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Issues:
1. Interpretation of Section 13 of the Indian Income Tax Act regarding the computation of income. 2. Application of the mercantile method of accounting for commission earned. 3. Whether unpaid debt can be considered as income, profits, or gains. 4. Justification for altering the basis of accounting. 5. Requirement for proper evidence when changing the regular basis of accounting. Analysis: 1. The judgment concerns a reference made by the Commissioner of Income Tax under Section 66(2) of the Indian Income Tax Act, regarding the inclusion of commission in the income computation for the calendar year. The main issue revolves around the interpretation of Section 13 of the Act, which directs the computation of income based on the method of accounting regularly employed by the assessee, particularly in relation to business income under Section 10. 2. The assessee, a firm acting as selling agents, followed the mercantile method of accounting, recognizing commission earned rather than paid. For the accounting period in question, the firm did not include the commission earned for the latter half of the year due to uncertainties regarding receipt. However, the Commissioner argued that the commission should have been included based on the regular accounting method employed by the assessee. 3. The judgment discusses the distinction between income and debts, citing a Privy Council case where it was established that an unpaid debt is not considered income. However, it is noted that an unpaid debt may still be classified as profits or gains if treated as such in the accounting system. The court ultimately agreed with the Income Tax Commissioner's contention that the commission should have been included in the income computation. 4. The judgment addresses the assessee's attempt to alter the accounting basis from mercantile to cash for the specific period in question. It emphasizes that any change in the regular accounting basis must be supported by proper evidence and justification. In this case, the court found that the assessee did not provide sufficient grounds to warrant a deviation from the regular accounting method. 5. In conclusion, the court ruled in favor of the Income Tax Commissioner, stating that the assessee failed to justify the alteration of the accounting basis and should have included the commission in the income computation. The judgment also addresses the allocation of costs, clarifying the treatment of the deposit paid under Section 66(2) as part of the assessee's costs. The costs were ordered to be paid on the Original Side scale, with a deduction of the deposit amount. Judges: Sir William Beaumont (CJ) and Rangnekar, JJ.
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