Law:

Section:

Section 5 of the Income-tax Act, 1961 (Corresponding to section 4 of the Indian Income-tax Act, 1922) - Income - Accrual of - Assessment year 1952-53 - Whether if amount is to be taxable as income, basic concept to be kept in view is that right to receive income must come into existence in relevant previous year and that income can be held to arise or accrue to assessee only when assessee obtains a right to receive income - Held, yes - Whether question of non-assessability of amount taxable as income can arise only if relinquishment of such income is made in relevant accounting year - Held, yes FACTS The assessee was the managing agent of several companies. The accounting year corresponding to the relevant assessment year ended on 5-7-1951. The managed companies were liable to pay managing agency remuneration and commission to the assessee-company during the accounting year as aforesaid. On 16-12-1952, the shareholders of the assessee-company passed a resolution forgoing the receipt of the allowance. There were other resolutions of the same nature made by the assessee-company on several dates. The assessee-company claimed that the aforesaid amount of commission which had been forgone by it, should not be treated as income in computing its total income. The Tribunal held that the intention of forgoing was arrived at, much later than the closing of the accounting year, during which the remuneration had already accrued to the assessee and, therefore, after accrual, if it had relinquished the claim of the receipt that would only mean a diversion of the profit and, therefore, could not be excluded from the total income. On reference: HELD According to section 4(1)(b )(i) of the 1922 Act the income which accrues or is deemed to have accrued is liable to tax. It was not disputed in the instant case that the assessee-company maintained the mercantile system of accounting and under such system there is no receipt actual or constructive by reason of entry in the accounts. According to section 4(1)(b)(i ) the unrealised income is assessed not on the ground of constructive receipt but on the ground that it accrues or arises at that date. Upon consideration of all the…

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