14 May 1954
Supreme Court


Case number: Appeal (civil) 3 of 1953






DATE OF JUDGMENT: 14/05/1954


CITATION:  1954 AIR  470            1955 SCR  599  CITATOR INFO :  D          1960 SC 703  (3,5)  R          1960 SC1279  (2,8)  D          1961 SC1007  (12)  R          1964 SC1653  (7)  F          1965 SC1343  (6,8,9,11,12)  R          1967 SC1626  (5)  F          1977 SC 560  (7)  R          1986 SC1805  (5)  RF         1991 SC 513  (7)  RF         1992 SC1495  (17)

ACT: Indian  Income-tax Act (XI of 1922) s.  4(1)(a)(b)-"Income," accrues arises’ is received"-Meaning of-"Earned"-Meaning of- s.  10(1)-"Carried on by him"-Connotation of-Managing Agency Agreement-Transfer   of   rights    thereunder-Apportionment between assignors and assignees.

HEADNOTE: The  Sassoons had entered into three Managing Agency  agree- ments  as the Managing Agents of three different  companies. They  transferred  their Managing Agencies  to  three  other companies  by  formal deeds of assignment  and  transfer  on several dates during the accounting year. The  question for determination was whether in  the  circum. stances  of  the  case the Managing  Agency  commission  was liable  to  be apportioned between the  Sassoons  and  their respective  transferees  in the proportion of  the  services rendered  as  Managing  Agents  by  each  of  them  for  the respective portions of the accounting year and the  decision turned  upon the question whether any income had accrued  to the  Sassoons for the purpose of income-tax on the dates  of the  respective  transfers of the Managing Agencies  to  the transferees.   Under  clause  2(d) of  the  Managing  Agency agreements,  the  commission  to the  Sassoons  as  Managing Agents was to be due to them yearly on the 31st of March  in each and every year and was to be payable immediately  after the  annual accounts of the company had been passed  by  the shareholders. Held  per  S.R.  DAS  and  BHAGWATI  JJ.  (JAGANNADHADAS  J. dissenting).answering the question in the negative, that  on



the 41 314 construction of the Managing Agency agreements, the contract of service between the companies and the Managing Agents was entire and indivisible, that the remuneration or  commission became  due by the companies to the Managing Agents only  on the completion of a definite period of service and at stated intervals, that it was a condition precedent to the recovery of  any wages or salary in respect thereof that the  service or  duty  should  be completely performed,  that  such  debt constituted a debt only at the end of each period of service and  that no remuneration or commission was payable  to  the Managing Agents for broken periods. The  Sassoons  had  not earned any  income  for  the  broken periods nor had any income accrued to them in respect of the same and what they transferred to the transferees under  the respective deeds of assignment and transfer did not  include any  income  which they had earned or had  accrued  to  them during  the  chargeable  accounting  period  and  which  the transferees by virtue of the assignment in their favour were in a position to collect. The true test under section 4(1)(a) of the Indian Income-tax Act,  for the purpose of ascertaining liability for  income- tax  in  the  case of transfer of  Managing  Agency  is  not whether  the transferore and the transferees had worked  for any  particular periods of the year but whether  any  income had  accrued to the transferors and the  transferees  within the chargeable accounting period. The word "profit" in section 4 of the Indian Income-tax  Act has  a  well-defined  legal meaning.   The  term  implies  a comparison  between  the state of business at  two  specific dates  usually  separated  by an interval of  a  year.   The fundamental  meaning  is  the amount of  gain  made  by  the business during the year. "Income"  connotes a periodical monetary return "coming  in" with  some sort of regularity, or expected  regularity  from definite sources.  The source is not necessarily expected to be continuously productive but its object is the  production of  a  definite return excluding anything in the  nature  of windfall.   The  word "income" clearly implies the  idea  of receipt, actual or constructive. The  words "accrues", "arises" and "is received"  are  three distinct  terms.   The word "accrues" conveys  the  distinct sense of growing up by way of addition or increase or as  an accession  or  advantage connoting the idea of a  growth  or accumulation.  The word "arises" means comes into  existence or  notice  or presents itself and conveys the idea  of  the growth  or  accumulation with a tangible shape so as  to  be receivable.  Both the words "accrues" and " arises" are used in  contradistinction to the word "receive" and  indicate  a right to receive income. The  accrual  of  income to an asseseee does  not  mean  the actual  receipt  of the same by him and it may  be  received later  on . its being ascertained.  The word  "earned"  does not  appear  in section 4 of the Income-tax Act but  it  has been  very often used in the course of judgments by  learned Judges.   It conveys the concept of income accruing  to  the assesses, 315 Per  JAGANNADHADAS  J.-In the present case the  profits  and gains  of  the whole year clearly related  to  the  business carried  oil  both by the assignor and  the  assignee  token together  and were hence taxable as income accruing to  both and apportionsble as such between them.  The phrase "carried



on  by  him" in section 10(1) of the Indian  Income-tax  Act connotes the fundamental idea of the continuous exercise  of an activity as an essential constituent of that which is  to produce  the taxable income and that the taxable  income  is that  of the ’very assessee or the combination of  assessees whose  continuous activity produces the  income.   Therefore the  continuous  and  successive  functioning  by  both  the assignor   and  the  assignee  under  the  Managing   Agency agreement  was  the effective source of the  year’s  income. That  income accrued on the completion of the year  and  was the joint income of both the assignor and the assignee.  The prior  assignments  in the course of the  year  operated  as assignments  of this future right to a share of the  income. It  was only by virtue of inter se arrangement  between  the assignor and the assignee resulting from the transaction  of assignment,  that the assignee had the right to collect  the entire  income.  But the share in this income which  accrued to  the Sassoons on the completion of the year remained  the taxable  income of the Sassoons and they were rightly  taxed in respect thereof. Case-law discussed.

JUDGMENT: CIVIL  APPFLLATE JURISDICTION: Civil Appeals Nos. 3, 30  and 31 of 1953. Appeal  from  the Judgment and Order dated the 12th  day  of September,  1951, of the High Court of Judicature at  Bombay in  Income-tax Reference No. 27 of 1951 arising out  of  the order  dated the 23rd day of November, 1949, of the  Income- tax Appellate Tribunal in Income-tax Appeal No. 122 of 1947- 48. B.J.  M.  Mackenna (D.  H. Dwarka Das and  Rajinder  Narain, with him) for the appellant in C. A. No. 3 of 1953. M.C. Setalvad, Attorney-General for India, (G.  N. Joshi and P. A. Mehta, with him) for the respondent in C. A. No. 3 and for the appellant in C. A. Nos. 30 and 31. C.K. Daphtary, Solicitor-General for India, (R.  J.   Kolah, N.   A.  Palkhiwala  and  1.  N.  Shroff,  with   him)   for therespondent in C. A. No. 30, R. J. Kolah, N. A. Palkhiwala and I. N. Shroff for the respondent in  C.   A. No. 3 1. 316 1954.   May  14.  The judgment of Das and Bhagwati  JJ.  was delivered  by  Bhagwati  J.  Jagannadhadas  J.  delivered  a separate judgment. BHAGWATI  J.-These  appeals arise out of two  judgments  and orders  of  the.   High Court of  Judicature  at  Bombay  in Income-tax References Nos. 23, 24 and 27 of 1951 made by the Income-tax  Appellate  Tribunal under section 66(1)  of  the Indian  Income-tax Act and section 21 of the Excess  Profits Tax Act.      E. D. Sassoon and Company Ltd., (hereinafter refered to as the Sassoons) were the Managing Agents of (1)  E.      D. Sassoon  United Mills Ltd., under Agreements dated the  24th February,  1920, and the 2nd October, 1934, (2)  Elphinstone Spinning and Weaving Mills Company Ltd. under the  Agreement dated  23rd May, 1922, and (3) Apollo Mills Ltd., under  the Agreement dated the 23rd May, 1922.  The Sassoons agreed  to transfer  their Managing Agencies of the said  Companies  to Messrs.  Agarwal and Company, Chidambaram Mulraj and Company Ltd., and Rajputana Textile (Agencies) Ltd. respectively  by letters dated the 3rd September, 1943, 16th April, 1943, and the  27th April, 1943.  The consent of the  shareholders  of the respective companies to the Agreements for transfer  was



duly  obtained  and the Managing  Agencies  were  ultimately transferred  to the respective transferees with effect  from the 1st December, 1943, 1st June, 1943, and 1st July,  1943, respectively.  The  Sassoons executed in favour  of  Messrs. Agarwal  and Company, Chidambarain Mulraj and Company  Ltd., and  Rajputana  Textile  (Agencies) Ltd.,  formal  deeds  of assignment   and  transfer  and  received  from   them   Rs. 57,80,000,  Rs. 12,50,000 and Rs. 6,00,000  respectively  on transfers   of   the   Manaoing  Agencies,   and   the   net consideration, viz., Rs. 75,77,693, received by them on such transfers  was  taken  by  them  to  the  "Capital   Reserve Account".   The accounts of the Managing  Agency  commission payable  by the respective Companies to the Managing  Agents for the year 1943 were made up in the year 1944 and  Messrs. Agarwal  and Company received from the E. D. Sassoon  United Mills  Ltd., a sum of Rs. 27,94,504, Chidambaram Mulraj  and Company Ltd., received from the Elphiiistone Weaving and 317 Spinning  Mills Company Ltd., a sum of Rs. 2,37,602 and  the Rajputana Textile (Agencies) Ltd., received from the  Apollo Mills  Ltd.,  a sum of Rs. 3,82,608 as and by  way  of  such commission. For   the  assessment  year  1944-45  and   the   chargeable accounting  period 1st January, 1943, to the 31st  December, 1943,  the  original  income-tax  and  excese  profits   tax assessments of the Sassoons were made or the 31st May, 1945, at a total income of Rs. 46,48,483.  This income however did not  include  any  part of the  Managing  Agency  commission received  by  the transferees.  The entire  amounts  of  the Managing Agency commission received by the transferees  were assessed  by the Income-tax Officer for the assessment  year 194546  as the income of the transferees.   The  transferees appealed   to  the  Appellate  Assistant  Commissioner   who confirmed  the orders of the Income-tax Officer.   Wher  the matter  was  taken  in further appeal  to  the  Income.  tax Appellate Tribunal, the Tribunal by its order dated the 28th December, 1949, accepted the trans. ferees’ contention  that the  Managing Agency commission received by them  should  be apportioned  on  a proportionate basis and  the  transferees should  be  made liable to pay tax only  on  the  commission earned by them during the period that they had worked as the Managing Agents of the respective Companies. The Income-tax Officer and the Excess Profits Tax.   Officer appear  to have discovered that the amounts of the  Managing Agency commission earned by the Sassoons prior to the  dates of  the  respective transfers were not brought  to  tax  and therefore  issued  on  the 29th June,  1946,  notices  under section  34 of the Indian Income -tax Act and section 15  of the  Excess Profits Tax Act upon the Sassoons on the  ground that  their  income  from the Managing  Agency  had  escaped assessment.   The Income-tax Officer and the Excess  Profits Tax  Officer wanted to include in the assessable  income  of the  Sassoons  Rs.  28,51,934 made up of  Rs.  25,61,629  in respect  of the Managing Agency of the E. D. Sassoon  United Mills  Ltd.,  for  the  period of 11  months  from  the  1st January,  1943,  to the 30th November, 1943, Rs.  99,001  in respect of the Managing Agency of the 318 Elphinstone spinning and Weaving Mills Ltd   for the  period of five months from the 1st January, 1943, to the 31st  May, 1943, and ]Rs. 1,91,304 in respect of the Managing Agency of the Apollo Mills Ltd., for the period of six months from the 1st  January, 1943, to the 30th June, 1943, contending  that such Managing Agency commission had accrued to the  Sassoons for  services  rendered so that on the dates  on  which  the



Agencies were transferred the Sassoons were entitled to such remuneration  from  the  managed Companies in  the  form  of commission  for  services rendered up to the  dates  of  the transfers.   In spite of the objection of the  Sassoons  the Income-tax  Officer  and  the  Excess  Profits  Tax  Officer determined these sums as their escaped incomes and  assessed them  accordingly.  The Sassoons appealed to  the  Appellate Assistant Commissioner who dismissed the appeals and further appeals  were  taken to the Income-tax  Appellate  Tribunal. The Incometax Appellate Tribunal relied upon its order dated the 28th December, 1949, in the case of the transferees  and confirmed  the  orders  of  the  Appellate  Assistant   Com- missioner.  The Tribunal was of the opinon that the Managing Agency  commission  was  earned for  services  rendered  and therefore  it  was  taxed in the hands  of  the  person  who carried  on the business of the Managing Agency and  not  in the  hands of the person to whom it was  assigned,  and-that therefore so far as the Sassoons were concerned the Managing Agency  commission  should be apportioned between  them  and their transferees. The  Sassoons  applied  under section 66(1)  of  the  Indian Income-tax Act and section 21 of the Excess Profits Tax  Act requesting the Tribunal to draw a statement of the case  and refer  the question of law arising out of the orders to  the High Court for its decision.  On the 12th January, 1951, the Tribunal  by its statement of the case referred to the  High Court  one  question of law as arising out  of  its  orders, viz.,  "  whether in the circumstances of the case  was  the Managing Agency commission liable to be apportioned  between the  assessee Company and the assignee " observing  that  in its  opinion the question was not when the  Managing  Agency commission  accrued  but the real question was  to  whom  it accrued.  This reference was made by the 319 Tribunal  in  R.A. No. 474 of 1950-51, and R.A. No.  475  of 1950-51 referring the question of law thus framed in   regard to the Managing Agency commission of the  D. Sassoon  United Mills  Ltd., and the Elphinstone Spinning and Weaving  Mills Ltd.,  the  whole of the Managing Agency  commission  having been  paid respectively to Messrs.  Agarwal and Company  and to  Chidambaram Mulraj and Company Ltd., in the  year  1944. This was Income-tax Reference No. 27 of 1951. The  Commissioner of Income-tax Excess Profits  Tax,  Bombay City, also required the Tribunal to refer to the High  Court the  question of law arising out of its order in the  appeal of  Messrs.  Agarwal and Company in which the  Tribunal  had held as above that the Managing Agency comniission should be apportioned  between the Sassoons and the transferees.   The statement  of  the  case was accordingly  submitted  by  the Tribunal on the 12th January, 1951, and the same question as above  was referred to the High Court.  This  reference  was Income-tax Reference No. 24 of 1951. A  similar  application  was made  by  the  Commissioner  of Income-tax/Excess Profits Tax, Bombay City, for reference in the  appeal  of  Chidambaram Mulraj and  Company  Ltd.   The Tribunal  submitted its statement of case also on  the  same day  and referred the very same question to the High  Court. This reference was Income-tax Reference No. 23 of 1951. All  these  references came for hearing and  final  disposal before the High Court.  Income-tax References Nos. 24 and 27 of 1951 were heard together and one judgment was  delivered, answering  the question submitted to the High Court in  both the  references  in the affirmative.   Following  upon  this judgment the High Court also answered in the affirmative the question  which had been referred to it by the  Tribunal  in



