TMI Blog1983 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... on P. Ltd. (for short called " the company ") as result of a compromise arrived at in the court between the assessee and the company. The circumstances relating to the receipt of the said sum of Rs. 1,00,000 by the assessee may now be stated. The company was engaged in a business of colonisation. It owned 350 to 400 bighas of land on the main Kutab Road known as Green Park. The company had drawn up colonisation scheme in respect of this land in accordance with the Southern Extension Scheme of the Delhi Improvement Trust. The assessee was an engineer who had then recently retired from the Army. By an agreement dated April 27, 1955, the company appointed the assessee as its technical director and adviser. The salient terms of this agreement may now be noticed. The assessee was appointed as technical adviser of the company and was to become an additional director on acquiring 10 shares of the company. He was to be responsible for the entire scheme of colonisation and for its development. He was to develop the plots, keeping down the total expenses in development and organisational affairs within a figure calculated at Rs. 4.10 per sq. yard of the total area of plots marked out for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to tax in the hands of the assessee either as salary or as compensation. The assessee filed an appeal. The AAC, after considering the circumstances of the case in detail and the decided cases cited before him, came to the conclusion that the amount received by the assessee was towards his remuneration and was received in the course of carrying on his professional activity. He did not accept the contention that the amount represented compensation for being deprived of any source of income. The AAC concluded that the amount had been rightly taxed as income and that even if s. 7 of the 1922 Act did not apply, the provisions of s. 10 of the 1922 Act would clearly apply in this case. The assessee went up in second appeal to the Income-tax Appellate Tribunal (for short called " the Tribunal "). The Tribunal first of all addressed itself to the contention whether the disputed amount was liable to be assessed under the head " Salary ". The Tribunal came to the conclusion that the remuneration received by the assessee could not be taxed under the head " Salary " by virtue of clause (1) of Explanation II to s. 7 of the 1922 Act because the assessee could not be described as an em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sales of such plots in the absence of which it is difficult to determine the total plots sold by him and to determine what amount or remuneration had become due to him and at what point of time. This information would be necessary to determine the assessment year in which the remuneration which had already become due to him in respect of plots actually sold would be assessable. The balance amount out of Rs. 98,000 accrued to the assessee during the year under appeal as it is not relatable to any plots actually sold but is relatable to the loss of future income. As the relevant information is not before us we restore the case to the ITO with a direction to find out the number of plots actually sold by the assessee, the price for which they were sold and to determine what remuneration had accrued to the assessee in respect of such sales and to determine the period when such remuneration accrued and to include the remuneration relatable to the plots sold during the previous year only in the assessment for the year under appeal. Whatever amount out of Rs. 98,000 is not relatable to the plots actually sold shall be included as income of the year under appeal. " Mr. G, C. Lalwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited to clause 7 of the agreement, the application of the assessee and the company under Order 23, rule 3 of the Code of Civil Procedure to urge that the payment of Rs. 98,000 received under the compromise was partly adjudication of rights in the relevant previous year for the amount due, partly for settlement of the disputes and partly the creation of a right to the payment of the amount which is a substitute for profits likely to arise to the assessee (in the future) if the contract had run its normal course. We may recall certain facts. Clause 7 of the agreement dated April 27, 1955, provides as to when the income would accrue to the assessee. It arises on the sale of any plot at a net price above Rs. 10 per sq. yard and on full realisation of the value of the plot. The company is to pay half of the amount in excess of the price of Rs. 10 per sq. yard. Under the agreement between the assessee and the company, profits and gains accrue to the assessee on effecting the sales. The amount may not have been received by the assessee. The receipt is in no sense the sole test of chargeability under the Act. It could be brought to tax on the mercantile system of accounting adopted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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