RAMKUMAR KEDARNATH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made by the CIT under s. 66(2) of the Indian IT Act, XI of 1922, and the question he raises is :-

(2.) THE assessee was a firm, which was acting as selling agents for a company known as Morarji Goculdas Spinning and Weaving Co. Ltd. under an agreement dt. the 13th of Jan., 1930, which is Ex. A. Under that agreement the firm got commission on goods which it sold on behalf of the company, and also on goods which the company sold directly to upcountry dealers. THE system of accounting adopted by the firm was the method which is known as the mercantile method, that is to say, it accounted on the basis of commission earned, and not on the basis of commission actually paid. THE system prevailed down to the accounting period ended the 31st Dec., 1932. For the accounting period ended 31st Dec., 1933, which is the accounting period in question in this case, the assessee showed the commission earned down to the 30th of June, 1933, that commission having been paid during the accounting period but showed no commission earned down the half year ended 31st of Dec., 1933, because the Company had got into financial difficulties, and the assessee thought it very possible that the commission would not in fact be received. Subsequently the company was reinstated and the commission earned was in fact paid after the 31st Dec., 1933. THE CIT says that having regard to s. 13 of the IT Act which directs that income, profits and gains shall be computed for the purpose of, among other sections, s. 10, which is the section dealing with business, in accordance with the method of accounting regularly employed by the assessee, the assessee was bound to include the income from commission earned during the half year ended 31st Dec., 1933. THE assessee, on the other hand, says that he was not bound to include that commission in the accounting year because he had not received it, although he admits that he was bound to include it in the year in which he did receive it.

(3.) IN my view, therefore, we ought to answer the question in the affirmative. Costs to be paid by the assessee on the Original Side scale.