COMMISSIONER OF INCOME TAX vs JAI HIND TRAVELS (P) LTD.

Pasayat, CJ.

Pursuant to the directions given by this court in OP Nos. 7655 and 9863 of 1993, following questions have been referred by the Tribunal, Cochin Bench, for opinion u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as ''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 ?

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 with effect from 1-9-1982 and that it will not relate back to 27-7-1979 ?"

Factual position is almost undisputed and sans unnecessary details reads as follows : The assessee is a company in which 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 right to receive such commission arose only on 6-8-1982 when International Air Transport Association (hereinafter referred to as ''IATA'') granted approval of passenger sales agency to the assessee was not accepted by the assessing officer. In first appeal, the Commissioner (Appeals) noticed that the assessee had applied for membership of IATA on 27-7-1979 and though approval was granted on 6-8-1982, in proceedings conveying approval it was made clear that commission would be payable with effect from 27-7-1979.

Accordingly, additions were upheld. In second appeal, the 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 the assessment year 1983-84, the assessee had admitted entire commission, which related to prior periods, as approved with retrospective effect by IATA and entire commission was assessed to tax. Copy of assessment order for the year 1983-84 was also filed. The Tribunal observed that under the 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. The assessee became entitled to commission only with effect from 1-9-1982 onwards and also for the period from 27-7-1979. Method adopted by the assessing officer and the Commissioner (Appeals) was held to be not in accordance with the mercantile system of accounting. The Tribunal held that since income had been already assessed for the assessment year 1983-84, it could not be again assessed in previous years. The revenue''s applications u/s 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 entire commission had been assessed to tax for the assessment year 1983-84. In fact, the Commissioner (Appeals) vide his order dated 23-2-1987, deleted addition of commission income on the ground that the same had been assessed to tax for the assessment years 1981-82 and 1982-83. Miscellaneous petition was also rejected by the Tribunal. Subsequently, pursuant to the direction given by this court, questions as set out above have been referred.

In support of the application, the learned counsel for the revenue submitted that conclusions of the 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 6-8-1982, it was made operative from 27-7-1979 and in proceedings conveying approval, it was clearly stipulated that commission would be payable with effect from 27-7-1979. The learned counsel for the assessee submitted that income accrued when approval was granted and not earlier. Reliance was placed on the decision of the Apex Court in Nonsuch Estate Ltd. Vs. The Commissioner of Income Tax, Madras, .

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 retrospective 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 6-8-1982, so far as relevant, reads as follows :

"International Air Transport Association

6 August 1982

Our Ref : 761/3389

The Manager

Jai Hind Travels (P) Ltd.

XXVII/444 M.G. Road

Ernakulam, Cochin-682016

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

:

1 September, 1982

Retroactive Commission Date

:

27 July, 1979

IATA Numeric Code

:

14-3-33896

Name and Listed Address

:

P2 - Jai Hind Travels P Ltd.

T.C. 14/715,

Residency Road

Theycaud P.O.

Trivanduram-695014

India

There is, therefore, no iota of doubt that the assessee''s right to such commission accrued with retrospective effect from 27-7-1979 and in terms of Travel Agent''s Handbook, right to receive accrued from 27-7-1979. ''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- E.D. Sassoon and Company Ltd. Vs. The Commissioner of Income Tax, Bombay City, and Commissioner of Income Tax, Bombay, City II Vs. Goverdhan Ltd., . 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 and so far as receiving of income is concerned, there can be no difficulty as 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, ''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 contra-distinction to the word ''receive'' and indicate a right to receive. They represent a state anterior to the point of time when income becomes receivable and connotes a character of the income which is more or less inchoate. As was observed in Commissioner of Income Tax, Gujarat Vs. Ashokbhai Chimanbhai, , 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.

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- COMMISSIONER OF Income Tax, BOMBAY Vs. AHMEDBHAI UMARBHAI and CO., BOMBAY., . 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 only one 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.-CIT v. Diwan Bahadur S.L. Mathias (1939) 7 ITR 48 . It is clear, therefore, that income may accrue to an assessee without the actual receipt of the same. If assessee acquires a light to receive income, the income earl 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 - W.S. Try Ltd. v. Johnson (Inspector of Taxes) (1946) 1 All E.R.532 and Webb v. Stenton 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 anytheless 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 affeet 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 - Morvi Industries Ltd. Vs. Commissioner of Income Tax (Central) Calcutta, .

Above being the position, the income certainly accrued to the assessee by the retrospective operation. This is clearly spelt out from the order of approval issued by IATA. The 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 the assessee.