Skip to content


Sardar Arjunsingh Ahluwalia (Decd) (Through L.R. Smt. Manjit Ahluwalia) Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 146 of 1976
Judge
Reported in(1979)13CTR(MP)142; [1980]124ITR347(MP)
ActsIncome Tax Act, 1961 - Sections 15; Income Tax Act, 1922 - Sections 7
AppellantSardar Arjunsingh Ahluwalia (Decd) (Through L.R. Smt. Manjit Ahluwalia)
RespondentCommissioner of Income-tax
Appellant AdvocateS.C. Baghdiya, Adv.
Respondent AdvocateP.S. Khirwadkar, Adv.
Cases Referred and Webb v. Stenton
Excerpt:
- - in the opinion of the tribunal, this clause in the agreement dated 2nd january, 1946, clinched the issue and clearly proved that the entire control was in the hands of the mills and that the assessee was a servant of kalyanmal mills ltd. kantilal trikamlal [1976]105itr92(sc) :in a taxing statute one has to look merely at what is clearly said. 50): now, what is income ? the term is nowhere defined in the act .in the absence of a statutory definition we must take its ordinary dictionary meaning--that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a parson or corporation '(oxford dictionary). the word clearly implies the.....sohani, j.1. this is a reference under section 256(1) of the i.t. act, 1961, hereinafter called 'the act'. by this reference, the income-tax appellate tribunal, indore bench, indore, has referred the following questions of law to this court :'1. whether, on the facts and in the circumstances, the tribunal is justified in law in holding that the income of the assessee became liable to be assessed in the assessment years 1966-67 and 1967-68 and not in the years 1946-47 and 1947-48 ?2. whether, on the facts and in the circumstances, the tribunal was justified in law in holding that as the liability itself was disputed by m/s. kalyanmal mills, the assessee's right to receive remuneration or commission under the terms of the agreement accrued only on the decision of the high court on december.....
Judgment:

Sohani, J.

1. This is a reference under Section 256(1) of the I.T. Act, 1961, hereinafter called 'the Act'. By this reference, the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law to this court :

'1. Whether, on the facts and in the circumstances, the Tribunal is justified in law in holding that the income of the assessee became liable to be assessed in the assessment years 1966-67 and 1967-68 and not in the years 1946-47 and 1947-48 ?

2. Whether, on the facts and in the circumstances, the Tribunal was justified in law in holding that as the liability itself was disputed by M/s. Kalyanmal Mills, the assessee's right to receive remuneration or commission under the terms of the agreement accrued only on the decision of the High Court on December 14, 1965 '

2. The material facts giving rise to this reference briefly are as follows : The assessee, Sardar Arjunsingh Ahluwalia, who was assessed as an individual, died during the pendency of these proceedings and he is represented by his legal representative, Smt. Manjit Ahluwalia. The assessment years in question are 1966-67 and 1967-68 for which the accounting periods ended respectively on 31st March, 1966, and 31st March, 1967. In the assessment year 1966-67, the assessee received a sum of Rs. 10,000 and in the assessment year 1967-68, the assessee received a sum of Rs. 65,532 from M/s. Kalyanmal Mills Ltd., Indore. These sums were received by the assessee in pursuance of a final decree passed by the learned Additional District Judge, Indore, in a suit for accounts instituted by the assessee against M/s. Kalyanmal Mills Ltd., Indore. The case of the assessee in that suit was that by an agreement dated 2nd January, 1946, the assessee, who was employed as a personal assistant to the managing director of M/s. Kalyanmal Mills Ltd. and was carrying on business in the name of M/s. A. Ahluwalia & Sons, was appointed, on the terms and conditions mentioned in that agreement, to look after and supervise the waste department of the mills, that the agreement was to remain in force for a period of live years commencing from 1st January, 1946, but Kalyanmal Mills Ltd. terminated the agreement on 9th November, 1948. The assessee was paid by the mills his salary due to him as the personal assistant to the managing director of the mills, but the mills refused to make any payment to the assessee claimed by him under the agreement dated 2nd January, 1946, entered into by the mills with M/s. A. Ahluwalia & Sons, in which name the assessee was carrying on the businsss. The assessee, therefore, filed a suit in the court of the second Additional District Judge, Indore, for rendition of accounts. The suit was resisted by the mills on a number of grounds, but the trial court passed a preliminary decree for accounts directing that accounts be taken from 1st January, 1946, to 31st December, 1950. On an appeal being preferred to the High Court by the mills, the preliminary decree passed by the trial court was modified and the Kalyanmal Mills Ltd. was directed to render accounts from 2nd January, 1946, to 9th November, 1948. In pursuance of the decree passed by the High Court, a Commissioner was appointed by the trial court to take accounts and, on the basis of the report submitted by the Commissioner, the trial court passed a final decree on 14th December, 1965, decreeing the assessee's claim to the extent of Rs. 50,307.43 with costs and interest from the dateof the suit, i.e., from 30th December, 1953, till realisation, at four per cent. per annum. It was in pursuance of this final decree dated 14th December, 1965, that the assessee received from the mills Rs. 10,000 from 1st April,, 1965, to 31st March, 1966, and Rs. 65,532 from 1st April, 1966, to 31st March, 1967. The actual amount of remuneration that the assessee was held entitled to receive from the mills, in accordance with the final decree, amounted to Rs. 50,307 but the balance amount paid to the assessee represented the amount of interest on remuneration which the assessee had become entitled to receive in accordance with the decree. Thus, the total amount received by the assessee during the assessment years 1966-67 and 1967-68 came to Rs. 75,532 out of which Rs. 10,000 was received in the assessment year 1966-67 and the balance amounting to Rs. 65,532 was received in the assessment year 1967-68. The ITO assessed the sum of Rs. 10,000 in the hands of the assessee in the assessment year 1966-67 and, after allowing an expenditure of Rs. 3,601, he taxed the balance amount of Rs. 61,931 in the assessment year 1967-68. It was contended before the ITO that the agreement referred to above created the relationship of a master and servant and the amount received by the assessee as aforesaid should be assessed not on receipt basis but on accrual basis. The ITO did not accept this contention and held that as neither the mills rendered any accounts to the assessee nor was the assessee maintaining any accounts, the amount had to be taxed on receipt basis. On appeal, the AAC agreed with the conclusions to which the ITO had arrived and confirmed the impugned order except for some minor modifications. Against this order of the AAC, the assessse went up in appeal before the Tribunal. It was contended before the Tribunal on behalf of the assessee that the relationship that was created by the agreement between the assessee and the mills was that of a master and servant and not that of a principal and his agent. The Tribunal examined the clauses of the agreement and held that the most important clause in the agreement was that all sales and purchases were to be carried out by the assessee only after obtaining the consent of the managing director or of persons empowered by him on his behalf. In the opinion of the Tribunal, this clause in the agreement dated 2nd January, 1946, clinched the issue and clearly proved that the entire control was in the hands of the mills and that the assessee was a servant of Kalyanmal Mills Ltd. The Tribunal, therefore, held that the relationship which had been created as a result of the agreement dated 2nd January, 1946, was that of a master and servant and not that of a principal and his agent. Having reached that conclusion, the Tribunal then addressed itself to the question as to the basis on which the salary of the assessee, which he was entitled to receive by way of remuneration on percentage basis under the contract, was to be assessed. Learned counsel forthe assessee contended before the Tribunal that as the remuneration received by the assessee under the agreement was ' salary ', it was to be assessed only on accrual basis, that there was no option with the master arid that it was not open to the department to assess it on receipt basis, as had been done. The Tribunal, however, pointed out that the master, namely, M/s. Kalyanmal Mills, had disputed the liability to make any payment whatsoever to the assessee, that the assessee was required to file a suit in the court, that the matter was ultimately taken to the High Court by the mills, and that it was only after the matter had been decided by the High Court that the salary had become due to the assessee. The Tribunal, therefore, observed that until the date of the final decree, i.e., 14th December, 1965, it could not be said that any amount under the contract had become due to the assessee. The Tribunal, however, directed the ITO to examine the apportionment of the quantum of remuneration, which became due in the first year of assessment, and the balance, together with interest, which was paid in the next year. With this direction, the Tribunal restored the matter to the file of the ITO for a fresh assessment in respect of each of the two relevant assessment years, in the light of the observations contained in the order of the Tribunal. On an application made in that behalf by the assessee, the Tribunal has referred the aforesaid questions of law for our opinion.

