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TMI Blog1967 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, assets and documents of the company vested in the Government of Mysore, on October 1, 1956, and the company was paid Rs. 15,50,000 as compensation for loss of its undertaking, assets and documents. In respect of the previous year ending March 31, 1957, the company submitted a return under the Income-tax Act, claiming that it had earned no income from its business, since its undertaking and business was taken over by the Government of Mysore on October 1, 1956. The Income-tax Officer, Urban Circle, Bangalore, brought to tax Rs. 4,01,954 disclosed by the company's audited accounts as its taxable business income. This order was confirmed by the Appellate Assistant Commissioner in appeal. The Income-tax Appellate Tribunal modified the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ented replacement of profits earned during April 1, 1956, to September 30, 1956. In our judgment the High Court erred in assuming that the character of the compensation received by the company was determinative of the question submitted by the Tribunal. It was the claim of the revenue that in the previous year the company had earned taxable profit amounting to Rs. 3,16,439 and that profit was subject to tax in the hands of the company. The department was not seeking to tax either the whole or any part of the compensation received by the company and the discussion as to what the compensation received by the company was intended to replace was not relevant in determining whether the profits which accrued or arose to the company during the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the profits or gains of any business, profession or vocation carried on by him. There is nothing in the Act which supports the argument that for profits of the business to be taxable, the business must be actively carried on for the whole of the previous year, or till the end of the previous year. Under the scheme of the Income-tax Act, whenever an assessee receives in the course of his business money or money's worth, income embedded therein accrues or arises to him, and becomes subject to an ambulatory charge. If at the end of the previous year, on making up accounts, there is no overall income, the charge does not crystallize because there is no income on which the charge of tax may settle. In Turner Morrison and Co. Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act be determined at the end of the previous year: but it does not follow therefrom that to profits earned during the year, the charge of tax does not attach. Assuming that the business of the company was closed on October 1, 1956, when its undertaking and assets were taken over by the Government of Mysore, it was, for reasons stated earlier, still liable to be taxed in respect of its profits which accrued or were received by the company prior to the date of the closure of the business. Counsel for the company relied upon a recent decision of this court in Commissioner of Income-tax v. Ashokbhai Chimanbhai and contended that profits of a business which are liable to tax under the Income-tax Act, can only accrue at the end of the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under sections 3 and 4 of the Income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business, the question whether they accrue de die, in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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