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TMI Blog1964 (1) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and commission to the assessee-company during the accounting year as aforesaid amounting to ₹ 29,000 only. The accounting year of all the managed companies closed on the 5th July, 1951. On the 16th December, 1952, the shareholders of the assessee-company passed a resolution forgoing the receipt of the allowance. There were other resolutions of the same nature made by the assessee-company on several dates. The assessee-company claimed that the aforesaid amount of ₹ 29,000, which had been forgone by it, should not be treated as income in computing its total income. The Appellate Tribunal held that the intention of forgoing was arrived at, much later than the closing of the accounting year, during which the remuneration had already accrued to the assessee and therefore after accrual, if it had relinquished the claim of the receipt that would only mean a diversion of the profit and, therefore, could not be excluded from the total income. It was urged by the assessee-company before the Appellate Assistant Commissioner that the Income-tax Officer made an error in adding ₹ 29,000 in respect of managing agency commission receivable by the appellant from various com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies during such year.... In this case the provisions of section 4(1)(b)(i) quoted above are relevant, as we have to decide the question whether the income which is said to have accrued during the accounting year in question within the meaning of this clause is liable to assessment to tax, if beyond that period the accrued income is relinquished or forgone. According to Murray's Oxford Dictionary accrue , means to arise or spring as a natural growth or result . Arising means coming into existence or notice or presenting itself . According to the ordinary dictionary meaning both the words mean to become a present and enforceable right and to become a present right of demand . It was observed in the case of Rogers Pyatt Shellac and Company v. Secretary of State [1924] 1 I.T.C. 363 that both the words are used in contradistinction to the word receive and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. From this observation it appears that income may accrue at a point of time prior to its quantification or computation which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in consideration of the company agreeing to change the managing agency, the managing agents will give a letter to the company as per the draft placed before them. In the draft letter it was stated that the managing agents could not agree to a reduction in the remuneration already fixed, but voluntarily agreed to a reduction in the commission to be fixed by an agreement between the board and the company. On 30th December, 1947, the M.S. Company passed a resolution appointing S.V. Limited as their managing agents from January 1, 1948, for a term of 20 years. It was, however, only on December 30, 1948, when the annual general meeting of M.S. Company was held that the commission of the assessee was fixed at 2? per cent. instead of 10 per cent. for the period April 1 to December 31, 1947. At the meeting of the board of directors of the N.D.S. Company held on December 1, 1947, the assessee informed the meeting that it was agreeable to accept 2? per cent. as commission instead of 10 per cent. of the freight earnings from April 1 to December 31, 1947. The annual general meeting of N.D.S. Company was held on December 30, 1947, and P. Limited was appointed the managing agent from Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of commission. According to him this decision should apply to the present case as a general principle has been enunciated that unless the assessee is entitled to a certain income it cannot be assessable to tax. The line of distinction between the facts of this reported decision and of the instant case appears to be that in the former the relinquishment was done on the basis of a bilateral agreement in the accounting year, but in the latter, the relinquishment was made beyond the accounting period without there being any satisfactory material in the record to show that it was based on a bilateral contract between the assessee and the managed companies as pointed out before. The decision in each case should be made on the background of the facts disclosed and it seems to us that the decision by the Bombay High Court was made as stated above, only because the agreement was entered into in the year of account. This decision was affirmed in appeal by the Supreme Court in Commissioner of Income-tax v. Shoorji Vallabhadas and Company [1962] 46 I.T.R. 144 (S.C.). Their Lordships of the Supreme Court were pleased to hold on the facts as stated before, that the subsequent agreement had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the same court reported as Commissioner of Income-tax v. Chamanlal Mangaldas and Company [1956] 29 I.T.R. 987 and held that the events during the accounting year were themselves sufficient to show that the income neither accrued to the assessee firm nor was received by it so as to become assessable. The decision of the Bombay High Court was approved by this court in Commissioner of Income- tax v. Chamanlal ?angaldas and Company [1960] 39 I.T.R. 8 (S.C.). In Commissioner of Income-tax v. Chamanlal Mangaldas and Company [1956] 29 I.T.R. 987 the assessee was also the managing agent of a company