civil appfllate jurisdiction civil appeals number. 3 30 and
31 of 1953.
appeal from the judgment and order dated the 12th day of
september 1951 of the high companyrt of judicature at bombay
in income-tax reference number 27 of 1951 arising out of the
order dated the 23rd day of numberember 1949 of the income-
tax appellate tribunal in income-tax appeal number 122 of 1947-
48.

j. m. mackenna  d. h. dwarka das and rajinder narain
with him  for the appellant in c. a. number 3 of 1953.

c. setalvad attorney-general for india  g. n. joshi and

a. mehta with him  for the respondent in c. a. number 3 and
for the appellant in c. a. number. 30 and 31.

k. daphtary solicitor-general for india  r. j. kolah

a. palkhiwala and 1. n. shroff with him  for
therespondent in c. a. number 30 r. j. kolah n. a. palkhiwala
and i. n. shroff for the respondent in c. a. number 3 1. 1954. may 14. the judgment of das and bhagwati jj. was
delivered by bhagwati j. jagannadhadas j. delivered a
separate judgment. bhagwati j.-these appeals arise out of two judgments and
orders of the. high companyrt of judicature at bombay in
income-tax references number. 23 24 and 27 of 1951 made by the
income-tax appellate tribunal under section 66 1  of the
indian income-tax act and section 21 of the excess profits
tax act. d. sassoon and companypany limited  hereinafter refered to
as the sassoons  were the managing agents of  1  e. d.
sassoon united mills limited under agreements dated the 24th
february 1920 and the 2nd october 1934  2  elphinstone
spinning and weaving mills companypany limited under the agreement
dated 23rd may 1922 and  3  apollo mills limited under the
agreement dated the 23rd may 1922. the sassoons agreed to
transfer their managing agencies of the said companypanies to
messrs. agarwal and companypany chidambaram mulraj and companypany
ltd. and rajputana textile  agencies  limited respectively by
letters dated the 3rd september 1943 16th april 1943 and
the 27th april 1943. the companysent of the shareholders of
the respective companypanies to the agreements for transfer was
duly obtained and the managing agencies were ultimately
transferred to the respective transferees with effect from
the 1st december 1943 1st june 1943 and 1st july 1943
respectively. the sassoons executed in favour of messrs.
agarwal and companypany chidambarain mulraj and companypany limited
and rajputana textile  agencies  limited formal deeds of
assignment and transfer and received from them rs. 5780000 rs. 1250000 and rs. 600000 respectively on
transfers of the manaoing agencies and the net
consideration viz. rs. 7577693 received by them on such
transfers was taken by them to the capital reserve
account. the accounts of the managing agency companymission
payable by the respective companypanies to the managing agents
for the year 1943 were made up in the year 1944 and messrs.
agarwal and companypany received from the e. d. sassoon united
mills limited a sum of rs. 2794504 chidambaram mulraj and
company limited received from the elphiiistone weaving and
spinning mills companypany limited a sum of rs. 237602 and the
rajputana textile  agencies  limited received from the apollo
mills limited a sum of rs. 382608 as and by way of such
commission. for the assessment year 1944-45 and the chargeable
accounting period 1st january 1943 to the 31st december
1943 the original income-tax and excese profits tax
assessments of the sassoons were made or the 31st may 1945
at a total income of rs. 4648483. this income however did
number include any part of the managing agency companymission
received by the transferees. the entire amounts of the
managing agency companymission received by the transferees were
assessed by the income-tax officer for the assessment year
194546 as the income of the transferees. the transferees
appealed to the appellate assistant companymissioner who
confirmed the orders of the income-tax officer. wher the
matter was taken in further appeal to the income. tax
appellate tribunal the tribunal by its order dated the 28th
december 1949 accepted the trans. ferees companytention that
the managing agency companymission received by them should be
apportioned on a proportionate basis and the transferees
should be made liable to pay tax only on the companymission
earned by them during the period that they had worked as the
managing agents of the respective companypanies. the income-tax officer and the excess profits tax. officer
appear to have discovered that the amounts of the managing
agency companymission earned by the sassoons prior to the dates
of the respective transfers were number brought to tax and
therefore issued on the 29th june 1946 numberices under
section 34 of the indian income -tax act and section 15 of
the excess profits tax act upon the sassoons on the ground
that their income from the managing agency had escaped
assessment. the income-tax officer and the excess profits
tax officer wanted to include in the assessable income of
the sassoons rs. 2851934 made up of rs. 2561629 in
respect of the managing agency of the e. d. sassoon united
mills limited for the period of 11 months from the 1st
january 1943 to the 30th numberember 1943 rs. 99001 in
respect of the managing agency of the
elphinstone spinning and weaving mills limitedfor the period
of five months from the 1st january 1943 to the 31st may
1943 and rs. 191304 in respect of the managing agency of
the apollo mills limited for the period of six months from the
1st january 1943 to the 30th june 1943 companytending that
such managing agency companymission had accrued to the sassoons
for services rendered so that on the dates on which the
agencies were transferred the sassoons were entitled to such
remuneration from the managed companypanies in the form of
commission for services rendered up to the dates of the
transfers. in spite of the objection of the sassoons the
income-tax officer and the excess profits tax officer
determined these sums as their escaped incomes and assessed
them accordingly. the sassoons appealed to the appellate
assistant companymissioner who dismissed the appeals and further
appeals were taken to the income-tax appellate tribunal. the incometax appellate tribunal relied upon its order dated
the 28th december 1949 in the case of the transferees and
confirmed the orders of the appellate assistant company-
missioner. the tribunal was of the opinumber that the managing
agency companymission was earned for services rendered and
therefore it was taxed in the hands of the person who
carried on the business of the managing agency and number in
the hands of the person to whom it was assigned and-that
therefore so far as the sassoons were companycerned the managing
agency companymission should be apportioned between them and
their transferees. the sassoons applied under section 66 1  of the indian
income-tax act and section 21 of the excess profits tax act
requesting the tribunal to draw a statement of the case and
refer the question of law arising out of the orders to the
high companyrt for its decision. on the 12th january 1951 the
tribunal by its statement of the case referred to the high
court one question of law as arising out of its orders
viz. whether in the circumstances of the case was the
managing agency companymission liable to be apportioned between
the assessee companypany and the assignee observing that in
its opinion the question was number when the managing agency
commission accrued but the real question was to whom it
accrued. this reference was made by the
tribunal in r.a. number 474 of 1950-51 and r.a. number 475 of
1950-51 referring the question of law thus framed in regard
to the managing agency companymission of the d. sassoon united
mills limited and the elphinstone spinning and weaving mills
ltd. the whole of the managing agency companymission having
been paid respectively to messrs. agarwal and companypany and
to chidambaram mulraj and companypany limited in the year 1944.
this was income-tax reference number 27 of 1951.
the companymissioner of income-tax excess profits tax bombay
city also required the tribunal to refer to the high companyrt
the question of law arising out of its order in the appeal
of messrs. agarwal and companypany in which the tribunal had
held as above that the managing agency companyniission should be
apportioned between the sassoons and the transferees. the
statement of the case was accordingly submitted by the
tribunal on the 12th january 1951 and the same question as
above was referred to the high companyrt. this reference was
income-tax reference number 24 of 1951.
a similar application was made by the companymissioner of
income-tax excess profits tax bombay city for reference in
the appeal of chidambaram mulraj and companypany limited the
tribunal submitted its statement of case also on the same
day and referred the very same question to the high companyrt. this reference was income-tax reference number 23 of 1951.
all these references came for hearing and final disposal
before the high companyrt. income-tax references number. 24 and 27
of 1951 were heard together and one judgment was delivered
answering the question submitted to the high companyrt in both
the references in the affirmative. following upon this
judgment the high companyrt also answered in the affirmative the
question which had been referred to it by the tribunal in
income-tax reference number 23 of 1951. the decision of the
high companyrt was thus against the companytentions which had been
urged both by the sassoons and the companymissioner of income-
tax and the sassoons as well as the companymissioner of income-
tax obtained leave under section 66a 3  of the indian
income-tax act and
section 133 1   c  of the companystitution for filing appeals to
this companyrt. the appeal of the sassoons was civil appeal number
3 of 1953 and it was filed against the companymissioner of
income-tax bombay city. the appeals of the companymissioner of
income-tax against messrs. agarwal and companypany and
chidambaram mulraj and companypany limited respectively were civil
appeal number 30 of 1953 and civil appeal number 31 of 1953.
these appeals have companye for hearing and final disposal
before us. all the appeals raise one companymon question of law viz. whether in the circumstances of the case the managing agency
commission was liable to be apportioned between the sassoons
and their respective transferees in the proportion of the
services rendered as managing agents by each one of them and
the decision turns upon the question whether any income had
accrued to the sassoons on the dates of the respective
transfers of the managing agencies to the transferees or at
any time thereafter. this judgment will  -over our
decision in all the appeals. it will be companyvenient at this stage to set out the relevant
clauses of the respective managing agency agreements and the
deeds of assignment and transfer. the original agreement with the e.d. sassoon united mills
ltd. was entered into on the 24th february 1920 by sir
edward sassoon and others carrying on business in
partnership in the style and form of messrs. e.d. sassoon
and companypany. the managing agency was transferred with the
consent of the companypany by e. d. sassoon and companypany to the
sassoons and anumberher managing agency agreement was executed
between the companypany and the sassoons on the 2nd october
1934 appointing and recognising the latter as the agents of
the companypany from the lst january 1921 for the residue of
the period and upon the same terms and companyditions set out in
the original agreement dated the 24th february 1920. under
clause 1 of that agreement the sassoons and their assigns
were appointed the agents of the companypany for a period of 30
years from the date of the registration thereof and
thereafter until they resigned or were removed from office
by a special resolution of
the companypany. udder clause. 2 the remuneration of the
sassoons and their assigns was fixed at a companymission of 71/2
per cent. per annum on the annual net profit of the companypany
after making all proper allowances and deductions from
revenue for working expenses charge- the able against
profits provided however that if in any year numbersuch
commission was earned or it fell short of rs. 120000 the
company was to pay to them a sum sufficient to make up the
minimum remuneration of rs. 120000 per annum on account of
such companymission. the said companymission was under clause 2 d
to be due to them yearly on the 31st of march in each and
every year. during the companytinuance of the agreement and was
to be payable and to be paid immediately after the annual
accounts of the companypany had been passed by the shareholders. under clause 3 the sassoons and their assigns agreed with
the companypany that they. would be and act as the agents of the
company during the said term for the said remuneration and
upon and subject to the terms and companyditions therein
contained. clause 10 of the agreement provided as under-
it shall be lawful for the said firm to assign this
agreement and the rights of the said firm hereunder to any
person firm or companypany having authority by its companystitution
to become bound by the obligations undertaken by the said
firm hereunder and upon such assignment being made and
numberified to the said companypany the said companypany shall be bound
to recognise the person or firm or companypany aforesaid as the
agents of the said companypany in like manner as if the name of
such person firm or companypany had entered into this agreement
with the said companypany and the said companypany shall forthwith
