1975 (4) TMI 131 - SC - Income Tax

Supreme Court confirms firm's income assessment, upholds High Court decision.

COMMISSIONER OF INCOME-TAX, MADRAS Versus KRMTT. THIAGARAJA CHETTY & COMPANY

COMMISSIONER OF INCOME-TAX, MADRAS Versus KRMTT. THIAGARAJA CHETTY & COMPANY - TMI Issues Involved:1. Whether there is any material for the Tribunal's finding that the appellants were being assessed on a cash basis in the prior years.2. Whether the sum of Rs. 2,26,850 could be assessed for the assessment year 1942-43.Issue-wise Detailed Analysis:1. Material for Tribunal's Finding on Cash Basis Assessment:The High Court unanimously held that there was no material for the Tribunal's finding that the firm was being assessed on a cash basis in previous years. The Tribunal had found inconsistencies in the assessments for 1942-43 and 1943-44, as the sum of Rs. 2,20,702 was assessed for 1943-44 despite not being drawn by the firm. The High Court, upon reviewing the matter, concluded that the firm was not assessed on a cash basis previously. The firm argued that the Tribunal's finding was a fact and should not have been interfered with by the High Court. However, the High Court determined that the question was one of law, as it related to the existence of material for the finding, and thus decided against the assessee. The High Court found no separate books of accounts maintained by the firm other than those of the company, where the remuneration and commission were recorded. The mere presence of cash credits and debits did not imply a cash basis of accounting. The High Court's conclusion on this issue was upheld.2. Assessment of Rs. 2,26,850 for the Year 1942-43:The firm earned a commission of Rs. 2,26,850 as managing agents of the company, which was debited as revenue expenditure in the company's books and credited to the firm's account. Despite the firm not drawing the amount and the directors passing a resolution to keep it in suspense, the High Court held that the income had accrued to the firm. The firm's argument that the income did not accrue due to the pending dispute and the suspension of payment was rejected. The High Court emphasized that the income had accrued as it was treated as a disbursement and appropriated to the firm's dues. The resolution of the directors did not alter the fact that the income had accrued. The High Court also referred to sections 10 and 12 of the Income-tax Act, which make profits and gains of business liable to tax, and section 13, which mandates computation based on the method of accounting regularly employed by the assessee. The High Court found evidence that the assessee followed the mercantile system of accounting, and the Income-tax Officer had the authority to compute profits accordingly.Additional Cases Referenced:- The case of St. Lucia Usines and Estates Company, Ltd. was distinguished as it related to the meaning of 'income' under a different ordinance.- Dewar v. Commissioners of Inland Revenue was distinguished as it dealt with interest on a legacy under the English Income Tax Act.- Commissioner of Taxes v. The Melbourne Trust, Limited was distinguished as it concerned the timing of profit realization under a different statute.Final Judgment:The High Court accepted the view that the commission accrued on the same date as the profits of the company, rejecting the argument that the commission was merely a right to receive. The High Court did not address whether the managing agency was a business, noting that previous cases assumed it was so. The appeals were allowed, and the respondent was ordered to pay the costs of the Commissioner both in the Supreme Court and the High Court.Conclusion:The Supreme Court upheld the High Court's findings, allowing the appeals and confirming that the firm was not assessed on a cash basis in prior years and that the sum of Rs. 2,26,850 had accrued to the firm for the assessment year 1942-43.