COMMISSIONER OF INCOME TAX v. JAI HIND TRAVELS (P) LTD.
IT Ref. Nos. 9 & 10 of 1997, decided on November 1, 1999.
HIGH COURT OF KERALA
P. K. R. Menon & George K. George, for the Applicant : O. V. Radhakrishnan & M. P. Prakash, for the Respondent
ARIJIT PASAYAT, C.J. :
Pursuant to the directions given by this Court in Original Petn. Nos. 7655 and 9863 of 1993, following questions have been referred by Income-tax Appellate Tribunal, Cochin Bench (in short “Tribunal”) for opinion under section 256 (2) of IT 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 asst. yrs. 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 commission only w.e.f. 1st Sept., 1982 and that it will not relate back to 27th July, 1979 ?”
2. Factual position is almost undisputed and sans unnecessary details reads as follows : Assessee is a company in which public are not substantially interested. It derives income from travel agency. For asst. yr. 1981-82 and 1982-83, additions to the returned income were made by AO amounting to Rs. 97,538 and Rs. 2,76,767 respectively as commission on tickets sales of international airlines. Assessee was maintaining accounts on mercantile basis. Assessee’s stand that right to receive such commission arose only on 6th Aug., 1982, when International Air Transport Association (in short ‘IATA’) granted approval of passenger sales agency to assessee was not accepted by AO. In first appeal, CIT(A) noticed that assessee had applied for membership of IATA on 27th July, 1979, and though approval was granted on 6th Aug., 1982, in proceedings conveying approval, it was made clear that commission would be payable w.e.f. 27th July, 1979. Accordingly, additions were upheld. In second appeal, assessee’s stand was that it was receiving ordinary commission on sale of tickets and same was duly accounted for. Impugned commission was receivable by it only when approval of IATA was granted, though right to receive such commission accrued with retrospective effect. For asst. yr. 1983-84, assessee had admitted entire commission, which related to prior periods, as approved with retrospective effect by IATA and entries commission was assessed to tax. Copy of assessment order for the year 1983-84 was also filed. Tribunal observed that under accrual system of accounting, otherwise known as mercantile system, income accrues or arises the moment right to such income accrued or arose or recognised or granted whether or not such income was received. Assessee became entitled to commission only w.e.f. 1st Sept., 1982, onwards and also for the period from 27th July, 1979, method adopted by AO and CIT(A) was held to be not in accordance with mercantile system of accounting. Tribunal held that since income had been already assessed for asst. yr. 1983-84, it could not be again assessed in previous years. Revenue’s applications under section 256 (1) were rejected. A miscellaneous petition was filed before Tribunal to rectify its order on the ground that there was a mistake in the earlier order in stating that entire commission had been assessed to tax for asst. yr. 1983-84. In fact, CIT(A) vide his order dt. 23rd Feb., 1987, deleted addition of commission income on the ground that same had been assessed to tax for the asst. yrs. 1981-82 and 1982-83. Miscellaneous petition was also rejected by Tribunal. Subsequently, pursuant to the direction given by this Court, questions as set out above, have been referred.
3. In support of the application, learned counsel for Revenue submitted that conclusions of Tribunal are erroneous. It failed to notice that approval granted by IATA clearly provided for retroactive receipt of commission. In fact, there is no dispute on factual position that though approval was granted only on 6th Aug., 1982, it was made operative from 27th July, 1979 and in proceedings conveying approval, it was clearly stipulated that commission would be payable w.e.f. 27th July, 1979. Learned counsel for assessee submitted that income accrued when approval was granted and not earlier. Reliance was placed on the decision of apex Court in Nonsuch Tea Estate Ltd. vs. CIT 1975 CTR (SC) 20 : (1975) 98 ITR 189 (SC) : TC 16R.703.
4. 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-para (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.”
The order of approval passed by IATA on 6th Aug., 1982, so far as relevant, reads as follows :
“International Air Transport Association
Our Ref : 761/3389 6th Aug., 1982
The Manager Jai Hind Travels (P) Ltd. XXVII/444
IATA approval of your Passenger Sales Agency (branch office)
I have pleasure in advising you that your branch officer 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 : 1st September, 1982
Retroactive commission date : 27th July, 1979
IATA Numeric Code : 14-3 3389 6
Name and listed address : P2-Jai Hind Travels (P). Ltd.
T.C. 14/715, Residence Road,
Trivandrum 695014, India
There is, therefore, no iota of doubt that assessee’s right to such commission accrued with retrospective effect from 27th July, 1979, and in terms of Travel Agent’s Handbook, right to receive accrued from 27th July, 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 & Co. Ltd. vs. CIT (1954) 26 ITR 27 (SC) : TC 39R.313 and CIT vs. Shri Goverdhan Ltd. (1968) 69 ITR 675 (SC) : TC 24R.733]. Thus, it is manifest that if an assessee 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 word “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, “accrue” should not be taken as synonymous with “arises” but in the distinct sense of growing up by way of addition 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. Both the words are used in contradistinction to the words “receive” and indicate a right to receive. They represent a state anterior to the point of time when income becomes receivable and connote a character of the income which is more or less inchoate. As was observed in CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC) : TC 39R.904, 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.
5. 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 the 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 vs. Ahmedbhai Umarbhai & Co. (1950) 18 ITR 472 (SC) : TC 39R.463]. It may be taken that all 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 vs. Diwan Bahadur section L. Mathias (1939) 7 ITR 48 (PC) : TC 68R.133]. It is clear, therefore, that income may accrue to an assessee without the actual receipt of the same. If 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 futuro. [See W.section Try Ltd. vs. Johnson (Inspector of Taxes) (1946) 1 All ER 532 and Webb vs. Stenton & Ors., Garnishees 11 QBD 518]. The legal position is that a liability depending upon a contingency is not a debt in praesenti or in 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 the income. The fact that the amount of the 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. vs. CIT 1974 CTR (SC) 149 : (1971) 82 ITR 835 (SC) : TC 39R.720].
6. Above being the position, the income certainly accrued to assessee by the retrospective operation. This is clearly spelt out from the order of approval issue by IATA. Tribunal was, therefore, not justified in holding that it accrued only on the date of approval.
Our answer to the questions, therefore, is in the negative in favour of Revenue and against assessee.