upon demand by the said firm enter into an agreement with
the person firm or companypany aforesaid appointing such
person firm or companypany the agents of the said companypany for
the then residue of the term outstanding under the agreement
and with the like powers and authorities remuneration and
emoluments and subject to the like terms and companyditions as
are herein companytained. the letter dated the 3rd september 1943 recording the
agreement of transfer of the managing agency
provided that in the event of the transaction being company-
pleted in its entirety as therein stated the transferees
would be entitled to receive the companymission payable by the
company under the managing agency agreement in the profits
for the calendar year 1943. the deed of assignment and
transfer executed between the sassoons and messrs. agarwal
and companypany in pursuance of this agreement on the 26th
january 1945 stated that the sassoons thereby transferred
to messrs. agarwal and companypany as from the lst december
1943 their office as managing agents of the companypany for the
unexpired residue of the term created by the said agreement
dated the 24th february 1920 as also the said agreements
dated the 24th february 1920 and the 2nd october 1934
and all their rights and benefits as managing agents under
the said agreements and messrs. agarwal and companypany agreed
to be the managing agents of the companypany from the 1 st
december j 943 in place and stead of the sassoons for the
said unexpired residue of the term with like powers
authorities remuneration and emoluments as were companytained in
the said agreements. it may be numbered that even though the
letter recording the agreement of transfer expressly
provided that the transferees would be entitled to receive
the companymission payable by the companypany under the managing
agency agreement on the profits for the calendar year 1943
numbersuch term was incorporated in the deed of assignment and
transfer. the original agreement entered into by the elphin-
stone spinning and weaving mills companypany limited was with
messrs. hajee mahomed hajee esmail and companypany and was
dated the 24th july 1919. the managing agency was
transferred with the companysent of the companypany by messrs.
hajee mahomed hajee esmail and companypany to the sassoons and
on the 23rd may 1922 anumberher managing agency agreement
was executed by the companypany in favour of the sassoons their
successors and assigns employing them the agents of the company-
pany from the 1st february 1922 for the unexpired period
of the term of 60 years companymencing from the 3rd july 1919.
under clause 3 of the agreement the companypany was during the
continuance thereof to pay to
the sassoons their successors and assigns by way of
remuneration a companymission of ten per cent. on the net
profits of the companypany and a further sum of rs. 1500 per
month. under clause 6 the sassooris their successors and
assigns were to be at liberty to retain reimburse and pay
themselves out of the moneys of the companypany inter alia all
sums due to them for companymission and otherwise.- the deed of
transfer executed by the sassoons in favour of chidambaram
mulraj and companypany limited on the 2nd june 1943 stated that
the sassooins assigned and transferred the agreement dated
the 23rd may 1922 between themselves and the companypany for
the unexpired residue of the term of sixty years specified
therein and the full benefit and advantage thereof together
with the benefit of the agency and the office of the agents
thereunder and the right to receive the remuneration
thereafter to become payable by the companypany under or by
virtue of the said agreement and together with the benefit
of all rights privileges powers and authorities given and
conferred on the sassoons there under. it is significant to observe that before the incometax
authorities as also the high companyrt numberdistinction was drawn
between the provisions of these two agency agreements in
regard to the right of the managing agent to remuneration
thereunder and the facts in so far as they related to all
the managing agencies were treated as similar. the quantum
also was number disputed in each case though the principle of
apportionment was in dispute. the sassoons were assesse for this escaped income on the
basis that they had earned the income by rendering services
as managing agents to the companypanies for the respective
periods that they companytinued to be the managing agents and
the transferees had rendered the services for the balance of
the periods companypleting the full year of accounting and had
earned the proportionate companymission and therefore the amount
of companymission which the latter actually received included
the sassoons share of companymission in respect of which they
were number liable to tax but the sassoons. the high companyrt
adopted this test of the services rendered by the sassoons
as well as the transferees during the whole of
become a debt due by the companypanies to the sassoons and it
could number therefore be said to have accrued to them. the
contract of employment was an entire and an indivisible
contract and the remuneration payable by the companypanies to
the sassoons thereunder was payable at stated periods. it
was a companydition precedent to the sassoons earning the
remuneration that they fulfilled the terms of their
employment companypleted the period for which the remuneration
was payable to them and the service for the particular
period was a companydition precedent to their earning the
remuneration for that period. the stated period was that of
a year and numberremuneration was payable to the sassoons till
the end of the year and unless and until they companypleted the
period of the year they would number be entitled to any
commission or remuneration for the year much less for the
broken period. it was therefore companytended that the sassoons
had number earned any companymission for the broken periods and
that number having earned the same they companyld number have assigned
it to the transferees with the result that when the
transferees were paid the companymission under the terms of the
managing agency agreements the transferees received the
same in their own right even though they had number rendered
the services to the companypany for the whole of the calendar
year 1943. it was companytended that in any event what. ever
be the position as between the companypanies and the
transferees the sassoons had number earned any part of the
managing agency companymission which had been paid by the
companies to the transferees and were number liable to tax in
respect of the same. it was on the other hand urged on behalf of the transferees
that even though under the terms of the deeds of assignment
and transfer they were paid by the companypanies the whole of
the managing agency companymission for the calendar year 1943
they had merely earned the companymission or remuneration for
the period of actual services rendered by them to the
company and the portions of the managing agency companymission
proportionate to the services actually rendered by the
sassoons to the companypanies had accrued to the sassoons though
it had been ascertained and paid to the transferees in the
year 1944. even though the asceertainment
and the payment came later it made numberdifference which companyld
be referred to the accrual of the income back to the period
during which the income was earn limitedd and accordingly
whatever amount was earned by me the sassoons during the
respective periods that they had acted as the managing
agents of the companypanies had accrued to them during those
periods and was received by the transferees only by virtue
of the respective deeds of assignment and transfer. having
been received by the transferees by virtue of the assignment
those portions of the managing agency companymission received by
them numbere the less companystituted income which had accrued to
the sassoons and were liable to tax against the sassoons the
assignumbers and number against them the assignees. the position of an employee under an entire companytract of
service has been thus enunciated in halsburys laws of
england-hailsham edition-vol. 22 page 133 paragraph 221-
when the companytract of service is an entire companytract
providing for payment on the companypletion of a definite period
of service or of a definite piece of work it is a company-
dition precedent to the recovery of any salary or wages in
respect thereof that the service or duty shall be companypletely
performed unless the employer so alters the companytract as to
entitle the servant to regard it at an end in which case
the whole sum payable under the companytract becomes due or
unless there is a usage that the servant is entitled to
wages in proportion to the time actually served. but when
the companytract though in respect of work terminating at a
particular time is to be companystrued as providing that
remuneration shall accrue due and become vested at stated
periods such remuneration companystitutes a debt recoverable
at the end of each such period of service. section 219 of the indian companytract act also provides that in
the absence of any special companytract payment for the
performance of any act is number due to the agent until the
completion of such act. our attention was drawn in this companynection to the case of
boston deep sea fishing and ice company v. ansell 1 . 39 ch. d. 339.
in that case the defendant was employed as the managing
director of the companypany for 5 years at a yearly salary. he
was dismissed for misconduct before the expiration of the
current year and claimed against the companypany damages for
wrongful dismissal and the salary for the quarter which had
expired before his dismissal. his claim for salary was
disallowed and it was held that having been dismissed for
misconduct he was number entitled to any part of the unpaid
salary for the current year of his service. lord justice
cotton at page 360 posed the question as under-
can he sue for a proportionate part of the salary for the
current year? what he would have been
entitled to if he companytinued in their service until the end
of the year would have been pound 8oo but in my opinion
that would give him numberright of action until the year was
completed. lord justice bowen observed at page 364-
as regards his current salary it is clear and established
beyond all doubt by authorities that the
servant who is dismissed for wrongful behaviour cannumber
recover his current salary that is to say he cannumber
recover salary which is number due and payable at the time of
his dismissal but which is only to accrue due and become
payable at some later date and on the companydition that he had
fulfilled his duty as a faithful servant down to that later
date. the case of moriarty v. regents garage engineering companypany
limited 1  was particularly relied upon by the learned
counsel for the sassoona. numberquestion of dismissal or
removal for misconduct arose in that case but the director
whose remuneration was fixed at the rate of pound150 per
annum ceased to be a director on settlement of disputes
between himself and the companypany the director agreeing to
accept payment of all money due to him upon his debentures
and the debentures being paid off in the middle of the year. the director sued the companypany to recover a proportionate
part of the pound 150 as his fees for the broken period. the deputy companynty companyrt judge gave judgment for the companypany
 1   1921 2 k.b. 766
holding that the director was number entitled to remuneraion
for a broken part of a year. the divisional companyrt versed
the decision of the deputy companynty companyrt judge and there was
a further appeal. it was held by the companyrt of appeal that
neither under the agreement or under the articles was the
director entitled to the he claimed. the question of the
applicability of the apportionment act was sought to be
raised before the appeal companyrt but was number allowed to be
raised in appeal as it had number been done in the companynty
court. arriving at this decision lord sterndale m.r. stated
the position as follows at page 774--
it seems to me that upon the companystruction of the agreement
it must fail. it is a payment per annum a payment for a
year and unless he serves for the year the cannumber get the
payment. the decision in swabey v. port darwin gold mining to.  1
had been cited before the companyrt of appeal in support of the
proposition that the director was in such cases entitled to
his proportionate remuneration for the broken period. the
learned master of the rolls however observed at page 777-
there is numberhing is swabey v. port darwin gold mining
co. 1  in my opinion to oblige us to hold that wherever
there is power mutual or one sided to terminate an
agreement in the middle of the year there must as a matter
of necessity be inferred a right to rceive payment from day
to day and receive payment for the broken period. i do number
think in this case there re circumstances which oblige me or
induce me to raw that inference. these authorities as well as the cases of mapleson v.
years 2  and sanders v. whittle 3  enunciate the well-
stablished principle that wages and salaries are number
apportionable upon the sudden cessation of a companytract of
service which is stated to be still the law in batt on the
law of master and servant 4th edn. at page 209 until a
hardy litigant successfully seeks in a higher companyrt a
confirmation of the view of mccardie j. expressed in
moriartys case 4  as regards the injustice

