1980 (4) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Whether the commission income of Rs. 40,000 is to be assessed in the hands of the assessee.
2. Whether the amount of Rs. 40,000 could be deemed to have accrued to the assessee during the assessment year under consideration.
3. Whether the Tribunal had any material to justify its reversal of the finding of fact given by the AAC that the income of Rs. 40,000 accrued to the partnership firm and not to the assessee.

Summary:

Issue 1: Assessment of Commission Income
The Tribunal held that the commission income of Rs. 40,000 should be assessed in the hands of the assessee. However, the High Court disagreed, concluding that the sum constituted the income of the firm, not the individual assessee. The court reasoned that the assessee had been following the cash system of accounting, and the right to commission did not accrue until the company decided to make the payment, which happened after the formation of the partnership.

Issue 2: Accrual of Income
The High Court determined that the commission did not accrue to the assessee during the assessment year under consideration. The court emphasized that the right to commission arose only when the bills submitted by the assessee were passed by the company, which occurred after the partnership was formed. Therefore, the income could not be deemed to have accrued to the assessee before December 31, 1960.

Issue 3: Justification for Tribunal's Reversal
The Tribunal's reversal of the AAC's finding was not justified. The High Court found that the Tribunal erred in concluding that the amount of Rs. 40,000 had accrued to the assessee before the formation of the partnership. The court highlighted that the business, along with all its assets and liabilities, had been transferred to the partnership, and the commission income should be assessed in the hands of the firm, not the individual assessee.

Conclusion:
The High Court answered the referred questions in the negative and in favor of the assessee, concluding that the commission income of Rs. 40,000 was the income of the partnership firm and not the individual assessee. The assessee was entitled to the costs of the reference, with counsel's fee set at Rs. 300.