TMI Blog1990 (12) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, Seth Narottamdas, was the managing agent of Messrs. Chandulal and Co. Ltd. A resolution for the payment of special additional remuneration to Narottamdas at the rate of Rs. 15,000 per annum was passed on July 20, 1949. In the meantime, a representative suit was filed by the shareholders of the company on July 16, 1949, for a perpetual injunction from giving such extra remuneration and for declaring the resolution as illegal. Temporary injunction granted by the trial court was vacated on July 20, 1949, on the assurance that the company will not make payment of extra remuneration until the disposal of the suit. The trial court decreed the suit on October 31, 1950, but on appeal, the High Court by judgment dated November 25, 1955, revers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing question of law under section 66(1) of the Indian Income-tax Act, 1922 (at p. 723 of 105 ITR) : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 58,125 was properly held by the Tribunal to have accrued to Shri Narottamdas Jethalal only in November, 1955, when the High Court's judgment was pronounced ?" The High Court, vide judgment dated July 8, 9, 1975, answered the said question in the negative, against the assessee. The judgment is reported in CIT v. Babulal Narottamdas [1976] 105 ITR 721 (Bom). The High Court held that as there was no question of any controversy between the company on the one hand and the assessee on the other, merely because the third party raised a dispute as regards the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of a particular sum pursuant to the decree of the court and the right to receive had accrued only when the decree was finally passed by the High Court. The assessee, Narottamdas, was maintaining his accounts on the mercantile system. Where accounts are kept on accrual basis, profits or gains are credited though they are not actually realised. The entries made in the accounts really show nothing more than an accrual. In view of the resolution passed in the annual general meeting of the company, income of Rs. 15,000 accrued to Narottamdas in each year. This income was actually earned by him during the relevant previous years. The right to receive the extra remuneration flowed from the resolution. The income accrued or arose at the end o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee by the company at the end of the accounting year. What was deferred on account of the pending litigation was not the accrual of the right but the date of payment. Since the suit was pending during the first year, the company had made the debit entry in the accounts. For the subsequent years also, the amount had been shown in the profit and loss account as a contingent liability in view of the pending litigation. There was no dispute between the company and the assessee regarding the payment of such extra remuneration. Since the resolution created the right in favour of the assessee to receive the extra remuneration at the agreed rate, the assessee acquired the right to receive that income by virtue of the resolution and not by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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