Income-tax is a levy on income and that income does not result at all if it is given up in such circumstances that it remains the income of the recipient, even though given up.

Headnote:
INCOME TAX - Office allowance and managing agency commission - Whether income of the company for the year 1954-55 even though it was surrendered by a resolution passed before the end of the accounting period? - Held, yes.
Fact of the Case:

The assessee, a private limited company, was entitled to receive office allowance and managing agency commission from various companies. By resolutions passed before the end of the accounting period, the assessee relinquished its rights to receive these amounts. The ITO included the entire amount in the assessee's total income, but the Tribunal partly allowed the assessee's appeal, holding that the assessee was entitled to deduction of the managing agency commission in respect of four companies but rejecting the other contentions of the assessee.
Finding of the Court:

The court held that the office allowance payable to the assessee had accrued at the end of every month and, as such, the relinquishment of such allowance on 5th July, 1953, would not entitle the assessee to claim deduction of the said Rs. 18,000. However, the court held that the assessee was entitled to claim deduction of the office allowance for the last month only, as the accounting period expired on 11th July, 1953, and the date of the resolution relinquishing the office allowance was 5th July, 1953. The court also held that the office allowance and commission payable to the assessee from M.G.R. Iron and Steel Works Ltd. had already accrued within the previous year and, as such, had rightly been included in the total income of the assessee.
Issues: 1. Whether the office allowance receivable by the company from the managed companies was income of the company for the year 1954-55 even though it was surrendered by a resolution passed before the end of the accounting period? 2. Whether the managing agency commission and officer allowance received by the assessee-company from M. G. R. Iron and Steel Works Ltd. was income of the assessee-company for the asst. yr. 1954-55 even though it was surrendered by the assessee-company, just because the resolution surrendering the commission and the allowance was passed after the end of the accounting period?
Ratio Decidendi: The court relied on the Supreme Court decision in CIT vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC), which held that income-tax is a levy on income and that income does not result at all if it is given up in such circumstances that it remains the income of the recipient, even though given up. The court also relied on the Supreme Court decision in Rungta Sons Ltd. vs. CIT. (1964) 54 ITR 447 (SC), which held that income accrues when it becomes due and payable.
Final Decision: The court answered the first question in the affirmative, but held that the office allowance payable for the last month by M/s Rungta Engineering Construction Co. Ltd., Orient Industrial Engineering Co. Ltd., Bengal General Trading Co. Ltd. and Orient Potteries Ltd. is not the income of the assessee and should be excluded from the assessee's total income. The court answered the second question in the affirmative.

Judgment

1. IN this reference under s. 66(1) of the IT Act 1922, the following two questions of law have been referred to us :

"1. Whether, on the facts and in the circumstances of the case, office allowance receivable by the company from the managed companies was income of the company for the year 1954-55 even though it was surrendered by a resolution passed before the end of the accounting period?

2.Whether, on the facts and in the circumstances of the case, managing agency commission and officer allowance received by the assessee-company from M. G. R. Iron and Steel Works Ltd. was income of the assessee-company for the asst. yr. 1954-55 even though it was surrendered by the assessee-company, just because the resolution surrendering the commission and the allowance was passed after the end of the accounting period?"

2. THESE questions have arisen under the following circumstances : The assessee is a private limited company managing other companies as managing agents and also doing business in minerals. The assessment year in question is 1954-55 and the corresponding previous year is 2010 Ratha Jatra ending on 11th July, 1953. The assessee-company was entitled to office allowance and managing agency commission from the following companies at the rates mentioned against their names :

(a) Rungta Engineering Construction Co. Ltd. I. Office allowance 6,000 II. Minimum commission 6,000

(b) Orient Industrial Engineering Co. Ltd. I. Office allowance 6,000 II. Minimum commission 6,000

(d) Orient Potteries Ltd. I. Office allowance 3,000

By a resolution dt. 5th July, 1953, the assessee-company relinquished its rights to receive the managing agency commission and allowances in respect of the first four companies. Similarly, the assessee, by a resolution dt. 30th Sept., 1953, gave up office allowance and minimum commission in respect of M.G.R. Iron and Steel Works Ltd. The total sum payable to the assessee as office allowance and minimum commission in respect of the aforesaid five companies amounted to Rs. 42,000. The ITO included the whole amount of Rs. 42,000 in the total income of the assessee on the ground that the sum had already accrued to the assessee. The AAC, on appeal, confirmed the order of the ITO. The Tribunal, however, partly allowed the appeal of the assessee, holding that, in respect of the first four companies, the assessee-firm was entitled to deduction of the managing agency commission and rejecting the other contentions of the assessee in respect of other claims.

3. MR. Sankar Ghosh, learned counsel for the assessee, has challenged the decision of the Tribunal on the following grounds :

1. The office allowance amounting to Rs. 18,000 receivable by the assessee from M/s Rungta Engineering Construction Co. Ltd., Orient Industrial Engineering Co. Ltd., Bengal General Trading Co. Ltd. and Orient Potteries Ltd. in the accounting year ending on 11th July, 1953, but relinquished by the company's resolution dt. 5th July, 1953, on grounds of commercial expediency, should not have been included in the total income of the assessee, inasmuch as the principles decided in CIT vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC) should have been followed in the instant case as it has been done by the Revenue in excluding commission payable by the said four companies.

2. The officer allowance and also commission amounting to a total sum of Rs. 6,000 which the assessee was entitled to receive from M. G. R. Iron and Steel Works Ltd. should not have been included in the assessee's total income as the said amount has not been received by the assessee in pursuance of its resolution dt. 30th Sept., 1953. At the outset he has referred to the said Supreme Court decision in CIT vs. Shoorji Vallabhdas and Co. (supra) the facts of which may be stated as follows :

4. THE assessee-firm was the managing agent of two shipping companies and was entitled to receive as

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1964 Supreme(Cal) 270

High Court of CalcuttaG.K. Mitter, S.A. Masud, JJ.Rungta Sons (P) Ltd. – AppellantVersusCommissioner of Income Tax – RespondentIT Ref. No. 182 of 1961Decided On : Dec 17, 1964

Income-tax is a levy on income and that income does not result at all if it is given up in such circumstances that it remains the income of the recipient, even though given up.

Cases Referred (1)

High Court of Calcutta
G.K. Mitter, S.A. Masud, JJ.
Rungta Sons (P) Ltd. – Appellant
Versus
Commissioner of Income Tax – Respondent
IT Ref. No. 182 of 1961
Decided On : Dec 17, 1964