SHYAMA CHARAN GUPTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) We have heard Shri R. P. Agarwal, learned counsel for the appellant. Shri A. N. Mahajan appears for the Department.

(2.) These two income-tax appeals under section 260A of the Income-tax Act, 1961, arise out of the orders passed by the Income-tax Appellate Tribunal dated 24-3-2003, relating to the assessment years 1992-93 and 1993-94.

(3.) The assessee was the managing director of M/s. Shyam Biri Works Pvt. Ltd. In the relevant assessment years 1992-93 and 1993-94, he was entitled to both salary and commission of profits. The assessing authority found that he has drawn advances both of salary and commission on profits and taxed them as deemed dividend under section 2(22)(e) of the Income-tax Act. The Tribunal found that the assessee was a salaried employee of the company. The salary due to him in the relevant years, namely, Rs. 5,000 in the assessment year 1992-93 and Rs. 7,700 in the year 1993-94 was fixed and deposited in his account. The commission on profits received by him in the respective years, against in advance are to be treated as deemed dividend under section 2(22) (e) of the Act. The advance of Rs. 1,50,000 in the assessment year 1992-93 and Rs. 1,61,250 in the assessment year 1993-94 was not a simple advance. After giving credit to the salary, which was to be paid to the petitioner the balance amount of advance in the respective years was not as advance against commission on profits. The Tribunal relied upon E. D. Sassoon and Co. Ltd. V. CIT, 1954 26 ITR 27 and CIT V. Ashokbhai Chimanbhai, 1965 56 ITR 42 and held that profit does not accrue from day-to-day. Unless right to profit comes into existence there is no actual accrual of profits, The right to receive commission on profit earned by the company arises only when the accounts are settled at the end of the accounting year. The accrual of commission on profits could be made only on 31st March of the respective year, when the accounts were settled.