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Issues Involved:
1. Nature of the compensation received by the assessee. 2. Applicability of section 10(5A) of the Indian Income-tax Act, 1922. 3. Timing of income accrual for tax purposes. Detailed Analysis: 1. Nature of the Compensation Received by the Assessee: The assessee, a private limited company, entered into an agreement with the Drug Company on June 28, 1947, to act as sales organizers for the Drug Company's products in India, Burmah, and Ceylon. Under this agreement, the assessee was entitled to a commission of 45% on original sales packing and 25% on bulk packings. The agreement was terminated on July 1, 1949, and a termination agreement was entered into, under which the Drug Company agreed to pay the assessee a commission of 5% of its gross turnover for ten years starting from July 1, 1949. This commission was to be calculated and paid monthly. The Drug Company initially paid the compensation as agreed but later became irregular, leading to litigation. A compromise was reached, and a decree was passed on August 23, 1957, modifying the terms of the compensation to 2% of the gross turnover, subject to a minimum of Rs. 18,000 annually, effective from July 1, 1949. The compensation payable was linked to the turnover of the Drug Company each year, and the right to receive the money depended on such turnover. 2. Applicability of Section 10(5A) of the Indian Income-tax Act, 1922: The Income-tax Officer assessed the compensation received during the assessment year 1958-59 as taxable income under section 10(5A), which the assessee contended was a capital receipt and not taxable. The Appellate Assistant Commissioner initially accepted the assessee's contention but later, upon remand, held that the amounts became receivable by virtue of the order dated August 23, 1957, making section 10(5A) applicable. The Tribunal confirmed this view, stating that the right to receive the amounts accrued only at the end of each accounting year. 3. Timing of Income Accrual for Tax Purposes: The Tribunal observed that the right to receive compensation under the termination agreement accrued as and when the Drug Company made sales, meaning the income accrued in the relevant assessment years in which the sales occurred. The compromise decree did not alter this position, as it merely modified the rate and guaranteed minimum compensation without changing the fact that the right to receive the money was contingent on the Drug Company's sales turnover. The court referred to the case of F. E. Hardcastle & Co. (Private) Ltd. v. CIT, where it was held that compensation payable in instalments accrued only on the respective dates the instalments became due. Similarly, in this case, the compensation accrued when the sales occurred, and the minimum guarantee did not change this. The court distinguished this case from CIT v. Sir Chunilal V. Mehta & Sons Private Ltd., where the managing agency agreement provided for liquidated damages upon termination, making the entire compensation accrue on the termination date. In the present case, the compensation depended on the Drug Company's sales, making the income accrue in the respective assessment years. Conclusion: The court answered the referred question in the affirmative, holding that the compensation payable to the assessee by the Drug Company for the period from April 1, 1957, to March 31, 1958, is assessable under section 10(5A) of the Indian Income-tax Act, 1922, for the assessment year 1958-59. The Revenue was entitled to its costs, with counsel's fee set at Rs. 500.
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