COMMISSIONER OF INCOME TAX Vs. ROHTAS INDUSTRIES LIMITED

JUDGEMENT

(1.) This is a reference under section 66(1) of the Indian Income-tax Act in respect of the assessment year 1951-52. The accounting year of the assessee was the period from the 1st November, 1949, to the 31st October, 1950.

(2.) Messrs. Dalmia Jain Co. Ltd. are the managing agents of the assessee-company, and, according to the agreement between the two, they were entitled to Rs. 7,500 per month as office allowance from the assessee-company. The managing agents observe their accounting year from the 1st February of a year to the 31st January of the following year. In the course of the previous year of the assessee, with which we are concerned, they were informed by the managing agents that they would forgo the office allowance due to them from the assessee for the period from 1st February, 1948, to the 31st January, 1950. The amount thus remitted amounted to Rs. 1,80,000. The last three months of the period indicated by the managing agents were covered by the previous year of the assessee. The preceding twenty-one months of the period for which also the remission was granted by the managing agents appertained to two previous accounting years of the assessee during which the balance-sheets included as a trading liability the money due to the managing agents from the assessee. In the year under consideration, the assessee-company indicated the remission showing Rs. 1,57,500 as miscellaneous receipt. In regard to Rs. 22,500 as money due to the managing agents for the first three months of the accounting year under consideration, that was not included within the trading liability, and only Rs. 67,500 out of Rs. 90,000 (which would have been ordinarily due to the managing agents) was shown as one of the permissible trading liabilities. The assessee maintain their accounts in the mercantile system. Receipts and liabilities as accrued are entered in the annual balance-sheet and the profit and loss statement.

(3.) The Income-tax Officer included in the total assessable income of the assessee the sum of Rs. 1,57,500 that was shown as miscellanous receipt in the profits and loss account of the year. The assessee went in appeal against that, and succeeded in getting that out by the judgment given by the Income-tax Appellate Tribunal. Against that, the department asked for a reference, and got the statement of case from the Appellate Tribunal. The two questions for consideration are as follows :