PRAKASH NARAIN, J. - (1.) This is a reference by the Income-Tax Appellate Tribunal, Delhi Bench 'B', under section 66(1) of the Income-Tax Act, 1922, made on the application of the Commissioner of Income-Tax, Delhi. The question of law that has been referred for the opinion of the High Court is as under: "Whether on the facts and in the circumstances of the case, salary, commission and bonus amounting to Rs. 1,19,118 accrued or arose to the assessee as an income for the relevant year?"
(2.) The Assessment year in question is 1951-52, the corresponding financial year ending on 31st March, 1951. The assessee is an individual. Under an agreement dated the 5th July, 1945, executed between the assessee and Messrs. Punjab Distilling Industries Ltd., Khasa, the assessee was appointed this company's Managing Director and his remuneration was fixed at (i) commission at the rate of 7 per cent of the annual net profit of the company, and (ii) salary of Rs. 5,000.00 per month. Besides these, he was also entitled to receive bonus as and when it was declared. For the year in question, the commission at the aforesaid rate worked out to Rs. 44,116.00 and the salary was Rs. 60,000.00. The assessee would have also been entitled to a sum of Rs. 15,000.00 as bonus for the year in question. Thus the three amounts put together came to Rs. 1,19,118.00. The amount was taxed in the hands of the assessee, although his case before the Department was that he had foregone his commission, salary and bonus on account of the company being in financial difficulties. It was contended by the assessee that inasmuch he had foregone these amounts, the same never accrued to him or arose to him and so could not be regarded as his income during the relevant year and no tax could be assessed on this amount. The Income-Tax Officer was of the view that the financial condition of the company was not such as required the assessee to forego his salary, commission and bonus and that these amounts did accrue to the assessee on which he was liable to pay tax. On appeal, the Appellate Assistant Commissioner confirmed the inclusion of these amounts in computation of the income of the assessee. He, however, made a distinction between the nature of the income earned from salary, commission and bonus. According to the A.A.C., salary accrued to the assessee from month to month but the commission arose at the end of the accounting year and the bonus when it was declared. On further appeal to the Tribunal, it was contended by the assessee that no income from salary, commission and bonus arose to him during the relevant year as he had surrendered the same before such income accrued or arose. On behalf of the Revenue, it was contended before the Tribunal that foregoing by the assessee was only an application of the income after it had been earned and consequently it was taxable. The Tribunal agreed with the contention of the assessee and directed deletion of the amount of Rs. 1,19,118.00 from his income. The Commissioner of Income-Tax thereupon moved an application for staling a case to the High Court and referring the above noted question for its opinion.
(3.) The relevant provision of the Income-Tax Act, 1922, in this case is section 4(1)(b) which reads as under:- "4. Application of Act.-(1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which- (a) ............................ (b) if such person is resident in the taxable territories during such year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or (ii) accrue or arise to him without the taxable territories during such year, or (iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year, or The various heads under which income is chargeable to income-tax are set out in section 6 of the said Act. In the case of this assessee, salary, commission and bonus were taxable under the head "Salaries" as defined by section 7 of the Act, the relevant portion whereof reads as under:- "7. Salaries.-(1) The tax shall be payable by an assessee under the head 'Salaries' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of, the Government, a local authority, a company or any other public body or association, or any private employer; and for the purposes of this sub-section advances by way of loan or otherwise of income chargeable under this head shall be deemed to be salary due on the date when the advance is received.";