TMI Blog2003 (5) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... of income under the provisions of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). 2. The assessee was represented by learned counsel, Mr. Gopal, and the Department was represented by Mr. Acharya, who holds the rank of the Commissioner of Income-tax. Both Mr. Gopal and Mr. Acharya extended full co-operation and assistance to this Bench in the appreciation of the nature of the chit business and on the proper of system of accounting. We place on record our appreciation for the both the representatives in this regard. 3. The assessee is a registered company with the main object to carry on the business of chit. The assessee was following the mercantile system of accounting in regard to the commission earned by it in its capacity as foreman conducting the chit activity and this practice continued till December 31, 1985. For the three months from January 1, 1986, to March 31, 1986, the assessee chose to change its system of accounting to completion method accounting, i.e., the income of foreman was being accounted on completion of the chits. The authorities below did not accept this change on the reasoning that the commission accrued and was due to the foreman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that such subscriber shall, in his turn, as determined by lot or auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount". The term "chit agreement" is defined as "means the document containing the articles of agreement between the foreman and the subscribers relating to the chit (section 2( c ) of the CFA). Chit amount is defined in section 2( d ) of the CFA as means the sum total of the subscriptions payable by all the subscribers for any instalment of a chit without any deduction of discount or otherwise. "Defaulting subscriber" is defined in section 2( f ) of the CFA as, "means a subscriber who has defaulted in the payment of subscriptions due in accordance with the terms of the chit agreement". Discount in section 2( g ) of the CFA is defined as means the sum of money or the quantity of grain which a prized subscriber is under the terms of the chit agreement, required to forego and which is set apart under the said agreement to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he salient features of the CFA. The foreman is appointed under the CFA to perform various functions, for which he is paid remuneration for such functions. His main function is to draw up the chit agreement, fix the period of the chit, and fix the instalments and the instalment amount and the number of subscribers for the chit. He shall then file the agreement with the Registrar for his approval, followed by placing in deposit fifty per cent of the chit amount in a bank and provide a bank guarantee for the balance fifty per cent. He shall bring together subscribers who shall sign the chit agreement and contribute towards their subscription amount. He shall notify the date and place of the draw and conduct the draw on the appointed date after making sure that the quorum required for the conduct of the draw is satisfied, i.e., the number of subscribers present are more than two in numbers. He is permitted to make the draw by auction and in case of two persons offering identical discounts to the maximum the prized subscriber shall be determined by lot. He is required to record the minutes of the draw and file it with the Registrar. He is required to call upon the subscriber who is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. The chit business is run as any other business and is surrounded by problems of subscribers defaulting in the payment of subscription, following it up with the defaulting subscriber to pay the instalments with interest and remove him after giving a notice, distribute the discount amount earned at each draw at all the subscribers and draw his commission or remuneration too. Every business has its problems and the profit or a loss that the running business has earned or suffered is related to a year, and by the drawing up of the profit and loss account and the balance-sheet at the end of each year. The remuneration or commission that is the right of a foreman is earned by him at each monthly draw and the CFA also allows him to pay himself his remuneration or commission, from out of the subscription collections. The remuneration or commission of the foreman accrues at each monthly draw and it becomes due to him and is payable to him from out of the monthly subscriptions. The accrual of income of remuneration or commission together the right to receive it is related to each draw and gets completed on that basis. 11. The decision of the Bombay Bench in Corrosion Control Service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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