Income-tax  Reference No. 23 of 1951.  The decision  of  the High  Court was thus against the contentions which had  been urged  both by the Sassoons and the Commissioner of  Income- tax and the Sassoons as well as the Commissioner of  Income- tax  obtained  leave  under section  66A(3)  of  the  Indian Income-tax Act and 320 section 133(1)((c) of the Constitution for filing appeals to this Court.  The appeal of the Sassoons was Civil Appeal No. 3  of  1953, and it was filed against  the  Commissioner  of Income-tax, Bombay City.  The appeals of the Commissioner of Income-tax   against  Messrs.   Agarwal  and   Company   and Chidambaram Mulraj and Company Ltd., respectively were Civil Appeal  No.  30 of 1953, and Civil Appeal No.  31  of  1953. These  appeals  have  come for hearing  and  final  disposal before us. All  the  appeals raise one common question  of  law,  viz., whether in the circumstances of the case the Managing Agency commission was liable to be apportioned between the Sassoons and  their respective transferees in the proportion  of  the services rendered as Managing Agents by each one of them and the decision turns upon the question whether any income  had accrued  to  the  Sassoons on the dates  of  the  respective transfers of the Managing Agencies to the transferees or  at any  time  thereafter.   This  judgment  will  (,-over   our decision in all the appeals. It will be convenient at this stage to set out the  relevant clauses of the respective Managing Agency Agreements and the deeds of assignment and transfer. The  original agreement with the E.D. Sassoon  United  Mills Ltd.,  was entered into on the 24th February, 1920,  by  Sir Edward   Sassoon   and  others  carrying  on   business   in partnership  in the style and form of Messrs.  E.D.  Sassoon and  Company.  The Managing Agency was transferred with  the consent  of the Company by E. D. Sassoon and Company to  the Sassoons and another Managing Agency Agreement was  executed between  the  Company and the Sassoons on the  2nd  October, 1934, appointing and recognising the latter as the Agents of the  Company from the lst January, 1921, for the residue  of the period and upon the same terms and conditions set out in the original Agreement dated the 24th February, 1920.  Under clause  1 of that Agreement the Sassoons and  their  assigns were appointed the Agents of the Company for a period of  30 years  from  the  date  of  the  registration  thereof   and thereafter  until they resigned or were removed from  office by a special resolution of 321 the  Company.   Udder  clause. 2  the  remuneration  of  the Sassoons and their assigns was fixed at a commission of 71/2 per cent. per annum on the annual net profit of the  Company after  making  all  proper allowances  and  deductions  from revenue  for  working  expenses  charge-  the  able  against profits,  provided  however  that if in  any  year  no  such commission  was earned or it fell short of Rs. 1,20,000  the Company  was to pay to them a sum sufficient to make up  the minimum remuneration of Rs. 1,20,000 per annum on account of such commission.  The said commission was under clause  2(d) to  be due to them yearly on the 31st of March in  each  and every year. during the continuance of the Agreement and  was to  be payable and to be paid immediately after  the  annual accounts of the Company had been passed by the shareholders. Under  clause 3 the Sassoons and their assigns  agreed  with the Company that they. would be and act as the Agents of the Company  during the said term for the said remuneration  and upon  and  subject  to  the  terms  and  conditions  therein



contained.  Clause 10 of the Agreement provided as under:- "  It  shall  be lawful for the said  firm  to  assign  this Agreement  and the rights of the said firm hereunder to  any person, firm or Company having authority by its constitution to  become bound by the obligations undertaken by  the  said firm  hereunder  and  upon such assignment  being  made  and notified to the said Company the said Company shall be bound to recognise the person or firm or Company aforesaid as  the Agents of the said Company in like manner as if the name  of such person, firm or Company had entered into this Agreement with  the said Company and the said Company shall  forthwith upon  demand by the said firm enter into an  Agreement  with the  person,  firm  or  Company  aforesaid  appointing  such person,  firm or Company the Agents of the said Company  for the then residue of the term outstanding under the Agreement and  with the like powers and authorities  remuneration  and emoluments  and subject to the like terms and conditions  as are herein contained." The  letter  dated the 3rd September,  1943,  recording  the Agreement of transfer of the Managing Agency 322 322 provided  that  in the event of the transaction  being  com- pleted  in  its entirety as therein stated  the  transferees would  be entitled to receive the commission payable by  the Company  under the Managing Agency Agreement in the  profits for  the  calendar year 1943.  The deed  of  assignment  and transfer executed between the Sassoons and Messrs.   Agarwal and  Company  in  pursuance of this Agreement  on  the  26th January, 1945, stated that the Sassoons thereby  transferred to  Messrs.  Agarwal and Company as from the  lst  December, 1943, their office as Managing Agents of the Company for the unexpired residue of the term created by the said  Agreement dated  the 24th February, 1920, as also the said  Agreements dated  the 24th February, 1920, and the 2nd  October,  1934, and all their rights and benefits as Managing Agents  ’under the said Agreements and Messrs.  Agarwal and Company  agreed to  be  the  Managing Agents of the Company from  the  1  st December, J 943, in place, and stead of the Sassoons for the said  unexpired  residue  of  the  term  with  like   powers authorities remuneration and emoluments as were contained in the  said Agreements.  It may be noted that even though  the letter   recording  the  Agreement  of  transfer   expressly provided  that the transferees would be entitled to  receive the  commission  payable by the Company under  the  Managing Agency  Agreement on the profits for the calendar year  1943 no such term was incorporated in the deed of assignment  and transfer.        The  original Agreement entered into by  the  Elphin- stone  Spinning  and Weaving Mills Company  Ltd.,  was  with Messrs.   Hajee  Mahomed Hajee Esmail and  Company  and  was dated  the  24th  July,  1919.   The  Managing  Agency   was transferred  with  the  consent of the  Company  by  Messrs. Hajee  Mahomed Hajee Esmail and Company to the Sassoons  and on  the 23rd May, 1922, another Managing,  Agency  Agreement was executed by the Company in favour of the Sassoons  their successors and assigns employing them the Agents of the Com- pany from the 1st February, 1922, for the unexpired  ’Period of the term of 60 years commencing from the 3rd July,  1919. Under  clause 3 of the Agreement the Company was during  the continuance thereof to pay to 323 the  Sassoons,  their  successors  and  assigns  by  way  of remuneration  a  commission  of ten per  cent.  on  the  net profits  of the Company and a further sum of Rs.  1,500  per



month.   Under clause 6 the Sassooris, their successors  and assigns  were to be at liberty to retain, reimburse and  pay themselves out of the moneys of the’ Company inter alia  all sums due to them for commission and otherwise.- The deed  of transfer  executed by the Sassoons in favour of  Chidambaram Mulraj and Company Ltd., on the 2nd June, 1943, stated  that the  Sassooins assigned and transferred the Agreement  dated the  23rd May, 1922, between themselves and the company  for the  unexpired residue of the term of sixty years  specified therein and the full benefit and advantage thereof  together with the benefit of the Agency and the office of the  Agents thereunder  and  the  right  to  receive  the   remuneration thereafter  to  become payable by the Company  under  or  by virtue  of the said Agreement and together with the  benefit of all rights, privileges, powers and authorities given  and conferred on the Sassoons there under. It  is  significant  to observe that  before  the  incometax authorities as also the High Court no distinction was  drawn between  the  provisions of these two Agency  Agreements  in regard  to the right of the Managing Agent  to  remuneration thereunder  and the facts in so far as they related  to  all the Managing Agencies were treated as similar.  The  quantum also  was not disputed in each case though the principle  of apportionment was in dispute. The  Sassoons were assesse for this "escaped income" on  the basis that they had earned the income by rendering  services as  Managing  Agents  to the Companies  for  the  respective periods  that they continued to be the Managing  Agents  and the transferees had rendered the services for the balance of the  periods completing the full year of accounting and  had earned the proportionate commission and therefore the amount of  commission which the latter actually  received  included the  Sassoons’ share of commission in respect of which  they were  not  liable to tax but the Sassoons.  The  High  Court adopted  this test of the services rendered by the  Sassoons as well as the transferees during the whole of 325 become  a debt due by the Companies to the Sassoons  and  it could  not therefore be said to have accrued to  them.   The contract  of  employment was an entire’ and  an  indivisible contract  and the remuneration payable by the  Companies  to the  Sassoons thereunder was payable at stated periods.   It was  a  condition  precedent to  the  Sassoons  earning  the remuneration   that  they  fulfilled  the  terms  of   their employment, completed the period for which the  remuneration was  payable  to  them and the service  for  the  particular period  was  a  condition precedent  to  their  earning  the remuneration for that period.  The stated period was that of a year and no remuneration was payable to the Sassoons  till the end of the year and unless and until they completed  the period  of  the  year  they would not  be  entitled  to  any commission  or remuneration for the year, much less for  the broken period.  It was therefore contended that the Sassoons had  not  earned any commission for the broken  periods  and that not having earned the same they could not have assigned it  to  the  transferees  with  the  result  that  when  the transferees were paid the commission under the terms of  the Managing  Agency  Agreements, the transferees  received  the same  in their own right even though they had  not  rendered the  services to the Company for the whole of  the  calendar year  1943.  It was contended that in any event, what.  ever be   the   position  as  between  the  Companies   and   the transferees,  the  Sassoons had not earned any part  of  the Managing  Agency  commission  which had  been  paid  by  the Companies  to the transferees and were not liable to tax  in



respect of the same. It was on the other hand urged on behalf of the  transferees that even though under the terms of the deeds of  assignment and  transfer they were paid by the Companies the  whole  of the  Managing Agency commission for the calendar  year  1943 they  had merely earned the commission or  remuneration  for the  period  of  actual services rendered  by  them  to  the Company  and the portions of the Managing Agency  commission proportionate  to  the  services actually  rendered  by  the Sassoons to the Companies had accrued to the Sassoons though it  had been ascertained and paid to the transferees in  the year 1944.  Even though the asceertainment 326 and the payment came later it made no difference which could be referred to the accrual of the income back to the  period during  which  the income  was earn  Ltded  and  accordingly whatever  amount was earned by  me the Sassoons  durin’g the respective  periods  that  they had acted  as  the  Managing Agents  of  the Companies had accrued to them  during  those periods  and was received by the transferees only by  virtue of the respective deeds of assignment and transfer.   Having been received by the transferees by virtue of the assignment those portions of the Managing Agency commission received by them  none the less constituted income which had accrued  to the Sassoons and were liable to tax against the Sassoons the assignors and not against them the  assignees. The  position  of an employee under an  entire  contract  of service  has  been  thus enunciated in  Halsbury’s  Laws  of England-Hailsham Edition-Vol. 22, page 133, paragraph 221:- "When  the  contract  of  service  is  an  entire  contract, providing for payment on the completion of a definite period of  service,  or of a definite piece of work, it is  a  con- dition  precedent to the recovery of any salary or wages  in respect thereof that the service or duty shall be completely performed, unless the employer so alters the contract as  to entitle  the servant to regard it at an end, in  which  case the  whole  sum payable under the contract becomes  due,  or unless  there  is a usage that the servant  is  entitled  to wages  in proportion to the time actually served.  But  when the  contract,, though in respect of work terminating  at  a particular  time,  is  to be  construed  as  providing  that remuneration  shall accrue due and become vested  at  stated periods,  such remuneration constitutes a, debt  recoverable at the end of each such period of service." Section 219 of the Indian Contract Act also provides that in the  absence  of  any  special  contract,  payment  for  the performance  of  any act is not due to the agent  until  the completion of such act. Our  attention was drawn in this connection to the  case  of Boston Deep Sea Fishing and Ice Co. v. Ansell(1). 39 Ch.  D. 339.                             327 In  that  case the defendant was employed  as  the  managing director of the company for 5 years, at a yearly salary.  He was  dismissed for misconduct before the expiration  of  the current  year  and claimed against the company  damages  for wrongful dismissal and the salary for the quarter which  had expired  before  his dismissal.  His claim  for  salary  was disallowed  and it was, held that having been dismissed  for misconduct  he  was not entitled to any part of  the  unpaid salary  for the current year of his service.   Lord  Justice Cotton at page 360 posed the question as under:- "Can  he sue for a proportionate part of the salary for  the current   year?...............  What  he  would  have   been entitled  to if he continued in their service until the  end



of  the year would have been pound 8OO, but in  my;  opinion that  would give him no right of action until the  year  was completed." Lord Justice Bowen observed at page 364:- "As regards his, current salary it is clear and  established beyond  all  doubt by  authorities...............  that  the servant  who  is  dismissed for  wrongful  behaviour  cannot recover  his  current  salary, that is  to  say,  he  cannot recover  salary which is not due and payable at the time  of his  dismissal  but which is only to accrue due  and  become payable at some later date, and on the condition that he had fulfilled his duty as a faithful servant down to that  later date." The case of Moriarty v. Regents Garage & Engineering Company Limited(1)  was  particularly  relied upon  by  the  learned counsel  for  the  Sassoona.  No question  of  dismissal  or removal for misconduct arose in that case, but the  director whose  remuneration was fixed "at the rate of  pound150  per annum"  ceased  to be a director on settlement  of  disputes between  himself  and the company the director  agreeing  to accept  payment of all money due to him upon his  debentures and the debentures being paid off in the middle of the year. The  director  sued the company to recover  a  proportionate part  of  the pound 150 as his fees for the  broken  period. The Deputy County Court Judge gave judgment for the company, (1)  (1921] 2 K.B. 766, 328 holding  that the director was not entitled  to  remuneraion for  a broken part of a year.  The Divisional  Court  versed the decision of the Deputy County Court judge and there  was a  further appeal.  It was held by the Court of Appeal  that neither  under the Agreement or under the articles  was  the director  entitled to the he claimed.  The question  of  the applicability  of  the Apportionment Act was  sought  to  be raised  before  the appeal Court but was not allowed  to  be raised  in  appeal  as it had not been done  in  the  County Court. arriving at this decision Lord Sterndale M.R.  stated the position as follows at page 774:-- "it seems to me that upon the construction of the  agreement it  must fail.  It is a payment per annum, a payment  for  a year,  And unless he serves for the year the cannot get  the payment." The  decision in Swabey v. Port Darwin Gold  Mining  to.(1), had been cited before the Court of Appeal in support of  the proposition that the director was in such cases entitled  to his  proportionate remuneration for the broken period.   The Learned Master of the Rolls however observed at page 777:- "There  is  nothing  is Swabey v. Port  Darwin  Gold  Mining Co.(1)  in  my opinion to oblige us to  hold  that  wherever there  is  power,  mutual  or one  sided,  to  terminate  an agreement in the middle of the year, there must, as a matter of necessity, be inferred a right to rceive payment from day to day, and receive payment for the broken period.  I do not think in this case there re circumstances which oblige me or induce me to raw that inference." These  authorities  as  well as the  cases  of  Mapleson  v. years(2),  and  Sanders v. Whittle(3), enunciate  the  well- stablished  principle  that  wages  and  salaries  are   not apportionable  upon  the sudden cessation of a  contract  of service, which is stated to be still the law in Batt on  the Law  of  Master and Servant, 4th Edn., at page 209  until  a hardy  litigant  successfully  seeks in  a  higher  Court  a confirmation  of  the  view  of  McCardie  J.  expressed  in Moriarty’s case(4) as regards the injustice (I) I Meg. 385.              (3) 33 L.T. 816.



