Case: The Commissioner Of Income-Tax, Madras Vs. A.Gajapathy Naidu

any contractual obligation but purely by a voluntary act of the purchaser. Though the additional amounts accrued to the assessee in a later year, it was regarded as analogous to a trade debt due in respect of the trading operation of the earlier year. On that principle the accounts were reopened in order to bring the increase into profits of the assessee in the year of transaction. This decision was accepted and extended in Severne v. Dadswell, (1954) 35 Tax Cas 649. As this decision is the basis for the High Courts view, we shall give its facts in some detail. The respondent therein was granted a licence to mill flour in October, 1941, and carried on the trade of flour milling until September, 1945. As he had not been a miller at the outbreak of war, he was not entitled to the benefit of a remuneration agreement whereby millers were compensated by the Ministry of Food for losses incurred under wartime arrangements for the purchase of wheat and sale of flour. Having, however, been informed by the Ministry in 1943 and twice later that the remuneration of millers who had begun milling during the period of control was under consideration, he made a claim in 1949 on the same basis as that laid down in the remuneration agreement and received payments in settlement. The respondent contended that the sums received in 1949 were not trading receipts but ex gratia payments, and alternatively, that they were received after the cessation of his trade and that if there was a debt arising to the trade at the date of cessation its value at that date was nil. The Court held that the said payments were ex gratia; and it further held that, if on the discontinuance of a trade payment for work already done in a year had not been finally settled, accounts for that year could be reopened so as to bring in a gratuitous payment for such work made in a subsequent year. This judgment certainly supports the respondent. Though it could be distinguished on the ground that in that case it was found that the payment for the work already done had not been finally settled whereas in the present case there is nothing on the record to disclose that it was not finally settled. We would prefer to base our conclusion on the ground that we cannot extend the meaning of the word "accrue" or "arise" in S. 4 (1) (b) (i) of the Act so as to take in amounts received by the assessee in a later year, though the receipt was not on the basis of the right accrued in the earlier year. Such amounts are in law received by the assessee only in the year when they are paid. We cannot apply the English decisions in the matter of construction of the provisions of the Indian Act, particularly when they have received an authoritative interpretation from this Court. In this view, it is not necessary to consider further English decisions cited by learned counsel for the respondent in support of his contention. Before a Division Bench of the Allahabad High Court in Commissioner of Income-tax, U. P. and V. P. v. Kalicharan Jagannath 1961-41 ITR 40 (All) when a similar question arose, learned counsel appearing for the Revenue relied upon the said English decisions, but the High Court, rightly, refused to act on them on the ground that they were not relevant in interpreting S. 4 of the Indian Income-tax Act. It further made an attempt to distinguish those decisions on grounds based upon the alleged difference in the scope of the provisions of the respective countries. It was said that under the relevant English Act the excess profits duty was payable on computation of profits arising from a trade or business in different chargeable accounting periods and, therefore, the emphasis there was more upon the carrying on of the trade within the chargeable period than on the income accruing during that period. But we do not propose to express our view on this aspect of the question, as the relevant sections of the English Acts have not been placed before us. The learned Judges, after having rightly refused to rely upon the English decisions, construed the provisions of the Indian statute. There, during the accounting period April 1, 1945 to March 31, 1946, the assessee entered into a contract with and supplied fruits and bullock carts to, the military authorities at two different places at rates fixed by the agreement. The assessee incurred a loss and he submitted a petition for review under the terms of the agreement. On November 6, 1947, the military authorised sanctioned the payment of an additional sum which was paid to the assessee on February 17 ad 24, 1948. The Income-tax Department sought to include this additional sum in the assessment for the accounting year 1945-46. The High Court held that until the order of review the only right that the assessee had was to claim the money payable at the rates laid down in the agreement itself and that the additional amount became payable to the assessee not by virtue of any right conferred by the agreement, but because of the order passed in review directing the payment of the amount and thus creating a right to this amount in favour of the assessee. As the right to receive the payment of the additional sum arose after the closing of the accounting year 1945-46, the High Court proceeded to hold that the income did not accrue or arise to the assessee in the accounting year. It may be pointed out that in that case the original agreement gave a right to apply for review and notwithstanding that fact the court held that the additional payment could not be held to have accrued during the accounting year. For the reasons already stated by us, we are entirely in agreement with the view expressed by the Allahabad High Court.10

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. We shall now proceed to notice some of the decisions cited at the Bar.J. P. Hall and Co. v. Commissioner of Inland revenue, 1921-12 Tax Cas382 is a decision of the Court of Appeal under S. 38 of the Finance (No. 2) Act, 1915 (5 and 6 Geo V, c. 89) dealing with excess profits duty. There it was held that for the purpose of Excess Profits Duty, the profits from the contracts for the purchase and sale of the control gear arose to the appellant-company in the accounting years in which the gear was actually delivered and not in the pre-war period ending the 30th June, 1914, in which the contracts were made. The price of the control gear in that case was increased later without there being any contractual obligation but purely by a voluntary act of the purchaser. Though the additional amounts accrued to the assessee in a later year, it was regarded as analogous to a trade debt due in respect of the trading operation of the earlier year. On that principle the accounts were reopened in order to bring the increase into profits of the assessee in the year of transaction. This decision was accepted and extended in Severnev. Dadswell, (1954) 35 Tax CasAs this decision is