3. Now, so far as the first question is concerned, it has been found by the Tribunal that the relationship between the assessee and the mills, arising out of the agreement dated 2nd January, 1946, was that of an employer and an employee. The remuneration received by the assessee from the mills in the assessment years 1966-67 and 1967-68 in accordance with the final decree would, it was not disputed before us in view of the finding of the Tribunal, amount to receipt of arrears of salary by the assessee paid to him by his former employer. Shri Chitale, learned counsel for the assessee, contended, relying upon the decision, Bhuban Mohan Banerjee v. CIT : [1956]29ITR229(Cal) , that the amount received by the assessee in the assessment years 1966-67 and 1967-68 from the Kalyanmal Mills Ltd. being in the nature of salary, the said income had accrued to the assessee in the assessment years 1946-47 and 1947-48, and as salary was always chargeable to income-tax on accrual basis, the said income could not be assessed in the assessment years 1966-67 and 1967-68. The decision in Bhuban Mohan Banerjee v. CIT : [1956]29ITR229(Cal) no doubt lays down that if any of the kinds of payment contemplated by Section 7(1) of the Indian I.T. Act, 1922, became due, then irrespective of the fact as to whether the same was paid or not in the year in which it became due, it must be brought under assessment as the income of that year. I shall examine the question as to whether the income in question had accrued tothe assessee in the assessment years 1946-47 and 1947-48 presently when I deal with the second question referred to us. The proposition enunciated in Bhuban Mohan Banerjee v. CIT : [1956]29ITR229(Cal) would be applicable only when the provisions of Section 7(1) of the Indian I.T. Act, 1922, corresponding to the provisions of Section 15(a) of the I.T. Act, 1961, are attracted in a given case. It is, however, admitted that in the Indian I.T. Act, 1922, there was no provision corresponding to Section 15(c) of the I.T. Act, 1961, which reads as follows :

' 15. Salaries.--The following income shall be chargeable to income-tax under the head ' Salaries '--...

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.'

4. The aforesaid provision, in my opinion, makes it clear that if the assessse is paid any arrears of salary by his employer in the previous year and if that amount has not been subjected to charge earlier on accrual basis under Section 15(a) of the Act, then the said income becomes chargeable to income-tax on receipt basis by virtue of the provisions of Section 15(c) of the Act. Shri Chitale, learned counsel for the assessee, contended that the construction that I am placing on Section 15(c) of the Act would not be equitable inasmuch as any salary, which might not have been chargeable to income-tax if it would have been paid in the year when it was due, would become chargeable to income-tax if the arrears of salary are paid in a lump sum by an employer. But, as observed by the Supreme Court in CED v. Kantilal Trikamlal : [1976]105ITR92(SC) :

' ...in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. '

5. It is, therefore, not permissible, in my opinion, to recast the provisions of Section 15(c) of the Act with a view to avoid hardship to an assessee. Moreover, the Legislature being aware of the fact that the applicability of the provisions of Section 15(c) of the Act was likely to cause hardship to an assessee if the arrears of salary received by him in a year were charged to income-tax in accordance with the provisions of Section 15(c) of the Act, has provided relief under the provisions of p. 89 of the Act. However, that is a matter which cannot have any bearing on the question of construction of Section 15(c) of the Act. That provision is independent of the provision contained in Section 15(a) of the Act and has to be given effect to, 'according to the plain meaning of that provision. Whereas Section 15(a) of the Act provides that salary due from an employer in the previous year is taxable on accrual basis, Section 15(c) of the Act provides that arrears of salary received by an assessee in the previous year are taxable on receipt basis, if not subjected to charge earlieron accrual basis under Clause (a) of Section 15 of the Act. In my opinion, therefore,in view of the provisions of Section 15(c) of the Act, the answer to the first question referred to us must be in the affirmative.

