Law:

Section:

Section 5 of the Income-tax Act, 1961 (Corresponding to section 4(1) of the Indian Income-tax Act, 1922) - Income - Accrual of - Assessment year 1951-52 - Assessee was entitled to remuneration consisting of salary which was made payable at end of accounting year, though computed on monthly basis and commission and bonus which also accrued at close of accounting year - Assessee had forgone all three items prior to close of relevant accounting year - Whether on above facts found, since nether salary nor commissioner nor bonus had accrued to assessee, they could not be regarded as income taxable in his hands - Held, yes FACTS For the assessment year 1951-52, assessee an individual, under an agreement, was entitled to receive, as Managing Director, a fixed remuneration in form of commission and salary, besides bonus as and when declared. The assessee claimed that he had forgone his commission, salary and bonus on account of the company being in financial difficulties and, as such, the same never accrued or arose to him and no tax could be assessed on this amount. The ITO was of the view that the financial condition of the company was not such as required the assessee to forgo the above salary etc., and that these amount did accrue to the assessee on which he was liable to pay tax. On appeal, the AAC while confirming the inclusion of those amounts, made a distinction between the nature of the income earned form salary, commission and bonus inasmuch as while salary accrued to the assessee from month to month, the commission arose at the end of the accounting year and the bonus when it was declared. On second appeal, the Tribunal agreed with the assessee's contention that no income arose to him during the relevant year as he had surrendered the same before such income accrued or arose, and directed deletion of the amount from his income. On reference : HELD A distinction has to be made in forgoing salary before it becomes due and in surrendering the same after it has become due or has accrued. In the former case, there will be no accrual of salary while in the latter case it would be an application of the salary which had become due and payable. If this be the correct…

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