Kerala High Court
Commissioner Of Income-Tax vs Jai Hind Travels (P.) Ltd. on 1 November, 1999
Equivalent citations: [2000]243ITR451(KER)
Author: Arijit Pasayat
Bench: Arijit Pasayat, K.S. Radhakrishnan
JUDGMENT Arijit Pasayat, C.J.
1. Pursuant to the directions given by this court in Original Petitions Nos. 7655 and 9863 of 1993, the following questions have been referred by the Income-tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), for opinion under Section 256(2) of the Income-tax Act, 1961 (in short "the Act") :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts of Rs. 87,538 and Rs. 2,76,767 relating to the assessment years 1981-82 and 1982-83 are not liable to be assessed during those years and in deleting the same from the respective assessments ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee became entitled to the commission only with effect from September 1, 1982, and that it will not relate back to July 27, 1979 ?"
2. The factual position is almost undisputed and sans unnecessary details reads as follows : The assessee is a company in which the public are not substantially interested. It derives income from travel agency. For the assessment years 1981-82 and 1982-83, additions to the returned income were made by the Assessing Officer amounting to Rs. 97,538 and Rs. 2,76,767, respectively, as commission on tickets sales of international airlines. The assessee was maintaining accounts on mercantile basis. The assessee's stand that the right to receive such commission arose only on August 6, 1982, when the International Air Transport Association (in short "the IATA") granted approval of passenger sales agency to the assessee was not accepted by the Assessing Officer. In the first appeal, the Commissioner of Income-tax (Appeals) (in short "the CIT (A)"), noticed that the assessee had applied for membership of the IATA on July 27, 1979, and though an approval was granted on August 6, 1982, in proceedings conveying approval, it was made clear that commission would be payable with effect from July 27, 1979. Accordingly, the additions were upheld. In second appeal, the assessee's stand was that it was receiving ordinary commission on sale of tickets and the same was duly accounted for. The impugned commission was receivable by it only when the approval of the IATA was granted, though the right to receive such commission accrued with retrospective effect. For the assessment year 1983-84, the assessee had admitted the entire commission, which related to prior periods, as approved with retrospective effect by the IATA and the entire commission was assessed to tax. A copy of the assessment order for the year 1983-84 was also filed. The Tribunal observed that under the accrual system of accounting, otherwise known as the mercantile system, income accrues or arises the moment the right to such income accrued or arose or is recognised or granted whether or not such income was received. The assessee became entitled to the commission only with effect from September 1, 1982, onwards and also for the period from July 27, 1979. The method adopted by the Assessing Officer and the Commissioner of Income-tax (Appeals) was held to be not in accordance with the mercantile system of accounting. The Tribunal held that since the income had been already assessed for the assessment year 1983-84, it could not be again assessed in the previous years. The Revenue's applications under Section 256(1) were rejected. A miscellaneous petition was filed before the Tribunal to rectify its order on the ground that there was a mistake in the earlier order in stating that the entire commission had been assessed to tax for the assessment year 1983-84. In fact, the Commissioner of Income-tax (Appeals) vide his order dated February 23, 1987, deleted the addition of commission income on the ground that the same had been assessed to tax for the assessment years 1981-82 and 1982-83. The miscellaneous petition was also rejected by the Tribunal. Subsequently, pursuant to the direction given by this court, the questions as set out above, have been referred.
3. In support of the application, learned counsel for the Revenue submitted that the conclusions of the Tribunal are erroneous. It failed to notice that the approval granted by the IATA clearly provided for retroactive receipt of commission. In fact, there is no dispute on the factual position that though the approval was granted only on August 6, 1982, it was made operative from July 27, 1979, and in proceedings conveying approval, it was clearly stipulated that the commission would be payable with effect from July 27, 1979. Learned counsel for the assessee submitted that the income accrued when the approval was granted and not earlier. Reliance was placed on the decision of the apex court in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189.
4. A few relevant factual aspects which, as indicated above, are undisputed, need to be noted. Travel Agent's Handbook in Section (H) deals with "Commission and beneficial services". So far as "commission" is concerned, it reads as follows :
"Retroactive commission :
(b) (i) notwithstanding sub-paragraph (a) of this paragraph the agency board, at the time of approving an agent, may authorise commission being paid on international air passenger transportation sold by a member which such agent has referred to the member beginning with the date of receipt by the agency administrator or his representative, of the agent's successful application, or in exceptional cases, beginning with the agent's earlier application for approval ;
(ii) the member shall only make such payment provided it has appointed the agent within two months from the date of the agency administrator's advice notifying members that the agent has signed the sales agency agreement, provided further that any member which does not wish to pay such retroactive commission shall so notify the applicant in writing ;
(iii) furthermore, this shall not be deemed to authorise any person to perform any act as agent for a member before such person is approved and appointed in accordance with these rules."
5. The order of approval passed by the IATA on August 6, 1982, so far as relevant, reads as follows :
"INTERNATIONAL AIR TRANSPORT ASSOCIATION Our Ref ; 761/3389
6 August, 1982 The Manager, Jai Hind Travels (Pvt.) Ltd., XXVII/444, M. G. Road, Ernakulam, Cochin-682 016, (Kerala), India.
Dear Sirs, IATA approval of your passenger sales agency (Branch office) I have pleasure in advising you that your branch office location shown below has been approved as an IATA agent for the sale of international air passenger transportation. This office will appear on the IATA agency list as follows :
Effective date of approval :
Retroative commission date :
IATA Numeric code :
Name and listed address :
September 1, 1982.
July 27, 1979.
14-3-3389 6 P2-Jai Hind Travels Pvt. Ltd., T. C. No. 14/715, Residency Road.
Thycaud P.O., Trivandrum-695 014.
India.
6. There is, therefore, no iota of doubt that the assessee's right to such commission accrued with retrospective effect from July 27, 1979, and in terms of the Travel Agent's Handbook, the right to receive accrued from July 27, 1979. "Accrue" means "to increase, to augment, to be added as increase, to arise or spring as a natural growth or result". In order that income, profits or gains may accrue to a person, it is necessary that he must have acquired a right to receive the same or a right to the income, profits or gains has become vested in him though its valuation may be postponed or though its materialisation may depend on the contingency that the making" up of the accounts would show income, profits or gains (see E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 1TR 27 (SC) and CIT v. Shri Goverdhan Ltd. [1968] 69 ITR 675 (SC)). Thus, it is manifest that if an asses-see acquires a right to receive income, the income can be said to accrue to him though it may be received later on. A mere claim to income without an enforceable right thereto cannot be regarded as accrued income for the purpose of the Act. "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. The words "accrue" and "arise" also are not defined in the Act. The three expressions "accrues", "arises" and "is received" having been used in Section 5 of the Act, strictly speaking, "accrues" should not be taken as synonymous with "arises" but in the distinct sense of growing by way of addition or increase or as an accession or advantage ; while the word "arises" means comes into existence or notice or present itself. The former connotes the idea of a growth or accumulation and the latter of growth or accumulation with a tangible shape so as to be receivable. 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. As was observed in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC), income is said to be received when it reaches the assessee ; when the right to receive the income becomes vested in the assessee, it is said to accrue or arise.
7. It can be said without hesitation that the words "accrue" or "arise" though not defined in the Act are certainly synonymous and are used in the sense of "bringing in as a natural result". Strictly speaking the word "accrue" is not synonymous with "arise", the former connoting the idea of growth or accumulation and the latter of growth or accumulation with a tangible shape so as to be receivable. There is a distinction in the dictionary meaning of these words, but throughout the Act they seem to denote the same idea or ideas very similar and the difference only lies in this that one is more appropriate when applied to a particular case (see CIT v. Ahmedbhai Umarbhai and Co. [1950] 18 ITR 472 (SC)). It may be taken that all the three expressions would not have been used unless it was thought that they exhibited some variation in meaning and that a case might possibly arise which would come under one only of the three. If on a question as to the exact meaning of "accruing", it were to be suggested that this only means "received", it would be reasonable to object that this can hardly be correct even though the difficulty of distinguishing between "accruing" and "arising" may be great. In this sense, perhaps not a very important sense, the expressions are antithetical. But it is very plain that there is here no question of a complete disjunction or of the presentation of three mutually exclusive qualifications (see CIT v. Diwan Bahadur S. L. Mathias [1939] 7 ITR 48 (PC)). 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 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 income. There must be a debt owed to him by somebody, There must be as is otherwise expressed debitum in praesenti, solvendum in future (see W,S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532 (CA), and Webb v. Stenton [1883] 11 QBD 518 (CA)). The legal position is that a liability depending upon a contingency is not a debt in praesenti or de futuro till the contingency happens. But if it is a debt the fact that the amount has to be ascertained does not make it any the less a debt if the liability is certain and what remains is only a quantification of the amount. The postponement of the date of payment does not affect the accrual of income. The fact that the amount of income is not subsequently received by the assessee would not also detract from or efface the accrual of the income, although non-receipt may, in appropriate cases, be a valid ground for claiming deduction (see Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC)).
8. The above being the position, the income certainly accrued to the assessee by the retrospective operation. This is clearly spelt out from the order of the approval issued by the IATA, The Tribunal was, therefore, not justified in holding that it accrued only on the date of approval.
9. Our answer to the questions, therefore, is in the negative in favour of the Revenue and against the assessee.