2008 (9) TMI 200 - HC - Income Tax

Time of accrual of income - assessment - assessee was director of the company - assessee was to receive commission at the rate of 1 per cent. on the net profits of the said company - no due date was fixed for the payment of the commission - held that the commission was taxable in the year in which the profit of the company was finalised and the accounts were assessed reference is answered in favour of the appellant

Summary

Issues:
Interpretation of accrual of income for commission in the assessment year 1989-90.

Analysis:
The case involved a dispute regarding the assessment of commission income for the assessment year 1989-90. The appellant, a whole-time director of a company, was entitled to receive commission based on the net profits of the company. The key issue was whether the commission accrued to the appellant during the previous year relevant to the assessment year 1989-90. The Assessing Officer taxed the commission based on the company's printed account, while the appellant argued that the commission accrued only after the determination of the net profits. The Commissioner of Income-tax (Appeals) held that the commission was earned on a day-to-day basis and should have been estimated in the appellant's return.

The appellant then appealed to the Tribunal, which found that the commission accrued within the previous year and was assessable in the assessment year 1989-90. The Tribunal considered the commission as part of the appellant's salary and assessable on an accrual basis. The appellant, however, argued that without a specific due date for payment, the commission did not accrue until the accounts were finalized and the amount ascertained. The appellant relied on legal precedents, including decisions by the Supreme Court and the Madras High Court, to support this argument.

The High Court, after considering the arguments and legal precedents cited, accepted the appellant's contention. The court held that the commission income accrued to the appellant only after the finalization of the company's accounts and ascertainment of the amount. Therefore, the court answered both questions in favor of the appellant, rejecting the Department's case. The judgment emphasized the importance of determining the point in time when commission income becomes due and accrued as income, based on the specific terms and conditions of service and relevant legal principles.

In conclusion, the High Court's judgment clarified the accrual of commission income for the assessment year 1989-90, highlighting the significance of finalization of accounts and ascertainment of amounts in determining when income accrues. The court's decision favored the appellant, emphasizing the need for specific due dates for payment to establish the accrual of income.