9911796707
TMI Blog1971 (10) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act), for two assessment years against the assessee-appellant and in favour of the respondent. The assessee is a limited company and the matter relates to the assessment years 1956-57 and 1957-58, the corresponding accounting years for which ended on June 30, 1955, and June 30, 1956, respectively. The appellant-company was appointed as the managing agent of Shree Ramesh Cotton Mills Ltd., Morvi (hereinafter referred to as "the managed-company"), as per agreement dated December 30, 1946. The managed-company was a 100% subsidiary of the appellant-company. Under the terms of the agreement, the appellant-company was entitled to receive a fixed office allowance of Rs. 1,000 per mensem plus a commission at the rate of 12 1/2% of the net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was due on the 31st day of December every year and it was payable immediately after the annual accounts of the managed company had been passed in the general meeting. The annual general meetings of the managed company were held to adopt the accounts on November 24, 1955, and July 21, 1956, respectively, with regard to the assessment years in question. The amounts of commission in terms of the above clause were "due" on 31st December, 1954, and 31st December, 1955, and were "payable" immediately after the 24th of November, 1955, and 21st of July, 1956, respectively. The appellant-company relinquished the managing agency commission for the assessment year 1956-57 as per resolution dated 4th of April, 1955, of the board of directors and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l payment after the income had accrued was held to be inconsequential. Likewise, the relinquishment of the income after it had become due, in the opinion of the Tribunal, was inconsequential. Claim was then made by the appellant that the amount relinquished should be treated as a permissible expenditure under section 10(1)(xv) of the Act. The above claim was rejected and it was observed that the total loss carried over at the end of the year 1955 of the managed-company was Rs. 14,95,221. As a result of forgoing the amounts of the managing agency commission, according to the Tribunal, the financial position of the managed-company did not become stronger while that of the appellant-company became weaker. The relinquishment was consequently he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel contends that, as the amounts in question were never received by the appellant but were relinquished, there arose no tax liability for those amounts. As regards the second question, Mr. Maheshwari submits that the relinquishment of the amounts should be construed as permissible expenditure under section 10(2)(xv) of the Act. There is, in our opinion, no substance in any of the above contentions. So far as the first question is concerned, we find that, according to clause 2(e) of the managing agency agreement reproduced above, the commission for the two years in question became due to the appellant on the 31st day of December, 1954, and the 31st day of December, 1955. The appellant also became entitled to receive fixed office allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not subsequently received by the assessee would also not detract from or efface the accrual of the income, although the non-receipt may, in appropriate cases, be a valid ground for claiming deductions. The accrual of an income is not to be equated with the receipt of the income. That the two, accrual and receipt of income, have different connotations is also clear from the language of section 4 of the Act. Clause (a) of sub-section (1) of section 4 of the Act deals with the receipt of income while the accrual of income is dealt with in clause (b) of that sub-section. The appellant-company admittedly was maintaining its account, according to the mercantile system. It is well known that the mercantile system of accounting differs substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." The assessee-firm, who was the managing agent of two shipping companies in that case, gave up 75% of the managing agency commission with a view to get the managing agency transferred to two private companies. It was held that this was not a case of a gift by the assessee to the managed-companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration than what had been agreed upon. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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