TMI Blog1980 (4) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... pes of goods and machinery produced by the principals primarily with various Government departments and public organisations. The assessee was entiled to commission on the catalogue prices of the goods supplied. For this purpose, the goods were divided into two categories, A and B, and the commission on items in category B was a little higher than the commission in respect of items in category A. Moreover, the percentage of commission also depended upon the time within which the principals received payments for the supplies made by them. The scale of payment of commission was a sliding scale, the maximum percentage being available to the assessee if the payment of the bills was received within sixty days from the date of despatch of the goods and the minimum when such payment was received after more than a year after the date of relative despatch. There was also a provision for the grant of a higher rate of commission on certain items of goods or on all sales if the board of directors of the principals so decided after reviewing the efforts of the assessee and the other relative circumstances. But it was specifically stipulated that the assessee will not have any claim on such comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to January 1, 1961, on which date the partnership has been constituted. The dispute that arose between the assessee and the I.T. department was as to whether the above sum of Rs. 40,000 should be assessed in the hands of the present assessee or in the hands of the partnership which succeeded him in the business. The assessee's contention was that for his individual assessments he was adopting the cash system of accounting and that the receipts of commission from the Bombay company (and its predecessor firm) were being accounted for as and when received. That apart, the assessee's right to receive commission from the Bombay company arose on the terms of the agreement with them only when they settled the assessee's accounts and made payments in respect thereof. It was pointed out that in the very nature of the business the principals received payment for the supplies made by them several months after the supplies had been made. Accordingly, the commission did not accrue and was not paid to the assessee as and when the orders were booked merely on the basis of the services rendered by the assessee during any particular year. The commission actually accrued and was paid only much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Nath Khandelwal prior to the 1st January, 1961, which in accordance with the practice followed by us, could not be paid to him in 1960. 12. No other payment was made to them during the calendar year 1961. 13. Likewise, the work done by the agents during the calendar year 1961 was taken into consideration for the purpose of calculating their commission not in the year 1961 but in the subsequent year. The ITO did not accept the contention put forward on behalf of the assessee. He observed that for the jobs which he had completed up to December 31, 1960, the assessee was entitled to commission from the principals. The assessee had only intended to transfer or pass on the commission which; thus, accrued to him to the partnership but since the income had already accrued to him, it had to be assessed in his individual assessment. With these observations the ITO added the sum of Rs. 40,000 in the assessment of the individual for 1962-63. Shri Amar Nath Khandelwal preferred an appeal to the AAC, inter alia, objecting to the above addition. The AAC accepted the assessee's contention in this regard. He referred to cl. II(7) and observed that in the face of this provision the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act given by the Appellate Assistant Commissioner that the income of Rs. 40,000 accrued (to the) partnership firm and not to the assessee ? " Mr. O. P. Dua, learned counsel appearing for the assessee, submitted that the assessee was following the cash system of accounting. He pointed out that this had been mentioned in the statement of facts drawn up by the assessee in support of his application under, s. 256(1). In para. 7 of the statement of facts the assessee had stated : " It is a matter of record and has never been disputed that the petitioner, as well as the partnership firm which came into existence on January 1, 1961, both, had adopted the cash receipt basis for their books of account throughout. " He, therefore, submits that the commission had not become the income of the assessee according to his method of accounting until it was actually received. Nor, says counsel, had the commission accrued to him. Referring to the observations of the Supreme Court in the case of E. D. Sassoon Company Ltd. v. CIT [1954] 26 ITR 27, learned counsel submits that, on proper construction of the agreement between the assessee and its principals, the assessee did not acquire any right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him by way of commission. This was, according to the learned counsel, a simple case of application of income. He, therefore, submitted that the decision of the Tribunal was correct and should be confirmed. We are of opinion that the sum of Rs. 40,000 constituted the income of the firm and not the income of the assessee. The Tribunal has taken the view that the above sum was the income of the assessee which the assessee had passed on to the firm. We do not think that this is the correct position as it emerges from the facts. According to the assessee he had been following the cash system of accounting. But as rightly pointed out by Mr. Verma the question of method of accounting of the assessee need not bother us because there is no dispute that the amount has been received in the previous year. The crucial aspect is not that of receipt but that of accrual for, if an item of income had accrued to the assessee before December 31, 1960, and this had been passed on by the assessee to the firm that would be only a case of application of income. The question really, therefore, is whether the above remuneration for services rendered by the assessee during the calendar year 1960 could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive the commission from the principals merely because certain orders were booked by it. The assessee's right to commission arose only as and when the bills drawn by it on the company were considered and passed by the company having regard to the various provisions contained in cl. II. In other words, the right to commission did not accrue as and when the contracts were booked or even at the end of the accounting year necessarily. The right to commission arose only when the assessee's bills in this regard were passed by the company. Till that point of time the assessee did not have any right, claim or title and no debt in regard to the commission accrued in favour of the assessee. It appears to us that the above construction of the agreement is also borne out by the decision of the Supreme Court in the case of E. D. Sasson Company Ltd. v. CIT [1954] 26 ITR 27. In that case, the Sassoon company were the managing agents of three companies. They worked as managing agents for a part of the accounting year and thereafter assigned the agencies to different parties in the course of the year itself in the case of each of the assignments the consideration received by the assessee from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany might make the payment much later but until the bills were passed the right of the assessee to receive commission on any particular basis did not crystallize and it could not be said that a debt had been created in his favour until the bills were considered and decided upon in terms of sub-cl. (7). We may mention in this connection that it is not the case of the department that in respect of the amount of Rs. 40,000 the company had already passed or accepted the assessee's claim or that there had been any deliberate delay on the part of the company in paying the amounts due to the assessee. In the absence of any such allegation or finding we have to take it that the sum of Rs. 40,000 was determined as payable to the assessee and the amount was paid in April, 1961, only in the normal course of the implementation of the agreement. In these circumstances, we are of opinion that no right had accrued in favour of the assessee to receive the commission at any time prior to 17th April, 1961. The next submission made by Mr. Verma is that even though the income may have accrued only on 17th April, 1961, it must be deemed to have accrued only to the assessee and that it was merely pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of acquisition would be the income of the successor. This position is clear even from the decision in Sassoon's case [1954] 26 ITR 27 (SC). In that case also, the business of managing agency had been assigned to certain parties and though the income which accrued at the end of the year was in respect of services rendered partly by the predecessor and partly by the successor it was all treated as income which had accrued to the successor. Where a business is succeeded to as an integral and identical whole then any amount which may become payable even in respect of transactions or activities which might have been put through by the predecessor as and when they crystallize into a debt and become receivable by the successor can only be the income of the successor. Having assigned or transferred the business with the consent of the principals it was no longer open to the assessee to go to the principals and claim that the commission in respect of the transaction put through by him prior to January 1, 1961, should be paid to him. In other words, this is a case where the entire business together with all expectations and all inchoate rights for receiving remuneration in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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