Sikri, J. - (1.) The two appeals by special leave arise out of a reference made by the Income-tax Appellate Tribunal, Bombay Bench, A - hereinafter referred to as "the tribunal" - referring to the High Court of Madhya Pradesh two questions of law, the questions being :(1) Whether in determining the "smallness of profits" made by the applicant for the purpose of section 23A, the Tribunal correctly included the commission of Rs. 41,842 and Rs. 1,16,690 in the applicants profits of the accounting periods ended 31st March, 1952, and 31st March, 1953, respectively and (2) Whether, on the facts and in the circumstance of the case, the Tribunal was justified in upholding the order under section 23A -
(2.) The appellants, J. P. Shrivastava and Sons (Bhopal) Private Ltd, hereinafter called "the assessee-company", was at the relevant time the managing agents of New Bhopal Textile Ltd., hereinafter called "the managed company." Both the assessee-company and the managed company had the financial year as their accounting period. For the accounting period ending March 31, 1952, the assessee-company was entitled to the managing agency commission accounting to Rs. 41,842 under the agreement dated May 2, 1950, which is part of the case. Sub- clause (c) of clause 2 of the agreement prescribed that "such commission shall become due and payable to the managing agency every year immediately on the passing of the audited accounts of the company by the shareholders at a general meeting at each and every year during the continuance of these presents." It appears that the managed company claimed this amounts as expenses for its assessment year 1952- 53, and the assessing authority allowed it as an expense for that year. The assessee-company however, claimed before the Income-tax officer assessing its own income that the commission did not accrue to then during the accounting year 1951-52 as the requisite resolution was not passed during the accounting year but was passed on March 28, 1953. The Income-tax Officer, however, included this amount in the assessment for the previous year ending March 31, 1952. In the books of the company the sum of Rs. 41, 842 was credited only in the financial year 1952-53.
(3.) In respect of the commission for the accounting year ending March 31, 1953, similar events happened. The amount of Rs. 1,16,690 was credited in the books of the assessee-company not in the year ending March 31,1953, but in the financial year 1953-54. The Income-tax Officer similarly included this amount in the assessment of the previous year ending March 31, 1953,;