(2) 28 T,L.R. 30.            (4) [1921] 2 K.B. 766, 329 of denying the benefit of the Apportionment Act to a man who may  have been guilty of misconduct.  This rule applies  not only  when  there is a sudden’ cessation of  a  contract  of service  by the unilateral act of the master or the  servant but also when,, there is such cessation by mutual consent of the parties.  In the former event the servant would be  Part deprived  of  his  proportionate wages by  his  own  act  or default  or he would be able to sue his master  for  damages for  wrongful  dismissal,  but no  claim  for  proportionate salary or wages would survive under the contract of service. In  the  latter event the consensus of opinion  between  the master and the servant would be sufficient to terminate  the contract of service and no claim for proportionate wages  or salary  would survive unless it was made an express term  of the  Agreement  thus  arrived at between  the  parties.   In either  event  there  would be no question  of  the  servant claiming  from  his master wages or salary  for  the  broken period. Learned counsel for the transferees attempted to throw doubt on the correctness of the rule as enunciated above by citing a passage from Palmer’s Company Precedents-16th Edition-Vol. 1, page 583, where the learned author discusses the question of  apportionment  in the case  of  director’s  remuneration payable at so much per annum:- "Where the clause provides that a director is to be paid  so much  per annum, the words ’at the rate of’  being  omitted, and he vacates office before the end of a current year,  the question whether he can maintain a claim for an  apportioned part  of  the remuneration for that year has given  rise  to some  difference of opinion.  In Swabey v. Port Darwin  Gold Mining  Company(1), in the Court of Appeal, the article  was as follows, and not as stated in the report: ’The  directors shall  each receive by way of remuneration out of the  funds of  the Company in each year the sum of pound 2OO,  and  the chairman in addition pound 100 per annum.’ The words at  the rate  of’  were not present (as appears  from  the  articles registered ’at Somerset House).  A director resigned in  the course of a current year, (i)  (1889) I Meg. 385. 43 330 and  was  held  entitled  to  an  apportioned  part  of  the remuneration for that year. But in Salton v. New Beeston Cycle Co.(1), where the article provided that ’the directors shall ’ be entittled to receive by  way  of remuneration in each year pound  5,000,  Cozens- Hardy J. held that a director who vacated office before  the end of a current year was not entitled to any apportionment. This case was followed by Wright J. in McConnell’s Claim(2), the  words  being ,each director shall be paid  the  sum  of pound 300 per annum’ and by Bruce J. in Inman v. Acroyd  and Bert(1).  See also Central de Kapp Gold Mines(4).  In  these four  cases the Court no doubt proceeded on  the  assumption that  the report of Swabey’s case(5) was correct,, and  that the  article in that case contained the words ’at  the  rate of.’   Certainly  Lord  Alverstone  C.  J.  acted  on   this assumption  in Harrison v. British Mutoscope, etc.,  Co.(,). There the words were ’the sum of E 1,500 per annum.  In ’the meantime  Inman v. Acroyd(7) had been taken to the Court  of Appeal,  and affirmed, but on the ground that it was by  the articles   left   to  the  directors,   to   apportion   the remuneration at the end of each year. This  case, therefore, really turned on the construction  of



the   particular   article,   and  as   it   was   carefully distinguished  from Swabey’s case(5), the authority of  that case,  on  an article omitting the Words ’at the  rate  of,’ remains unshaken." Swabey’s case(5) was referred to by  Lord Sterndale  M.  R. at page 777 in Moriarty  case(3)  and  the learned Master of the Rolls stated that there was nothing in that case which would oblige the Court to hold that wherever there  was  power,  mutual or  one-sided,  to  terminate  an Agreement in the middle of the year, there must, as a matter of  necessity, be inferred a right to receive payment  from. day to day, and receive payment for the broken period. (i)  [1898] I Ch. 775- (2)  [1901] I Ch. 728. (3)  [1900] 82 L.T.. 621; on appeal [1901] I Q.B., 613. (4)  (1899) W.N. 216, 235; 69,L.J. Ch. 18 (Wright J.). (5)  (1889) I Meg. 385. (6)  Times, Nov. 10, 1903.  P. 3. (7)  [1901] I Q.B. 613. (8)  [1921] 2 H.B,D. 766. 331 It really depended on the circumstances of each case whether to  draw  that inference or not.  In any event we  have  not before us under the terms of the Managing Agency  Agreements any provision for payment of remuneration " at the rate of " any  particular sum a, year and the ratio of the four  cases referred  to by Palmer in the passage quoted above  as  also the  observations  of Lord Sterndale M. R. at  page  777  in Moriarty’s  case (1) set out above are sufficient to  enable us  to hold that when the remuneration or commission is  ex- pressed at so much per annum without anything more it  would amount   in  law  to  a  stipulation  for  the  payment   of remuneration per year and the servant would not be  entitled to  get any remuneration unless and until he has  completely performed  his  contract  and such performance  would  be  a condition  precedent to the recovery of any wages or  salary for  that  definite period of service.  That  would  be  the position  even  if the remuneration was to  accrue  due  and becomes  vested  at stated periods and  unless  the  servant performed the condition and fulfilled his duty as a faithful servant down to that stipulated date or the stated period no salary  would accrue due and become payable to him until  at the end of such period of service. We  shall  now  examine the terms  of  the  Managing  Agency Agreements  with  a view to see whether  the  Sassoons  were entitled  thereunder to remuneration or commission  for  the broken  periods.   The Agreement between the E.  D.  Sassoon United  Mills Ltd. and the Managing Agents was for  a  fixed period of 30 years from the date of the registration of  the Company  and thereafter until they resigned or were  removed from their office by a special resolution of the Company and the  appointment of the firm of E. D . Sassoon  and  Company and  their assigns was for the whole period.  E. D.  Sassoon and Company and their assigns covenanted and agreed with the Company  to be and act as such Agents for  the  remuneration and  upon  and subject to the terms and  conditions  therein contained.   It was lawful for them to assign the  agreement and their rights thereunder to any person, firm or ’Company (1)  [1921) 2 K.B.D. 766. 332 having  authority  by its constitution to  become  bound  by these  obligations and upon such assignment being  made  and notified to the Company, the Company was bound to  recognise such person, firm or Company as the Agents of the Company in like  manner as if the name of such person, firm or  Company had  appeared in these presents in lieu of the names of  the



partners of E. D. Sassoon and Company and as if such person, firm  or  Company had entered into the  Agreement  with  the Company and the Company agreed upon demand to enter into  an Agreement appointing such person, firm or Company the Agents of the Company for the then residue of the term  outstanding under the Agreement and with the like powers and authorities remuneration  and emoluments and subject to the  like  terms and.  conditions as therein contained.  These provisions  of the  Agreement showed the continuity of the Managing  Agents who  were  employed as the Agents of the  Company  for  this specified period and under the terms and conditions  therein recorded.   The new or the substituted Managing Agents  were treated  as if they had entered into the Agreement with  the Company  and  their  name  had  appeared  in  the   original Agreement  in lieu of E. D. Sassoon and Company who were  in the first instance appointed the Agents of the company These Managing  Agents  described  as such were  to  be  paid  the remuneration specified in clause 2(a) of the Agreement which was a commission of 71 per cent per annum on the annual  net profits  of the Company with a stipulation in regard to  the minimum remuneration of Rs. 1,20,000 per annum.  Clause 2(d) specified when the said commission was to become due to  the Managing  Agents and it provided that the commission was  to be  due to them yearly on the 31st March in each  and  every year   during  the  continuance  of  the   Agreement.    The commission  was thus an annual payment calculated  upon  the annual  net profits of the Company and was to be due to  the Managing  Agents yearly on the 31st March in each and  every year.   Unless  and  until the annual  net  profits  of  the Company were determined the 71/2 per cent. commission  could not be ascertained but the sum none the less became due on                             333 the 31st March in each and every year following the close of the  accounting  year of the Company.  The’ amount  of  such commission  did not become a debt’ owing by the  Company  to the  Managing Agents until the 31st March in each and  every year  and  was  to  be paid  immediately  after  the  annual accounts of the Company had been passed by the shareholders. The  postponement  of the date of payment,  in  this  manner however  did not prevent the amount of the  commission  thus ascertained  becoming due to the Managing Agents and it  was on the 31st March in each and every year that the amount  of commission thus calculated at 71 per cent.# per annum on the annual net profits of the Company became due by the  Company to  the  Managing Agents.  Until and unless  the  accounting year of the Company had gone by and the Managing Agents  had served  the Company as their Agents for the full  period  no part of the Managing Agency commission which was payable per year  in the manner aforesaid could become due to  them  and the performance of the service, for the year was a condition precedent to the Managing Agents being entitled to any  part of  the remuneration, or commission for the accounting  year of  the- Company.  The Managing Agency  Agreement  therefore was an entire and indivisible contract stipulating a payment of remuneration or commission per year and enjoined upon the Managing  Agents  the duty and obligation of  rendering  the services  to  the  Company  for the whole  year  by  way  of condition  precedent  to their earning any  remuneration  or commission for the particular accounting year. It  was however urged that clause 10 of the Managing  Agency Agreement itself contemplated a broken period, because there was  nothing  therein to prevent the  Managing  Agents  from assigning  the Agreement and their rights thereunder at  any time  in  a particular year during the  continuance  of  the Agreement.   If the Managing Agents therefore  could  assign



the  Agreement and their rights thereunder it could  not  be suggested  that  neither  the  transferors  who  could   not complete  the  year of service nor the transferees  who  had also  not rendered the services as the Managing  Agents  for the 334 whole of the accounting year could earn any remuneration  or commission  which  would be payable to the  managing  Agents only  if they rendered the services to the Company  for  the whole year.  It therefore followed as a necessary  corollary that both the transferors and the transferees would be  paid their remuneration or commission and both would be  entitled to  the proportionate commission for the respective  periods during  which they rendered services as Managing  Agents  to the  Company.  This argument however ignores the  fact  that whatever  be the position as between the transferor and  the transferee,  whatever  be  their  arrangements  inter,   se, whatever be the periods of the year during which they  might have  served the Company in their capacity as  the  Managing Agents, the Managing Agents as described in the recitals and clauses  I and 3 of the Managing Agency Agreement  were  one entity and no severance of I such periods of service  during the course of a particular year was ever contemplated  under the  Agreement.   On assignment, the transferee  became  the Managing  Agent  as  if its name had been  inserted  in  the Managing  Agency  Agreement  from the  beginning.   For  the future   period  the  transferor  effaced  itself  and   the transferee  took the place of the transferor  and  preserved the  continuity  of  the Managing  Agency  so  that  whoever happened  to satisfy the description of the Managing  Agents at  the  time when the commission for  the  accounting  year became due to the Managing Agents thus described, which  was expressly stated to be due yearly on the 31st March in  each and  every year, became entitled to receive the  debt  which thus became due and to the payment thereof after the  annual accounts of the Company had been passed by the shareholders. The  stipulation for the Company executing in favour of  the new   or  the  substituted  Managing  Agents  an   Agreement appointing  them  the  Agents of the Company  for  the  then residue  of  the term outstanding under  the  Agreement  was merely  consequential  upon the  earlier  provision  therein contained which stated in so many terms that the Company was bound  to recognise such new or substituted Managing  Agents in like manner as if their names had appeared in the 335 mid  Agreement in lieu of the partners of E.D.  Sassoon  and Company  and as if they had entered into the Agreement  with the Company. The rights of such new or substituted.   Agents were created by the very terms of clause 10 of the Agreement and the formal embodiment thereof in the fresh Agreement  to be  entered into by the Company with them  merely  confirmed the rights which had already been created in them under that clause. It  was further pointed out that at the end of the  Managing Agency  Agreement  if not earlier,  during  the  continuance thereof there would certainly be a broken period because the period  of 30 years stipulated in clause I of the  Agreement would certainly expire on some date in February, 1950.   The calendar  year would expire on the 31st December, 1949,  and there  would  of  necessity  be  between  the  date  of  the expiration  of  the  calendar  year  and  the  date  of  the expiration of the term of the agreement a period of about  2 months  which would certainly be a broken period and  not  a full  year.  What would happen however on the expiration  of the  period of the Managing Agency Agreement  cannot  affect



the  construction  of the relevant terms  of  the  Agreement which  have  reference  to  a  year  or  years  during   the continuance   of  the  Agreement.   It  is  unnecessary   to speculate  as  to whether by reason of the fact that  E.  D. Sassoon  and  Company  must have received  the  full  year’s remuneration   or  commission  at  the  end  of  the   first accounting  year  of  the  Company  ending  with  the   31st December, 1920, they might just as well give up, if need be, their remuneration or commission for the last two months  on the expiration of the term of the Managing Agency Agreement. We see nothing in the terms of the Managing Agency Agreement which would compel or induce us to hold that there must as a matter of necessity be inferred therefrom a right to receive remuneration or commission for a broken period. Learned  counsel  for Chidambaram Mulraj  and  Company  Ltd. however  sought  to distinguish the terms  of  the  Managing Agency  Agreement  of the Elphinstone Spinning  and  Weaving Company Ltd. from those of the 336 Managing Agency Agreement of the E. D. Sassoon United  Mills Company   Ltd.  even  though  as  stated  ’before  no   such distinction   was   made  either   before   the   income-tax authorities or the High Court.  He contended that there  was nothing  in  the  Agency  Agreement  with  the   Elphinstone Spinning  and Weaving Company Ltd. which  corresponded  with clauses  2(a), 2(d) and clause 10 of the  Agreement  between the  E. D. Sassoon United Mills and their  Managing  Agents. The only term which was to be found in the Agency  Agreement of  the  Elphinstone Spinning and Weaving Company  Ltd.  was that the Company was during the continuance of the Agreement to pay to the Managing Agents who were there described as E. D.  Sassoon  and  Company Ltd. their  successors  and  their assigns by way of remuneration a commission of ten per cent. on  the net profits of the Company and a further sum of  Rs. 1,500  per  month.   There  was  besides  clause  6  of  the Agreement which conferred upon the Managing Agents the right of retainer, and reimbursement in connection inter alia with all  sums  due to them for commission or  otherwise.   These terms  it  was submitted did not constitute the  payment  of remuneration  or commission a payment per annum and  it  was not possible to argue that the Sassoons were not entitled to any   remuneration  or  commission  for  a   broken   period thereunder. It  may  however  be  observed  that  the  Managing   Agency Agreement with which we are here concerned was the Agreement dated  the  23rd  May, 1922, between  the  Company  and  the Sassoons and the Managing Agents there described were E.  D. Sassoon  and  Company  Ltd on behalf  of  themselves,  their successors and assigns.  Clause 1 of the Agreement  employed the Sassoons, their successors and assigns the Agents of the Company  from  the 1 st February, 1,922, for  the  unexpired portion  of  the term of 60 years commencing  from  the  3rd July, 1919, and it was these Managing Agents thus described, viz.,  the Sassoons, their successors and assigns, who  were during the continuance of the Agreement to be remunerated by a  commission  of  10 per cent. on the net  profits  of  the Company  and  the Company agreed to pay such  commission  to them.  The 337 right of retainer and reimbursement reserved under clause  6 of the Agreement would not carry the transferees any further because  it  -was  in respect of all sums due  to  them  for commission  or otherwise.  Unless and until  the  commission became  due to them they had no such right of retainer.   It would still have to be determined whether any sum became due



to  them by way of such commission.  Whether any  commission became  due  to them would depend upon the  construction  of clause  3  of  the  Agreement  and  under  that  clause  the commission calculated at 10 per cent. of the net profits  of the Company was to become due to them and was to be paid  by the Company to them during the continuance of the Agreement. We  have  got to determine what is the full  implication  of this  clause  of the Agreement,-"the commission  of  10  per cent. on the net profits of the Company." The word "profits" has  a  welldefined legal meaning as was  observed  by  Lord Justice Fletcher Moulton at page 98 in The Spanish Prospect- ing Company Limited(1): "The  word ’Profits’ has in my opinion a  welldefined  legal meaning,  and  this meaning coincides with  the  fundamental conception  of  profits  in general  parlance,  although  in mercantile  phraseology the word may at times bear  meanings indicated  by  the  special context which  deviate  in  some respects  from  this fundamental  signification.   ’Profits’ implies a comparison between the state of a business at  two specific  dates usually separated by an interval of a  year. The  fundamental meaning is the amount of gain made  by  the the business during the year.  This can only be  ascertained by  a  comparison of the assets of the business at  the  two dates." This  concept  of the term was also adopted by  Mr.  Justice Mahajan,  as  he then was, in  Commissioner  of  Income-tax, Bombay v. Ahmedbhai Umarbhai and Company, Bombay(2): "Profits  of a trade or business are what is gained  by  the business.   The term implies a comparison between the  state of business at two specific dates separated by, an  interval of a year and the fundamental (i)  [1911] i Ch.  D. 92. 44 (2) [1950] i8 I.T.R. 472 at page 5o2. 338 meaning  is the amount of gain made by the  business  during the year and can only be ascertained by a comparison of  the assets of the business at the two dates, the increase  shown at a later date compared to the ,earlier date represents the profits of the business." It  was urged before us that there was nothing in the  terms of the Agreement which provided that the profits were to  be ascertained at the end of every year, and there was  nothing to  prevent  the  Company if it so chose  from  casting  its accounts  and  ascertaining the net profits half  yearly  or quarterly  or  even every month by preparing  trial  balance sheets in that manner.  Theoretically speaking all this  may be  possible  but  we have got to  construe  the  Agreements arrived  at  between business people in a,  business  sense. Ordinarily  in  the  case of business  or  trading  concerns accounts of profits are not made except at stated  intervals usually  separated by a year.  Particularly in the  case  of limited  Companies incorporated under the  Indian  Companies Act  the  accounts are cast every year and the  net  profits earned  by the Company are ascertained every year  both  for the declaration of dividends and for submitting the  returns to the income-tax authorities.  Under section 131 (I)of  the Indian Companies Act of 1913 every Company was required once at least in every year and at intervals of not more than  15 months  to cause the accounts to be balanced and  a  balance sheet  to  be prepared which was called the  annual  balance sheet.   The  first  schedule to  the  Companies  Act  which contained  the  regulations  by which  unless  excluded  the affairs  of the Company were to be governed  provided  under Regulation  106 the preparation once at least every year  of