6. Now, so far as the second question referred to us is concerned, the question formulated by the Tribunal does not, with respect to the Tribunal, bring out the real issue between the parties which is, whether the Tribunal was justified in holding, on the facts and in the circumstances of the case, that the remuneration received by the assessee from the mills in the assessment years 1966-67 and 1967-68, pursuant to the final decree passed in his favour on 14th December, 1965, could not be held to be income which had accrued to the assessee in the assessment years 1946-47 and 1947-48. The contention of the assessee that the said income had accrued to him in the assessment years 1946-47 and 1947-48 was rejected by the Tribunal. Therefore, the second question referred to this court by the Tribunal should, in my opinion, be refrained as follows, so as to bring out the real issue between the parties :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration received by the assessee from the Kalyanmal Mills Ltd. in the assessment years 1966-67 and 1967-68, pursuant to the final decree passed in favour of the assessee on 14th December, 1965, could not be held to be income of the assessee which had accrued to him in the assessment years 1946-47 and 1947-48 '

7. Now, before I proceed to answer the aforesaid question, it would be pertinent to note that the ITO had found, and that finding was not set aside by the Tribunal, that neither the mills rendered any accounts to the assessee after the termination of the agreement on 9th November, 1948, nor was the assessee maintaining any accounts. The mills had disputed its liability to pay any amount to the assessee under the agreement dated 2nd January, 1946, and the amount, which the assessee received in the assessment years 1966-67 and 1967-68, was determined for the first time on 14th December, 1965, when a final decree was passed in favour of the assessee.

8. Under the provisions of Section 5(1) of the Act, corresponding to Section 4(1) of the Indian I.T. Act, 1922, the total income of any previous year of a person, who is a resident, includes, leaving aside the deeming provisions, all income from whatever source derived, which is received in such year by or on behalf of such person or which accrues or arises to such person in such year. For construing the expression ' income accruing or arising or received', it may be useful to refer to the following observations of the Privy Council in St. Lucia Usines and Estates Co. Ltd. v. Colonial Treasurer of St. Lucia [1924] AC 508 :

' The words ' arising or accruing ' occur repeatedly in the Ordinance, e.g., in Section 4, Sub-section 1(a)(b)(c)(d) and (e), coupled with the words 'andderived from ' or 'or derived from'. Sometimes the expression ' derived from' is used alone, Section 5, Sub-section 1(a)(c)(g)(i) and (ii). The respondent contends that the above interest ' accrued ' to the company in the year 1921, because it was payable in that year and none the less because it was not paid in that year. Their Lordships do not agree. The words ' income arising or accruing' are not equivalant to the words ' Debts arising or accruing'. To give them that meaning is to ignore the word ' income', The words mean ' money arising or accruing by way of income '. There must be a corning into satisfy the word 'income'. This is a sense which is assisted or confirmed by the word ' received ' in the proviso at the end of Section 4, Sub-section 1.'

9. It is true that the Privy Council was construing the provisions of the Income-tax Ordinance, 1910, of St. Lucia, but the words, the construction of which the Privy Council was considering in the aforesaid case, are the same as those in the Indian statute. From the aforesaid observations, it follows that it is one thing to say that a claim accrued to the assessee to recover an amount due to him by instituting a suit in that behalf, but it is another and a different thing to say that an income accrued to the assessee.

10. The definition of the term ' income ' by Mukerji J, in. Rogers Pyatt Shellac Co. v. Secretary of State : AIR1925Cal34 , has been approved by the Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) . The relevant observations by Mukerji J. are as follows (p. 50):

' ' Now, what is income The term is nowhere defined in the Act ... In the absence of a statutory definition we must take its ordinary dictionary meaning--' that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a parson or corporation ' (Oxford Dictionary). The word clearly implies the idea of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. ' Accrues ', ' arises ' and ' is received ' are three distinct terms. So far as receiving of income is concerned there can be no difficulty ; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word 'receiving' itself. The, words ' accrue ' and ' arise ' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth or result. The three expressions ' accrues ' ' arises ' and ' is received ' having been used in the section, strictly speaking ' accrues ' should not be taken as synonymous with ' arises ' but in the distinct sense of growing up by way of addition orincrease or as an accession, or advantage ; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks [1888] 21 QBD 52 this part of the decision not having been affected by the reversal of the decision by the House of Lords in [1889] 14 A C 493 that both the words are used in contradistinction to the word ' receive ' and indicate a right to receive. They represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or loss inchoate.

One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called ' income ' '. '

11. It must, therefore, now be taken to be well settled that income may accrue to an assessee before he actually receives it and that income cannot accrue to him until he acquires a right to receive it. But from these propositions it does not follow that merely because a person has acquired a right to receive income, it can be said, without making any further enquiry, that income has accrued to him. Acquisition of a right to receive income may, in cases where the mercantile system of accounting is followed and entries are made accordingly, amount to accrual of income. Acquisition of such a right, when it is not disputed, may amount to accrual of income when such income is taxable on accrual basis. But the right to receive income must arrive at a stage, as observed by Mukerji J., in Rogers Pyatt Shellac Co. v. Secretary of State : AIR1925Cal34 , when what is sought to be taxed can be called ' income '. In CIT v. Hindustan Housing & Land Development Trust Ltd. : [1977]108ITR380(Cal) , a Division Bench of the Calcutta High Court has exhaustively dealt with the decisions bearing on the question of accrual of income. On a consideration of the various authorities referred to in that decision, the learned judges held that a compensation amount can be considered to have accrued or arisen only when the said amount has become determinate and payable. The learned judges have quoted with approval the following observations in Khan Bahadur Ahmed Alladin & Sons v. CIT : [1969]74ITR651(AP) :

' In our view, unless the amount of compensation actually becomes payable or enforceable, it cannot be said to accrue or deemed to accrue. On the date when the Collector awarded the compensation, it is only thatamount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in Section 4(1)(b)(i), couldit be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation became payable for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation We do not think there can be any justification for such a proposition On a proper construction of the terms ' accrue ' or ' arise ' we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the revenue. '

12. The principle enunciated in the aforesaid decision would, in my opinion, be applicable to a case where, as in the instant case, an amount was claimed under the contract but as the claim was disputed, the amount became payable as a result of the decision of a court. Holding otherwise would mean, that a mere claim to an amount would be tantimount to accrual of income of the amount claimed.

13. In the instant case, the Kalyanmal Mills Ltd. had denied their liability to pay any amount to the assessee under the agreement dated 2nd January, 1946. When the trial court passed a preliminary decree directing that accounts be taken for the years 1946 to 1960, the matter was taken up in appeal by the mills and the High Court reduced the claim of the assessee. It was thereafter that accounts were taken in accordance with the decree passed by the High Court and a final decree was passed. Till the passing of the final decree, it could not be said that any income had accrued to the assessee.

14. Learned counsel for the assessee referred to the decision in Tata Iron & Steel Co. v. Chief Revenue Authority, AIR 1923 PC 148, and contended that a judgment merely ascertains a previously existing liability of the defend-ant to the plaintiff. This decision, however, does not lay down that in the case of a disputed claim, income can be said to have accrued to the plaintiff for the purpose of chargeability to income-tax on the date when the liability of the defendant to pay to the plaintiff is held by a court to have arisen. The Tribunal was, therefore, justified, in my opinion, in holding that the remuneration received by the assessee from the mills in the assessment years 1966-67 and 1967-68 could not be held to be the income of the assessee which had accrued to him in the assessment years 1946-47 and 1947-48.

15. My answers to the. aforesaid questions, therefore, are in the affirmative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.

Oza, J.

16. I had the advantage of going through the opinion expressed by my learned brother, Sohani J. As my learned brother has described the facts in detail I do not think it necessary to repeat the facts. I may also state that my learned brother was right when he felt that the second question, which was referred to by the Tribunal is not correctly worded and I agree with my learned brother about the real question that is involved and also agree to the second question which has been framed by my learned brother in his opinion in para. 4.

17. The question involved in this reference pertains to salary as it is not in dispute that on the basis of the contract between Sardar Arjunsingh Ahhiwalia and the Kalyanmal Mills the relationship of employer and employee is established. What ultimately, therefore, was obtained by him after a final decree from the High Court was remuneration or salary which he was entitled to. And it is also not in dispute that, therefore, the questions involved pertain to the interpretation of Section 15 of the I.T. Act, 1961.

18. Section 15 of the I.T. Act, 1961, reads:

'15. The following income shall be chargeable to income-tax under the head ' Salaries '-

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him ;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

Explanation.--For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of anyperson for any previous year it shall not be included again in the total income of the person when the salary becomes due.'

19. It is significant that under this section the income under the head ' Salaries ' has been made chargeable to income-tax in a particular manner. In Clause (a) of this section salary has been made chargeable to income-tax when it became due and specific words ' whether paid or not ' have been used in this clause to eliminate all controversies and doubts which might arise because of the general provision, i.e., Section 5 of the I.T. Act, 1961. Section 5 reads:

' 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or

(c) accrues or arises to him outside India during such year :

Provided that, in the case of a person not ordinarily resident in India within the meaning of Sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.... '

20. In this section, the terms used are 'accrues' or ' arises '. It is well known that these terms have been the subject-matter of legal interpretation and controversy and the well-known decision by Mukherji J. in Rogers Pyatt Shellac Co. v. Secretary of State : AIR1925Cal34 is often quoted. The matter has also been considered in E. D. Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) , where the words 'income', 'received' ' accrued ' and ' arises ' have been considered by Bhagwati J. But looking to the language of Section 5 it is clear that the provisions contained in Section 15 will not be governed by the provisions contained in Section 5, although Section 5 is a general provision, as the opening words of Section 5, Sub-section (1), read ' subject to the provisions of this Act'. It is, therefore, clear that provisions contained in Section 5 are always subject to the other provisions of the Act. Section 15 is one of such provisions and it is apparent that it has been especially enacted for the income under the head ' Salaries '. It is, therefore, in my opinion, unnecessary to incorporate the concept under Section 5 when Section 15 has provided specifically for charging of income-tax on income under the head ' Salaries''.

21. It was not disputed before us that the real question involved in this reference is about the construction of Section 15. Section 15, Clause (a), makes salaries chargeable to income-tax when it became due and it has been specifically made clear that it will be so chargeable even if it is not paid as the last words in Clause (a) road 'whether paid or not'. Thus, while interpreting the provisions contained in Section 15 we will have to read the whole section in order to understand its meaning. Section 15, Clause (c), is especially the provision which is the subject-matter of controversy before us and it is also worth noticing that this problem has arisen because of the peculiar facts of this case.

