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TMI Blog1973 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Income-tax Act, 1922, for the assessment year 1954-55 ? " Similar questions were called for for the remaining two assessment years as well. But, in addition, one more question, namely : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 30,000 said to have been forgone by the assessee as office allowance receivable from Gwalior Rayon and Silk Manufacturing Co. Ltd. was allow- able as a revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, for the assessment years 1955-56 and 1956-57 ? " was called for. At the hearing, the High Court came to the conclusion that it is not necessary to answer the common question referred in all these three appeals as the same was academic but the question relating to the office allowance was answered in favour of the assessee following the decision of this court in Commissioner of Income-tax v. Chandulal Keshavlal & Co. The material facts of the case may now be stated. The assessee-respondent is the managing agent of the National Bearing Co. Ltd. and Gwalior Rayon & Silk Manufacturing Co. As managing agent of the former company it was entitled to receive a commission of 12 1/2 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable deduction under section 10(2)(xv). The Tribunal held that the commission as well as the office allowance were given up by the assessee on the ground of commercial expediency. The High Court agreed with the view taken by the Tribunal. We will first take up the question relating to the office allowance. According to the finding of the Tribunal, the assessee-company gave up the office allowance on the ground of commercial expediency. It opined that the managed company's financial position was not sound during the relevant accounting years and it was necessary for the assessee-company to give up the office allowance in order to stabilise the finances of the managed company. The Tribunal further came to the conclusion that because of the sacrifices made by the assessee-company, the finances of the managed company improved subsequently, as a result of which the assessee-company was able to earn more profits in the later years. This is a finding of fact. That finding was binding on the High Court. On the basis of that finding the Tribunal was fully justified in coming to the conclusion that the expenditure incurred came within the scope of section 10(2)(xv). That conclusion is sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s passed by the managed company and the assessee-company the assessee gave up a sum of Rs. 97,000 in December, 1950. The Appellate Assistant Commissioner held that the maximum amount the assessee was bound to forego was only Rs. 39,215 and included the balance of the amount foreone, viz., Rs. 57,785, in the taxable income. The Appellate Tribunal, however, found that the sum of Rs. 57,785 was also given up for reasons of commercial expediency. Affirming the decision of the Tribunal the High Court held that it was the real income of the assessee-company for the accounting year that was liable to tax and that the real income could not be arrived at without taking into account the amount forgone by the assessee. In ascertaining the real income the fact that the assessee followed the mercantile system of accounting did not have any bearing. The accrual of the commission, the making up of the accounts, the legal obligation to give up part of the commission, and the forgoing of the commission at the time of making up of the accounts were not disjointed facts : there was a dovetailing about them which could not be ignored. The real income of the assessee was Rs. 27,644 and the amount of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel appearing for the revenue, contended that the facts of this case are governed by the rule laid down by this court in Morvi Industries Ltd. v. Commissioner of Income-tax. We do not think that that submission is correct. The facts of that case are : the assessee, which was the managing agent of its subsidiary company, maintained its accounts on the mercantile system. It was entitled to receive an office allowance of Rs. 1,000 per month, a commission of 12 1/2 per cent. of the net profits of the managed company and an additional commission of 1 1/2 per cent. on all purchases of cotton and sales of cloth and yarn. In the accounting years ended on December 31, 1954, and December 31, 1955, the managed company suffered losses and the assessee earned only commission on the sale of cloth and yarn for the two years. The total amounts, including the office allowance which the assessee was entitled to receive were Rs. 50,719 and Rs. 13,963 for the two years. Under clause 2(e) of the managing agency agreement the commission was due to the assessee on December 31, 1954 and December 31, 1955, respectively, and it was payable immediately after the annual accounts of the managed company was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allabhdas and Co. was quoted in support of the conclusion reached by this court. That passage reads thus : " Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result 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. " (emphasis supplied). Hence it is clear that this court in Moti Industries case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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