the  profit  and loss account for the period and  under  the Regulation 108 for the balance sheet to be made out in every year and laid before the Company in general meeting.  Having regard  to  the course of business which prevailed  in  this Company also so far as it is evidenced by the fact that  the account  of the Managing Agency commission was made  up  for the  calendar year 1943 and was paid to  Chidambaram  Mulraj and  Company Ltd., who became the Managing Agents  in  place and  stead  of  the  Sasssoons  in  the  year  1944,  it  is reasonable to assume that the 339 accounts of this Company were throughout made up at the  end of every calendar year.  The profit and loss of the  Company was then ascertained and a commission of 10 per cent. on the net  profits of the Company was paid to the Managing  Agents of the Company for the, time being.  In the case of  limited Companies  like  those before us we would  be  justified  in presuming that normally the accounts are made up every  year and  even though there may be a theoretical  possibility  of the  accounts  being cast half yearly or quarterly  or  even every  month  no  such procedure would  be  adopted  by  the Company.   In any event it would be absurd to  suggest  that the  profits of the Company could accrue from day to day  or even  from month to month.  The working of the Company  from day to day could certainly not indicate any profit or  loss. Even  the working of the Company from month to  month  could not  be taken as a reliable guide for this purpose.  If  the profit or loss has got to be ascertained by a comparison  of the assets at two stated periods, the most businesslike  way of  doing  it would be to do so at stated intervals  of  one year and that would be a reasonable period to be adopted for the  purpose.  In the case of large business  concerns  like these  the working of the Company during a particular  month may  show profits and the working in a particular month  may show loss.  The working during the earlier part of the  year may show profit or loss and working in the later part of the year   may   show  loss  or  profit  which   would   go   to counterbalance the profit or loss as the case-may be in  the earlier  part of the year.  It may as well happen  that  the profits  which the Company may appear to have earned  during the earlier months of the year or even during the II  months of  the year may be considerably reduced or even  wiped  out during  the later months or the last months of the  year  by reason  of some catastrophe or unforeseen events.  It  would be therefore reasonable to assume that the profit or loss as the  case  may be should be determined at the end  of  every year so that on such calculation of net profits the Managing Agents  may be paid their remuneration or commission at  the percentage stipulated in the Managing Agency Agreement and 340 the  shareholders  also  be paid dividends out  of  the  net profits  of  the Company.  We are sure that these  were  the considerations  which  weighed with the Managing  Agents  of this Company in not taking up any such contention before the Income-tax   authorities  and  the  High  Court   that   the remuneration  or  commission  payable  to  them  under   the Managing  Agency Agreement was not payable per year and  the contention put forward before us in this behalf was a  clear after-thought.  We would be therefore justified in  treating the  terms  and  conditions  in regard  to  the  payment  of Managing  Agency  Commission in both these  Managing  Agency Agreements as on a par with each other stipulating for  such payment per year on the net annual profits of the Companies. If  this  be the true construction of  the  Managing  Agency Agreements  it follows that the contract of service  between



the  Companies  and  the  Managing  Agents  was  entire  and indivisible, that the remuneration or commission became  due by  the Companies to the Managing Agents only on  completion of a definite period of service and at stated periods,  that it was a condition precedent to the recovery of any wages or salary in respect thereof that the service or duty should be completely  performed, that such remuneration constituted  a debt only at the end of each such period of service and that no  remuneration or commission was payable to  the  Managing Agents for broken periods. The question still remains whether the remuneration for  the broken  periods accrued to the Sassoons and  the  contention which  was  strenuously  urged before us on  behalf  of  the transferees was that the Sassoons had rendered the  services in terms of the Managing Agency Agreements to the respective Companies,  that the services thus rendered were the  source of  income and whatever income could be attributed to  those services  was earned by the Sassoons and accrued to them  in the  chargeable accounting period though it was  ascertained and paid in the year 1944 to the transferees. The  word  "earned" has not been used in section  4  of  the Income-tax Act.  The section talks of " income, 341 profits  and gains " from whatever source derived which  (a) are received by or on behalf of the assessee, or (b)  accrue or  arise to the assessee in the taxable territories  during the chargeable accounting period.  Neither the word " income " nor the words "is received," "accrues" and " arises " have been defined in the Act.  The Privy Council in  Commissioner of  Income-tax, Bengal v. Shau Wallace & Co.(1) attempted  a definition of the term income " in the words following :- "  Income, their Lordships think, in the  Indian  Income-tax Act, connotes a periodical monetary return ’ coming in’ with some  sort  of  regularity,  or  expected  regularity   from definite  sources.  The source is not necessarily one  which is  expected to be continuously productive, but it  must  be one  whose  object is the production of  a  definite  return excluding anything in the nature of a mere windfall." Mukerji- J. has defined these terms in Rogers Pyatt  Shellac & Co. v. Secretary of State for India(2): "  Now what is income?  The -term is nowhere defined in  the Act......  In the absence of a statutory definition we  must take its ordinary dictionary meaning  that which comes in as the  periodical  produce of one’s work, business,  lands  or investments  (considered  in  reference to  its  amount  and commonly expressed in terms of money) ; annual or periodical receipts  accruing  to  a person or  corporation  "  (Oxford Dictionary).  The word clearly implies the idea of  receipt, actual  or constructive.  The policy of the\ Act is to  make the  amount  taxable  when it is  paid  or  received  either actually  or  constructively. i Accrues,’ arises’ and  I  is received’ are three distinct terms.  So far as receiving  of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which  makes its meaning plainer than the word ’  receiving’ itself The words I accrue  and arise also are not defined in the  Act.  The ordinary dictionary meanings of  these  words have  got  to be taken as the meanings  attaching  to  them. Accruing’ is synonymous with ’arising’ in the sense (i) I.L.R. 59 Cal.  I343 at p. 1352. (2) 1 I.T.C. 363 at P. 371 342 of  springing  as  a natural growth or  result.   The  three Expressions  accrues, I arises ’ and I is received ’  having been used in the section, strictly speaking ’accrues’ should



hot  be  taken  as  synonymous with I  arises’  but  on  the distinct sense of growing up by way of addition for increase or  as an accession or advantage; while the word  I  arises’ means  comes  into existence or notice or  presents  itself. The former connotes the idea of a growth or accumulation and the  latter  of the growth or accumulation with  a  tangible shape  so as to be receivable.  It is difficult to say  that this  distinction has been throughout maintained in the  Act and  perhaps the two words seem to denote the same  idea  or ideas  very  similar, and the difference only lies  in  this that one is more appropriate than the other when applied  to particular  cases.  It is clear, however, as pointed out  by Fry  L.J.  in  Colquhoun v. Brooks(1),  [this  part  of  the decision  not  having been affected by the reversal  of  the decision  by the House of Lords(2)] that both the words  are used  in  contradistinction  to the word  "  receive  "  and indicate  a  right  to  receive.   They  represent  a  stage anterior  to  the  point of time  when  the  income  becomes receivable  and connote a character of the income  which  is more or less inchoate. One other matter need be referred to in connection with  the section.   What is sought to be taxed must be income and  it cannot be taxed unless it has arrived at a stage when it can be called ’income’." The observations of Lord Justice Fry quoted above by Mukerji J. were made in Colquhoun v. Brooks(1) while construing  the provisions  of  16  and 17 Victoria  Chapter  34  section  2 schedule ’D’.  The words to be construed there were’ profits or  gains, arising or accruing’ and it was observed by  Lord Justice Fry at page 59: "  In  the first place, I would observe that the tax  is  in respect of ’profits or gains arising or accruing.’ I  cannot read those words as meaning I received by.’ If the enactment were limited to profits and gains ’received (i)  (1888) 21 Q.B.D. 52 at P. 59. (2)  (I889) 14 APP.  Cas. 493. 343 by’ the person to be charged, that limitation would apply as much to all Her Majesty’s subjects as to foreigners residing in  this country.  The result’ would be that  no  income-tax would be payable upon profits ’which accrued but which  were not  actually  received, although profits  might  have  been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words I arising or accruing are general words descriptive of a right to receive profits." To the same effect are the observations of Satyanarayana Rao J.  in  Commissioner  of Income-tax,  Madras  v.  Anamallais Timber  Trust  Ltd.(1) and Mukherjea J. in  Commissioner  of Income-tax,  Bombay v. Ahmedbhai Umarbhai &  Co.,  Bombay(2) where this passage from the judgment of Mukerji J. in Roqers Pyatt  Shellac & Co. v. Secretary of State for India(3),  is approved and adopted.  It is clear therefore that income may accrue to an assesee without the actual receipt of the same. If the assessee acquires a right to receive the income,  the income  can be said to have accrued to him though it may  be received   later  on  its  being  ascertained.   The   basic conception is that he must have acquired a right to  receive the  income.  There must be a debt owed to him by  somebody. There must be as is otherwise expressed debitum in presenti, solvendum  in  futuro;  See  W.  S.  Try  Ltd.  v.   Johnson (Inspector  of  Taxes)(4), and Webb v. Stenton  and  Others, Garnishees(5).  Unless and until there is created in  favour of  the  assessee a debt due by somebody it cannot  be  said that  he has acquired a right to receive the income or  that income has accrued to him.



The word "earned" even though it does not appear in  section 4  of the Act has been very often used in the course of  the judgments by learned Judges both in the High Courts as  well as  the  Supreme Court. (Vide  Commissioner  of  Income-tax, Bombay   v.  Ahmedbhai  Umarbhai  &  Co.,   Bombay(6),   and Commissioner  of  Income-tax,  Madras  v. K.  R.  M.  T.  T. Thiagaraja Chetty & Co.(7).      (i) 18 I.T.R.1 333 at P. 342.  (5) II Q.B.D. 5i8 at pp. 522 and 527’      (2)  [19501] S.C. R. 335 at P. 389.  (6) [1950]  S.C.R. 335 at P. 364.      (3)  I I.T.C. 363 at P. 372.  (7) 24 I.T.R. 525  at  P. 533.      (4) [1946] I A.E.R. 532 at P. 539. 344 It has also been used by the Judicial Committee of the Privy Council  in  Commissioners  of  Taxation  v.  Kirk(1).   The concept  however  cannot  be divorced from  that  of  income accruing  to  the assessee.  If income has accrured  to  the assessee it is certainly earned by him in the sense that  he has  contributed to its production or the parenthood of  the income  can be traced to him.  But in order that the  income can be said to have accrued to or earned by the assessee  it is   not  only  necessary  that  the  assessee   must   have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his  favour. A  debt  must  have come into existence  and  he  must  have acquired  a right to receive the payment.  Unless and  until his contribution or parenthood is effective in bringing into existence  a  debt or a right to receive the payment  or  in other  words a debitum in presenti, solvendum in  futuro  it cannot be said that any income has accrued to him.  The mere expression  "earned" in the sense of rendering the  services etc., by itself is of no avail. If  therefore  on the construction of  the  Managing  Agency Agreements  we  cannot  come  to  the  conclusion  that  the Sassoons  had  created  any  debt in  their  favour  or  had acquired a right to receive the payments from the  Companies as at the date of the transfers of the Managing Agencies -in favour  of  the transferees no income can be  said  to  have accrued  to  them.  They had no doubt rendered  services  as Managing  Agents  of the Companies for the  broken  periods. But unless and until they completed their performance, viz., the  completion of the definite period of service of a  year which  was a condition precedent to their being entitled  to receive   the   remuneration   or   commission    stipulated thereunder, no debt payable by the Companies was created  in their  favour and they had no right to receive  any  payment from  the  Companies.  No remuneration or  commission  could therefore  be said to have accrued to them at the  dates  of the respective transfers. It was however urged that even though no income can be  said to  have  accrued  to  the  Sassoons  at  the  date  of  the respective transfers which could be the (1)  [1900] A. C. 588 at p. 592, 345 subject-matter  of any assignment by them in favour  of  the transferees,  the moment the remuneration or commission  was ascertained  at  the end of the calendar year and  became  a debt  due  to  the Managing Agents under the  terms  of  the Managing Agency Agreements it could be referred back to  the period  in  which  it was earned and  the  portions  of  the remuneration or commission which were earned by the Sassoons during the broken period could certainly then be said to  be the  income which had accrued to them during the  chargeable



accounting period. Reliance   was  placed  is  support  of  this  position   on Commissioners  of  Inland Revenue v. Gardner Mountain  &  D’ Ambrumenil,  Ltd.(1). The assessee in that case  carried  on inter alia the business of underwriting Agents, and  entered into  Agreements with certain underwriters at  Lloyds  under which  it was entitled to -receive as remuneration  for  its services  in conducting the Agency, commissions on  the  net profits   of  each  year’s  underwriting.   The   Agreements provided  that  "  accounts should be kept  for  the  period ending 31st December in each year and that each such account shall be made up and balanced at the end of the second clear year  from the expiration of the period or year to which  it relates  and the amount then remaining to the credit of  the account  shall be taken to represent the amount of  the  net profit  of  the period or year to which it relates  and  the commission  payable to the Company shall be  calculated  and paid thereon." The accounts for the underwriting done in the calendar  year 1936 were made up at the end of 1938 and  the question  that arose was whether the assessee was liable  to additional assessment in respect of the commission on  under writer’s  profits  from  the policies  underwritten  in  the calendar  year 1936 in the year in which the  policies  were underwritten or in the year when the accounts were thus made up. The assessee contended that the contracts into which  it entered  were executory contracts, under which its  services were not completed or paid for, as regards commission, until the  conclusion of the relevant account; that the profit  in the form of commission was (I)  29 T.C. 69. 45 346. not  ascertainable or earned, and did not arise, until  that time  and that the additional assessment which was  made  in the  year  in which the policies  were  underwritten  should accordingly   be  discharged.   The  Special   ,Commissioner allowed  the  assessee’s  contention  and,  discharged   the additional   assessment.   The  decision  of   the   Special Commissioners  was confirmed on appeal by Macnaghten  J.  in the  King’s Bench Division of the High Court.  The Court  of Appeal  however reversed this decision and a further  appeal was taken by the assessee to the House of Lords.  The  House of  Lords  held  that  on  the  true  construction  of   the Agreements,  the commissions in question were earned by  the assessee   in   the  year  in  which   the   policies   were underwritten,  and must be brought into account  accordingly and  confirmed the decision of the Court of Appeal.  It  may be  noted  that the charge was on profits  arising  in  each chargeable  accounting  period and the profits  were  to  be taken  to  be the actual profits arising in  the  chargeable accounting  period.  The ratio of the decision was that  the commission  paid  was remuneration for  services  completely performed in the particular year, that, the assessee had  at the end of the year done everything it had to do to earn  it and  that it was remuneration for work done  and  completely done  in the particular year though it was  ascertained  and paid two years later.  Viscount Simon in his speech at  page 93 stated that the assessee had acquired a legal right to be paid  in futuro and that the principle was to refer back  to the  year  in  which  it  was  earned  so  far  as  possible remuneration subsequently received even though it could only be  precisely  calculated. afterwards.  Lord Wright  in  his speech at page 94 said that it was necessary to determine in what  year the Commission was earned, or in the language  of the  Act,  in  what year the assessee’s  profits  arose  and



