BHARGAVA, J. - (1.) THE question referred for our opinion is : Whether on the facts and in the circumstances of the case the sum of Rs. 72,637 is liable to be assessed in the assessment year 1946-47 ?
(2.) ON some date falling within the previous year 1st April, 1945, to 31st March, 1946, the assessee entered into a contract to supply fruits and bullock carts for transport purposes to the military department. The supply had to be made at Chheoki and at Kanpur. The Kanpur trading account showed a loss of Rs. 13,164 on supplies of Rs. 1,84,583. Thereafter, under the terms of the agreement, the assessee submitted a petition to the military department for a review, whereupon the military authorities, on the 6th of November, 1947, sanctioned the payment of an additional sum of Rs. 72,637. This sum was actually paid to the assessee on the 17th of February, 1948 and the 24th of February, 1948. The question arose whether this sum of Rs. 72,637 could be included in the assessment of the income of the assessee for the previous year relevant to the assessment year 1946-47. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal concurrently held that this sum of money must be included in the assessment of the income for the assessment year 1946-47 because this sum was received by virtue of the agreement which had been entered into during the relevant previous year and the work under contract had also been carried out during the relevant previous year. The clause of the agreement, which was relied upon for arriving at this finding, reads as follows : 28. No enhancement of rates will be considered in the case of contracts concluded for periods of 3 or 6 months. In the case of annual contracts, revision of rates, i.e., increase or decrease, will be provided for, but no revision will be considered or allowed within six months of the commencement of the contract. Rates for annual contracts will be subject to review, according to the rise or fall of market rates by referees appointed by the Government Reviewing Tribunal for contracts, to consist of the Deputy Commissioner or his representative, the CRIASC or his representative and another military officer. Three members will constitute a quorum. The contractor will attend to present his case, but will not be a member of the Tribunal. The final recommendation in all cases reviewed shall rest with the officer sanctioning the contract. The facts mentioned above clearly lead to the inference that, in the first instance, the assessee was paid for the fruits and bullock carts supplied for transport purposes to the military department at the rate mentioned in the agreement itself. The payment at that rate resulted in a loss of Rs. 13,164. For this reason, the assessee presented a petition to the military department for a review under the clause of the contract quoted above. The date of presentation of that petition is not known but the military department made an order on the 6th of November, 1947, sanctioning additional payment. The additional payments were actually made on the 17th of February, 1948, and the 24th of February, 1948. It would thus appear that, under the terms of the contract entitling the assessee to receive payment, the payments received were such that the assessee incurred a loss of Rs. 13,164 and it was only subsequently that the assessee presented a petition for review when the additional sum was allowed and the transaction resulted in a profit. In the appellate order of the Tribunal and in the statement of the case it has been said that this extra amount was sanctioned by the military authorities when the assessee preferred a claim for enhancement of rates but the actual facts do not bear out the view that the application presented was in the nature of a claim. When actually dealing with this point, the Tribunal also mentioned this circumstance by stating that the assessee had submitted a petition to the military department for a review. A petition for review and a claim for enhancement are different in nature. A claim for enhancement could have been made if, under the terms of the agreement, the assessee had been entitled to enhancement as of right on the conditions laid down in the agreement for marking such a claim having been satisfied. In this case, it does not appear from the language of the clause of the agreement relied upon that the assessee was entitled to claim any enhancement. All that the agreement provided for was a review which could be either for the purpose of increasing or decreasing the amount payable to the assessee depending on whether the market rates had gone up or had gone down. No right to receive any additional payment as thus conferred by the terms of the agreement. The right, that the agreement conferred, was only to receive payment at the rate prescribed therein. The further provision in the agreement was that such payment was subject to review according to the rise or fall of, market rates. Until there was a review, therefore, the assessee did not become entitled to enhanced rates or any enhanced amount. It was the order of review which conferred that right to receive the enhanced amount. Until that order of review was made, the only right that had accrued to the assessee was to claim the money payable at the rate laid down in the agreement itself. It appears to us, therefore, that, in this case, the extra sum of Rs. 72,637, which is sought to be added to the income of the previous year relevant to the year 1946-47, became payable to the assessee not by virtue of any right conferred by the agreement itself but because of the order passed by the reviewing board acting under the terms of the agreement directing the payment of the amount to the assessee and thus creating a right to this amount in favour of the assessee. No doubt, the amount became payable or was made payable by the review order because the assessee had carried out the contract in accordance with the agreement executed in the previous year in question and he had even completed the performance of the contract within that previous year but the mere execution of the agreement or the performance of the contract did not entitle assessee to receive this money. In such circumstances, we cannot hold that this income arose or accrued to the assessee in the previous year in question. The income was actually received by the assessee on the 17th of February, 1948, and the 24th of February, 1948, but it may be possible to hold that this income arose or accrued to the assessee on the 6th of November, 1947, when the military authorities sanctioned this payment after the review under the clause of the agreement mentioned above. Since the right to receive the payment did not arise or accrued to the assessee in the previous year in question, it has to be held that this income did not arise or accrued to him during that period and, consequently, this amount cannot be taken into account when assessing the income of the assessee of the previous year relevant to the assessment year 1946-47. The date of sanction by the military authorities, viz., the 6th of November, 1947, as well as the dates of receipt by the assessee, viz., the 17th February, 1948, and the 24th of February, 1948, fall outside the previous year in question and are subsequent to that order.
(3.) THE view, that we have taken above, follows the views expressed by the Supreme Court in E. D. Sassoon Co. Ltd. v. Commissioner of Income-tax, AIR 1954 SC 470. THEir Lordships of the Supreme Court in that case to consider the scope and meaning of the words income arising or accruing. Dealing with this question, their Lordships discussed the various vases in which this expression had came up for interpretation and reproduced the following quotation from the judgment of Mukherji, J., in Rogers Pyatt Shellac Co. v. Secretary of State for India, 1925 52 ILR(Cal) 1 : Now what is income ? THE term is nowhere defined in the Act.... In the absence of a statutory definition we must take its ordinary dictionary meaning - that which comes in as the periodical produce of ones work, business, lands or investment (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation (Oxford Dictionary). THE word clearly implies the idea of receipt, actual or constructive. THE policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. Accrues, arises and is received are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word `receiving itself. THE words `accrue and `arise also are not defined in the Act. THE ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. `Accruing is synonymous with `arising in the sense of springing as a natural growth or result. THE three expressions accrues, arises and `is received having been used in the section, strictly speaking `accrues should not be taken as synonymous with `arises but in the distinct sense of growing up by way of additional or increase or as an accession or advantage; while the word `arises means comes into existence or notice or presents itself. THE former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been through-out maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate then the other when applied to particular cases. It is clear, however, as pointed out by Fry, L. J., in Colquhoun v. Brooks (this part of the decision not having been effected by the reversal of the decision by the House of Lords) that both the words are used in contradistinction to the word `receive and indicate a right to receive. THEy represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. Thereafter their Lordships of the Supreme Court proceeded to consider a number of other cases and expressed their own decision in the following words : It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro; See W. S. Try Ltd. v. Johnson and Webb v. Stenton and Others, Garnishees. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he had acquired a right to receive the income or that income has accrued to him. ;