22. The contract of employment under which this remuneration or salary is received by the assesses was in force, according to the decision of the High Court in the years 1946-47 and 1947-48. It is also not in dispute that at that time Indore was part of the erstwhile Holkar State which was not a taxable territory under the Indian I.T. Act. As the employer, i.e., Kalyanmal Mills, did not pay the remuneration in time, as it is stated that it disputed the claim, it became the subject-matter of litigation which ultimately was settled by a decision of this court dated 10th February, 1965. Therefore, the amounts were received thereafter partly in the year 1966-67 and partly in the year 1967-68, which are the relevant years of assessment in the present dispute.

23. It was contended on behalf of the assessee that the provisions contained in Clause (c) of Section 15 will have to be interpreted in the light of the language used in the other provisions of this section. According to him under Clause (c) arrears of salary would be charged to income-tax if not charged to income-tax for any earlier previous year ; and this phrase ' if not charged to income-tax for any earlier previous year ' will have to be interpreted in the light of the language of Section 15(a), i.e., it will be chargeable in the year when it fell due whether paid or not paid. Thus, according to learned counsel, although the arrears of salary might have been received in the year 1966-67 and 1967-68, they could only be charged to tax in the year in which they were received if they have not been charged in accordance with Section 15(a). And, as when this salary was not chargeable at all when it became due under Section 15(a), it could not now be charged to tax because of Section 15(c). Learned counsel placed reliance on the decision in Bhuban Mohan Banerjee v. CIT : [1956]29ITR229(Cal) .

24. Learned counsel for the department seriously contended that while interpreting a taxing statute equitable considerations cannot be considered as it may be that if this salary had been paid when it became due no taxwould have been payable ; but within the language of Section 15(c) when it is paid in 1966-67 and 1967-68, it will be taxable as provided in Section 15(c).

25. As far as the principles of interpretation of taxing statutes are concerned it is well settled that taxing statutes will have to be construed strictly and if the language of the provision justified a tax, no equitable considerations would be brought in. But it is also clear that if the language of the taxing statute does not bring the assessee within its mischief, tax could not be levied. In Principles of Statutory Interpretation, 2nd Edn., by G.P. Singh, the well-established rule in the words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, has been stated thus (p. 441):

' The subject is not to be taxed without clear words for that purpose ; and also that every Act of Parliament must be read according to the natural construction of its words.'

26. According to Lord Simonds, in interpreting a section in a taxing statute, the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits. The learned author has quoted the observations of Bhagwati J. A.V. Fernandez v. State of Kerala : [1957]1SCR837 . from the Supreme Court in the following words (p. 444):

' In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.'

27. It is, therefore, clear that while interpreting the provisions contained in Section 15(c) it is not necessary to draw inferences on the basis of the relief that has been provided in Section 89, in order to understand the intention of the legislature. What is to be considered is as to whether the language of Section 15 justifies the imposition of tax. In the Indian I.T. Act of 1922, salaries were taxable under Section 7 although a specific provision like Section 15(c) of the Act of 1961 was not in existence; but the language of Section 7(1) was practically identical with Section 15(a) of the present Act:

'7. (1) The tax shall be payable by an assessee under the head 'Salaries' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due tohim, whether paid or not, from, or are paid by or on behalf of, the Government, a local authority, a company or any other public body or association or any private employer ; and for the purposes of this sub-section advances by way of loan or otherwise of income chargeable under this head shall be deemed to be salary due on the date when the advance is received :......'

28. In this provision also the emphasis was on the words ' due to him, whether paid or not ' and this has been considered by the Calcutta High Court in Bhuban Mohan Banerjee v. CIT : [1956]29ITR229(Cal) . While examining the words in this section their Lordships held (p. 235):

' The material words of the section are : ' The tax shall be payable by an assessec.....,...in respect of any salary or ......... commissions .........in lieu of or in addition to any salary or wages, which are due to him from, whether paid or not, or are paid by or on behalf of, the Government ......... or any private employer.' The crucial words amongthe words which I have called material arc ' which are due to him from, whether paid or not, or are paid by or on behalf of'. Before the amendment of 1939, the words were ' received by him.........which are paid byor on behalf of the Crown'. It is clear that the only basis then contemplated by the section was the receipt basis and it is said that many of the asscssees contrived to escape payment of tax or to reduce its incidence by either postponing the actual drawal of their salary or commission or by accelerating the drawal. The drawal was so timed that it might not attract any tax at all or even if it did attract tax, it might attract it at a lower rate. It was chiefly to plug that loophole that the section was amended, so as to make salary or commission due but not paid taxable equally with salary or commission paid. In carrying out that intention, however, arid putting it into words, the Legislature adopted a form of expression which it is by no means easy to construe.

To take the first block of the words which I have described as crucial, they are 'which are due to him from, whether paid or not'. It appears to me that those words cover all sums which are due, irrespective of whether they are paid or not paid and, therefore, of amounts due, the portion due and paid as well as the portion due and not paid, are both covered. When amounts are due from the employer to the employees, they may be due and may be paid off. They may also be due and remain wholly unpaid. Lastly, they may be due and may be paid in part while a part remains unpaid. All these various contingencies are, to my mind, amply covered by the words, ' which are due to him from, whether paid or not'. What then was intended to be added or is actually added by the next block of words, namely, ' or are paid by or on behalf of ' If it be said that those words were used in order to cover sums due and paid, that purpose has already been served by the first block of words, as I have justexplained. If the amounts contemplated by the second block of words are amounts due from the employer, then in order to bring in such amounts which are actually paid, the second block of words was not at all necessary, sums due and paid being already covered by the first block of words. Mr. Mitra contended that while the true intention of the second block of words was not too clear, it might be that the Legislature had in contemplation payments made by a party from whom salary or commission was not due, but who served only as the actual payer through whom the real employer liable to pay made the payment. He instanced the case of an official serving one Government being lent to another and being paid by the latter. I do not, however, think that the construction suggested by Mr. Mitra solves the difficulty, because the second block of words contains not only the expression, 'paid by', but also the expression ' or on behalf of '. It was also suggested that payments which the second block of words had in contemplation might be payments of amounts which could not be said to be amounts due from the employer, such as occasional gratuities, if they could be treated as income at all. I do not think that it is possible to solve the problem by trying to think out the concrete types of payment to which the second block of words might be applicable. An easier and more legitimate approach would be to take the words, as they are, not forgetting their juxtaposition with the first block of words and see what they can possibly mean as a matter of language, irrespective of the actual kinds of payment to which they might be applicable in practice.'