observed at page 96 : - "I  agree  with  the Court of Appeal in  thinking  that  the necessary conclusion from that must be that the right to the commission is treated as a vested right which has accrued at the  time when the risk was underwritten, It has  then  been earned,  though  the profits resulting  from  the  insurance cannot be then 347 ascertained,  but in practice are not ascertained until  the end of two years beyond the date of underwriting.  The right is  vested, though its valuation is postponed,’ and  is  not merely postponed but depends on all the contingencies which, are  inevitable in any insurance risk, losses which  may  or may not happen, returns of premium, premiums to be  arranged for  additional risks, reinsurance, and the whole  catalogue of  uncertain future factors.  All these have to be  brought into  account according to ordinary commercial practice  and understanding.  But the delays and difficulties which  there may  be in any particular case, however they may affect  the profit,  do  not  affect the right for  what  it  eventually proves to be worth." Lord  Simonds in his speech at page 110 stated:" It  is clear  to me that the commission is wholly earned  in year   1   in  respect  of  the  profits  of   that   year’s underwriting.  If so, I should have thought that it was  not arguable that that commission did not accrue for income-tax- purposes  in that same year though it was not  ascertainable until later." The  fact  that the account of the commission could  not  be made  up  until  later did not make any  difference  to  the position  that the commission had been wholly earned  during the chargeable accounting period and the income had  accrued to the assessee during that period. Learned  counsel  for the transferees also relied  upon  the decisions  in Bangalore Woollen, Cotton and Silk Mills  Co., Ltd.  v. Commissioner of Income tax, Madras(1),  and  Turner Morrison  and Co., Ltd. v. Commissioner of Income-tax,  West Bengal(2),  to show that as and when the sale proceeds  were received by the Company the profits made by the Company were embedded  in  those  sale proceeds and if that  was  so  the percentage  of  the  net profits which was  payable  by  the Companies to the Managing Agents as and by way of commission was  similarly  embedded  in those sale  proceeds.   If  the profits  thus accrued to the Company. during the  chargeable accounting  period  the commission payable to  the  Managing Agents  also  could be said to have accrued to  them  during that period. (I) [1950] is I.T.R 423. (2) 11953) 23 I.T.R. 152. 348 It  is  no doubt true that the accrual of  income  does  not depend  upon  its  ascertainment or  the  accounts  cast  by assessee.  The accounts may be made up at a much later date. That depends upon the convenience -of the assessee and  also upon  the  exigencies of the situation.  The amount  of  the income,  profits or gains may thus be ascertained  later  on the accounts being made up.  But when the accounts are  thus made  up  the income, profits or gains  ascertained  as  the result  of the account are referred back to  the  chargeable accounting  period during which they have accrued or  arisen and  the  assessee is liable to tax in respect of  the  same during that chargeable accounting period.  "The  computation of the profits whenever it may take place cannot possibly be allowed to suspend their accrual..:... .................  ". "The  quantification  of the commission is not  a  condition



precedent  to’  its  accrual." (Per  Ghulam  Hassan  J.,  in Commissioner  of  Income-tax,  Madras  v. K.  B.  M.  T.  T. Thiagaraja  Chetty  and Co.(1). See also  Isaac  Holden  and Sons,  Ltd.  v.  Commissioners  of  Inland  Revenue(2),  and Commissioners  of  Inland Revenue,  v.  Newcastle  Breweries Ltd.(3).  What has however got to be determined  is  whether the income, profits or gains accrued to the assessee and  in order  that the same may accrue to him it is necessary  that he must have acquired a right to receive the same or that  a right  to the income, profits or gains has become vested  in him  though  its valuation may be postponed  or  though  its materialisation.  may  depend on the  contingency  that  the making  up  of the accounts would show  income,  profits  or gains.   The argument that the income, profits or gains  are embedded  in the sale proceeds as and when received  by  the Company  also  does not help the  transferees,  because  the Managing  Agents  have  no share or  interest  in  the  sale proceeds received as such.  They are not co-sharers with the Company  and no part of the sale proceeds belongs  to  them. Nor is there any ground for saying that the Company are  the trustees  for  the  business or any of the  assets  for  the Managing  Agents.  The Managing Agents cannot  therefore  be said to have acquired a (1)  24 I.T.R. 525. at P. 534. (2)  12 Tax Cases 768. (3) 12 Tax Cases 927. 349 right  to  receive  any  commission  unless  and  until  the accounts are made up at the end of the year, the net profits ascertained and the amount of commission due by the  Company to  the Managing Agents thus determined. (See  Commissioners of Inland Revenue v. Lebus(1) ). It  is cleat therefore that no part of the  Managing  Agency commission  had accrued to the Sassoons at the dates of  the respective transfers of the Agencies to the transferees. The  two decisions which were sought to be distinguished  by the  High Court in the judgments under appeal  also  support this  conclusion.   In the unreported decision of  the  High Court  of  Bombay  in Commissioner of  Excess  Profits  Tax, Bombay  City  v.  Messrs.   P. N.  Mehta  and  Sons(1),  the Managing Agency Agreement was couched in the very same terms as that of the E. D. Sassoon United Mills Company Ltd.   The Managing  Agents  were to be paid 10 per cent.  of  the  net annual profits made by the Company with a guaranteed minimum commission of Rs. 15,000 per annum.  The accounting year  of the  Company was the calendar year.  The Tribunal  had  held that  the annual profits could only be ascertained when  the accounts  of the Company were made up and it was  then  that the  10  per cent. commission would accrue to  the  Managing Agents.   The contention of the Department was that  as  the Managing  Agents worked as such from day to day  and  helped the  Company to earn profits, profits accrued to  them  from day to day and not at the end of the year.  This  contention was negatived by the High Court :- "It  is only on net annual profits that the Managing  Agents are  entitled to any commission.  A Company may have  worked ’for  six months at a loss, for the remaining six months  it may make a large profit so as to wipe off the loss, and have a net profit to show.  It is only as a result of the working of the Mills for the whole year that it will be possible  to ascertain  whether the Mills have worked at a loss or  at  a profit,  and what the profit was.  Therefore,  the  Managing Agents  are only entitled to a commission on the  result  of the (1)  [ 1946] i A.E.R. 476 ; S.C. 27 Tax Cases 136.



(2)  [1950] I.T.Ref. No. 19 Of 1950. 350 working of the Mills for a whole year.  If the working shows a  net annual profit which gives them a commission  of  more than  Rs.  15,000  on the basis of 10 per  cent.,  they  are entitled  to  that  amount.  If, on  the  ,other  hand,  the working  does  not show a profit, which entitles them  to  a comnission  of Rs. 15,000 they are in any case  entitled  to that amount.  Therefore in our opinion, the Tribunal rightly held  that the accrual of the commission was at the  end  of the  calendar  year, which was the year  maintained  by  the Mills and not from time to time as contended by the  Depart- ment." In the case of Salt and Industries Agencies Ltd., Bombay  v. Commissioner  of Income-tax, Bombay City(1),,  the  question for the consideration of the Court no doubt was what was the place  where  the profits had accrued.  In  determining  the place where the profits had accrued it was however necessary to find when the profits had accrued to the assessee and  it was  held  that, what was conclusive of the matter  was  the consideration  as to when the right to Managing Agency  com- mission arose and when did the Company become liable to  pay Managing Agency commission to the Managing Agents and it was further  held that it was only when all the accounts of  the working of the Company were submitted to the head office  in Bombay  and the profit was determined that it could be  said that  a right to receive a commission at the rate  specified in the Managing Agency Agreement had arisen and the Managing Agents  became entitled to a certain  specified  commission. These  considerations are germane to the question  which  we have  to decide in these appeals and support the  conclusion which we have already arrived at, that the right to  receive the commission would arise and the income, profits or  gains would  accrue to the Managing Agents only at the end of  the calendar year which was the terminus a quo for the making up of  the accounts and ascertaining the net profits earned  by the  Company.   We fail to see how these  cases  which  were relied  upon by the Revenue before the High Court could,  be distinguished in the manner in which it was done. (i)  iS I.T.R. 58. 351 We  were invited by the learned counsel for the Sassoons  to approach  the question from another point of view  and  that was  that what had been transferred by the Sassoons  to  the transferees  was  a  source of income,  viz.,  the  Managing Agency  which  was to run for the unexpired residue  of  the term.   It  was  urged that where a  source  of  income  was transferred any income which accrued from that source  after the date of the transfer was the transferees’ income and not of  the transferors, and that it was immaterial (a) that  at the date of the transfer there was an expectation that at  a future date income would accrue, (b) that the transferor  by the work before the transfer had contributed to -create  any income which might eventually accrue and (c) that because of the  expectation of income a higher price had been paid  for the transfer. Reliance  was  placed  in this connection  on  the  case  Of Commissioners  of  Inland Revenue v. Forrest (1).   In  that case  the  assessee  purchased certain shares  on  the  25th November,  1919,  and paid an excess price "  to  cover  the portion  of the dividend accrued to date." A dividend of  10 per cent. for the period ending on 28th February, 1920,  was declared  on  the  13th May, 1920.  The  contention  of  the assessee was that the dividend should be treated as  capital in  view  of the terms of the contract of purchase  and  not



included  in  the  computation of  his  income.   Under  the provisions  of  the Incometax Act the dividends  which  were receivable  by  him  ’were required to be  included  in  the computation  of  his  income.  The  learned  Judges  however discussed  the  legal effect of such a  transaction  of  the purchase of shares.  Lord Ormidale observed at page 709:-  " The value of the shares had to be determined as a  matter of  bargain between the parties, and the  purchaser  thought that  it was not unreasonable that he should  pay  something over  par  for  them because of  the  possibility,  not  the certainty  but  the possibility, of a  dividend  six  months afterwards being paid upon the shares so purchased by him." Lord Anderson observed at page 710:- (i)  8 Tax Cases 704. 352 He  buys two things with his money.  He buys, in  the  first place,  a  share  of the assets of  the  industrial  concern proportionate  to  the  number  of  shares  which  he   hat; purchased; and he also buys the right to participate in  any profits which the Company may make in the future.  Now, when a  transaction  of this nature  is entered into  during  the currency of the financial year of the industrial concern  it is  obvious  that what happens is this, that not only  is  a part  of the assets purchased outright but that a chance  is bought as well-a chance of sharing in any profits which  may be made during the currency of that financial year." Wigmore (H.  M. Inspector of Taxes) v., Thomas Summerson and Sons, Limited (1) was the case of a vendor of war loan stock bearing interest payable without deduction of tax.  The sale was effected on the 10th April, 1923, with interest  rights. The  vendor was assessed for the year 1923-24 in respect  of the amount of interest said to have accrued on the stock  in the  period  between the last payment of interest.  and  the sale  of  the  stock,  it being  contended  that  the  price received  by  the  vendor on sale  of  stock  included  this interest.  The purchasers said that they were not liable  to tax in respect of the income which had been accruing on  the security they had purchased in a period anterior to the date on which they purchased.  It was observed that the truth  of the matter was that the vendor did not receive interest  and interest was the subject-matter of the tax.  But he received the  price  of an expectancy of interest which was  not  the subject  of taxation.  It was not argued that  the  interest accrued  de  die  in  them  and  the  vendor  was  held  not assessable in respect of the interest accrued at the date of the sale of the stock. Commissioners of Ihland Revenue v. Pilcher (2) was the  case of  the  gale of an orchard inclusive of  the  year’s  fruit crop.   The assessee had valued the cherries which  were  on the  trees at pound 2,500 and had pat a man  immediately  in the  orchard after he had purchased it at the. auction.   He commenced  to  pick  the fruit on the 25th  May,  1942,  and completed the operations on the (i) 9 Tax Cases 577. (2) 3 i Tax Cases 314. 353 12th  June, 1942.  He realised pound, 2,903 as the price  of the cherries.  This sum was brought into the profit and loss account  as  a  trading receipt and the  contention  of  the assessee  was that in computing his profits he was  entitled to charge the sum of i 2,500 being the purchase price of the cherries  sold  for pound 2,903 which sum had  been  brought into  credit  as  a trading receipt.   This  contention  was negatived  and  it was observed by Lord Justice  Jenkins  at page 332 --



" It is a well settled principle that outlay on the purchase of  an  income- bearing asset is in the  nature  of  capital outlay,  and  no part of the capital so laid  out  can,  for income-tax  purposes,  be  set off  as  expenditure  against income accruing from the asset in question." There is a further passage in the judgment of Jenkins L.  J. at  page  335  which  is  very  instructive.   It  had  been contended  that the revenue should look at  the  transaction from the assessee’s point of view and should consider it  in a manner favourable to him.  This contention was dealt  with in the manner following:- One  has  to remember that this  transaction  concerned  not merely Mr. Pilcher but also the vendor of the orchard.   Mr. Pilcher  was  able  to buy the  orchard  complete  with  the cherries from the vendor and by that means, according to his own calculation, the cherries stood him in pound 2,500.   It by  no means follows that if he had been minded to  buy  the cherries from the vendor apart from the land, as a  separate transaction, the vendor would have been willing to sell them to him for pound 2,500, or at any price.  The difference  is obviously  a  material one from the vendor’s point  of  view because, dealing with the matter as he did, he was selling a capital  asset,  and the resulting  capital  receipt,  prima facie,  would  attract  no tax.  If  he  sold  the  cherries separately in the way of trade he would at once have created an income receipt on which, prima facie, tax would have been exigible.   Therefore  the  alteration in the  form  of  the bargain required to make it more favourable to Mr.  Pilcheer from the tax point of view would have involved an alteration not  merely  of form but of substance owing to  its  adverse effect on 46 354 the  tax situation of the vendor, and it cannot  be  assumed that  the bargain thus altered would have been one to  which Mr. Pilcher could have secured the vendor’s agreement." These observations throw considerable light on the situation obtaining,in  the  cases before us.  It will  be  remembered that  the  total  amount of Rs. 75,77,693  received  by  the Sassoons on the transfers of the Managing Agencies was taken by  them to the " Capital Reserve Account." No part of  that amount was treated by them as a receipt of income and it  is debatable  whether  any  part of the same  could  have  been allocated as a receipt of income even though the transferees had  desired  to do so.  All that the  transferees  obtained under  the deeds of assignment and transfer executed by  the Sassoons  in  their  favour  was  an  income  bearing  asset consisting  of the office of Managing Agents,  the  Managing Agency  Agreement  and all the rights and benefits  as  such Managing  Agents  under the Agreements and no  part  of  the consideration paid by the transferees to the Sassoons  could be  allocated  as  a receipt of income by  reason  of  their -contribution  towards the earning of the commission in  the shape of services rendered by them as Managing Agents of the Companies  for  the broken periods.   What  the  transferees obtained under the deeds of assignment and transfer was  the expectancy  of  earning  a commission in the  event  of  the condition  precedent by way of complete performance  of  the obligation of the Managing Agents under the Managing  Agency Agreements  being fulfilled and a debt arising in favour  of the  Managing  Agents at the end of the  stated  periods  of service contingent on the ascertainment of net profits as  a result  of  the working of the Company during  the  calendar year. The  last  case  to which we were referred  by  the  learned counsel  for  the Sassoons was The City of  London  Contract



