LexCOMMISSIONER OF INCOME-TAX, MADRAS versus K. R. M. T. T. THIAGARAJA CHETTY & CO.
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1953 Oct. U. 258 SUPREME COURT REPORTS [1954] COMMISSIONER OF INCOME-TAX, MADRAS v. K. R. M. T. T. THIAGARAJA CHETTY & CO. [PATANJALrSASTRI C.J., S. R. DAs, VIVIAN BosE, GHULAM HASAN and BHAGWATI JJ.] India,n focome-tax Act (XI of 1922), ss. 4 (1) (b), 13-Cominis- sion agency-Accou,nts kept on. mercantile system--Oomniission, credited to aae1it and debited as b1tsi-ness expendit·ure, but withheld and car1·i- ed Over snbseqnently to sn.~pense acconnt pending dispntes-Whether i1nconie ha.s a.cc1·1ted-Oo1npu,ta.tion of profits, ~ohether Cj)ndition prececlent to accrnal. \Vhere, under the terms of a managing agency agree1nent, the assesses firm who· wera the 1nanaging agents of a company \Vere entitled to a certain percentage of the profits as their commission and in the books of the company maintained by the firm a su1n of Rs. 2,26,850 odd was shown as co1nmission due to the fir1n on the profits for the year 1.941-42 and the said sum was also debited as an item of business expenditure and credited to the inn.naging agents' commission account, but the aforesaid sum was ·subsequently carried to a suspense account by a resolution of the company as a result of a request made by the firm that a debt due by the firm to the company may be written off: Held, that, as the assessee kept the accounts on the mercantile system the commission accrued to the assesses \\•hen the commis- _sion was credited to it in the accounts, and t]1e subsequent carry- ing over of the amount of the commission to a suspense account pending the settlement of the dispute between the company and the assessee could not affect the assessee's liability to be taxed on this income. • Held fnrther, that the fact that the profits of the business could be computed only after the 31st of March, 1942, was imma- terial as quantification of the commission is not a condition pre- cedent to its accrual. CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 131, 131-A and 131-B of 1952. Appeals from the Judgment and Decree dated the 2nd day of February, 1950, of the High Court of Judi- cature at Madras (Satyanarayana Rao and Viswanatha Sastri JJ.) in Cases Referred Nos, 76 :i,nd 78of 1946 flln<l 32 and 56 of 194 7, , . ' I • J s.c.R. SUPREME COURT REPORTS 259 C. K. Daphtary, Solicitor-General for India (G. N. Joshi'., with him) for the appellant. B. Somayya (Alladi Kuppu.swami, with him) for the respondent. 1953 Oom.niissioner of I ncom-e·tax, Madras v. 1953. October 14. The Judgment of the· Court K. R. M. T. T. was d.elivered by Thiagaraja Ghetty GHULAM HASAN J.-These three appeals arise from the judgment and order of the Madras High Court dated 2nd February, 1950, delivered on a reference by the Income-tax Appellate Tribunal (hereinafter refer- red to as 'The Tribunal'), whereby the High Court answered the first referred question in the negative, and as regards the second question, Satyanarayana Rao J. answered it in the affirmative, while Viswa- natha Sastri J. answered it in the negative, as a result of which the judgment of Satyanarayana Rao J. ulti- mately prevailed. They relate to the assessment for 1942-1943 and are filed by the Commissioner of Income- tax, while Appeal No. 132 of 1952 which relates to 1943-1944 is filed by the assessee, and is dealt with separately. · The two questions which were referred in respect of the first group of appeals are as follows:- (1) Whether there is any material for the Tribu- nal's finding that the appellants (respondents in this case) were being assessed on cash basis in the prior years? (2) Whether on the facts and in the circumstances of the case the Appellate Tribunal's finding that the sum of Rs. 2,26,850 could not be assessed for the assess- ment year 1942-43 is correct in law? The assessee is a registered firm (hereinafter referred to as 'the firm') consisting of K.R.M.T.T. Thiagaraja Chetty and his two sons. The firm is the managing agent of Shri Meenakshi Mills, Ltd. (hereinafter refer- red to as the Company) owning .a spinning mill at Madura. The firm also conducted insurance business and the business of ginning cotton in a ginning factory at another place. Under tbe terms of the agreement ~~ and Oo. 260 SUPREME COURT REPORTS [1954] 11>53 the managing agents were entitled to a remuneration a -:-:- ,, of Rs. 1,000 per mensem and a commission of ~- per om-11iiss1one:r oJ . Income.tax, cent. on all purchases, 1 per cent. on all
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