Case Note & Summary
The dispute involved the appellant-assessee, who was the Managing Agent of a company, and the validity of a resolution passed on 20.7.1949 to pay him additional remuneration of Rs.15,000 per annum. Shareholders filed a representative suit seeking to declare the resolution illegal and prevent payment of the extra remuneration. The trial court decreed the suit, but the High Court reversed this decision, validating the resolution. Despite the company debiting the remuneration in its accounts, the amounts were not paid to the assessee during the relevant years. After the assessee's death in 1952, the amount was paid to his heirs in 1956. The Income Tax Officer assessed the remuneration for the years 1950-51, 1951-52, and 1952-53, which was contested by the assessee. The Tribunal ruled that no income had accrued until the High Court judgment in November 1955, prompting the Revenue to seek clarification from the High Court. The High Court ruled in favor of the Revenue, leading to the present appeal. The Supreme Court dismissed the appeal, determining that the right to receive income accrued from the resolution date, not the judgment date. The court emphasized that the income was earned during the relevant years, and the resolution created the right to receive remuneration, which was merely deferred due to litigation. The court referenced precedents to support its decision, affirming that the right to receive income arose from the resolution itself (Paras 545D-F, 546A-D).
Headnote
A) Income Tax - Accrual of Income - Date of Accrual - Income Tax Act, 1922, Section 4 - The right to receive income accrued when the company passed the resolution, not upon the High Court judgment. The court held that the income was earned during the relevant previous years, and the right to receive it arose from the resolution, irrespective of payment delays due to litigation. Held that the accrual of income was not postponed by the pending suit (Paras 545D-F, 546A-D).
Issue of Consideration
Whether the right to receive extra remuneration accrued from the date of the company resolution or from the date of the High Court judgment.
Final Decision
The Supreme Court dismissed the appeal, affirming that the right to receive extra remuneration accrued from the date of the company resolution, not from the date of the High Court judgment.
Law Points
- Income accrual
- right to receive income
- company resolution validity
- contingent liability
- litigation impact on income recognition