Corporation, Limited v. Styles (Surveyor of Paxes) (1).  The part of the business taken over by the assessee in that case consisted of unexecuted and partly executed contracts.   The contracts  were executed after the date of the  purchase  by the assessee and the (1)  2 Tax cases. 239, 355 assessee  sought to deduct the price paid for the  contracts from  the  profits  arising from  their  performance.   This deduction  was  not  allowed  because  whatever  price   the assessee  paid for the purchase of the business was  treated as  the capital which had been invested for the  purpose  of acquiring  that business and the assessee could  not  deduct from  the -net profits of the working of the business  after the  date of the purchase any part of the capital which  had been  thus  invested by it.  This result was  achieved  even though  in  the purchase of unexecuted contracts  there  was included  the part of the work done towards the  performance of  the contracts by the vendors.  The assessee derived  the benefit from such partial execution of the contracts by  the vendors; nevertheless the value of such work was not treated as  any income which  had accrued to the vendors  and  which the assessee was entitled to deduct from its profits arising from the performance by it of those unexecuted contracts. Learned counsel on behalf of the transferees contended  that all these cases were concerned with the question whether the income  derived  by the assessee out of the  income  bearing asset  after the date of the purchase could be treated as  a capital  expenditure  so  far  as  it  formed  part  of  the consideration  paid  by the assessee to the vendors  and  in none  of  these  cases were the Courts  concerned  with  the question  that arises before us, viz., whether any  part  of the  income  which was actually received  by  the  assessees could  be said to have accrued to the vendor.   Even  though the  question  did  not arise in  terms  it  is  nonetheless involved  in the consideration of the question  whether  the assessee  was liable to pay the income-tax on the  whole  of the  income  thus  derived by him.  As was  pointed  out  by Jenkins  L.  J.  in Commissioner of Inland  Revenue  and  v. Pilcher(1), quoted above, the vendor’s point of view  cannot be  neglected and once you come to the conclusion  that  the assesse  alone  is liable it necessarily  follows  that  the vendor  certainly  has nothing to do with the same.   If  it were  otherwise the vendor would certainly be liable to  tax and no purchaser would miss the opportunity of avoiding  his liability for that portion of (i)  31 Tax Cases 314 at P. 335. 356 the income which can be said to have accrued to the  vendor. As  a  matter  of fact such a contention was  taken  by  the purchasers  in Wigmore (H.M. Inspector of Taxes)  v.  Thomas Summerson  and  Sons Limited(1), where they declined  to  be assessed  for  tax  in  respect of  income  which  had  been accruing  on the securities they had purchased in  a  period anterior  to  the  date at which they  did  purchase.   This contention however did not prevail and the vendors were held not  assessable  in respect of the interest accrued  on  the date of the sale of the stock. It  is therefore clear that the Sassoons had not earned  any income for the broken periods nor had any income accrued  to them  in respect of the same, and what they  transferred  to the transferees under the respective deeds of assignment and transfer  did not include any income, which they had  earned or  had accrued to them and which the transferees by  virtue of  the  assignment in their favour were in  a  position  to



collect.  If any debt had accrued due to the Sassoons by the respective Companies at the dates of respective transfers of Managing  Agencies such debt would certainly have  been  the subject-matter  of assignment.  But it what was  transferred by  the Sassoons, to the respective transferees were  merely expectations  of earning commission and not any part of  the commission  actually earned by them or which had accrued  to them under the terms of the Managing Agency Agreements, what the transferees received from the Companies under the  terms of   the   Managing  Agency  Agreements  which   were   thus transferred  to  them would be their income and no  part  of such  income  could  ever be said to  have  accrued  to  the Sassoons, during the chargeable accounting period. In  view  of the above it is unnecessary to  deal  with  the contention  which was urged by the learned counsel  for  the Sassoons  that ever be an assignment of income the  assignee and  not  the assignor would be liable to pay the  tax.   He referred  us to the case of the Commissioner of  Income-tax, Bombay  Presidency v. Tata Sons Ltd.(2), in support of  this contention  of  his and he also referred us to note  ’G’  at page 209 in (i) 9 Tax Cases 577. (2) [1939] 7 I.T.R. 195. 357 Simon’s  Income-tax, 2nd Edn., Vol.  II, where the ratio  of Parkins v. Warwick (H.M. Inspector of Taxes)(1), relied upon by  the High Court in the judgments under, appeal  has  been criticised.  We do not however think it necessary to go into this question, as in our opinion there were no debts due  by the Companies to the Sassoons which were assigned under  the respective deeds of transfer and assignment. The  only  question  which remains to  consider  is  whether section  36  of  the Transfer of Property  Act  imports  the principle  of  apportionment  in regard  to  the  commission received  by  the  transferees herein.  Section  36  of  the Transfer  of  Property  Act provides-"In the  Absence  of  a contract  or  local  usage  to  the  contrary,  all   rents, annuities, pensions, dividends and other periodical payments in  the  nature of income shall, upon the  transfer  of  the interest of the person entitled to receive such payments, be -deemed,  as between the transferor and the  transferee,  to accrue  due  from  day  to  day,  and  to  be  apportionable accordingly, but to be payable on the days appointed for the payment  thereof." It may be noted that the section  applies in the absence of a contract or local usage to the  contrary and   also  applies  as  between  the  transferor  and   the transferee.   There is no room for the application of  these provisions  as between the subject and the Crown. (Vide  The Commissioners    of    Inland   Revenue    v.    Henderson’s Executors(2)).   The  contract  to  the  contrary  must   of necessity  be as between the transferor and  the  transferee and  it  is  only  when there is no  such  contract  to  the contrary that the rents, annuities, pensions, dividends  and other  periodical  payments in the nature of  income  become apportionable  as  between the  transferor  and  transferee, deemed  to accrue due from day to day and  be  apportionable accordingly.  The deeds of assignment and transfer  executed by the Sassoons in favour of the transferees transferred all the  rights and benefits under the Agency Agreement  to  the transferees  and there was no question of  apportionment  of any commission between the Sassoons and the transferees.  In fact the transfer claimed to retain and did retain (1) [I943] 25 Tax,  419. (2) i6 Tax CaseS 282 at P. 291, 358



the  whole  of the commission, which had been  paid  by  the Companies  to them in the year 1944 and the  Sassoons  never claimed  any  part  of it as having  been  earned  by  them. Whatever was their contribution .towards the earning of that commission  during the whole of the calendar year  1943  was the  subjectmatter  of  the  assignment  in  favour  of  the transferees and that was sufficient to spell out a  contract to the contrary as provided in section 36 of the Transfer of Property Act. Section  26(2)  of the Indian Income-tax Act also  does  not help  the  transferees because it is only  when  the  person succeeded has acquired an actual share of the income profits or  gains of the previous year that he is liable to  tax  in respect  of  it and as set out herein above no part  of  the commission  actually accrued to or became a debt due by  the Company  to  the  Sassoons on the dates  of  the  respective transfers  of the Managing Agencies to the transferees.   In order  to attract the operation of section 26(2) the  person succeeded  must  have  had an actual share  in  the  income, profits   or  gains  of  the  previous  year  and   on   the construction  of the Agreements the Sassoons cannot be  said to  have  acquired any share in commission  for  the  broken periods. The whole difficulty has arisen because the High Court could could  not  reconcile  itself  to  the  situation  that  the transferee  had not worked for the whole calendar  year  and yet  they would be held entitled to the whole income of  the year  of account; whereas the transfers had worked  for  the broken periods and yet they would be held disentitled to any share  in the income for the year.  If the work done by  the transferors as well as the transferees during the respective periods  of  the, year were taken to be  the  criterion  the result  would  certainly be anomalous.  But  the  true  test under  section 4(1)(a) of the Income-tax Act is not  whether the  transferors  and  the transferees had  worked  for  any particular  periods of the year but whether any  income  had accrued  to the transferors and the transferees  within  the chargeable  accounting period.  It is not the work  done  or the services rendered by the person but the income 359 received  or  the  income which has accrued  to  the  person within the chargeable accounting period that is the subject- matter  of taxation.  That is the proper method of  approach while considering the taxability or otherwise of income  and no  considerations  of the work done for broken  periods  or contribution  made towards the ultimate income derived  from the  source of income nor any equitable  considerations  can make any difference to the position which rests entirely  on a strict interpretation of the provisions of section 4(1)(a) of the Income-tax Act. The  result therefore is that the question referred  by  the Tribunal to the High Court must be answered in the negative. All the appeals will accordingly be allowed.  But as regards the costs, under the peculiar circumstances of these appeals where the Commissioner of Income-tax, Bombay, has  supported the Sassoons in Civil Appeal No. 3 of 1953 and the brunt  of the  attack in Civil Appeals Nos. 30 of 1953 and 31 of  1953 has been borne not by the Commissioner of the Income-tax who is  the appellant in both, but by the Sassoons,  the  proper order  should  be that each party should bear  pay  his  own costs here as well as in the Court below JAGANNADHADAS  J.-I  am unable to agree with  the   judgment just delivered on behalf of both my learned brothers.  It is with considerable regret that I feel constrained to write  a separate  judgment expressing the reasons for my -not  being



able to agree with them in spite of my profound respect  for their views. These  three  are appeals against a judgment of  the  Bombay High  Court  by leave granted under section  66A(2)  of  the Indian  Income-tax  Act.  They arise out of a set  of  facts mostly  common.   E.  D. Sassoon and Company,  Ltd.  now  in voluntary  liquidation  (hereinafter  referred  to  as   the Sassoonal  had the Managing Agency of three Mills  (1)  F.D. Sassoon  United Mills Ltd. (2) Elphinstone Spinning  and  We having  Mills Company, Ltd., and (3) The Apollo  Mills  Ltd. With the 360 consent  of the Mill Companies and by virtue of  clauses  in the  Managing  Agency  Agreements  enabling  thereunto,  the Sassoons transferred the Managing Agency of the three  Mills to  three other Companies during the course of the  calendar year  1943  as  follows: (1) to Agarwal  and  Company,  Ltd. (hereinafter  referred to as Agarwals) on the 1st  December, 1943,   (2)   to  Chidambaram  Mulraj  and   Company,   Ltd. (hereinafter  referred to as Chidambarams) on the  1st  June 1943,  and (3) to Rajputana Textile (Agencies) Ltd., on  the 1st july, 1943.  The assessments with which we are concerned are  those  of (1) Sassoons, (2) Agarwals, and  (3)  Chidam- barams  and  relate  to income by  way  of  Managing  Agency remuneration paid in the year 1944 by the Mill Companies  to the  respective  assignee-Companies for  the  calendar  year 1943.   For  Sassoons and Agarwals the assessment  year  was 1944-45 and the accounting year was the calendar year  1943. For  Chidambarams  the assessment year was 1945-46  and  the chargeable  accounting  period was from 1st July,  1943,  to 30th  June, 1944.  The tax was assessed on the basis not  of receipts but of accrual.  The income-tax authorities treated the total remuneration for the entire year 1943 in each case as  income  which accrued to the  assigneeCompanies  in  the respective   accounting  periods.   The   assignee-Companies objected on the ground that part of the remuneration, up  to the  date  of  the respective assignments,  accrued  to  the assignor-Company,   viz.,  Sassoons  and  that  they   were, therefore,  liable  to be assessed only in  respect  of  the balance of the remuneration referable to the portion of  the calendar year 1943 subsequent to the respective dates of the assignments.    The   objection  was   overruled   and   the assessments  were  made.   On  appeals  to  the   Income-tax Appellate  Tribunal, their contention was accepted  and  the assessments  were  modified.  It may be mentioned  that  the Rajputans  Textiles (Agencies) Ltd. does not appear to  have filed any appeal to the Tribunal.  Meanwhile (presumably  by way of caution) the income-tax authorities issued notices to the  assignor-Company, viz., Sassoons, under section  34  of the Indian Income-tax Act and assessed it in respect of  the proportionate part 361 of  the year’s Managing Agency commission up to the date  of the  respective assignments.  The Sassoons objected to  this before  the  income-tax.authorities, but the  objection  was overruled.   It has been stated to us in the case  filed  by the Sassoons in this Court that the entire net consideration for  the  three  assignments was taken by  them  into  their accounts  as capital reserve.  But this finds no mention  in the Tribunal’s statement of the case to the High Court.  How the  Sassoons  made  entries in their own  accounts  is  not decisive  and  has not been relied on before us.   On  their objection  being overruled, the Sassoons filed an appeal  to the  Income. tax Appellate Tribunal.  The Tribunal  rejected the appeal in view of the decision they had already given in



the  appeals filed by the two  assignee-Companies,  Agarwals and  Chidambarams.  The three Companies  concerned  obtained references to the High Court under section 66 of the  Indian Income-tax  Act.  The question referred by the  Tribunal  in each of the three cases was the same and is as follows: " Whether in the circumstances of the case; was the Managing Agency  commission  liable  to be  apportioned  between  the assessee Company and the assignee (or assignor, as the  case may be)." The  High Court answered the question against  the  Sassoons and  in favour of the other two.  What the High  Court  held was  in substance that (1) the Managing Agency  remuneration for the year in question accrued as the joint income of both the assignor and the assignee and was apportionable  between them, and (2) the assignee-Companies received the assignor’s share  of the joint income by virtue of the  assignments  of the  assignor’s  share and hence to that extent it  was  not their taxable income but continued to be the taxable  income of  the assignor’ There are thus three appeals, one  by  the Sassoons  against the Income-tax Commissioner and the  other two  by  the Income-tax Commissioner  against  Agarwals  and Chidambarams respectively.  In the first of the appeals, the Income-tax  Commissioner supports the position taken up  by- the Sassoons, while in the other two the Commissioner is the appellant and contests the position taken by the 47 362 Agarwals  and the Chidambarams.  Thus it will be  seen  that though  in  form  the three appeals  are  each  between  the Income-tax  Commissioner and one of the three Companies,  in fact they raise a controversy between the  assignor-Company, the  Sassoons,  on  the  one  side  and  the  two  assignee- Companies,  the Agarwals and the Chidambarams on the  other, the  Commissioner supporting the Sassoons and  opposing  the other two. The  arguments  before  us covered a  wide  range  and  were advanced on the assumption that what the High Court held was that  the Sassoons became entitled on the. very date of  the respective  assignments  to  a proportionate  share  of  the year’s  remuneration  for  the  Managing  Agency,  and  that accordingly  that  share accrued to the  Sassoons  as  their taxable income, then and there, and did not cease to be such notwithstanding   the  assignment  thereof  The   case   was accordingly debated before us as though the decision  turned upon  the  question whether any income could accrue  to  the Sassoons  on  the dates of the respective transfers  of  the Managing  Agency  to  the  transferees.   It  is  necessary, therefore, to clarify, at the outset, what the question  was which was directly raised on the reference made to the  High Court and what, in the view of the High Court, was the  date When  a  share  of the year’s remuneration  accrued  to  the Sassoons as its income.  It appears to me that the  judgment of the High Court taken as a whole is based only on the view that  the entire Managing Agency remuneration for  the  year accrued  on the completion of ’the year, i.e., on  the  31st December, 1943, and that when it so accrued it accrued  both to the assignor and to the assignee together.  This  appears from  the  following passage of the judgment  of  the  High. Court. "  In order to levy income-tax it is not enough  to  enquire when  a particular income accrues.  What is  more  important and what is more pertinent is to enquire whose income it  is which is sought to be taxed.  Assuming that this  particular income  accrued on the 31st December and till 31st  December there  was  nothing earned, even so, when. the  income  does



accrue the question still remains to be answered as to whose 363 income it is which has accrued on the 31st December, 1943." It  appears  to  me also that it is on the  footing  of  the accrual  on the completion of the year that the  High  Court dealt  with  the question of assignment of  the,  income  as appears from the following passage: "  And  clearly one of the rights which E.  D.  Sassoon  and Company,  Ltd.  had, was to receive  the  Managing.   Agency commission  (share  therein  ?)  when  it  accrued  on  31st December.............. They transferred that right." From  these  passages it appears to me clear that  the  High Court  proceeded on the view that income accrued at the  end of  the  year to both together and that what passed  to  the assignee under the assignment included a future right of the assignor to a share in the remuneration, when it accrued  on the  completion  of the year, and not on the view  that  the assignment  operated as the transfer of a present  right  to such  a share on the very date of the assignment.  It is  in view  of the assumption that the remuneration for  the  year accrued  only  on  the 31st  December  that  the  Income-tax Appellate  Tribunal also took care to say, in  making  their reference to the High Court, as follows: "  The question is not when the Managing  Agency  commission accrued.  The real question is to whom it accrued." It  appears  to  me, therefore, that it is  not  correct  to approach  the  consideration  of this case  as  though,  the decision  therein turns directly upon the  question  whether any  income had accrued to the Sassoons on the dates of  the respective   transfers  of  the  Managing  Agency   to   the transferees. In the arguments before us, considerable stress was laid  by learned counsel appearing for the Sassoons on the fact  that the  Managing Agency Agreements with which we are  concerned provide for annual remuneration for an year’s work.  It  was pointed  out  that  the remuneration payable  was  fixed  as commission  at  a certain specified percentage  of  the  net profits  of  the respective Mill Companies.  So far  as  the Sassoons  United Mills Ltd., are concerned,  whose  Managing Agency had been 364 assigned to Agarwals, the commission was in terms stated  in the  Agency Agreement to be per annum and on the annual  net profits of the Company.  So far as Elphinstone Spinning  and Weaving  Mills Company,Ltd., are concerned,  whose  Managing Agency  was assigned to Chidambarams., the remuneration,  is merely  stated  in  the  corresponding  Agreement  to  be  a percentage of the net profits of the company, but is not  in terms  stated to be per annum or on the annual net  profits. But  there  can be no reasonable doubt that as a  matter  of construction, the remuneration in the latter case also  must be  taken  to be per annum and on the  annual  net  profits, notwithstanding  some  argument before us to  the  contrary. Having  regard  to this basic fact, the  following  are,  in substance,  the arguments put forward before us  by  learned counsel  for the assignor-Sassoons. (1) The Managing  Agency commission was payable in respect of services for an  entire calendar year and not for a portion thereof and therefore no commission  became  due  to the Sassoons  for  the  services rendered by them to the respective Mill Companies for broken periods  of  the  year up to the  dates  of  the  respective assignments. (2) Since no remuneration became a debt due  to the Sassoons from any of the Mill Companies on the dates  of the  respective  assignments, no taxable income  accrued  to them  for  the  broken  periods. (3) By  the  dates  of  the



respective  assignments,  the  Sassoons  had  only  a   bare expectancy,  if any, to receive remuneration for the  broken period  and this expectancy could not be the  subject-matter of  any  assignment,  and  (4)  The  true  legal   position, therefore,  is that what was assigned was an income  bearing asset,  viz.,  the Managing Agency which was the  source  of income  and  which  entitled  the  respective  assignees  to receive all the remuneration for the year payable under  the Managing Agency Agreement subsequent to the respective dates of assignment.  Accordingly the same became in its  entirety taxable income in the hands of the respective assignees  and no  portion of it accrued at any time as taxable  income  of the assignor-Sassoons. In  the view that I take of the High Court’s judgment as  to the date of accrual of the income and as to 365 the  scope of the question presented on the  references  the first  three of the above arguments do not appear, to me  to call  for any examination.  In the present case no  question arises  as  to  the  enforceability  of  the  claim  for   a proportionate  share  of the remuneration by,  the  assignor from  the  very date of assignment.  Nor does  any  question arise as to the non-payability of remuneration on account of non-completion  of  the  work.  The  year’s  work  has  been completed by the assignee-Company  in continuation of that of  the  assignor- Company.   The total remuneration for the year has  in  fact been paid into the hands of the assignee-Company.  The  only questions, therefore, are (1) whether the money so  received accrued  by  way  of remuneration for the  year’s  work  and became taxable income on the 31st December, 1943, (2) if so, whether.  it  was the joint income of the assignor  and  the assignee  or  the,  sole income of  the  assignee,  and  (3) whether  the assignment operated to transfer the  assignor’s share of the income on its accrual. The  answer to the first of the above questions seem$ to  me to  admit of no doubt.  The remuneration was for the  year’s work.   The year’s work was completed on the expiry  of  the year.   The  right  to  receive  the  remuneration   became, therefore,  vested on the 31st December, 1943.  It  is  true that  in Agarwal’s case there is a clause’ in  the  original Managing Agency Agreement that "the  Managing Agency commission shall be due yearly on  the 31  st  day  of March in each and every year  and  shall  be payable and be paid immediately after the annual accounts of the Mill Company have been passed, by the shareholders." It  has  been  urged, in reliance on this  clause  that  the accrual of the income, in so far as the case of Agarwals  is concerned,  is  not on the 31st December, but  on  the  31st March next.  In the first place such a contention in so  far as it relates to the date of accrual, is not permissible  in view of the clarification in the order of -reference made by the Tribunal to the High Court and: in view of the  specific and  categorical  language of some’ of the  grounds  in  the statements of the case filed. 366 before  us both by Sassoons and the Income-tax  Commissioner showing  31st December, 1943, as the date of accrual of  the entire  remuneration. (Vide paragraphs 19(1), 26(a) and  (g) of  the Sassoons’ statement, and paragraphs 12,  15(1),  (2) and (5) of the Income-tax Commissioner s statement, in Civil Appeal  No.  3  of 1953).  But even  if  the  contention  be permissible  and  granting  the view  strenuously  urged  on behalf of the appellant-Sassoons that there is no accrual of income  until there exists a right to receive it, I  do  not



think  that the clause in question has any relevancy so  far as  the date of accrual of income is concerned.  Accrual  of income  for  purposes of taxation, does not  depend  on  the question’  -as  to  when the  income  becomes  payable.   It depends  only on when a vested right to receive  the  income arises.  (See  Commissioners of Inland Revenue  v.  Gardner- Mountain  and  D’  Ambrumenil Ltd., (1)).   The  accrual  is accordingly  complete  when the right  to  the  remuneration becomes vested by the occurrence of all the events on  which the   remuneration   depends.   A  mere  clause   that   the remuneration shall be due at a later date,  notwithstanding’ that  all the events on which the remuneration depends  have occurred,  can  only  have  the  effect  of  postponing  the liability  for payment and not of postponing the vesting  of the  right to income.  The requirement of lapse  of  further time  after the occurrence of all the qualifying  events  is not itself an additional -event which imports any element of contingency in the right.  It appears to me, therefore, that the  above  clause which has been relied  upon-whatever  the reason  may be for the distinction which the language  seeks to  suggest between due and payable-can have no  bearing  on the  date  of  the accrual and cannot  have  the  affect  of postponing the accrual from the 31st December to 31st March. But  even otherwise, this does not at all affect. the  final conclusion in this case reached by the High Court of Bombay. If  the  view of the High Court is correct  that  the  ncome accrued  both to the assignor and to the assignee after  the completion  of  the year’s work it seems  to  matter  little whether that accrual is on the 31st December or on the  31st March next. (1)  29 Tax Cas. 69. 367 by the High Court that the assignments operated to  transfer to   the  assignee  the  assignor’s  share  of  the   year’s remuneration  after  it  accrued to him as  his  income  and whether it continues to remain the assignor’s taxable income in spite of the assignment, may also be shortly dealt  with. If the High Court be right in its view that the remuneration accrued  both to the assignor and to the assignee  together, whenever it may’ be, then it is clear that on the respective dates of the assignment,, the assignor bad a future right to a  share of the remuneration on the completion of the  year. If  so, there is ample authority for the position  that  the assignment  of  such  a future right is  valid  and  becomes operative  by way of attaching itself to the right  when  it springs  up.  (See Bansidhar v. Sant Lal (1), Misri  Lal  v. Mozhar Hossain (2), Palaniappa v. Lakshmanan (3) and  Baldeo v.  Miller  (4).)  The validity of  such  an  assignment  as between the assignor and the assignee and the effect thereof on  the assignor’s future right may also be  supported  with reference  to the principle of estoppel feeding title  which finds recognition in section 43 of the Transfer of  Property Act.   For  the  further  position,  ViZ.,  that  a   person continues to be liable for tax in respect of accrued  income notwithstanding  assignment  thereof operating on  or  after such accrual, there is authority in Parkins v. Warwick  (5). This  -view  is confirmed by the following passages  in  the Privy  Council  case  in Pondicherry  Railway  Co.  Ltd.  v. commissioner of Income-tax, Madras (6). " Profits on their coming into existence attract tax at that point  and the revenue is not concerned with the  subsequent application of the profits." The destination of the profits or the charge which has  been made on those profits by previous agreement or otherwise  is perfectly immaterial."



(Quoted  out  of an extract from the case  in  Gresham  Life Assurance Society v. Styles(7)). (1)  I.L.R.1o All I33. (2)  I.L.R. 13 Cal. 262. (3)  I L.R. 16 Mad. 429. (4)  I.L R. 31 Cal. 667. (5)  25 Tax Cases gig. (6)  A.I.R. 1931 P.C. i65 at 170. (7)  [I892] A.C. 309. 368 clear  recongnition of the principle that when  once  income accrues  to  a person, an assignment  operative  in  respect thereof, does not affect his taxability for that income.  It may be mentioned that it is not seriously disputed that  the consideration for each assignment included the value of  the prospective advantage of collecting the remuneration for the entire   year,   i.e.,  in  the   sense  that   the   actual consideration  paid was higher than what it might have  been if  the assignment had taken place at the very  commencement of the year. The  only substantial question, therefore, which  this  case raises is whether the view taken by the High Court, that the remuneration  for  the year accrued as income  both  to  the assignor and the assignee, is correct.  It is apparently  as an  answer to this question that learned  counsel  appearing for  the  Sassoons  put forward the  argument  No.  4  above enumerated, viz., that the assignment of Managing Agency  is the transfer of an income-bearing asset and that all  income received  subsequent to the date of assignment  is  entirely the  assignee’s taxable income.  It is the validity of  this argument that now requires examination.  The cases that have been relied on in support of this argument are the following : The Commissioners of Inland Revenue v. Forrest(1); Wigmore v. Thomas Summerson(2); and Commissioners of Inland  Revenue v.   Pilcher(3).    Commissioners  of  Inland   Revenue   v. Forrest(1)  is a case of purchase of certain shares and  the income derived therefrom and is analogous to the second head of  income chargeable to income-tax under section 6, of  the Indian   Income-tax  Act,  viz.,  Securities.   The   income therefrom is directly referable only to the ownership of the shares  or  securities.   Mere lapse of  time  makes  income payable  and  the  taxation depends on the  receipt  of  the income.   Wigmore  v.  Thomas Summerson(2) is  also  a  case similar to the above.  Commissioners of In. land Revenue  v. Pilcher(3) is the case of a sale of an orchard inclusive  of the  year’s fruit crop, which by the date of the  sale  does not appear to have become ripe. (i)  8 Tax Cases 704. (2)  9 Tax Cases 577                    (3) 3T Tax Cases 314. 369 enough to be treated as a severable item of property.   This was  a  case  of property whose. ownership  itself,  in  the ordinary  course and by lapse of time, gives rise to  income and  is analogous to head No. 3 of section 6 of’ the  Indian Income-tax  Act.   It is interesting to note, that  in  this case, the learned Judges make a distinction between  fructus industriales  and fructus naturales and point out  that  the fruits  derived from the orchard being cherries are  fructus naturales  and  not fructus industrials.   That  the  result might  have  been different if it was  fructus  industriales appears  clearly, at least so far as Lord Justice  Singleton and Lord Justice Tucker are concerned.  In   the   case   of fructus industriales the income does    not  arise  by  mere ownership but as a result of further    investment       and



labour  which may be the effective source of income.   These decisions  refer only to cases where the sole  or  effective source of income is mere ownership and taxability depends on receipt of the income. Another  case that has been relied on before us is the  City of  London  Contract Corporation v. Styles(1).  That  was  a case  where  one Company purchased as a  going  concern  the business  carried on by another Company, as contractors  for public works.  It was claimed that the assignee-Company  was entitled  to  deduction  from their  taxable  income  for  a portion of the purchase price which may be attributed to the purchase  of  the  right, title and  interest  to,  and  the benefit of, certain building contracts of the Company,  from the execution of which, a portion of the net profits of  the Company  arose.  This was negatived on the ground  that  the entire  purchase price was capital investment and that  what all  was  received  later  on  was  income  derived  by  the execution of the contracts so purchased.  This, so far as it goes, may seem to suggest by implication that there may be a purchase  of  contracts  yet to be  executed  and  that  the benefit of the entire profits therefrom is to be treated  as income  in the hands of the purchaser.  The report  of  this case,  however,  does  not  indicate  clearly  whether   the contracts,  whose  benefit  was  purchased  were   partially executed and if so, whether the partial execution (1)  2 Tax Cases 239, 370 was  substantial or negligible.  The statement of the  facts of  the  case  at  page 241 of the  report  shows  that  the business  which  was  purchased  consisted  entirely  "   of partially  executed or wholly unexecuted contracts,  and  of the rights thereunder and the benefits to accrue therefrom." If the business consisted of only unexecuted contracts, this case  is not an authority for the position contended for  on behalf  of the Sassoons.  But in any case, even if  some  of the  contracts were partially executed there is  nothing  to show  that the execution was of any such extent as  to  have become a substantial source of income.  It may also be noted that  this  decision is a direct authority only on  what  is capital expenditure and what is revenue expenditure for pur- poses of deduction.  The point in the form relevant for  the present  case  was not raised there and cannot be  taken  to have  been  decided.  It is interesting to  notice  that  in Simon’s Income-tax, Vol. 2, (1949 Edn.), page 188, paragraph 222, the following passage appears. "  In City of London Contract Corporation Ltd. v.  Styles(1) where the Company acquired a business including a number  of unexecuted contracts, it was held that the sum paid for  the contracts  could not be deducted in computing the  Company’s profits, on the ground that the whole of the purchase  price of  the  business  was a sum ’ employed or  intended  to  be employed as capital in such trade’." Similarly in Spicer and Pegler’s Income-tax and  Profits-tax (20th Edn.), at page 116 it is stated as follows : "  Cost of unexecuted contracts taken over with  a  business (in  arriving  at the profits from the  performance  of  the contracts)" and  the  case  of City of London  Contract  Corporation  v. Styles(1) is quoted as authority.  These standard  textbooks also  show  that  this  case  has  been  treated  as  having reference  to  unexecuted contracts (and  not  to  partially executed contracts) and as being authority for the  question as to what are Permissible deductions from taxable income of business concerns, (I)  2 Tax CaseS 239.



371 The above cases, therefore, cannot be treated as in any  way supporting the contention put forward by learned counsel for the appellant-Sassoons that in the case of an assignment  of Managing Agency the entire remuneration for the year’s  work accrues  as a matter of law to the assignee and is his  sole income,  on  the  ground that the Agency is  the  source  of income  and that in this respect it is to be treated  as  an income bearing asset.  No specific authority has been cited’ before us covering the case of a Managing Agency nor can the case in City of London Contract Corporation v. Styles(1)  be treated  as  an  authority showing that in the  case  of  an assignment of partially executed contracts the  remuneration or profits relatable to such partial execution is necesarily the income of the assignee. The  question thus raised has, therefore, to be examined  on principle.   On such examination it appears to me  that  the argument  advanced in this behalf is based on a  fundamental misconception.   Income  of  the  kind  with  which  we  are concerned in this case does not arise by virtue of any  mere ownership  of  an asset.  What produces income  is  not  the ownership of the Managing Agency but the actual work  turned out for the benefit of the principal.  It is not the fact of a  Company having obtained the right to work as  a  Managing Agent  that  produces the income but it  is  the  continuous functioning of the Company, as the Managing Agent, in  terms of the contract of Agency, that produces the income.  Hence, it is the rendering of the service of the Managing Agency or the  carrying out of the Managing Agency business, which  is the  effective and direct source of income.  This is not  to say that work or service is the subject of taxation.  It  is the remuneration that is the subject of tax and work is  the source of the remuneration.  Hence in such a case service or work  is the source of income and not. the ownership of  the right  to  work.   The above legal position  has  been  very succinctly  brought  out by Lord Finlay, though  in  another context,  in John Smith & Son v. Moore(2) in  the  following passage: (1) 2 Tax Cases -239. (2) (1921] 2 A.C. I3 at 25. 372 "The business makes no profits.  The profits are not  fruits yielded by a tree spontaneously.  They are the result of the operations carried on by the owner of ’the business for  the time being." Therefore, on principle, apart from authority, it appears to me to be erroneous to treat the Managing Agency.   Agreement as by itself the direct source of income and to treat it  as an income-producing asset. An  examination of the provisions of the  Indian  Income-tax Act  clearly bears out this view.  Sections 3 and 4  of  the Income-tax Act are the charging sections.  The charge is (in so far, as it is relevant for purposes of this case) on  the income  of  the previous year (a) which is received  by  the assessee within the taxable territory, or (b) which  accrued or  arose  within  the  taxable  territory  to  a   resident assessee.   As  stated at the outset the assessment  in  the present  case  is  based  on accrual  and  not  on  receipt. Computation  of  the  taxable  income  is  governed  by  the provisions  of  Chapter III of the Act.  Section  6  thereof enumerates the following heads of income as being chargeable to income-tax. (1) Salaries, (2) Interest on securities, (3) Income  from  property, (4) Profits and gains  of  business, profession or vocation, (5) Income from other sources.   The residual item (5) may for the present purposes be left  out.



