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TMI Blog1987 (8) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... rom cotton and staple fibre, which is not received and paid by the principals due to financial crisis, the principal itself became a cause of concern for recovery. The learned counsel for the assessee submitted that the assessee entered into an agreement with the principal M/s Amausi Textiles Mills Ltd. Lucknow by which the assessee was the sole selling agent for sale of the manufactured yarn from cotton and staple fibre. For some time, the agency was working smoothly but during the accounting year relevant to the assessment year 1979-80, the principals were involved in a deep financial crisis and this prevented them from paying any commission to the assessee and there were some disputes also. As a consequence of this interest on deposit and the non-receipt of the commission, the assessee, which was earlier following mercantile system of accounting, changed over to cash system of accounting and this changed over to cash system of accounting and this change was intimated to the ITO vide letter dated 8th December, 1978. This was further clarified by means of two letters to the ITO dated 19-11-1981 and 26-12-1981. Along with the letter dated 26-12-1981, a certificate from the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's system of accounting was mercantile and it is an admitted fact that the assessee had rendered all such services as are required of a sole selling agent, thereby implying that the assessee has become entitled to the commission. Once it is an established fact that the commission is due to the assessee, the system being mercantile, the income has to be included on accrual basis though the amount might have been received at a subsequent point of time. It was, therefore, submitted that it was rightly held as income for assessment year 1979-80. But on the same issue the department is in appeal for assessment year 1981-82 in which year the income on account of commission had been deleted by the first appellate authority on the ground that it was already taxed in 1979-80, the plea raised was that the assessee was entitled to a guarantee commission of Rs.1 lakh per year and there being no evidence of termination of the agency, deleting the amount in 1981-82 is wrong. On the issue of interest chargeable he relied on State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC). 5. We have carefully considered the agreements of the parties. The brief facts in regard to the agreement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of Amausi Textile Mills, Lucknow. That during the aforesaid year we remain their selling agents, however, neither commission nor interest on deposit of Rs. 4,00,000 has been received due to some dispute, and for this fact we have sought your honour's predecessor's kind permission to change our system of accounting from mercantile basis to cash basis for these heads. The above permission was sought through letter dated 8-12-1978 filed on 14-12-78, vide receipt No. 21809. That it will not be out of place to mention that in similar conditions in one of our sister concern, M/s Mannu Lal Kishan Gopal (Sugar Agent) in assessment year 1965-66, the learned Income-tax Officer, Circle I (B) Ward, Kanpur, has allowed the said firm to change the system of accounting from mercantile to cash basis. That on appeal in case of M/s Mannu Lal Kishan Gopal (Sugar Agent) the loss as disallowed by the concerned Income-tax Officer for not carrying on business has been allowed. The copy of learned Appellate Assistant Commissioner, Range-I, order dated 3-9-66 is being filed. In view of the facts stated as above it is requested that the change in accounting system and the loss shown may please ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon by the assessee), was a case of a sole selling agent and that for about four years or so the assessee was not provided with any sales reports which compelled the assessee to take up the matter to the Courts, during the pendency of which the assessee did not receive any selling agency commission. The assessee went on incurring expenses and claimed the expenses as a business loss and that the issue involved primarily was whether it was carrying on the business or not and it was in these circumstances the non-receipt of income, that is, commission was held to be not a primary condition for allowing of the loss and that there was no decision to the effect that whether the income could be accounted for on cash basis or on mercantile basis. There was also no decision as to whether the income had accrued to the assessee or not. Therefore, this particular case, which is relied upon by the assessee, is of no consequence at all. The other case, relied upon by the assessee, is 148 ITR 760 of the Allahabad High Court, which is of the same assessee for the assessment years 1959-60 and 1960-61. In this case, the assessee was a sole selling agent and was entitled to certain commission pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission on a regular monthly basis and also paid interest on a quarterly basis. This payment on regular basis as per the certificates of the principals dated 22nd December, 1981 indicates, could not be complied with in view of the principals suffering a financial crisis and not for any other reason. Therefore, the claim of the assessee that there was a dispute which is, why they wish to change over to the cash system of accounting, falls to the ground as a baseless argument which is unsupported. 14. We have, therefore, only to come to the conclusion that the income of Rs. 1 lakh on account of commission accrued to the assessee and arose to the assessee in the year and accordingly including it as income for the assessment year 1979-80 is the only proper course. This we uphold. 15. As regards the interest on the deposit of Rs. 4 lakhs, the assessee placed reliance on Motor Credit Co. (P.) Ltd.'s case and Ferozepur Finance (P.) Ltd.'s case. In both these cases, the basic fact which was before their Lordships of the Madras and Punjab and Haryana High Courts were that the principals were in dire difficulties and any realisation of even the principals amount was in grave doubt, an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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