and under the agreement was entitled to receive commission at a certain rate. By another agreement, the commission earned by the managing agent for the calendar year 1950 was reduced by rupees one lakh. That agreement took place during the previous year, and the resolution of the board of directors of the managed company was also in the previous year. It was, however, made final on April 8, 1951, at a meeting of the board of directors, but that was beyond the previous year. The High Court of Bombay held that by reason of the resolution during the currency of the previous year, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us by both the parties. We shall however refer to some of them for our conclusion whether the submission made by Mr. Meyer that there is no difference between cases where relinquishment takes place within or without the accounting period and that the criterion for assessability to tax is when the income is actually received in the year of account. Mr. S. Mukherjee, the learned counsel for the respondent, contends that in this particular case the argument of Mr. Meyer is not sustainable in view of the fact that the question relating to accrual of income has been finally decided by the Supreme Court. He has referred us to the case of E.D. Sassoon and Co. Ltd v. Commissioner of Income-tax [1954] 26 I.T.R. 27 ; [1955] 1 S.C.R. 313. It was decided in this case that income must be held to accrue at the date when it became due. Mr. Mukherjee has next cited the decision of the Supreme Court in Commissioner of Income-tax v. K.R.M.T.T. Thiagaraja Chetty Co. [1953] 24 I.T.R. 525 ; [1954] S.C.R. 258. The decision in this case is that the mere fact that the amount due to the assessee has been carried to suspense account in the debtor's book or that the debtor withheld payment on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to the benefit of a remuneration agreement, whereby millers were compensated by the Ministry of Food for losses incurred under war-time arrangements for the purchase of wheat and sale of flour. Having, however, been informed by the Ministry in 1943, and twice later that the remuneration of millers who had begun milling during the period of control was under consideration, he made a claim in 1949 on the same basis as that laid down in the remuneration agreement and received payments in settlement. The Commissioners on these facts came to the conclusion that the assessee was not liable for payment of income-tax and excess profits tax, as such an income was not received during the accounting period. Further, they came to the conclusion that the payment was in the nature of ex gratia payment. On appeal to the High Court of Justice (Chancery Division), it was held that if on the discontinuance of a trade on payment for work already done has not been finally settled, accounts can be reopened so as to bring in a payment for such work, even though it is gratuitous, which is made thereafter. In deciding this matter Mr. Justice Roxburgh referred to several previous decisions. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the right to receive must come into existence in the relevant previous year and that income can be held to arise or accrue to the assessee, only when the assessee obtains a right to receive the income. It seems to us, however, on a consideration of the Supreme Court decisions referred to before, which we are bound to follow, that the question of non-assessability could only arise if the relinquishment is made in the accounting year. These decisions in our opinion are sufficient for negativing the contention raised by the assessee. It is accordingly not necessary to multiply a good lot of cases which have been referred to us for a decision in this reference. The instant case however may be considered from another point of view as urged by Mr. S. Mukherji. He has submitted that in all the English decisions referred to us, the root or germ as to accretion of income was in the accounting year and if such a root or germ fructifies in the subsequent years that could be taken into account and not otherwise. This argument which appears to be correct has in its support the principle discussed in article 261 at page 147 of Halsbury's Laws of England, third edition, volume 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Company [1962] 46 I.T.R. 144 (S.C.), that where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might in certain circumstances have been made in the books of account. This decision was made on the facts that there was a bilateral contract between the managing company and the managed company during the accounting year, whereby the assessee disentitled itself from receiving the contractual commission, which obviously did not result in income during the accounting year. Such is not the case here, as no reliable evidence was placed before the Tribunal to show that the relinquishment was done on the basis of some direct negotiations between the assessee and the managed company, with respect to the sum of ₹ 29,000 during the accounting year. (3) The real test is that if the amount is to be taxable as income the basic conception to be kept in views is that the right to receive the income must come into existence in the relevant previous year and that income can be held to arise or accrue to the assessee only when the assessee obtains a right to receive the income. In oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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