29. After analysing the provisions contained in Section 7(1), it was observed (p.237):

' In my view, if any of the kinds of payment contemplated by Section 7(1) becomes due, then irrespective of whether it is or is not paid in the year in which it becomes due, it must be brought under assessment as the income of that year. There can be no question of assessing it as the income of the year when it is actually paid, if it is not drawn in the year in which it becomes due. The payment basis is relevant only for the kinds of payment contemplated by the second block of words, namely, payments of amounts which are not due, for example, advances by way of loan or otherwise of income chargeable under Section 7.'

30. And ultimately their Lordships felt (p. 237):

' As far as I can see, Section 7(1) does not deal with and does not contemplate any alternatives at all and no question of any option of either the Income-tax Officer or the assessee arises. It deals with and contemplates different kinds of income or payment, chargeable in different circumstances or contingencies. It is addressed to the amounts themselves and not to either the assessees or the taxing officer and its object is to declare the tax-ability of the amounts in the circumstances specified. The object is not to confer any option on anybody.'

31. As regards the first clause of Section 15, i.e., Section 15(a), it could not be disputed that the salary would be chargeable to income-tax when it fell due, whether paid or not paid.

32. Clause (c) of Section 15 provides for arrears of salary only ' if not charged to income-tax for any earlier previous year '. This phrase at the end of Clause (c)--' if not charged to income-tax for any earlier previous year '--in my opinion, is a phrase which controls the operation of Clause (c); and in order to find out whether it was charged to income-tax in any earlier previous year we will have to fall back to Clause (a) to find out in what year it would be charged to income-tax as Clause (a) clearly indicates that salary would be chargeable to income-tax when it falls due, whether paid or not paid.

33. Applying, therefore, the test of interpretation of taxing statutes to the present case, in order to hold that the arrears of salary which is received by the assessee will be chargable to tax under Section 15(c) we have to interpret Section 15(c) with the last phrase which, in my opinion, is the controlling phrase; and applying the last phrase to the present case we will have to hold that this salary was not charged to income-tax in the earlier previous year. But to find out whether it was charged in any earlier previous year to tax, the only provision which could be applied is the language contained in Section 15(a); and in the present case it could not be disputed that this salary when it became due was not chargeable to tax at all. Therefore, strictly applying the language of Section 15 to the facts of the present case, the only inference that could be drawn will be that this arrear of salary could not be charged to income-tax when it is received because it was not charged in the earlier previous year as in the year when it was chargeable it accrued in a territory to which the provisions of the I.T. Act were not applicable.

34. In this view of the matter, therefore, the last phrase of Clause (c) of Section 15 would only come into operation if the salary in the year for which it could have been charged to income-tax under Clause (a) was not charged ; then alone it could be charged when paid in accordance with Clause (c). As stated earlier this last phrase of Clause (c) controls the operation of Clause (c) of Section 15. It is apparent that this amount which the assessee got in 1966-67 and 1967-68, actually became due to him in the year 1946-47 and 1947-48, in accordance with the judgment of the High Court. It is also not in dispute, as stated earlier, that this is chargeable to income-tax under the head ' Salaries '. Apparently, therefore, if this salary had fallen due to the assessee in 1946-47 and 1947-48, and if the assessee was the resident of a territory to which the provisions of the Indian I.T. Act would be applicable, income-tax would be chargeable, even though this was not paid to him. This would have been the situation even under the old Section 7 of the Indian I.T. Act of 1922.And if, in such event, if that salary had not been charged to tax, then because of Clause (c) of Section 15 of the Act of 1961 it would become chargeable now.

35. In this view of the matter, I fail to agree with the opinion expressed by my learned brother, Sohani J. Therefore, my answers to the questions referred to us are in the negative.

ORDER OF REFERENCE

36 .In view of the difference of opinion between us we order that the record be placed before Hon'ble the Chief Justice under the provisions of Section 259(2) of the I.T. Act, 1961, for nominating the third judge to decide the matter on both the following questions :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the income of the assessee became liable to be assessed in the assessment years 1966-67 and 1967-68, and not in the years 1946-47 and 1947-48 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration received by the assessee from the Kalyanmal Mills Ltd. in the assessment years 1966-67 and 1967-68, pursuant to the final decree passed in favour of the assessee on 14th December, 1965, could not be held to be the income of the assessee which had accrued to him in the assessment years 1946-47 and 1947-48.'

37. G.P. sINGH C.J. (4-9-79).--This reference under Section 256(1) of the I.T. Act, 1961, comes before me on a difference of opinion between Oza and Sohani JJ. The Tribunal referred two questions of law to this court. The second question, in the opinion of the learned judges, was not correctly worded and it was recast by them. Question No. 1, as referred by the Tribunal, and question No. 2, as recast by the learned judges, read as follows:

' (1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the income of the assessee became liable to be assessed in the assessment years 1966-67 and 1967-68, and not in the years 1946-47 and 1947-48 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration received by the assessee from the Kalyanmal Mills Ltd. in the assessment years 1966-67 and 1967-68, pursuant to the final decree passed in favour of the assessee on 14th December, 1965, could not be held, to be income of the assessee which had accrued to him in the years 1946-47 and 1947-48 '

38. Briefly stated, the facts are that in January, 1946, the assessee, Sardar Arjunsingh Ahluwalia, entered into an agreement in the name of M/s. Ahluwalia & Sons with the Kalyanmal Mills Ltd., Indore, inter alia, to sell to merchants all kinds of waste cotton including hard and soft waste ofdifferent qualities and quantities produced by the mills on terms and conditions contained in the letter of the managing director of the mills dated 2nd January, 1946. Under the agreement, the assessee was entitled, as remuneration, to a commission at the rate of 5 per cent. on the total sale price. The agreement was for a period of five years. Clause (4) of the agreement provided as follows :

' (4) Your accounts will be made up yearly and adjusted accordingly but you will be entitled to advances towards this account with the consent of the managing director. '

39. The agreement was terminated by the mills on 9th November, 1948, On 30th December, 1953, the assessee instituted a suit against the mills for accounts of his remuneration. The trial court passed a preliminary decree for accounts on 22nd December, 1960. The preliminary decree was modified in appeal on 10th February, 1965. The trial court had allowed the assessee's claim for the full period of five years, but in appeal the High Court restricted it to the period during which the agreement was in force, i.e., for the period from 2nd January, 1946, to 9th November, 1948. The final decree in the suit was passed on 14th December, 1965. In pursuance of the final decree, the assessee was paid Rs. 10,000 between 1st April, 1965, to 30th March, 1966, and Rs. 65,532 between 1st April, 1966, and 31st March, 1967. The aforesaid amounts were brought under assessment in the assessment years 1966-67 and 1967-68, respectively. The income-tax authorities, including the Tribunal, held that the relationship created by the agreement between the mills and the assessee was that of master and servant and the remuneration payable under the agreement was taxable under the head ' Salary '. It was also held that as the mills had disputed their liability to pay remuneration to the assessee and the assessee had to file the suit, it could not be said that the remuneration became due before 14h December, 1965, when the final decree was passed in the suit, and that the remuneration accrued and became due only when the final decree was passed. The Tribunal did not accept the argument that the remuneration became due between 1946 and 1948 and was not taxable as, in those years, the Indian I.T. Act did not extend to the Holkar State. The Tribunal, however, directed reapportionment of the amounts received in the assessment years 1966-67 and 1967-68, and it also directed that it would be open to the assessee to approach the Commissioner for appropriate relief under s, 89 of the Act.

40. The relevant section of the Act is Section 15 which reads as under :

' 15. The following income shall be chargeable to income-tax under the head ' Salaries '-

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him ;

(c) any arrears of salary paid or allowed to him in the previous year' by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

Explanation.--For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. '

41. Dealing with the construction of Section 15, Oza J. expressed the opinion that Clause (c) of Section 15 applied only when the arrears of salary related to a previous year in which it could be charged to income-tax and not to a previous 3 ear when the I.T. Act itself was not applicable. Oza J. also held that the remuneration became due in the years 1946 to 1948 and that its accrual or becoming due was not postponed till the passing of the decree in the suit. In this view of the matter, Oza J. answered both the questions in favour of the assessee. Soharri J., on the other hand, was of opinion that Clause (c) of Section 15 was a new provision and it applied for assessment of the arrears of salary received under the decree. He further held that the remuneration became due only on passing of the final decree. Sohani J., therefore, answered both the questions against the assessee and in favour of the department.

42. As regards the first question, in my opinion, Clause (c) of Section 15 was clearly applicable for assessment of the amounts received under the decree. There was no provision corresponding to Clause (c) in the 1922 Act. This provision allows assessment of arrears of salary on payment basis. The conditions for applicability of Clause (c) are two-fold : (i) that the arrears of salary were paid or allowed in the previous year relevant to the assessment year in question; and (ii) that the arrears so paid were not charged to income-tax for any earlier previous year. Both the conditions are satisfied in the present case. The payment under the decree on the finding that there was a relationship of master and servant between the assessee and the mills constituted payment of arrears of salary. This payment was made during the previous years relevant to the assessment years 1966-67 and 1967-68. It is also not disputed that the arrears so paid were not charged to income-tax for any earlier previous-year. Both the conditions relevant for the application of Section 15(c) being satisfied, the payments, in my opinion, were rightly held to be taxable by the Tribunal in the assessment years 1966-67 and 1967-68. I do not find any justification for any further qualification for application of Clause (c) that the arrears must be such that they could have been charged under Clause (a) of Section 15 at the time they becamedue. The construction adopted by Oza J., that 'Clause (c) of Section 15 will only come into operation if the salary in the year for which it could have been charged to income-tax tinder Clause (a) was not charged ' requires reading of the words ' for which it could have been charged ' towards the end of Clause (c) after the words ' for any earlier previous year '. It is well settled that a construction which, depends upon reading of words which are not there should not be preferred except in the case of absolute necessity, especially while construing a taxing statute like the I.T. Act where the literal construction is the only safe guide. In the famous words of Rowlatt J.: ' In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in. Nothing is to be implied. One can only look fairly at the language used '. Oza J. strongly relied upon the decision of the Calcutta High Court in Bhuban Mohan Boner jee v. CIT : [1956]29ITR229(Cal) . But that case, which interpreted Section 7 of the 1922 Act, is not helpful in interpreting Clause (c) of Section 15 of the 1961 Act, as there was no corresponding provision in the 1922 Act. A reading of Clauses (a), (b) and (c) of Section 15 will show that under Clause (a) salary income is chargeable on due basis; whereas under Clauses (b) and (c) salary income is chargeable on payment basis. Clause (b) of Section 15 applies where the salary is not due, but is paid in advance. Clause (c), on the other hand, applies to arrears of salary of past years paid in subsequent years provided the same had not been charged as income of the relevant past year or years. This kind of thing may happen when services are rendered in past years but the quantum of payment to be made is not determined till a later year when on such determination payment is to be made to the employee or where the emoluments are revised with retrospective effect for a past year or years. Clause (c) will also apply when unpaid salary though due in past year or years was not assessed for any reason whatsoever; it would then become assessable when paid under Clause (c). I have already stated that the operation of Clause (c) is not subject to any qualification that the arrears of salary paid which are brought to tax within that clause must be related to a period in which it could have been taxed and no such qualification can be read in that clause. The assessee in such cases can get only such relief as may be allowed to him under Section 89. Agreeing with Sohani J., I would answer question No. 1 in the affirmative and in favour of the department.

43. As regards the second question, Oza J. was of opinion that the remuneration under the agreement became due between 1946 and 1948, although the amount of remuneration was not ascertained. According to Sohani J., the remuneration was merely a claim till it was ascertained in the suit and, therefore, it became due only when the final decree in the suit was passed. Having given my anxious consideration to the problem, I am inclined to agree with Oza J. on this point. Sohani J., in support: of his view, quoted certain observations of the Privy Council in St. Lucia Usines and Estates Co. Ltd. v. Colonial Treasurer of St. Lucia [1924] AC 508, which were made while construing the provisions of the Income Tax Ordinance of St. Lucia. Lord Wrenbury, who delivered the judgment of the Privy Council in that case, construed the words ' income arising or accruing ' as money arising or accruing by way of income and not ' debts arising or accruing'. The Supreme Court in CIT v. K.R.M.T.T. Thiagaraja Chetty & Co. : [1953]24ITR525(SC) referred to these observations and said that they cannot b?, applied for construing our I.T. Acts which are differently worded. Both thy learned judges referred to the observations of the Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) . A reading of this case goes to show that the remuneration paid to the assesses in the instant case had become due in 1946-1948, although the amount payable was not ascertained till the passing of the decree in 1965. I have already referred to Clause (4) of the agreement, according to which it was contemplated that accounts of the assessee's remuneration payable as commission on the sales will be made up yearly and adjusted accordingly. This clause, properly interpreted, shows that the remuneration became due each year on the close of the accounting year. It is true that as the mills disputed the assessee's right to the remuneration and as no accounts were made the amount payable to the assessee was ascertained only when the final decree was passed, yet, in my opinion, the remuneration had already become due at the close of the year in accordance with the agreement. In E.D. Sassoon's case : [1954]26ITR27(SC) the managing agency commission was payable on 31st March each year. The commission payable was 71/2 per cent. of the annual net profits of the company. The Supreme Court observed that although the amount payable could not be ascertained until the net profits of the company were determined, yet the commission became due on 31st March each and every year. The relevant observations of the Supreme Court on this point are as follows (p. 43):

' The commission was thus an annual payment calculated upon the annual net profits of the company and was to be due to the managing agents yearly on the 31st March in each and every year. Unless and until the annual net profits of the company were determined, the 71/2 per cent. commission could not be ascertained but the sum none the less became due on the 31st March in each and every year following the close of the accounting year of the company.'

44. The Supreme Court in the aforesaid case further pointed out that income may accrue to an assessee without its actual receipt or without itsactual ascertainment. According to the Supreme Court, the basic requirement is the acquisition of the right to receive the income and not the income's actual receipt or its ascertainment. The important thing to see is whether there is a debt owed to the assessee by somebody. To quote the words of the Supreme Court (p. 51):

' If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro : See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532 and Webb v. Stenton [1883] 11 QBD 518. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.'

45. In Kesoram Industries and Cotton Mills Ltd. v. CWT : [1966]59ITR767(SC) the Supreme Court held that, the liability to pay income-tax becomes a perfected debt on the close of the accounting year though it becomes payable after it is quantified in accordance with the ascertainable data. It was pointed out in that case that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation and that if there is a debt the fact that the amount is yet to be ascertained does not make it any the less a debt. In the light of the principles laid down by the Supreme Court in E.D. Sassoon's case : [1954]26ITR27(SC) and Kesoram Industries' case : [1966]59ITR767(SC) , I find it difficult to agree with Sohani J., that the remuneration did not accrue or became due until it was ascertained in the suit filed by the assessee. As earlier stated by me, under the terms of the agreement, it was envisaged that accounts of remuneration will be made up yearly and adjusted. This showed that parties agreed that the remuneration would become due at the close of the accounting year when it would be ascertained and adjusted to the account of the assessee. The remuneration became a perfected debt on the close of the accounting year in accordance with the agreement. Simply because the mills disputed and did not; carry out the obligation under the agreement and the remuneration, could not be ascertained until accounts were gone into in the suit, it cannot be said that it did not become due or become a debt in accordance with the agreement on the close of the accounting years in 1946-1947. Sohani J-, in support; oi his view, also relied upon, the case of CIT v. Hindustan Housing and Land Development Trust Ltd. : [1977]108ITR380(Cal) . This case is an authority as to when compensation payable for acquisition of property becomes due. The consistent view in cases of compensation is that the enhanced compensation allowed by a court does not accrue on thedate when the compensation initially allowed by the Collector becomes payable. Cases of compensation of crises for unliquidated damages stand on a different footing. In such cases there is no debt due until the amount is, ascertained or admitted to be due. In case of remuneration, which is payable at a certain percentage of sales or profits, the remuneration as a debt becomes due in accordance with the terms of the agreement notwithstanding the fact that it is yet to be ascertained. The principle of the cases relating to compensation, therefore, cannot be applied to cases relating to income under the head 'Salary '.

46. For the reasons given above, agreeing with Sohani J., I will answer question No. 1 in the affirmative, in favour of the department and against the assessee ; and. agreeing with Oza J., I will answer question No. 2 in the negative, in favour of the assessee and against the department. The case shall now go back to the Division Bench for final disposal. In the circumstances, I make no order as to costs of this reference.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //