Full Judgment Text
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PETITIONER:
BABULAL NAROTFAMDAS AND ORS.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, BOMBAY
DATE OF JUDGMENT14/12/1990
BENCH:
SAWANT, P.B.
BENCH:
SAWANT, P.B.
FATHIMA BEEVI, M. (J)
CITATION:
1991 AIR 513 1990 SCR Supl. (3) 541
1991 SCC Supl. (2) 618 JT 1990 (4) 784
1990 SCALE (2)1257
ACT:
Income-Tax Act, 1922: Section 4--Right to receive extra
remuneration-Resolution authorising the payment challenged
before Court-Resolution held Valid--Whether the right ac-
crued from the date of Resolution or from date of judgment.
HEADNOTE:
The appellant-assessee was maintaining the Mercantile
system of accounting. He was the Managing Agent of a company
and by way of a Resolution passed on 20.7.1949 the company
had agreed to pay the appellant special additional remunera-
tion at the rate of Rs.15,000 per annum. However, a repre-
sentative suit was fried by the shareholders of the company
for perpetual injunction from giving such extra remuneration
and for declaring the Resolution as illegal. Trial Court
decreed the suit. On appeal, the High Court reversed the
decree and held that the Resolution was validly passed.
Though the company debited the sum of Rs.15,000 for the year
ended 31.12.1949 and in the subsequent years showed the sum
as contingent liability, the amounts were not paid to the
assessee during the relevant years. After the death of the
assessee on 16.11.1952, the amount due to him was paid to
his heirs in 1956.
A sum of Rs.15,000 each for assessment years 1950-51,
1951-52 and 1952-53 and a proportionate sum of Rs.13,125
were brought to tax by the Income Tax Officer rejecting the
contention of the assessee that no amount was due as extra
remuneration in the several years and that no income had
accrued during the said years. On appeal, the Appellate
Assistant Commissioner confirmed the assessment. The asses-
see preferred an appeal to the Tribunal. Setting aside the
assessments, the Tribunal held that no income had accrued to
the assessee during the said years and that the amount
accrued to the assessee only in November 1955 when the High
Court pronounced the judgment upholding the Resolution, and
not earlier.
At the instance of Revenue, the Tribunal referred the
question as regards the date of accrual, to the High Court.
The High Court answered the reference in favour of Revence
and
542
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against the assessee.
Aggrieved by the judgment, the assessee preferred the
present appeal contending inter alia that untill the High
Court rendered the judgment holding that the Resolution was
validly passed, the company could not make any payment to
the assessee nor could the assessee claim payment of any
extra remuneration from company and, in such a case, the
entire amount became payable only on the date of judgment
and could therefore, be properly brought to tax only in the
year of the judgment.
Dismissing the appeal, this Court
HELD: 1.1. The date of accrual is the date on which the
right to receive the income has been acquired by the asses-
see. [545G]
1.2. In view of the Resolution passed in the annual
general meeting of the company, income of Rs.15,000 accrued
to the assessee in each year. This income was actually
earned by him during the relevant previous years. The right
to receive the extra remuneration flowed from the Resolu-
tion. The income accrued or arose at the end of each ac-
counting year irrespective of the fact whether the amount
was actually paid by the company to the assessee or not.
Though the payment was deferred on account of the pending
litigation, it cannot be said that accrual of income was
postponed simply because a suit was filed by the sharehold-
ers challenging the validity of the Resolution passed by the
company. [545D-F]
E.D. Sassoon & Co. Ltd. v. C.I.T., [1954] 26ITR 27and
C.I.T. v. K.R.M.T.T. Thiagaraja Chetty, [1953] 24 ITR 525,
relied on.
2. In the instant case. the right to receive extra
remuneration cannot be said to have arisen on the date of
the judgment of the High Court. The right to receive the
extra remuneration arose only on the Resolution of the
company. In view of the Resolution, such amount had become
payable to the assessee by the company at the end of the
accounting year. What was deferred on account of the pending
litigation was not the accrual of the right but the date of
payment. Since the suit was pending during the first year,
the company had made the debit entry in the accounts. For
the subsequent years also, the amount had been shown in the
profit and loss account as contingent liability in view of
the pending litigation. There was not dispute between the
company and the assessee regarding the payment of such extra
remuneration.
543
Since the Resolution created the right in favour of the
assessee to receive the extra remuneration at the agreed
rate, the assessee acquired the right to receive that income
by virtue of the Resolution and not by virtue of the judg-
ment which held the Resolution to be valid. [546A-D]
C.I.T. v. Babulal Narottamdas, [1976] 105 ITR 721, approved.
C.L T. v. Hindusthan H & L Development Trust Ltd. Cal-
cutta, [1977] 108 ITR 380, distinguished.
JUDGMENT: