THE COTTON AGENTS LTD., BOMBAY vs. COMMISSIONER OF INCOME-TAX, BOMBAY

CIVIL APPEAL No. 100/1959Supreme Court[1960] 3 S.C.R. 81003 May 1960Bench: 2 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH10 pages
AI SummaryDismissed

What were the facts?

The assessee, Cotton Agents Ltd., Bombay, was appointed as managing agents of New Swadeshi Mills of Ahmedabad Ltd. from April 1, 1944. The managing agency agreement stipulated a commission of 3.5% on the gross proceeds of all sales, payable at the end of each financial year after accounts were passed by the General Meeting. For the assessment year 1946-47, the accounting year ended Diwali, 1945. The commission earned from April 1, 1944, to December 31, 1944, was Rs. 2,20,433, and from January 1, 1945, to March 31, 1945, was Rs. 67,959. The assessee contended that tax was only payable on the Rs. 67,959 earned during the latter period, as the commission accrued when sales were made. The departmental authorities disagreed, but the Tribunal ruled in favour of the assessee. A reference was made to the High Court, which, following a Supreme Court decision, held the assessee liable for tax on the entire commission.

What did the Supreme Court hold?

The Supreme Court held that the High Court's view was correct. The managing agency commission accrued and became due at the end of the financial year, as stipulated in clause (3) of the agreement, which determined the time of accrual. Clause (2) determined the rate of remuneration. Therefore, neither any debt nor any right to receive payment arose in favour of the agents when each transaction of sale took place. No income arose or accrued on the sale proceeds at the time of each sale. The Court distinguished the cited cases, noting that the facts and agreements therein were different. The principle is that income accrues when the assessee acquires a right to receive it, which requires a debt to be owed. In this case, such a debt was only created at the end of the financial year. The Court expressed no opinion on whether managing agency is a service or if apportionment is permissible, as these issues did not fall for decision. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and circumstances of the case, the managing agency commission of 3.5% on sales made by the New Swadeshi Mills of Ahmedabad Ltd. between April 1, 1944, and December 31, 1944, accrued to Shivnarayan Surajmal Nemani or to the assessee (Cotton Agents Ltd.)? Assessee's contentions: - The managing agency commission was based on sales, and therefore, it accrued to the managing agents as and when the sales were made. - The sum of Rs. 5,00,000 paid to the retiring managing agents included the purchase price of the managing agency commission that had accrued to them. - Relied on Commissioners of Inland Revenue v. Gardner Mountain & D'Ambrumenil Ltd. and Turner Morrison & Co. Ltd. v. Commissioner of Income-tax, West Bengal. Revenue's contentions: - The High Court correctly held that the commission accrued due at the end of the financial year, and no debt was created in favour of the agents when goods were sold. - Relied on E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax, Bombay City and Lakshminarayan Ram Gopal and Sons v. The Government of Hyderabad. - Argued that the words 'accrual' or 'arising' do not connote an inchoate character of income.

Which sections of the Income-tax Act were involved?

Section 66A(2)

AI-generated summary — verify with the full judgment below

Chandaji Kubaji & Co. v.

State of A ndhra P-radesh S. K. Das]. x960 May3. 810 SUPREME COURT REPORTS [1960] on deliberate negligence and fraud and amounts to allowing a party to profit from its own wrong. We do not think that such a construction follows from the language used, which is more consistent with the view that the provision ins. 12A(6)(a) permits a review when through some oversight, mistake or error the necessary facts, basic or evidentiary, were not present before the Court when it passed the order sought to be reviewed. It is entirely wrong to think that the sub- section permits a party to play hide and seek with a judicial Tribunal; that is to say to raise a fact in issue or evidentiary fact as a plea in support of a claim and at the same time deliberately withhold the evidence in support thereof. Such a situation cannot be said to be one within the meaning of the expression "facts not present before the Tribunal ".

In the appeals before us there was intentional with- holding or suppression of evidence. In the case, the materials were not produced on the plea that they were written in Gujrati and nobody was avail:;tble to instruct counsel i

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