Case: Commissioner Of Income-Tax, Bombay Vs. M/S. Shree Goverdhan Ltd. Bombay

2. The assessee is a public limited company registered under the Indian Companies Act. Its share capital consists of 50,000 shares subscribed and paid up. Out of these shares, 47,493 are held by Shree Raghunath Investment Trust Ltd., a company incorporated as a private company under the laws of Jammu and Kashmir (hereinafter referred to as "The Jammu Co.") and having its registered office there. Out of the remaining 2507 shares, 2500 shares were held by another private limited company incorporated in India and having its registered office in New Delhi and the remaining 7 shares were held by seven individuals. The shares of the assessee are not quoted on the Stock Exchange any where in India. There is nothing, however, in its Memorandum and Articles of Association placing any restriction on the free transfer of its shares. The assessee entered into a partnership on April 20, 1950 with a firm called "The Indian Steel Syndicate". There was a reconstitution of this firm on December 2, 1950. The shares of profit of the assessee from this firm (which was registered under Section 26-A of the Act) as upto November 30, 1950 and upto March 31, 1951 totalling Rs. 70,895 were included in the assessment of the assessee for the assessment year 1951-52.3. During the assessment years 1950-51 and 1951-52, for which the previous years ended on September 30, 1949 and September 30, 1950, the Income Tax Officer determined the assessable income of the assessee at Rs. 60,350 and Rupees 93,884 respectively. After deduction of the taxes payable the balance was Rs. 35,834 in the first year and Rs. 53,103 in the second year. As the assessee had not declared any dividend at its Annual General Meetings during either of the aforesaid two years or within six months thereafter, the Income Tax Officer issued notices to the assessee to show cause why an order under Section 23A (1) of the Act should not be passed for the two years. The assessee, however, contended that Section 23A was not applicable inasmuch as the public were substantially interested within the meaning of the Explanation appended to the third proviso to Section 23-A (1): Overruling this contention the Income Tax Officer made an order under Section 23A against the assessee in respect of the undistributed profits for the said two years. Against these orders the assessee appealed to the Appellate Assistant Commissioner. A further ground was taken in the appeal that the order under Section 23A was unwarranted so far as assessment year 1950-51 was concerned inasmuch as the assessable profits included a sum of Rs. 70,895 being the share of the assessees income which arose in its partnership with the Indian Steel Syndicate as upto November 30, 1950 and March 31, 1951, and that the income accrued after the accounting year of the assessee which ended on September 30, 1950. The Appellate Assistant Commissioner dismissed the appeals and his order was affirmed by the Appellate Tribunal on June 28, 1959 for both the assessment years. At the instance of the assessee the Appellate Tribunal stated a case to the High Court under S. 66 (1) of the Act on the following question ofthe order passed against the assessee for assessment years 1950-51 and 1951-52 under Section 23A are justified andits judgment dated September 18, 1962, the, High Court answered the question in so far as it pertained to assessment year 1950-51 in the affirmative and in so far as it pertained to assessment year 1951-52 in the negative and against the appellant.