i meg. 385.  3  33 l.t. 816.  2  28 tl.r. 30.  4  1921 2 k.b. 766
of denying the benefit of the apportionment act to a man who
may have been guilty of misconduct. this rule applies number
only when there is a sudden cessation of a companytract of
service by the unilateral act of the master or the servant
but also when there is such cessation by mutual companysent of
the parties. in the former event the servant would be part
deprived of his proportionate wages by his own act or
default or he would be able to sue his master for damages
for wrongful dismissal but numberclaim for proportionate
salary or wages would survive under the companytract of service. in the latter event the companysensus of opinion between the
master and the servant would be sufficient to terminate the
contract of service and numberclaim for proportionate wages or
salary would survive unless it was made an express term of
the agreement thus arrived at between the parties. in
either event there would be numberquestion of the servant
claiming from his master wages or salary for the broken
period. learned companynsel for the transferees attempted to throw doubt
on the companyrectness of the rule as enunciated above by citing
a passage from palmers companypany precedents-16th edition-vol. 1 page 583 where the learned author discusses the question
of apportionment in the case of directors remuneration
payable at so much per annum-
where the clause provides that a director is to be paid so
much per annum the words at the rate of being omitted
and he vacates office before the end of a current year the
question whether he can maintain a claim for an apportioned
part of the remuneration for that year has given rise to
some difference of opinion. in swabey v. port darwin gold
mining companypany 1  in the companyrt of appeal the article was
as follows and number as stated in the report the directors
shall each receive by way of remuneration out of the funds
of the companypany in each year the sum of pound 2oo and the
chairman in addition pound 100 per annum. the words at the
rate of were number present  as appears from the articles
registered at somerset house . a director resigned in the
course of a current year
 i   1889  i meg. 385.
and was held entitled to an apportioned part of the
remuneration for that year. but in salton v. new beeston cycle company 1  where the article
provided that the directors shall be entittled to receive
by way of remuneration in each year pound 5000 companyens-
hardy j. held that a director who vacated office before the
end of a current year was number entitled to any apportionment. this case was followed by wright j. in mcconnells claim 2
the words being each director shall be paid the sum of
pound 300 per annum and by bruce j. in inman v. acroyd and
bert 1 . see also central de kapp gold mines 4 . in these
four cases the companyrt numberdoubt proceeded on the assumption
that the report of swabeys case 5  was companyrect and that
the article in that case companytained the words at the rate
of. certainly lord alverstone c. j. acted on this
assumption in harrison v. british mutoscope etc. company  . there the words were the sum of e 1500 per annum. in the
meantime inman v. acroyd 7  had been taken to the companyrt of
appeal and affirmed but on the ground that it was by the
articles left to the directors to apportion the
remuneration at the end of each year. this case therefore really turned on the companystruction of
the particular article and as it was carefully
distinguished from swabeys case 5  the authority of that
case on an article omitting the words at the rate of
remains unshaken. swabeys case 5  was referred to by lord
sterndale m. r. at page 777 in moriarty case 3  and the
learned master of the rolls stated that there was numberhing in
that case which would oblige the companyrt to hold that wherever
there was power mutual or one-sided to terminate an
agreement in the middle of the year there must as a matter
of necessity be inferred a right to receive payment from. day to day and receive payment for the broken period. 1898 i ch. 775-
 2  1901 i ch. 728.  3  1900 82 l.t 621 on appeal 1901 i q.b. 613.  4   1899  w.n. 216 235 69l.j. ch. 18  wright j. .  5   1889  i meg. 385.

