1955 (8) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Whether the commission income should be assessed in the year it becomes due or in the year it is actually drawn.
2. Applicability of Section 7 of the Income-tax Act.
3. Applicability of Section 12 and Section 34 of the Income-tax Act.
4. The method of accounting (mercantile vs. cash basis) relevant for the assessment.

Issue-Wise Detailed Analysis:

1. Whether the commission income should be assessed in the year it becomes due or in the year it is actually drawn:
The primary issue was whether the commission income of the assessee should be assessed in the year it becomes due or in the year it is actually drawn. The court noted that the Income-tax Officer assessed the commission as income from other sources under Section 12 of the Act, considering the years in which the amounts were actually withdrawn. The assessee contended that the commission should be assessed in the years when it accrued due, in line with the mercantile system of accounting. The Appellate Tribunal concluded that the commission amounts had not been made available to the assessee in the years they were credited but only when actually received.

2. Applicability of Section 7 of the Income-tax Act:
The court focused on Section 7 of the Income-tax Act, which deals with the taxation of salaries, including commissions. The section specifies that tax is payable on any salary or commission "which are due to him from, whether paid or not, or are paid by or on behalf of" the employer. The court interpreted that if any payment becomes due, it must be assessed in the year it becomes due, irrespective of actual payment. The court rejected the contention that Section 7 provided an option to either the Income-tax Officer or the assessee to choose the year of assessment.

3. Applicability of Section 12 and Section 34 of the Income-tax Act:
Both parties agreed that Section 12, which deals with income from other sources, was incorrectly applied by the Income-tax Officer. The court shared the surprise that Section 34, which deals with income escaping assessment, was overlooked. The court observed that if the Income-tax Officer had proceeded under Section 34, the contentious proceedings might have been avoided.

4. The method of accounting (mercantile vs. cash basis) relevant for the assessment:
The assessee argued that he should be treated as following the mercantile system of accounting, similar to his employer. However, the court noted that the assessee did not maintain any accounts and did not submit returns for the years when the income accrued. The Appellate Tribunal found it incredible that large sums credited to the assessee were not withdrawn, suggesting that the amounts were not available to him in those years.

Conclusion:
The court concluded that for the assessment years 1943-44 and 1944-45, the commission amounts received in the relevant accounting years had become due earlier and were not liable to be included in those assessment years. For the assessment year 1948-49, the question did not arise as the commission was earned and assessed in the same year. For the assessment year 1949-50, the amount of Rs. 1,650 was only partially referable to commission earned in previous years, and the exact part was undetermined.

Judgment:
- Assessment Years 1943-44 and 1944-45: The commission income should not be assessed in these years.
- Assessment Year 1948-49: The question does not arise.
- Assessment Year 1949-50: The commission income should not be assessed for the part coming from previous years.

Lahiri, J. concurred with the judgment.