Of the other four heads, items 2 and 3 are the only items in which  the  taxable  income  is  directly  related  to   the ownership of an asset.  In the present case the  computation of  the taxable income ’has no relation to those  items  but may conceivably fall under head No. 1 or head No. 4. At this stage,  it is necessary to observe that, though, so far,  in the above discussion, the Managing Agency has been  referred to  as service and the commission therefor as  remuneration, for  purposes  of  convenience,  the  true  nature  of   the functioning  of a Managing Agent, where it is, a firm  or  a Company, which so functions, has been recently held by  this Court  in  Lakshminarayan  Ram Gopal and Son,  Ltd.  v.  The Government  of  Hyderabad(1)  to  be  a  business  and   the remuneration  to be income by way of profits or  gains  from the business.  The i)   Civil  Appeals Nos. 292 and 312 Of 1050 of  the  Suprem Court of India. 373 income,  therefore;  falls  under head No. 4  and  the  com- petation  thereof  has to be made under section  10  of  the Income-tax  Act.   Sub-section (1) of that section  runs  as follows: "The  tax  shall be payable by an assessee  under  the  head profits  and  gains of business, profession or  vocation  in respect of the profits or gains of any business,  profession or vocation carried on by him." Now, in computing the taxable income of the assignee, can it reasonably be said that the remuneration for the entire year is the income of the assignee and that it is the profits and gains of the business carried on by the assignee, when as  a fact he stepped into the position of the Managing Agent only on  some  date in the course of the year by  virtue  of  the assignment.   It  appears to me that before  income  can  be attributed under this head to an assessee, it must relate to the  business  carried  on by the assessee  himself  In  the present case, therefore, the profits and gains of the  whole year seem to me clearly to relate to the business carried on both by the assignor and the assignee taken together and are hence  taxable as income accruing to both and  apportionable as such between them.  The importance of not overlooking the significance of the phrase "carried on by him" in subsection (1)  of section 10, though in a different context, has  been emphasised  by the Privy Council in Commissioner of  Income- tax, Bengal v. Shaw Wallace and Co.(1). A recent decision of this   Court  in  the  Liquidators  of  Pursa   Limited   v. Commissioner of Incometax, Bihar(2) also emphasises this and explains  that  the phrase "carried on by  him"  in  section 10(1)   of   the  Indian  Income-tax  Act   "connotes   the. fundamental  idea of the continuous exercise of an  activity as the essential constituent of that which is to produce the taxable  income." This phrase appears to me also clearly  to connote the idea that the taxable income is that of the very assessee  or  the combination of assessee  whose  continuous activity produces the income.  Where, as in this case,  that continuity  is  kept  up by  two  persons  successively,  it appears to tile (i) I.L.R. 9 Cal. 1343. (2) Civil Appeal NO. 33 Of 1953. 374 that  under  this  section, the profits and  gains  are  the assessable income of both together. This  is in accord with the well-accepted notion, under  the normal law, that if two persons jointly carry out a work  or conduct  a business, the total remuneration in  fact  earned for  the  work  or the total gains  made  on  that  business



belongs  to  both of them as their joint property  and  that such  property  has to be apportioned between them  on  some equitable basis.  This is quite independent of any  question as to whether the claim for remuneration for the work or for the  emoluments  of  the business  can  be  individually  or jointly enforced as against the person who is liable to pay. It  cannot be disputed that in the absence of  any  specific contract to the contrary between the persons who  contribute to  the work or business, the fruit of such work or of  such business is the joint property of both, when the same has in fact been realised.  Nor can it be said that this holds good only  in  cases  where both the  persons  concurrently  join together  to  earn  the remuneration for  the  work  or  the profits of the business.  There is no reason in law why  the same  principle should not be equally applicable  where  the two  together contribute to the total work or to  the  total business   in  succession  as  in  this  case  and  not   in concurrence.   If,  what  arises  on  such  continuous   and successive   functioning  of  two  persons  is   the   joint remuneration  of  both,  there can be  no  doubt  that  such remuneration  would  be apportionable between them  on  some equitable  basis  on the principle that  joint  property  is normally  severable.  To such a situation section  26(2)  of the  Income-tax Act would also clearly apply.  That  section no   doubt  indicates  nothing  as  to  the   principle   of apportionment.   But there is no difficulty in  the  present case  since it is agreed that the apportionment, if any,  is to be timewise.  This also prima facie is the only equitable way of apportionment on the facts of this case. At  this  stage  it  becomes  necessary  to  notice  certain provisions of the relevant Managing Agency Agreements  which have been strongly relied on as supporting the view contrary to what I have indicated above.  Reliance 375 has  been  placed on two provisions of the  Managing  Agency Agreement  between  the Sassoon United Mills  Ltd.  and  the Sassoons  which are relevant only in the appeal relating  to the  Agarwals.   The first of these  provisions is  the  one already  noticed in another context, viz., clause 2  (d)  of the Agency Agreement which, runs as follows: "The said commission shall be due to the said firm yearly on the  31st  day of March in each and every  year  during  the continuance of this Agreement............. It  is  urged  that this term  stamps  the  Managing  Agency Agreement with the characteristic of an incomebearing  asset which vests solely in, the assignee the right to the  entire income payable after the date of assignment.  But it appears to  me  that a term of this kind has reference only  to  the payment aspect of the. money which constitutes  remuneration and has no, bearing on the question as to whose income it is for  purposes of taxation.  Taxable income must  be  derived from  specified  sources indicated in the  Indian  Incometax Act.  Since the mere ownership of Managing Agency cannot  as a  matter  of law be treated as the source  of’  income,  as explained  above, any term in the Managing Agency  Agreement between  the  principal  and the agent  entitling  only  the assignee  to receive the year’s remuneration and  negativing to the assignor any direct recourse to his quondam principal for  his  share  of the income, cannot have  the  effect  of denying  to the assignor a substantial right to a  share  in the  remuneration,  if  otherwise  he  has  a  vested  right thereto.   A distinction exists in law between the right  to receive or get payment of a certain amount of money and  the right to the money itself.  The right to enforce payment  of money may belong to one person.  But the beneficial right in



that  money  may  belong wholly  or  partially  to  another. Benami  contracts  are  familar examples  of  such  a  case. Instances  of  joint  rights  in  money  or  money’s   worth enforceable  only at the instance of one out of the  persons entitled, in special situations, are easily conceivable.  It may be true that there is no accrual of income unless  there is  a  vested right to receive the money  which  constitutes income.  But this 376 proposition  has  relevance only to the factum  or  date  of accrual  but not necessarily to the ownership of the  income on  such  accrual.  None of the cases that have  been  cited before  us  in support of the proposition that there  is  no accrual  of  income unless there is a right  to  receive  it negative this view.  In the course of the arguments repeated stress  has  been laid on the proposition that there  is  no accrual  of income ’Unless there is a right to  receive  the income.   This may be so.  But it does not follow  that  the very  person  who has the right to receive the  money  which constitutes  the income is the owner of that money  or  that the  income accrues to him alone.  That must depend  on  the substantive  rights,  if  any, applicable  to  a  particular situation.   A term in a Managing Agency  Agreement  between the  principal  and the agent as to the person to  whom  the remuneration  is payable or is to become due can  only  have been  meant as a protection of the principal in  respect  of multiplicity of claims against himself and cannot settle the substantive rights between persons who may have  contributed to earn the remuneration. The second provision relied on is clause 10 of the  Managing Agency  Agreement  with  which  the  case  of  Agarwals   is concerned.  Clause 10 of the agreement runs as follows: "It  shall  be  lawful  for the said  firm  to  assign  this agreement  and the rights of the said firm hereunder to  any person, firm or Company having authority by its constitution to  become bound by the obligations undertaken by  the  said firm  hereunder  and  upon such assignment  being  made  and notified to the said Company shall be bound to recognise the person  or  firm or Company aforesaid as the Agents  of  the said  Company in like manner as if the name of such  person, firm  or Company had appeared in these presents in  lieu  of the  names of the partners in the said firm and as  if  such person,  firm  or Company, had entered into  this  Agreement with  the said Company and the said Company shall  forthwith upon  demand by the said firm enter into an  Agreement  with the person firm or Company aforesaid appointing such  person firm of Company the 377 Agents of the said Company for the then residue of the term outstanding under the Agreement and with the like powers and authorities remuneration and emoluments and subject to the like terms and conditions as are herein contained." Stress has been laid on the underlined portion of the  above clause.  It is urged that this as well as clauses I and 3 of the Managing Agency Agreement show that the assignor and the assignee  are  to  be  treated as one  entity  and  that  on assignment the assignee becomes the Managing Agent as if his name had been inserted in the Managing Agency Agreement from the  beginning,  and  that the continuity  of  the  Managing Agency was preserved thereby and that whoever satisfies  the description  of  the  Managing Agent at the  time  when  the commission  for  the year becomes due, is  also  the  person entitled  to the amount by way of remuneration-not,  as  per this  argument by virtue of any mutual  arrangement  between the assignor and the assignee, but-by the very terms of  the



Managing Agency which is the source of income.  It is urged. therefore,  that this feature stamps the Managing Agency  as an  income-bearing  asset.  In  substance,  therefore,  this argument amounts to saying that by virtue of this clause the service of the assignee subsequent to the date of assignment can  be  tacked on to the service of the  assignor  for  the earlier portion of the year, so as to constitute it  service for  the  entire year which earns the remuneration,  as  the sole property of the assignee, i.e., that the assignment has to be given retrospective operation from the commencement of the  year in respect of the work so far done.  But  if  this clause  is  to  be construed as  having  such  retrospective operation,  it  must, on the very terms  of  the  underlined portion, become so operative from the original  commencement 2of the Agreement itself and not from any particular date or event  thereafter.   There  is no  reason  to  confine  such retrospective  operation only to the inchoate advantage  for remuneration arising from partly finished work of the  year. The  underlined  portion of the clause, if it  is  to’  have retrospective effect at all, is comprehensive enough to take within  its ambit every othere claim,which may have  accrued but remained 49 378 unpaid, commencing from the initial stage of the Agency.  On this construction, therefore, the right to. ,very such claim would  pass to the assignee.  Such a result would  obviously be  untenable  and no reason exists  why  the  retrospective operation, to be imputed to this clause, should be  confined to the limited extent which serves the argument put  forward in this behalf by the appellant-Sassoons.  It appears to me, therefore,  quite  clear  on a fair reading  of  the  entire clause  10  of the Managing Agency Agreement that  the  only effect  thereof  is to bring about the  result  specifically stated in the second portion of that clause (which has  been side lined) i.e. that on assignment, the assignee firm shall be entitled to  demand and obtain from the principal Company a fresh Managing Agency Agreement in its own favour for  the residue  of  the  term  outstanding  and  with  like  powers authorities  remuneration and emoluments and subject to  the like  terms  and  conditions.  In my opinion  all  that  the clause  10 taken as a whole means is no more than  that  the assignee is entitled to demand a fresh Agreement on the same terms and that even without a fresh Agreement being formally executed  as  between  the principal Mill  Company  and  the assignee-company their mutual rights and obligations will be governed  by the old Agreement for the residue of  the  term with   the  assignee-Company’s  name  substituted  for   the assignor-Company’s   name.    Such  effect   can   only   be prospective and not retrospective. There can be no doubt, however, that though any mere  clause in the Managing Agency Agreement that the employer is to  be responsible  only  to the assignee for the  payment  of  the entire  year’s remuneration is not by itself enough to  vest in  the assignee a beneficial right to the  remuneration  of the year, such a right may arise by virtue of a specific  or implied  term as between the transferor and the  transferee, either  as  part  of the deed  of  transfer  or  independent thereof.   It  may be mentioned that in the  Agarwals’  case there was such a specific term in the Agreement  preliminary to  the  actual  assignment.  But learned  counsel  for  the Sassoons  expressly disclaimed it on the ground that it  was not incorporated in the deed of transfer and was, 379 in  any  case, superfluous and did not rely on it.   In  his view  the  right  of  the assignee  to  receive  the  entire



remuneration did not depend on any specific term between the assignor  and  the assignee, but on the fact that  what  was transferred is an income-bearing asset which carried with it a  right to the entire income that falls due after the  date of  assignment.  It is on account of the insistence on  this view, that, as I apprehend, learned counsel for the Sassoons disclaimed  the  above mentioned special  term  between  the assignor and the assignee as being superfluous.  He seems to have  sought  thereby  to obviate  the  consequence  of  the contention that the assignor’s share of remuneration  became the assignee’s by virtue of the specific assignment  thereof operating thereon ’on its accrual and that hence it remained the taxable income of the assignor. It  may be mentioned in this context that clause 10  of  the Managing Agency Agreement in Agarwals’ case has been  relied on  by learned counsel for Agarwals to show that  while,  it may  be, that in the normal run of events the  contract  for remuneration  under  the  Managing Agency  Agreement  is  an indivisible contract for a whole year’s remuneration on  the completion  of a whole year’s work, this clause  necessarily implied divisibility of contract and of the remuneration  in the year of assignment since the assignment necessarily took place with the consent of the principal Mill Company.  (Vide section 87-B(c) of the Indian Companies Act).  This argument was  advanced to support the contention that  the  Sassoon’s share  of  the  year’s income accrued on the  very  date  of assignment.   Since,  however, in my view that was  not  the basis  of the judgment of the High Court as explained  above and  since  such an argument is not, in  my  opinion,  open, having regard to the statement of the case by the Income-tax Appellate   Tribunal  as  well  as  of  the  statements   of appellants  and  respondents herein, I do  not  consider  it necessary to deal with that argument. In  my  view,  therefore,  the  continuous  and   successive functioning by both the assignor and the assignee under  the Managing  Agency Agreement was the effective source  of  the year’s income.  That income accrued on the completion of the year and was the joint income 380 of   both  the  assignor  and  the  assignee.    The   prior assignments  in the course of the year operated  as  assign- ments of this future right to a share of the income.  It  is only by virtue of inter se arrangement between the  assignor and  the  assignee,  resulting  from  the  transactions   of assignment,  that the assignee had the right to collect  the entire income.  Nevertheless, the share in this income which accrued  to  the  Sassoons on the  completion  of  the  year remained  the taxable income of the Sassoons and  they  were rightly  taxed  in  respect  thereof.   The  very  strenuous arguments  of  learned counsel for Sassoons to  counter  the above  view  are based on the insistence that  the  Managing Agency is like property which per se produces income and, on ignoring the distinction between right to receive the income and right to the ownership of the income and on treating the former as settling the question of the person to whom income accrues.   In my opinion these arguments  are  unsustainable and  the   conclusion reached by the learned Judges  of  the Bombay High Court is correct. The appeals are, therefore, liable to be dismissed.I express no opinion on any of the other points raised. Appeals allowed.