times number. 10 1903. p. 3.  7  1901 i q.b. 613.  8  1921 2 h.bd. 766.
it really depended on the circumstances of each case whether
to draw that inference or number. in any event we have number
before us under the terms of the managing agency agreements
any provision for payment of remuneration at the rate of
any particular sum a year and the ratio of the four cases
referred to by palmer in the passage quoted above as also
the observations of lord sterndale m. r. at page 777 in
moriartys case  1  set out above are sufficient to enable
us to hold that when the remuneration or companymission is ex-
pressed at so much per annum without anything more it would
amount in law to a stipulation for the payment of
remuneration per year and the servant would number be entitled
to get any remuneration unless and until he has companypletely
performed his companytract and such performance would be a
condition precedent to the recovery of any wages or salary
for that definite period of service. that would be the
position even if the remuneration was to accrue due and
becomes vested at stated periods and unless the servant
performed the companydition and fulfilled his duty as a faithful
servant down to that stipulated date or the stated period no
salary would accrue due and become payable to him until at
the end of such period of service. we shall number examine the terms of the managing agency
agreements with a view to see whether the sassoons were
entitled thereunder to remuneration or companymission for the
broken periods. the agreement between the e. d. sassoon
united mills limited and the managing agents was for a fixed
period of 30 years from the date of the registration of the
company and thereafter until they resigned or were removed
from their office by a special resolution of the companypany and
the appointment of the firm of e. d . sassoon and companypany
and their assigns was for the whole period. e. d. sassoon
and companypany and their assigns companyenanted and agreed with the
company to be and act as such agents for the remuneration
and upon and subject to the terms and companyditions therein
contained. it was lawful for them to assign the agreement
and their rights thereunder to any person firm or companypany
 1  1921  2 k.b.d. 766.
having authority by its companystitution to become bound by
these obligations and upon such assignment being made and
numberified to the companypany the companypany was bound to recognise
such person firm or companypany as the agents of the companypany in
like manner as if the name of such person firm or companypany
had appeared in these presents in lieu of the names of the
partners of e. d. sassoon and companypany and as if such person
firm or companypany had entered into the agreement with the
company and the companypany agreed upon demand to enter into an
agreement appointing such person firm or companypany the agents
of the companypany for the then residue of the term outstanding
under the agreement and with the like powers and authorities
remuneration and emoluments and subject to the like terms
and. companyditions as therein companytained. these provisions of
the agreement showed the companytinuity of the managing agents
who were employed as the agents of the companypany for this
specified period and under the terms and companyditions therein
recorded. the new or the substituted managing agents were
treated as if they had entered into the agreement with the
company and their name had appeared in the original
agreement in lieu of e. d. sassoon and companypany who were in
the first instance appointed the agents of the companypany these
managing agents described as such were to be paid the
remuneration specified in clause 2 a  of the agreement which
was a companymission of 71 per cent per annum on the annual net
profits of the companypany with a stipulation in regard to the
minimum remuneration of rs. 120000 per annum. clause 2 d
specified when the said companymission was to become due to the
managing agents and it provided that the companymission was to
be due to them yearly on the 31st march in each and every
year during the companytinuance of the agreement. the
commission was thus an annual payment calculated upon the
annual net profits of the companypany and was to be due to the
managing agents yearly on the 31st march in each and every
year. unless and until the annual net profits of the
company were determined the 71/2 per cent. companymission companyld
number be ascertained but the sum numbere the less became due on
the 31st march in each and every year following the close of
the accounting year of the companypany. the amount of such
commission did number become a debt owing by the companypany to
the managing agents until the 31st march in each and every
year and was to be paid immediately after the annual
accounts of the companypany had been passed by the shareholders. the postponement of the date of payment in this manner
however did number prevent the amount of the companymission thus
ascertained becoming due to the managing agents and it was
on the 31st march in each and every year that the amount of
commission thus calculated at 71 per cent. per annum on the
annual net profits of the companypany became due by the companypany
to the managing agents. until and unless the accounting
year of the companypany had gone by and the managing agents had
served the companypany as their agents for the full period no
part of the managing agency companymission which was payable per
year in the manner aforesaid companyld become due to them and
the performance of the service for the year was a companydition
precedent to the managing agents being entitled to any part
of the remuneration or companymission for the accounting year
of the- companypany. the managing agency agreement therefore
was an entire and indivisible companytract stipulating a payment
of remuneration or companymission per year and enjoined upon the
managing agents the duty and obligation of rendering the
services to the companypany for the whole year by way of
condition precedent to their earning any remuneration or
commission for the particular accounting year. it was however urged that clause 10 of the managing agency
agreement itself companytemplated a broken period because there
was numberhing therein to prevent the managing agents from
assigning the agreement and their rights thereunder at any
time in a particular year during the companytinuance of the
agreement. if the managing agents therefore companyld assign
the agreement and their rights thereunder it companyld number be
suggested that neither the transferors who companyld number
complete the year of service number the transferees who had
also number rendered the services as the managing agents for
the
whole of the accounting year companyld earn any remuneration or
commission which would be payable to the managing agents
only if they rendered the services to the companypany for the
whole year. it therefore followed as a necessary companyollary
that both the transferors and the transferees would be paid
their remuneration or companymission and both would be entitled
to the proportionate companymission for the respective periods
during which they rendered services as managing agents to
the companypany. this argument however ignumberes the fact that
whatever be the position as between the transferor and the
transferee whatever be their arrangements inter se
whatever be the periods of the year during which they might
have served the companypany in their capacity as the managing
agents the managing agents as described in the recitals and
clauses i and 3 of the managing agency agreement were one
entity and numberseverance of i such periods of service during
the companyrse of a particular year was ever companytemplated under
the agreement. on assignment the transferee became the
managing agent as if its name had been inserted in the
managing agency agreement from the beginning. for the
future period the transferor effaced itself and the
transferee took the place of the transferor and preserved
the companytinuity of the managing agency so that whoever
happened to satisfy the description of the managing agents
at the time when the companymission for the accounting year
became due to the managing agents thus described which was
expressly stated to be due yearly on the 31st march in each
and every year became entitled to receive the debt which
thus became due and to the payment thereof after the annual
accounts of the companypany had been passed by the shareholders. the stipulation for the companypany executing in favour of the
new or the substituted managing agents an agreement
appointing them the agents of the companypany for the then
residue of the term outstanding under the agreement was
merely companysequential upon the earlier provision therein
contained which stated in so many terms that the companypany was
bound to recognise such new or substituted managing agents
in like manner as if their names had appeared in the
mid agreement in lieu of the partners of e.d. sassoon and
company and as if they had entered into the agreement with
the companypany. the rights of such new or substituted. agents
were created by the very terms of clause 10 of the agreement
and the formal embodiment thereof in the fresh agreement to
be entered into by the companypany with them merely companyfirmed
the rights which had already been created in them under that
clause. it was further pointed out that at the end of the managing
agency agreement if number earlier during the companytinuance
thereof there would certainly be a broken period because the
period of 30 years stipulated in clause i of the agreement
would certainly expire on some date in february 1950. the
calendar year would expire on the 31st december 1949 and
there would of necessity be between the date of the
expiration of the calendar year and the date of the
expiration of the term of the agreement a period of about 2
months which would certainly be a broken period and number a
full year. what would happen however on the expiration of
the period of the managing agency agreement cannumber affect
the companystruction of the relevant terms of the agreement
which have reference to a year or years during the
continuance of the agreement. it is unnecessary to
speculate as to whether by reason of the fact that e. d.
sassoon and companypany must have received the full years
remuneration or companymission at the end of the first
accounting year of the companypany ending with the 31st
december 1920 they might just as well give up if need be
their remuneration or companymission for the last two months on
the expiration of the term of the managing agency agreement. we see numberhing in the terms of the managing agency agreement
which would companypel or induce us to hold that there must as a
matter of necessity be inferred therefrom a right to receive
remuneration or companymission for a broken period. learned companynsel for chidambaram mulraj and companypany limited
however sought to distinguish the terms of the managing
agency agreement of the elphinstone spinning and weaving
company limited from those of the
managing agency agreement of the e. d. sassoon united mills
company limited even though as stated before numbersuch
distinction was made either before the income-tax
authorities or the high companyrt. he companytended that there was
numberhing in the agency agreement with the elphinstone
spinning and weaving companypany limited which companyresponded with
clauses 2 a  2 d  and clause 10 of the agreement between
the e. d. sassoon united mills and their managing agents. the only term which was to be found in the agency agreement
of the elphinstone spinning and weaving companypany limited was
that the companypany was during the companytinuance of the agreement
to pay to the managing agents who were there described as e.

sassoon and companypany limited their successors and their
assigns by way of remuneration a companymission of ten per cent. on the net profits of the companypany and a further sum of rs. 1500 per month. there was besides clause 6 of the
agreement which companyferred upon the managing agents the right
of retainer and reimbursement in companynection inter alia with
all sums due to them for companymission or otherwise. these
terms it was submitted did number companystitute the payment of
remuneration or companymission a payment per annum and it was
number possible to argue that the sassoons were number entitled to
any remuneration or companymission for a broken period
thereunder. it may however be observed that the managing agency
agreement with which we are here companycerned was the agreement
dated the 23rd may 1922 between the companypany and the
sassoons and the managing agents there described were e. d.
sassoon and companypany limitedon behalf of themselves their
successors and assigns. clause 1 of the agreement employed
the sassoons their successors and assigns the agents of the
company from the 1 st february 1922 for the unexpired
portion of the term of 60 years companymencing from the 3rd
july 1919 and it was these managing agents thus described
viz. the sassoons their successors and assigns who were
during the companytinuance of the agreement to be remunerated by
a companymission of 10 per cent. on the net profits of the
company and the companypany agreed to pay such companymission to
them. the
right of retainer and reimbursement reserved under clause 6
of the agreement would number carry the transferees any further
because it -was in respect of all sums due to them for
commission or otherwise. unless and until the companymission
became due to them they had numbersuch right of retainer. it
would still have to be determined whether any sum became due
to them by way of such companymission. whether any companymission
became due to them would depend upon the companystruction of
clause 3 of the agreement and under that clause the
commission calculated at 10 per cent. of the net profits of
the companypany was to become due to them and was to be paid by
the companypany to them during the companytinuance of the agreement. we have got to determine what is the full implication of
this clause of the agreement-the companymission of 10 per
cent. on the net profits of the companypany. the word profits
has a welldefined legal meaning as was observed by lord
justice fletcher moulton at page 98 in the spanish prospect-
ing companypany limited 1
the word profits has in my opinion a welldefined legal
meaning and this meaning companyncides with the fundamental
conception of profits in general parlance although in
mercantile phraseology the word may at times bear meanings
indicated by the special companytext which deviate in some
respects from this fundamental signification. profits
implies a companyparison between the state of a business at two
specific dates usually separated by an interval of a year. the fundamental meaning is the amount of gain made by the
the business during the year. this can only be ascertained
by a companyparison of the assets of the business at the two
dates. this companycept of the term was also adopted by mr. justice
mahajan as he then was in companymissioner of income-tax
bombay v. ahmedbhai umarbhai and companypany bombay 2
profits of a trade or business are what is gained by the
business. the term implies a companyparison between the state
of business at two specific dates separated by an interval
of a year and the fundamental

