Managing agency commission accrues only when annual accounts are closed, not day to day for tax purposes

Managing agency commission payable only after the managed company's annual accounts were closed did not accrue day to day. Because the commission was ascertainable only when the yearly accounts were made up, the assessee had no enforceable right to the disputed amount during its own accounting year ending 31 March 1953. The commission relatable to the period up to that date was therefore not includible in assessable income for that assessment year.

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Issues: Whether the sum of Rs. 72,315, being the managing agency commission relatable to the period up to 31 March 1953, was includible in the assessee's assessable income for the assessment year 1953-54.

Analysis: The commission under the managing agency agreement was payable only after the company's accounts were closed for the relevant year. The assessee's right to the commission for the full year could not be split up on a proportionate basis before the close of the managed company's accounting year. Since the company's year ended on 30 June 1953, the assessee had not become entitled to the disputed amount during its own accounting year ending 31 March 1953. The principle applied was that such commission does not accrue from day to day with each transaction, but accrues only when the yearly accounts are made up and the commission is ascertained.

Conclusion: The inclusion of Rs. 72,315 in the assessable income was not justified, and the question was answered in favour of the assessee.

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