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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

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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: