fact that amount has not been received is totally of no consequence, when method of accounting is mercantile system. Now, we have to examine as to whether or not in facts and circumstances of present case, assessee had acquired right to receive income. learned counsel for assessee contended that UPT had filed suit in Hon ble Bombay High Court, as per which new management took over manufacturing unit of glasswool in September, 1994 and thereafter, new management found that no technical support or services whatsoever had been provided by assessee to them. In this suit, it had also been claimed that assessee had closed down its own glasswool manufacturing unit and had stopped manufacturing glasswool, even before agreement dt. 19th Jan., 1993 was entered into by UPT with assessee. It is further submitted before us that pursuant to suit before Hon ble Bombay High Court, which was entertained, matter was referred to arbitration. On specific query raised from Bench, learned Authorised Representative conceded that assessee has been contesting before Hon ble High Court as well as during arbitration proceedings that it has supplied technical services as per agreement in period under reference and is entitled to royalty as per agreement. Now, we will examine decisions cited upon by both sides. learned Authorised Representative has relied on case of Godhra Electricity Co. Ltd. (supra) which in his opinion prohibits charging to tax hypothetical income. In that case, electricity company after enhancing tariff was restrained from realizing enhanced rates either by Court orders or by Government orders. Such enhanced amount was not realized. Hon ble Supreme Court held that no real income accrued to assessee and nothing could be charged to tax towards this enhancement though assessee followed mercantile system of accounting. Adverting to facts of our case, we note that it is not case of any enhancement of income. Revenue has sought to tax amount of royalty income as per agreement entered into by assessee with UPT, which was being followed in past and in same manner assessee had rendered services in this year also. It is not case where any unilateral enhancement in royalty amount is claimed by assessee, which is disputed. Rather entire amount of royalty, strictly as per terms of agreement between two parties and that too on supply of technical services by assessee, is sought to be claimed as not taxable due to dispute raised by other party. mercantile system of accounting recognizes accrual of income when enforceable right to receive income is acquired. In our case, assessee on rendering of services acquired enforceable right and amount became due when UPT made sales. fact that royalty amount has not been received by assessee is not relevant insofar as question of determination of accrual of income is concerned. learned CIT(A) has also relied on judgment of Hon ble jurisdictional High Court in case of Smt. Vimla D. Sonwane & Ors. (supra) for granting relief to assessee. Now, we will examine facts of that case. Those assessees were co-owners of some plots of land, some of which were given on lease to lessees. Lessees filed proceedings in Court for fixation of standard rent. assessees included actual receipts of rent under head Income from other sources in their returns of income. ITO added lease money in total income of assessee on accrual basis . Tribunal deleted addition on ground that agreed lease rent could not be assessed on accrual basis. Hon ble Bombay High Court held that right to receive agreed lease money was in jeopardy because of pendency of proceedings for fixation of standard rent in Court of law and hence no tax could be charged on that. We observe that those respondents were following cash system of accounting. It was under those circumstances that Hon ble High Court directed to include income only on receipt basis. On contrary, we are dealing with case of assessee, who is following mercantile system of accounting. Hence, facts of this case are distinguishable. Further, on analysis of facts of that case, we find that matter of fixation of rent was sub judice, whereas in our case rate of royalty is fixed as per agreement, which was being paid year after year accordingly. learned Authorised Representative has further relied on judgment o f Hon ble Supreme Court in case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC) in Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC) in support of his case that no absolute right to receive amount was acquired. In that case, assessee s land was acquired by Government and initial compensation fixed was enhanced by arbitrator. There was appeal against enhancement by State Government. It was in background of these facts that Hon ble Supreme Court held that right to receive payment of additional compensation was not taxable as assessee had not got absolute right to receive additional compensation. Here again, we observe that facts of that case mismatch with ours. In that case what was disputed was right to enhancement of compensation and not original compensation. Hon ble Supreme Court held that since enhancement granted by Court was not finally decided, hence same could not be brought to tax. On contrary, in our case, we are discussing about royalty to which assessee was entitled as per agreement entered into with UPT. It is not case where higher payment was directed to be paid by Court, which was disputed by affected party in further appeal. Rather our case, if any similarity is to be drawn with that case, equates with original compensation and not enhanced portion, which was awarded pursuant to orders of acquisition, which part was not claimed to be not taxable. It is only pursuant to agreement between two parties viz., assessee and UPT that royalty payment is sought to be taxed and in our considered opinion, rightly so. In case of CIT vs. T.N.K. Govindarajulu Chetty (1987) 61 CTR (SC) 335: (1987) 165 ITR 231 (SC), which has been relied by both sides, some property of assessee was acquired by Government in 1949. compensation including interest was paid in two years i.e. 1955-56 and 1956-57. question before Hon ble Court was to decide years in which such interest would be taxed. It was on these facts that Hon ble Supreme Court finally held that interest amount was to be spread over to each of these years from date of acquisition to date of actual payment, as assessee was following mercantile system of accounting. learned Authorised Representative has argued that in this case interest was finally paid and question for determination was relevant year in which amount of such interest was to be added. It was urged that no such income has been received by assessee till date, hence, it cannot be charged to tax. We are not inclined to accept this version because point of taxability in our case is accrual of income and not its receipt because assessee is following mercantile system of accounting. Further, claim of UPT in suit before Hon ble High Court that assessee had closed down glasswool manufacturing unit even before agreement was entered into on 19th Jan., 1993 is irrelevant insofar as question of supply of technical services by assessee is concerned. We fail to establish any nexus of assessee running its own unit with supply of technical services to UPT. If point raised in suit before Hon ble High Court is brought to logical conclusion then it would mean that assessee had not supplied technical services to UPT right from beginning of agreement which was entered into on 19th Jan., 1993, which is certainly not case. assessee had received and offered for taxation royalty upto 31st March, 1995 and is also claiming that services were very much provided by it to UPT. Coming back to our point we find that it is only act of rendering services in present case which entitled assessee to royalty. same position was continuing in earlier years which were governed by same agreement. fact that UPT had not accepted factum of assessee having rendered services and disputed payment, is event, which though relevant, but is not conclusive on question of determination of accrual of income insofar as assessee is concerned. Its right to receive income materialized on rendering of services, which become enforceable as per terms of royalty agreement. It is not case of assessee that no services were rendered by it. On contrary, it has staked claim ab initio before Hon ble High Court and arbitrator for royalty in lieu of its having supplied know- how as per agreement. We are unable to appreciate contention of learned Authorised Representative, whereby on one hand assessee is pleading before Hon ble High Court and arbitrator that it had rendered services and is entitled to royalty payment and on other hand, it has come up with plea before Revenue, in same breath, that very factum of assessee having rendered any service to UPT is disputed and hence, no income could be said to have resulted. Taking two diametrically opposite stands on could be said to have resulted. Taking two diametrically opposite stands on same matter is impermissible. Thus, right to royalty accrued to it on rendering services and amount of royalty became due on making of sales by UPT. Both events viz., accrual of royalty and it becoming due to assessee happened in this year. fact that UPT has disputed assessee s right to amount of royalty would not mar accrual of income insofar as assessee is concerned. situation would have been otherwise if assessee had made claim for not rendering services and Revenue had put to tax amount of royalty simply on strength of agreement. We, therefore, hold that in facts and circumstances of present case, royalty income accrued to assessee in year in question which was rightly put to tax by AO. At this juncture we would like to clarify that if claim of assessee on this score is subsequently jettisoned finally, wholly or partly, it will be entitled to claim deduction in such later year protanto. Insofar as calculation part of amount of royalty is concerned, we find that necessary figures of sale by UPT for relevant period have not been made available by assessee to AO and in absence of such figures, latter has estimated amount by averaging monthly royalty for earlier 29 months, subject to rectification on receipt of actual sale figures from party. We do not find any inconsistency in this action of AO because his calculation is subject to supply of correct figures of sale. We, therefore, hold that learned CIT(A) erred in deleting addition made by AO. By overturning impugned order on this score, we restore action of AO. In result, appeal of Revenue is allowed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. FGP LTD.