Reasoning: In our opinion, the argument put forward by the Attorney-General on behalf of the appellant is well founded and must be accepted as correct. It is true that the assessee had prepared a balance sheet on the basis that its, accounting year ended on September 30, 1950. It is, however, admitted that the assessee had two sources of income: (1) from its own business, and (2) from the share of the partnership business with Indian Steel Syndicate. Under S. 2 (11) of the Act an assessee may have different previous years in respect of different sources of income and under the scheme of the Act the income of the varying previous years from the different sources should be lumped together to arrive at the total income of the assessee. The provisions of Sec. 2 (11) of the Act make it clear that except in cases where a previous year is determined by the Department under Cl. (b) the varying previous years must all necessarily end with or within the financial year next preceding the assessment year. In the present case, the previous year so far as the personal business of the assessee was concerned, was the previous year ended on September 30, 1950, but with regard to the income of the partnership the pervious year was the period between November 30, 1950 and March 31, 1951 when the accounts of the partnership were made up and closed. In our opinion, the provisions of Section 23-A (1) must be construed in the context of Section 2 (11) of the Act and the expression previous year of the company in Section 23A (1) must be interpreted as meaning two previous years where the company carries on two different businesses with two different sources of income for which there are separate accounting periods. It follows therefore in the present case that the Income Tax Officer was right in holding that the assessable income of the company included the share of the assessees profits in its partnership with the Indian Steel Syndicate for the purpose of application of Section 23A of the Act so far as the assessment year 1951-52 was concerned.6. The argument was, however, stressed on behalf of the respondent that in any event the share of the profit of the assessee from the partnership business for the period from October 1, 1950 to March 31, 1951 was not known to the assessee before its annual general meeting on May 17, 1951. It was pointed out that for the first time the Income Tax Officer was intimated on August 11, 1953 that the share of the profit of the assessee in the partnership was to the extent of Rs. 70895 and should be included in its assessment. After receipt of the intimation the Income Tax Officer rectified the original assessment made on February 29, 1952 and included the said amount of Rs. 70,895.In our opinion, there is no warrant for the argument put forward on behalf of the respondent. It is conceded in this case that the annual general meeting of the assessee was held on May 17, 1951 after the close of the accounting year of the Indian Steel Syndicate. It is true that the actual profits of the assessee from its partnership business were ascertained after the close of the accounting period i. e., March 31, 1951. It is, however, well established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on on its being ascertained. The legal position is that a liability, depending upon a contingency is not a debt in praesenti or in futuro till the contingency happens. But if it is a debt the fact that the amount has to be ascertained does not make it any the less a debt if the liability is certain and what remains is only a quantification of the amount: debitum in praesenti, solvendum in futuro.Reference may be made in this connection to the decision in Commrs. of Inland Revenue v. Gardner Mountain and DAmbrumenil, Ltd., (1949) 29 Tax Cas 69. The assessee in that case carried on the business of underwriting agents, and entered into agreements with certain underwriters at Lloyds under which it was entitled to receive as remuneration for its services in conducting the agency, commissions on the net profits of each years underwriting. The agreements provided that accounts should be kept or the period ending 31st December in each year and that each such account shall be made up and balanced at the end of the second clear year from the expiration of the period or year to which it relates and the amount then remaining to the credit of the account shall be taken to represent the amount of the net profit of the period or year to which it relates and the commission payable to the company shall be calculated and paid thereon." The accounts for the underwriting done in the calendar year 1936 were made up at the end of 1938 and the question that arose was whether the assessee was liable to additional assessment in respect of the commission on underwriters profits from the policies underwritten in calendar year 1936 in the year in which the policies were underwritten or in the year when the accounts were thus made up. The assessee contended that the contracts into which it entered were executory contracts under which its services were not completed or paid for, as regards commission, until the conclusion of the relevant account; the profit in the form of commission was not ascertainable or earned, and did not arise, until that time and the additional assessment which was made in the year in which the policies were underwritten should accordingly be discharged. The Special Commissioners allowed the assessees contention and discharged the additional assessment. The decision of the Special Commissioners was confirmed on appeal by Macnaghten, J. in the Kings Bench Division of the High Court. The Court of Appeal however reversed this derision and a further appeal was taken by the assessee to the House of Lords. The House of Lords held that on the true construction of the agreements, the commissions in question were earned by the assessee in the year in which the policies were underwritten, and must be brought into account accordingly and confirmed the decision of the Court ofis admitted in the present case that the Indian Steel Syndicate closed the accounts of the partnership for the first time for the first set of partners on November 30, 1950 and for the other set of partners on March 31, 1951 and the assessee as a partner was therefore entitled to the share of the profits as on the last day of the accounting period of the partnership i. e., March 31, 1951.