the basis for the High Courts view, we shall give its facts in some detail. The respondent therein was granted a licence to mill flour in October, 1941, and carried on the trade of flour milling until September, 1945. As he had not been a miller at the outbreak of war, he was not entitled to the benefit of a remuneration agreement whereby millers were compensated by the Ministry of Food for losses incurred under wartime arrangements for the purchase of wheat and sale of flour. Having, however, been informed by the Ministry in 1943 and twice later that the remuneration of millers who had begun milling during the period of control was under consideration, he made a claim in 1949 on the same basis as that laid down in the remuneration agreement and received payments in settlement. The respondent contended that the sums received in 1949 were not trading receipts but ex gratia payments, and alternatively, that they were received after the cessation of his trade and that if there was a debt arising to the trade at the date of cessation its value at that date was nil. The Court held that the said payments were ex gratia; and it further held that, if on the discontinuance of a trade payment for work already done in a year had not been finally settled, accounts for that year could be reopened so as to bring in a gratuitous payment for such work made in a subsequent year. This judgment certainly supports the respondent. Though it could be distinguished on the ground that in that case it was found that the payment for the work already done had not been finally settled whereas in the present case there is nothing on the record to disclose that it was not finally settled. We would prefer to base our conclusion on the ground that we cannot extend the meaning of the word "accrue" or "arise" in S. 4 (1) (b) (i) of the Act so as to take in amounts received by the assessee in a later year, though the receipt was not on the basis of the right accrued in the earlier year. Such amounts are in law received by the assessee only in the year when they are paid. We cannot apply the English decisions in the matter of construction of the provisions of the Indian Act, particularly when they have received an authoritative interpretation from this Court. In this view, it is not necessary to consider further English decisions cited by learned counsel for the respondent in support of his contention. Before a Division Bench of the Allahabad High Court in Commissioner of Income-tax, U. P. and V. P. v. Kalicharan Jagannath 1961-41 ITR 40   (All) when a similar question arose, learned counsel appearing for the Revenue relied upon the said English decisions, but the High Court, rightly, refused to act on them on the ground that they were not relevant in interpreting S. 4 of the Indian Income-tax Act. It further made an attempt to distinguish those decisions on grounds based upon the alleged difference in the scope of the provisions of the respective countries. It was said that under the relevant English Act the excess profits duty was payable on computation of profits arising from a trade or business in different chargeable accounting periods and, therefore, the emphasis there was more upon the carrying on of the trade within the chargeable period than on the income accruing during that period. But we do not propose to express our view on this aspect of the question, as the relevant sections of the English Acts have not been placed before us. The learned Judges, after having rightly refused to rely upon the English decisions, construed the provisions of the Indian statute. There, during the accounting period April 1, 1945 to March 31, 1946, the assessee entered into a contract with and supplied fruits and bullock carts to, the military authorities at two different places at rates fixed by the agreement. The assessee incurred a loss and he submitted a petition for review under the terms of the agreement. On November 6, 1947, the military authorised sanctioned the payment of an additional sum which was paid to the assessee on February 17 ad 24, 1948. The Income-tax Department sought to include this additional sum in the assessment for the accounting year 1945-46. The High Court held that until the order of review the only right that the assessee had was to claim the money payable at the rates laid down in the agreement itself and that the additional amount became payable to the assessee not by virtue of any right conferred by the agreement, but because of the order passed in review directing the payment of the amount and thus creating a right to this amount in favour of the assessee. As the right to receive the payment of the additional sum arose after the closing of the accounting year 1945-46, the High Court proceeded to hold that the income did not accrue or arise to the assessee in the accounting year. It may be pointed out that in that case the original agreement gave a right to apply for review and notwithstanding that fact the court held that the additional payment could not be held to have accrued during the accounting year. For the reasons already stated by us, we are entirely in agreement with the view expressed by the Allahabad High Court.With great respect to the learned Judges of the High Court we must point out that the decision of the High Court is deflected by its reliance on English decisions delivered under circumstances peculiar to that country and on the construction of provisions which are not in pari materia with the provisions obtaining incaution administered by this Court shall always be borne in mind in construing the provisions of the Indian statue.The provisions of the IndianAct shall be construed on their own terms without drawing any analogy from English statutes whose terms may superficially appear to be similar but on a deeper scrutiny may reveal differences not only in the wording but also in the meaning a particular expression has acquired in the context of the development of law in that country.7. The problem raised before us can only be answered on the true meaning of the express words used in S. 4(1) (b) (i) of theare not concerned in this case with the expression "deemed to accrue or arise to him," as that expression refers to cases set out in the statute itself introducing a fiction in respect of certain incomes. In regard to the question, when the whether an income accrues or arises within the meaning of the first part of the said clause, we have a decision of this Court which has clearly enuncited the principle underlying the said expression: that is the decision in E. D. Sassoon and Company Ltd. v. Commissioner ofSCR 313 at p. 342 :ITR 27 at p. 50 : (AIR 1954 SC 470   at pp.In that decision this Court accepted the definition given to the words "accrue" and "arise" by Mukerji, J., in Rogers Pratt Shellack and Co. v. Secretary of State for India, 1 ITC 363 at p. 371 : (AIR 1925 Cal 34   at pp.which is as followsboth 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."