1990 (12) TMI 291 - SC - Income Tax

Timing Matters: Income Accrual Linked to Right to Receive - Precedent Set

The Supreme Court upheld the High Court's decision that income accrued annually to the assessee, a managing agent, based on a resolution for special ... Assessee managing agent got additional remuneration - HC held that the receipt of the sum by the assessee was really receipt of a sum pursuant to an order of the court and was not income which accrued or arose during the relevant previous year for the reason that the right of the assessee to receive any further amount was yet to be accepted by the court - High Court, in our view, was right in answering the question against the assessee Issues:1. Accrual of income based on resolution for special additional remuneration.2. Dispute regarding the date of accrual of income.3. Interpretation of accrual of income in the context of pending litigation.4. Comparison with relevant case law on accrual of income.Analysis:1. The judgment involved the accrual of income to an assessee who was the managing agent of a company, based on a resolution passed for special additional remuneration. The resolution was passed in 1949, and the question arose whether the income accrued to the assessee in the relevant years or only when the resolution was upheld by the High Court in 1955.2. The main issue revolved around the dispute regarding the date of accrual of income. The High Court held that the income accrued to the assessee each year based on the resolution passed, regardless of the pending litigation challenging the validity of the resolution. The Tribunal's view that the income accrued only in 1955 when the judgment was pronounced was overturned by the High Court.3. The interpretation of accrual of income in the context of pending litigation was crucial. The High Court emphasized that the right to receive the extra remuneration had already arisen based on the resolution passed by the company, and the pending litigation only delayed the payment, not the accrual of the right to receive the income. The judgment clarified that the accrual of income is determined by the right to receive it, not the actual payment.4. The judgment also compared the case with relevant case law on the accrual of income. It cited precedents such as E. D. Sassoon and Co. Ltd. v. CIT and CIT v. K. R. M. T. T. Thiagaraja Chetty and Co. to establish that income accrues when the right to receive it is acquired by the assessee, regardless of payment delays due to disputes or pending litigation. The judgment distinguished a case involving enhanced compensation withdrawn during appeal, where the right to receive further amount was unsettled, unlike the present case.In conclusion, the Supreme Court dismissed the appeal, upholding the High Court's decision that the income accrued to the assessee each year based on the resolution passed in 1949, and not only when the High Court pronounced its judgment in 1955. The judgment clarified the principles of accrual of income based on the right to receive it, even in the presence of pending litigation or disputes regarding payment timelines.