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Issues Involved:
1. Assessability of managing agency commission for the assessment year 1970-71. 2. Legality of the reduction in the quantum of penalty levied under section 273(c) of the Income-tax Act of 1961. Issue-wise Detailed Analysis: 1. Assessability of Managing Agency Commission for the Assessment Year 1970-71: The primary question was whether the managing agency commission of Rs. 76,429 accrued to the assessee before March 31, 1970, making it assessable in the assessment year 1970-71. The assessee, a private limited company, had an agreement with M/s. Simco Meters Ltd. for managing agency remuneration. The agreement stipulated a minimum remuneration of Rs. 24,000 annually, payable monthly, and additional commission based on net profits, payable after the audited accounts were approved in the general meeting. The Tribunal held that the commission of Rs. 76,429 accrued only after March 31, 1970, and thus was not assessable for the year 1970-71. This decision was based on the absence of a specific accrual date in the managing agency agreement and aligned with the principle that income accrues when it becomes payable. The Tribunal's decision was upheld by the High Court, which referred to precedents including E.D. Sassoon & Co. Ltd. v. CIT and Morvi Industries Ltd. v. CIT, emphasizing that income accrues when the right to receive it is established, not merely when it is recorded in the books. The court concluded that in the absence of a specific provision in the agreement indicating the accrual date, the commission could not be deemed to have accrued by March 31, 1970. Therefore, the sum of Rs. 76,429 was not assessable in the assessment year 1970-71. 2. Legality of the Reduction in the Quantum of Penalty Levied under Section 273(c): The second issue concerned the penalty levied for the deficiency in the payment of advance tax. The assessee was issued a notice under section 210, calling for an advance tax payment based on an estimated income of Rs. 10,470. The assessee paid the instalments but later filed a return disclosing an income of Rs. 22,297, while the assessment determined the total income as Rs. 98,730, including the disputed Rs. 76,429. The ITO initiated penalty proceedings under section 212(3A) for the assessee's failure to file a revised estimate of income. The Tribunal reduced the penalty to Rs. 305, considering that the sum of Rs. 76,429 was not includable in the assessable income for that year. The High Court upheld this reduction, agreeing that without the inclusion of Rs. 76,429, the minimum penalty of Rs. 305 was appropriate. The court affirmed that the Tribunal did not err in law by computing the minimum penalty based on the revised assessable income, thus answering the question in favor of the assessee. Conclusion: The High Court answered both questions in favor of the assessee, confirming that the commission of Rs. 76,429 was not assessable in the year 1970-71 and that the reduced penalty of Rs. 305 was correctly computed. The assessee was entitled to costs, with counsel's fee set at Rs. 500.
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