Babulal Narotfamdas And Ors vs Commissioner Of Income-Tax, … on 14 December, 1990

           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
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: