TMI Blog1975 (7) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... the mills. The mills was also incorporated on January 4, 1928. The capital of the company was Rs. 640 divided into 128 shares of Rs. 5 each. Out of these 128 shares, 72 shares were allotted to Chandulal. Chandulal and his nominees had an interest of 9 annas in a rupee in the shareholding of the company. The rest of the shares in this company were held by the other shareholders of the mills. The company was appointed as the secretaries, treasurers and agents of the mills for a period of 60 years. The management of the company was vested in Chandulal. Chandulal resigned on June 6, 1931, and was succeeded as the managing agent by Jethalal Bhalakia in the year 1932. Both Chandulal till his resignation and Jethalal subsequent to his assuming office as managing agent of the company were managing the company and also the mills. After Jethalal came on the scene, clause 15 of the memorandum of association of the company was amended so as to provide for his appointment as the managing agent of the company to manage it solely and exclusively. On February 24, 1932, an agreement was entered into between the company and Jethalal whereby the terms of appointment of Jethalal under clause 15 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 134 of 1951 was preferred against the decision of the trial court, which was disposed of by the Bombay High Court by its judgment dated November 25, 1955. The Division Bench of this court set aside the decree that was passed by the trial court and dismissed the suit. In the meanwhile, while this appeal was pending Narottamdas died on November 16, 1952. In accordance with the resolution that was passed by the annual general meeting in July, 1949, a sum of Rs. 15,000 per annum was payable to Narottamdas. This amount of Rs. 15,000 was brought to tax for each of the years 1950-51, 1951-52 and 1952-53. For the assessment year 1953-54 the proportionate sum of Rs. 15,000 up to the date of death of Narottamdas was brought to tax. The company debited the sum of Rs. 15,000 in the profit and loss account prepared by it on June 22, 1950, for the year ended December 31, 1949. In view of the trial court's judgment for the subsequent years the sum of Rs. 15,000 due under the resolution to Narottamdas was shown as contingent liability in the profit and loss account. Before the Income-tax Officer it was contended on behalf of the assessee by his legal heirs that the remuneration at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... das, in view of his death, in the meanwhile, have been paid not only the amount as per the resolution but also the amount of interest thereon. He submitted that such interest can never be claimed by the legal heirs unless a right had accrued to Narottamdas to receive the amount. He pointed out that if the date of accrual of income for all these years was to be postponed till November 25, 1955, when the appeal was disposed of by the High Court, then it will mean that the income accrued to Narottamdas even after his death, he having died on November 16, 1952. On the other hand, Mr. Trivedi, on behalf of the legal heirs of Narottamdas, has contended that simply because the resolution was passed by the company at its annual general meeting, it cannot be said that income accrued to Narottamdas from year to year as contended by the revenue. His submission was that in view of a representative suit instituted by the shareholders an obstacle or hurdle was created on the right of Narottamdas to claim the amount and until such hurdle or obstacle was removed by a final decision of the High Court it cannot be said that income accrued to Narottamdas from year to year. Under the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This amount of Rs. 15,000 was to be reduced if the commission income of the company was below Rs. 1,50,000. In view of this resolution passed by the company at its annual general meeting, for each one of the assessment years with which we are concerned at the end of the accounting period Narottamdas became entitled to the sum of Rs. 15,000 because it is not the case of any party that the commission earned by the company in any one of these years was below Rs. 1,50,000. Thus, the income of Rs. 15,000 accrued or arose to Narottamdas at the end of each accounting year irrespective of the fact whether the amount was actually paid by the company to Narottamdas or not. It should not be overlooked that there was no controversy whatsoever between the company on the one hand and Narottamdas on the other as regards the liability to pay the sum of Rs. 15,000. The company as payer accepted this liability and Narottamdas as payee acquired a right to receive the amount from the company. It was, however, urged by Mr. Trivedi that a hurdle or obstacle was created upon the right of Narottamdas to receive this amount and upon the liability of the company to pay this amount by a suit filed by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionate amount had become due and payable before the close of the accounting year. Such payment of interest really clinches the matter because it can only be paid when the right to receive the amount was acquired by Narottamdas at the end of each of the accounting years with which we are concerned. No rational reason was given by Mr. Trivedi to explain such payment of interest by the company to the legal heirs of Narottamdas except by saying that it may be treated as ex gratia. The shareholders who opposed the resolution to pay additional special remuneration to Narottamdas will not permit the company to make payments ex gratia to the legal heirs. In fact, such payments had to be made if regard be had to the legal rights of the parties, because at the end of each accounting period a sum of Rs. 15,000 becomes due and payable by the company to the assessee, Narottamdas. Further it should not be overlooked that the assessee himself died on November 16, 1952. If the amount had not become due and payable during his lifetime it is difficult to see how it became payable for the first time after his death, in November, 1955, simply because the judgment and decision was given by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entitled to the sum of Rs. 25 lakhs. When the suit was finally decided a decree was passed in favour of the assessee in the sum of Rs. 2,34,000 on the ground that under clause 14 of the agreement the respondent, i.e., the assessee, was only entitled to liquidated damages at the rate of Rs. 6,000. This case is in no way of any assistance to Mr. Trivedi. So far as the sum of Rs. 2,34,000 was concerned it was treated as having accrued to the assessee on April 23, 1951, as the assessee was maintaining accounts on mercantile system. Thus, even though the decision came much later, still it was regarded as having accrued to the assessee much earlier when the company was willing to pay the same. The other case to which reference was made by Mr. Trivedi is the decision of this court in Commissioner of Income-tax v. Nadiad Electric Supply Co. Ltd. This was a case where between Nadiad municipality and the assessee-company there was a contract to supply electricity at the rate specified. The contract was for a specified duration. Under the contract the municipality was liable to pay for the electricity consumed by it at the rate of 19 paise per unit. Even after the expiry of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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