TMI Blog1971 (10) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... NNA J.-- This judgment would dispose of two Civil Appeals Nos. 2083 and 2084 of 1970 which have been filed on certificate granted by the Calcutta High Court and are directed against the judgment of that court whereby it answered the questions referred to the court under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as 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., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the company's yearly accounts close in each and every year during the continuance of this agreement and shall be payable and be paid immediately after annual accounts of the said company have been passed by the board of directors and auditors of the company and by the company in general meeting." According to the above clause, the commission 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al basis. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal affirmed the order of the Income-tax Officer. According to the Tribunal, the commission became due to the appellant yearly on the last day of the accounting year of the managed-company, though the actual payment was deferred to a later date. Postponement of the actual 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt found that the relinquishment had not been made for the purpose of facilitating the legitimate commercial undertaking or by way of commercial expediency. The appellant's case was thus held to be not covered by section 10(2)(xv) of the Act. Mr. Maheshwari has assailed the findings of the High Court. Regarding the first question, the learned counsel 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 content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, but it does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately. There also arises a corresponding liability of the other party from whom the income becomes due to pay that amount. The further fact that the amount of income is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income 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 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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