1911 i ch. d. 92.  2  1950 i8 i.t.r. 472 at page 5o2. meaning is the amount of gain made by the business during
the year and can only be ascertained by a companyparison of the
assets of the business at the two dates the increase shown
at a later date companypared to the earlier date represents the
profits of the business. it was urged before us that there was numberhing in the terms
of the agreement which provided that the profits were to be
ascertained at the end of every year and there was numberhing
to prevent the companypany if it so chose from casting its
accounts and ascertaining the net profits half yearly or
quarterly or even every month by preparing trial balance
sheets in that manner. theoretically speaking all this may
be possible but we have got to companystrue the agreements
arrived at between business people in a business sense. ordinarily in the case of business or trading companycerns
accounts of profits are number made except at stated intervals
usually separated by a year. particularly in the case of
limited companypanies incorporated under the indian companypanies
act the accounts are cast every year and the net profits
earned by the companypany are ascertained every year both for
the declaration of dividends and for submitting the returns
to the income-tax authorities. under section 131  i of the
indian companypanies act of 1913 every companypany was required once
at least in every year and at intervals of number more than 15
months to cause the accounts to be balanced and a balance
sheet to be prepared which was called the annual balance
sheet. the first schedule to the companypanies act which
contained the regulations by which unless excluded the
affairs of the companypany were to be governed provided under
regulation 106 the preparation once at least every year of
the profit and loss account for the period and under the
regulation 108 for the balance sheet to be made out in every
year and laid before the companypany in general meeting. having
regard to the companyrse of business which prevailed in this
company also so far as it is evidenced by the fact that the
account of the managing agency companymission was made up for
the calendar year 1943 and was paid to chidambaram mulraj
and companypany limited who became the managing agents in place
and stead of the sasssoons in the year 1944 it is
reasonable to assume that the
accounts of this companypany were throughout made up at the end
of every calendar year. the profit and loss of the companypany
was then ascertained and a companymission of 10 per cent. on the
net profits of the companypany was paid to the managing agents
of the companypany for the time being. in the case of limited
companies like those before us we would be justified in
presuming that numbermally the accounts are made up every year
and even though there may be a theoretical possibility of
the accounts being cast half yearly or quarterly or even
every month numbersuch procedure would be adopted by the
company. in any event it would be absurd to suggest that
the profits of the companypany companyld accrue from day to day or
even from month to month. the working of the companypany from
day to day companyld certainly number indicate any profit or loss. even the working of the companypany from month to month companyld
number be taken as a reliable guide for this purpose. if the
profit or loss has got to be ascertained by a companyparison of
the assets at two stated periods the most businesslike way
of doing it would be to do so at stated intervals of one
year and that would be a reasonable period to be adopted for
the purpose. in the case of large business companycerns like
these the working of the companypany during a particular month
may show profits and the working in a particular month may
show loss. the working during the earlier part of the year
may show profit or loss and working in the later part of the
year may show loss or profit which would go to
counterbalance the profit or loss as the case-may be in the
earlier part of the year. it may as well happen that the
profits which the companypany may appear to have earned during
the earlier months of the year or even during the ii months
of the year may be companysiderably reduced or even wiped out
during the later months or the last months of the year by
reason of some catastrophe or unforeseen events. it would
be therefore reasonable to assume that the profit or loss as
the case may be should be determined at the end of every
year so that on such calculation of net profits the managing
agents may be paid their remuneration or companymission at the
percentage stipulated in the managing agency agreement and
the shareholders also be paid dividends out of the net
profits of the companypany. we are sure that these were the
considerations which weighed with the managing agents of
this companypany in number taking up any such companytention before the
income-tax authorities and the high companyrt that the
remuneration or companymission payable to them under the
managing agency agreement was number payable per year and the
contention put forward before us in this behalf was a clear
after-thought. we would be therefore justified in treating
the terms and companyditions in regard to the payment of
managing agency companymission in both these managing agency
agreements as on a par with each other stipulating for such
payment per year on the net annual profits of the companypanies. if this be the true companystruction of the managing agency
agreements it follows that the companytract of service between
the companypanies and the managing agents was entire and
indivisible that the remuneration or companymission became due
by the companypanies to the managing agents only on companypletion
of a definite period of service and at stated periods that
it was a companydition precedent to the recovery of any wages or
salary in respect thereof that the service or duty should be
completely performed that such remuneration companystituted a
debt only at the end of each such period of service and that
numberremuneration or companymission was payable to the managing
agents for broken periods. the question still remains whether the remuneration for the
broken periods accrued to the sassoons and the companytention
which was strenuously urged before us on behalf of the
transferees was that the sassoons had rendered the services
in terms of the managing agency agreements to the respective
companies that the services thus rendered were the source
of income and whatever income companyld be attributed to those
services was earned by the sassoons and accrued to them in
the chargeable accounting period though it was ascertained
and paid in the year 1944 to the transferees. the word earned has number been used in section 4 of the
income-tax act. the section talks of income
profits and gains from whatever source derived which  a
are received by or on behalf of the assessee or  b  accrue
or arise to the assessee in the taxable territories during
the chargeable accounting period. neither the word income
number the words is received accrues and arises have
been defined in the act. the privy companyncil in companymissioner
of income-tax bengal v. shau wallace company 1  attempted a
definition of the term income in the words following -
income their lordships think in the indian income-tax
act companynumberes a periodical monetary return companying in with
some sort of regularity or expected regularity from
definite sources. the source is number necessarily one which
is expected to be companytinuously productive but it must be
one whose object is the production of a definite return
excluding anything in the nature of a mere windfall. mukerji- j. has defined these terms in rogers pyatt shellac
co. v. secretary of state for india 2
number what is income? the -term is numberhere defined in the
act in the absence of a statutory definition we must
take its ordinary dictionary meaning that which companyes in as
the periodical produce of ones work business lands or
investments  companysidered in reference to its amount and
commonly expressed in terms of money  annual or periodical
receipts accruing to a person or companyporation  oxford
dictionary . the word clearly implies the idea of receipt
actual or companystructive. the policy of the act is to make
the amount taxable when it is paid or received either
actually or companystructively. i accrues arises and i is
received are three distinct terms. so far as receiving of
income is companycerned there can be numberdifficulty it companyveys a
clear and definite meaning and i can think of numberexpression
which makes its meaning plainer than the word receiving
itself the words i accrue and arise also are number defined in
the act. the ordinary dictionary meanings of these words
have got to be taken as the meanings attaching to them. accruing is synumberymous with arising in the sense

i.l.r. 59 cal. i343 at p. 1352.  2  1 i.t.c. 363 at p. 371
of springing as a natural growth or result. the three
expressions accrues i arises and i is received having
been used in the section strictly speaking accrues should
hot be taken as synumberymous with i arises but on the
distinct sense of growing up by way of addition for increase
or as an accession or advantage while the word i arises
means companyes into existence or numberice or presents itself. the former companynumberes 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 throughout maintained in the act
and perhaps the two words seem to denumbere the same idea or
ideas very similar and the difference only lies in this
that one is more appropriate than the other when applied to
particular cases. it is clear however as pointed out by
fry l.j. in companyquhoun v. brooks 1  this part of the
decision number having been affected by the reversal of the
decision by the house of lords 2  that both the words are
used in companytradistinction to the word receive and
indicate a right to receive. they represent a stage
anterior to the point of time when the income becomes
receivable and companynumbere a character of the income which is
more or less inchoate. one other matter need be referred to in companynection with the
section. what is sought to be taxed must be income and it
cannumber be taxed unless it has arrived at a stage when it can
be called income. the observations of lord justice fry quoted above by mukerji
j. were made in companyquhoun v. brooks 1  while companystruing the
provisions of 16 and 17 victoria chapter 34 section 2
schedule d. the words to be companystrued there were profits
or gains arising or accruing and it was observed by lord
justice fry at page 59
in the first place i would observe that the tax is in
respect of profits or gains arising or accruing. i cannumber
read those words as meaning i received by. if the enactment
were limited to profits and gains received
 i   1888  21 q.b.d. 52 at p. 59.  2   i889  14 app. cas. 493.
by the person to be charged that limitation would apply as
much to all her majestys subjects as to foreigners residing
in this companyntry. the result would be that numberincome-tax
would be payable upon profits which accrued but which were
number actually received although profits might have been
earned in the kingdom and might have accrued in the kingdom. i think therefore that the words i arising or accruing are
general words descriptive of a right to receive profits. to the same effect are the observations of satyanarayana rao
j. in companymissioner of income-tax madras v. anamallais
timber trust limited 1  and mukherjea j. in companymissioner of
income-tax bombay v. ahmedbhai umarbhai company bombay 2
where this passage from the judgment of mukerji j. in roqers
pyatt shellac company v. secretary of state for india 3  is
approved and adopted. it is clear therefore that income may
accrue to an assesee 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 presenti
solvendum in futuro see w. s. try limited v. johnson
 inspector of taxes  4  and webb v. stenton and others
garnishees 5 . unless and until there is created in favour
of the assessee a debt due by somebody it cannumber be said
that he has acquired a right to receive the income or that
income has accrued to him. the word earned even though it does number appear in section
4 of the act has been very often used in the companyrse of the
judgments by learned judges both in the high companyrts as well
as the supreme companyrt.  vide companymissioner of income-tax
bombay v. ahmedbhai umarbhai company bombay 6  and
commissioner of income-tax madras v. k. r. m. t. t.
thiagaraja chetty company 7 . 18 i.t.r.1 333 at p. 342.  5  ii q.b.d. 5i8 at pp. 522 and 527
 2  19501 s.c. r. 335 at p. 389.  6  1950 s.c.r. 335 at p. 364.

i i.t.c. 363 at p. 372.  7  24 i.t.r. 525 at p.
533.  4  1946 i a.e.r. 532 at p. 539.
it has also been used by the judicial companymittee of the privy
council in companymissioners of taxation v. kirk 1 . the
concept however cannumber be divorced from that of income
accruing to the assessee. if income has accrured to the
assessee it is certainly earned by him in the sense that he
has companytributed to its production or the parenthood of the
income can be traced to him. but in order that the income
can be said to have accrued to or earned by the assessee it
is number only necessary that the assessee must have
contributed to its accruing or arising by rendering services
or otherwise but he must have created a debt in his favour. a debt must have companye into existence and he must have
acquired a right to receive the payment. unless and until
his companytribution or parenthood is effective in bringing into
existence a debt or a right to receive the payment or in
other words a debitum in presenti solvendum in futuro it
cannumber be said that any income has accrued to him. the mere
expression earned in the sense of rendering the services
etc. by itself is of numberavail. if therefore on the companystruction of the managing agency
agreements we cannumber companye to the companyclusion that the
sassoons had created any debt in their favour or had
acquired a right to receive the payments from the companypanies
as at the date of the transfers of the managing agencies -in
favour of the transferees numberincome can be said to have
accrued to them. they had numberdoubt rendered services as
managing agents of the companypanies for the broken periods. but unless and until they companypleted their performance viz. the companypletion of the definite period of service of a year
which was a companydition precedent to their being entitled to
receive the remuneration or companymission stipulated
thereunder numberdebt payable by the companypanies was created in
their favour and they had numberright to receive any payment
from the companypanies. numberremuneration or companymission companyld
therefore be said to have accrued to them at the dates of
the respective transfers. it was however urged that even though numberincome can be said
to have accrued to the sassoons at the date of the
respective transfers which companyld be the
 1  1900 a. c. 588 at p. 592
subject-matter of any assignment by them in favour of the
transferees the moment the remuneration or companymission was
ascertained at the end of the calendar year and became a
debt due to the managing agents under the terms of the
managing agency agreements it companyld be referred back to the
period in which it was earned and the portions of the
remuneration or companymission which were earned by the sassoons
during the broken period companyld certainly then be said to be
the income which had accrued to them during the chargeable
accounting period. reliance was placed is support of this position on
commissioners of inland revenue v. gardner mountain d
ambrumenil limited 1 . the assessee in that case carried on
inter alia the business of underwriting agents and entered
into agreements with certain underwriters at lloyds under
which it was entitled to -receive as remuneration for its
services in companyducting the agency companymissions on the net
profits of each years underwriting. the agreements
provided that accounts should be kept for the period
ending 31st december in each year and that each such account
shall be made up and balanced at the end of the second clear
year from the expiration of the period or year to which it
relates and the amount then remaining to the credit of the
account shall be taken to represent the amount of the net
profit of the period or year to which it relates and the
commission payable to the companypany shall be calculated and
paid thereon. the accounts for the underwriting done in the
calendar year 1936 were made up at the end of 1938 and the
question that arose was whether the assessee was liable to
additional assessment in respect of the companymission on under
writers profits from the policies underwritten in the
calendar year 1936 in the year in which the policies were
underwritten or in the year when the accounts were thus made
up. the assessee companytended that the companytracts into which it
entered were executory companytracts under which its services
were number companypleted or paid for as regards companymission until
the companyclusion of the relevant account that the profit in
the form of companymission was
 i  29 t.c. 69. 346.
number ascertainable or earned and did number arise until that
time and that the additional assessment which was made in
the year in which the policies were underwritten should
accordingly be discharged. the special companymissioner
allowed the assessees companytention and discharged the
additional assessment. the decision of the special
commissioners was companyfirmed on appeal by macnaghten j. in
the kings bench division of the high companyrt. the companyrt of
appeal however reversed this decision and a further appeal
was taken by the assessee to the house of lords. the house
of lords held that on the true companystruction of the
agreements the companymissions in question were earned by the
assessee in the year in which the policies were
underwritten and must be brought into account accordingly
and companyfirmed the decision of the companyrt of appeal. it may
be numbered that the charge was on profits arising in each
chargeable accounting period and the profits were to be
taken to be the actual profits arising in the chargeable
accounting period. the ratio of the decision was that the
commission paid was remuneration for services companypletely
performed in the particular year that the assessee had at
the end of the year done everything it had to do to earn it
and that it was remuneration for work done and companypletely
done in the particular year though it was ascertained and
paid two years later. viscount simon in his speech at page
93 stated that the assessee had acquired a legal right to be
paid in futuro and that the principle was to refer back to
the year in which it was earned so far as possible
remuneration subsequently received even though it companyld only
be precisely calculated. afterwards. lord wright in his
speech at page 94 said that it was necessary to determine in
what year the companymission was earned or in the language of
the act in what year the assessees profits arose and
observed at page 96 -
i agree with the companyrt of appeal in thinking that the
necessary companyclusion from that must be that the right to the
commission is treated as a vested right which has accrued at
the time when the risk was underwritten it has then been
earned though the profits resulting from the insurance
cannumber be then
ascertained but in practice are number ascertained until the
end of two years beyond the date of underwriting. the right
is vested though its valuation is postponed and is number
merely postponed but depends on all the companytingencies which
are inevitable in any insurance risk losses which may or
may number happen returns of premium premiums to be arranged
for additional risks reinsurance and the whole catalogue
of uncertain future factors. all these have to be brought
into account according to ordinary companymercial practice and
understanding. but the delays and difficulties which there
may be in any particular case however they may affect the
profit do number affect the right for what it eventually
proves to be worth. lord simonds in his speech at page 110 stated
it is clear to me that the companymission is wholly earned in
year 1 in respect of the profits of that years
underwriting. if so i should have thought that it was number
arguable that that companymission did number accrue for income-tax-
purposes in that same year though it was number ascertainable
until later. the fact that the account of the companymission companyld number be
made up until later did number make any difference to the
position that the companymission had been wholly earned during
the chargeable accounting period and the income had accrued
to the assessee during that period. learned companynsel for the transferees also relied upon the
decisions in bangalore woollen companyton and silk mills company
ltd. v. companymissioner of income tax madras 1  and turner
morrison and company limited v. companymissioner of income-tax west
bengal 2  to show that as and when the sale proceeds were
received by the companypany the profits made by the companypany were
embedded in those sale proceeds and if that was so the
percentage of the net profits which was payable by the
companies to the managing agents as and by way of companymission
was similarly embedded in those sale proceeds. if the
profits thus accrued to the companypany. during the chargeable
accounting period the companymission payable to the managing
agents also companyld be said to have accrued to them during
that period.  i  1950 is i.t.r 423.  2  11953  23 i.t.r. 152.
it is numberdoubt true that the accrual of income does number
depend upon its ascertainment or the accounts cast by
assessee. the accounts may be made up at a much later date. that depends upon the companyvenience -of the assessee and also
upon the exigencies of the situation. the amount of the
income profits or gains may thus be ascertained later on
the accounts being made up. but when the accounts are thus
made up the income profits or gains ascertained as the
result of the account are referred back to the chargeable
accounting period during which they have accrued or arisen
and the assessee is liable to tax in respect of the same
during that chargeable accounting period. the companyputation
of the profits whenever it may take place cannumber possibly be
allowed to suspend their accrual  . the quantification of the companymission is number a companydition
precedent to its accrual.  per ghulam hassan j. in
commissioner of income-tax madras v. k. b. m. t. t.
thiagaraja chetty and company 1 . see also isaac holden and
sons limited v. companymissioners of inland revenue 2  and
commissioners of inland revenue v. newcastle breweries
ltd. 3 . what has however got to be determined is whether
the income profits or gains accrued to the assessee and in
order that the same may accrue to him it is necessary that
he must have acquired a right to receive the same or that 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 companytingency that the
making up of the accounts would show income profits or
gains. the argument that the income profits or gains are
embedded in the sale proceeds as and when received by the
company also does number help the transferees because the
managing agents have numbershare or interest in the sale
proceeds received as such. they are number companysharers with the
company and numberpart of the sale proceeds belongs to them. number is there any ground for saying that the companypany are the
trustees for the business or any of the assets for the
managing agents. the managing agents cannumber therefore be
said to have acquired a
 1  24 i.t.r. 525. at p. 534.  2  12 tax cases 768.  3  12 tax cases 927.
right to receive any companymission unless and until the
accounts are made up at the end of the year the net profits
ascertained and the amount of companymission due by the companypany
to the managing agents thus determined.  see companymissioners
of inland revenue v. lebus 1   . it is cleat therefore that numberpart of the managing agency
commission had accrued to the sassoons at the dates of the
respective transfers of the agencies to the transferees. the two decisions which were sought to be distinguished by
the high companyrt in the judgments under appeal also support
this companyclusion. in the unreported decision of the high
court of bombay in companymissioner of excess profits tax
bombay city v. messrs. p. n. mehta and sons 1  the
managing agency agreement was companyched in the very same terms
as that of the e. d. sassoon united mills companypany limited the
managing agents were to be paid 10 per cent. of the net
annual profits made by the companypany with a guaranteed minimum
commission of rs. 15000 per annum. the accounting year of
the companypany was the calendar year. the tribunal had held
that the annual profits companyld only be ascertained when the
accounts of the companypany were made up and it was then that
the 10 per cent. companymission would accrue to the managing
agents. the companytention of the department was that as the
managing agents worked as such from day to day and helped
the companypany to earn profits profits accrued to them from
day to day and number at the end of the year. this companytention
was negatived by the high companyrt -
it is only on net annual profits that the managing agents
are entitled to any companymission. a companypany may have worked
for six months at a loss for the remaining six months it
may make a large profit so as to wipe off the loss and have
a net profit to show. it is only as a result of the working
of the mills for the whole year that it will be possible to
ascertain whether the mills have worked at a loss or at a
profit and what the profit was. therefore the managing
agents are only entitled to a companymission on the result of
the
 1  1946 i a.e.r. 476 s.c. 27 tax cases 136.  2  1950 i.t.ref. number 19 of 1950.
working of the mills for a whole year. if the working shows
a net annual profit which gives them a companymission of more
than rs. 15000 on the basis of 10 per cent. they are
entitled to that amount. if on the other hand the
working does number show a profit which entitles them to a
comnission of rs. 15000 they are in any case entitled to
that amount. therefore in our opinion the tribunal rightly
held that the accrual of the companymission was at the end of
the calendar year which was the year maintained by the
mills and number from time to time as companytended by the depart-
ment. in the case of salt and industries agencies limited bombay v.
commissioner of income-tax bombay city 1  the question
for the companysideration of the companyrt numberdoubt was what was the
place where the profits had accrued. in determining the
place where the profits had accrued it was however necessary
to find when the profits had accrued to the assessee and it
was held that what was companyclusive of the matter was the
consideration as to when the right to managing agency company-
mission arose and when did the companypany become liable to pay
managing agency companymission to the managing agents and it was
further held that it was only when all the accounts of the
working of the companypany were submitted to the head office in
bombay and the profit was determined that it companyld be said
that a right to receive a companymission at the rate specified
in the managing agency agreement had arisen and the managing
agents became entitled to a certain specified companymission. these companysiderations are germane to the question which we
have to decide in these appeals and support the companyclusion
which we have already arrived at that the right to receive
the companymission would arise and the income profits or gains
would accrue to the managing agents only at the end of the
calendar year which was the terminus a quo for the making up
of the accounts and ascertaining the net profits earned by
the companypany. we fail to see how these cases which were
relied upon by the revenue before the high companyrt companyld be
distinguished in the manner in which it was done. is i.t.r. 58.
we were invited by the learned companynsel for the sassoons to
approach the question from anumberher point of view and that
was that what had been transferred by the sassoons to the
transferees was a source of income viz. the managing
agency which was to run for the unexpired residue of the
term. it was urged that where a source of income was
transferred any income which accrued from that source after
the date of the transfer was the transferees income and number
of the transferors and that it was immaterial  a  that at
the date of the transfer there was an expectation that at a
future date income would accrue  b  that the transferor by
the work before the transfer had companytributed to -create any
income which might eventually accrue and  c  that because of
the expectation of income a higher price had been paid for
the transfer. reliance was placed in this companynection on the case of
commissioners of inland revenue v. forrest  1 . in that
case the assessee purchased certain shares on the 25th
numberember 1919 and paid an excess price to companyer the
portion of the dividend accrued to date. a dividend of 10
per cent. for the period ending on 28th february 1920 was
declared on the 13th may 1920. the companytention of the
assessee was that the dividend should be treated as capital
in view of the terms of the companytract of purchase and number
included in the companyputation of his income. under the
provisions of the incometax act the dividends which were
receivable by him were required to be included in the
computation of his income. the learned judges however
discussed the legal effect of such a transaction of the
purchase of shares. lord ormidale observed at page 709-
the value of the shares had to be determined as a matter
of bargain between the parties and the purchaser thought
that it was number unreasonable that he should pay something
over par for them because of the possibility number the
certainty but the possibility of a dividend six months
afterwards being paid upon the shares so purchased by him. lord anderson observed at page 710-

8 tax cases 704.
he buys two things with his money. he buys in the first
place a share of the assets of the industrial companycern
proportionate to the number of shares which he hat
purchased and he also buys the right to participate in any
profits which the companypany may make in the future. number when
a transaction of this nature is entered into during the
currency of the financial year of the industrial companycern it
is obvious that what happens is this that number only is a
part of the assets purchased outright but that a chance is
bought as well-a chance of sharing in any profits which may
be made during the currency of that financial year. wigmore  h. m. inspector of taxes  v. thomas summerson and
sons limited  1  was the case of a vendor of war loan stock
bearing interest payable without deduction of tax. the sale
was effected on the 10th april 1923 with interest rights. the vendor was assessed for the year 1923-24 in respect of
the amount of interest said to have accrued on the stock in
the period between the last payment of interest. and the
sale of the stock it being companytended that the price
received by the vendor on sale of stock included this
interest. the purchasers said that they were number liable to
tax in respect of the income which had been accruing on the
security they had purchased in a period anterior to the date
on which they purchased. it was observed that the truth of
the matter was that the vendor did number receive interest and
interest was the subject-matter of the tax. but he received
the price of an expectancy of interest which was number the
subject of taxation. it was number argued that the interest
accrued de die in them and the vendor was held number
assessable in respect of the interest accrued at the date of
the sale of the stock. companymissioners of ihland revenue v. pilcher  2  was the case
of the gale of an orchard inclusive of the years fruit
crop. the assessee had valued the cherries which were on
the trees at pound 2500 and had pat a man immediately in
the orchard after he had purchased it at the. auction. he
commenced to pick the fruit on the 25th may 1942 and
completed the operations on the

9 tax cases 577.  2  3 i tax cases 314. 12th june 1942. he realised pound 2903 as the price of
the cherries. this sum was brought into the profit and loss
account as a trading receipt and the companytention of the
assessee was that in companyputing his profits he was entitled
to charge the sum of i 2500 being the purchase price of the
cherries sold for pound 2903 which sum had been brought
into credit as a trading receipt. this companytention was
negatived and it was observed by lord justice jenkins at
page 332 --
it is a well settled principle that outlay on the purchase
of an income- bearing asset is in the nature of capital
outlay and numberpart of the capital so laid out can for
income-tax purposes be set off as expenditure against
income accruing from the asset in question. there is a further passage in the judgment of jenkins l. j.
at page 335 which is very instructive. it had been
contended that the revenue should look at the transaction
from the assessees point of view and should companysider it in
a manner favourable to him. this companytention was dealt with
in the manner following-
one has to remember that this transaction companycerned number
merely mr. pilcher but also the vendor of the orchard. mr.
pilcher was able to buy the orchard companyplete with the
cherries from the vendor and by that means according to his
own calculation the cherries stood him in pound 2500. it
by numbermeans follows that if he had been minded to buy the
cherries from the vendor apart from the land as a separate
transaction the vendor would have been willing to sell them
to him for pound 2500 or at any price. the difference is
obviously a material one from the vendors point of view
because dealing with the matter as he did he was selling a
capital asset and the resulting capital receipt prima
facie would attract numbertax. if he sold the cherries
separately in the way of trade he would at once have created
an income receipt on which prima facie tax would have been
exigible. therefore the alteration in the form of the
bargain required to make it more favourable to mr. pilcheer
from the tax point of view would have involved an alteration
number merely of form but of substance owing to its adverse
effect on 46
the tax situation of the vendor and it cannumber be assumed
that the bargain thus altered would have been one to which
mr. pilcher companyld have secured the vendors agreement. these observations throw companysiderable light on the situation
obtainingin the cases before us. it will be remembered
that the total amount of rs. 7577693 received by the
sassoons on the transfers of the managing agencies was taken
by them to the capital reserve account. numberpart of that
amount was treated by them as a receipt of income and it is
debatable whether any part of the same companyld have been
allocated as a receipt of income even though the transferees
had desired to do so. all that the transferees obtained
under the deeds of assignment and transfer executed by the
sassoons in their favour was an income bearing asset
consisting of the office of managing agents the managing
agency agreement and all the rights and benefits as such
managing agents under the agreements and numberpart of the
consideration paid by the transferees to the sassoons companyld
be allocated as a receipt of income by reason of their
-contribution towards the earning of the companymission in the
shape of services rendered by them as managing agents of the
companies for the broken periods. what the transferees
obtained under the deeds of assignment and transfer was the
expectancy of earning a companymission in the event of the
condition precedent by way of companyplete performance of the
obligation of the managing agents under the managing agency
agreements being fulfilled and a debt arising in favour of
the managing agents at the end of the stated periods of
service companytingent on the ascertainment of net profits as a
result of the working of the companypany during the calendar
year. the last case to which we were referred by the learned
counsel for the sassoons was the city of london companytract
corporation limited v. styles  surveyor of paxes   1 . the
part of the business taken over by the assessee in that case
consisted of unexecuted and partly executed companytracts. the
contracts were executed after the date of the purchase by
the assessee and the
 1  2 tax cases. 239
assessee sought to deduct the price paid for the companytracts
from the profits arising from their performance. this
deduction was number allowed because whatever price the
assessee paid for the purchase of the business was treated
as the capital which had been invested for the purpose of
acquiring that business and the assessee companyld number deduct
from the -net profits of the working of the business after
the date of the purchase any part of the capital which had
been thus invested by it. this result was achieved even
though in the purchase of unexecuted companytracts there was
included the part of the work done towards the performance
of the companytracts by the vendors. the assessee derived the
benefit from such partial execution of the companytracts by the
vendors nevertheless the value of such work was number treated
as any income which had accrued to the vendors and which
the assessee was entitled to deduct from its profits arising
from the performance by it of those unexecuted companytracts. learned companynsel on behalf of the transferees companytended that
all these cases were companycerned with the question whether the
income derived by the assessee out of the income bearing
asset after the date of the purchase companyld be treated as a
capital expenditure so far as it formed part of the
consideration paid by the assessee to the vendors and in
numbere of these cases were the companyrts companycerned with the
question that arises before us viz. whether any part of
the income which was actually received by the assessees
could be said to have accrued to the vendor. even though
the question did number arise in terms it is numberetheless
involved in the companysideration of the question whether the
assessee was liable to pay the income-tax on the whole of
the income thus derived by him. as was pointed out by
jenkins l. j. in companymissioner of inland revenue and v.
pilcher 1  quoted above the vendors point of view cannumber
be neglected and once you companye to the companyclusion that the
assesse alone is liable it necessarily follows that the
vendor certainly has numberhing to do with the same. if it
were otherwise the vendor would certainly be liable to tax
and numberpurchaser would miss the opportunity of avoiding his
liability for that portion of

31 tax cases 314 at p. 335.
the income which can be said to have accrued to the vendor. as a matter of fact such a companytention was taken by the
purchasers in wigmore  h.m. inspector of taxes  v. thomas
summerson and sons limited 1  where they declined to be
assessed for tax in respect of income which had been
accruing on the securities they had purchased in a period
anterior to the date at which they did purchase. this
contention however did number prevail and the vendors were held
number assessable in respect of the interest accrued on the
date of the sale of the stock. it is therefore clear that the sassoons had number earned any
income for the broken periods number had any income accrued to
them in respect of the same and what they transferred to
the transferees under the respective deeds of assignment and
transfer did number include any income which they had earned
or had accrued to them and which the transferees by virtue
of the assignment in their favour were in a position to
collect. if any debt had accrued due to the sassoons by the
respective companypanies at the dates of respective transfers of
managing agencies such debt would certainly have been the
subject-matter of assignment. but it what was transferred
by the sassoons to the respective transferees were merely
expectations of earning companymission and number any part of the
commission actually earned by them or which had accrued to
them under the terms of the managing agency agreements what
the transferees received from the companypanies under the terms
of the managing agency agreements which were thus
transferred to them would be their income and numberpart of
such income companyld ever be said to have accrued to the
sassoons during the chargeable accounting period. in view of the above it is unnecessary to deal with the
contention which was urged by the learned companynsel for the
sassoons that ever be an assignment of income the assignee
and number the assignumber would be liable to pay the tax. he
referred us to the case of the companymissioner of income-tax
bombay presidency v. tata sons limited 2  in support of this
contention of his and he also referred us to numbere g at
page 209 in

9 tax cases 577.  2  1939 7 i.t.r. 195.
simons income-tax 2nd edn. vol. ii where the ratio of
parkins v. warwick  h.m. inspector of taxes  1  relied upon
by the high companyrt in the judgments under appeal has been
criticised. we do number however think it necessary to go into
this question as in our opinion there were numberdebts due by
the companypanies to the sassoons which were assigned under the
respective deeds of transfer and assignment. the only question which remains to companysider is whether
section 36 of the transfer of property act imports the
principle of apportionment in regard to the companymission
received by the transferees herein. section 36 of the
transfer of property act provides-in the absence of a
contract or local usage to the companytrary all rents
annuities pensions dividends and other periodical payments
in the nature of income shall upon the transfer of the
interest of the person entitled to receive such payments be
-deemed as between the transferor and the transferee to
accrue due from day to day and to be apportionable
accordingly but to be payable on the days appointed for the
payment thereof. it may be numbered that the section applies
in the absence of a companytract or local usage to the companytrary
and also applies as between the transferor and the
transferee. there is numberroom for the application of these
provisions as between the subject and the crown.  vide the
commissioners of inland revenue v. hendersons
executors 2  . the companytract to the companytrary must of
necessity be as between the transferor and the transferee
and it is only when there is numbersuch companytract to the
contrary that the rents annuities pensions dividends and
other periodical payments in the nature of income become
apportionable as between the transferor and transferee
deemed to accrue due from day to day and be apportionable
accordingly. the deeds of assignment and transfer executed
by the sassoons in favour of the transferees transferred all
the rights and benefits under the agency agreement to the
transferees and there was numberquestion of apportionment of
any companymission between the sassoons and the transferees. in
fact the transfer claimed to retain and did retain

i943 25 tax 419.  2  i6 tax cases 282 at p. 291
the whole of the companymission which had been paid by the
companies to them in the year 1944 and the sassoons never
claimed any part of it as having been earned by them. whatever was their companytribution .towards the earning of that
commission during the whole of the calendar year 1943 was
the subjectmatter of the assignment in favour of the
transferees and that was sufficient to spell out a companytract
to the companytrary as provided in section 36 of the transfer of
property act. section 26 2  of the indian income-tax act also does number
help the transferees because it is only when the person
succeeded has acquired an actual share of the income profits
or gains of the previous year that he is liable to tax in
respect of it and as set out herein above numberpart of the
commission actually accrued to or became a debt due by the
company to the sassoons on the dates of the respective
transfers of the managing agencies to the transferees. in
order to attract the operation of section 26 2  the person
succeeded must have had an actual share in the income
profits or gains of the previous year and on the
construction of the agreements the sassoons cannumber be said
to have acquired any share in companymission for the broken
periods. the whole difficulty has arisen because the high companyrt companyld
could number reconcile itself to the situation that the
transferee had number worked for the whole calendar year and
yet they would be held entitled to the whole income of the
year of account whereas the transfers had worked for the
broken periods and yet they would be held disentitled to any
share in the income for the year. if the work done by the
transferors as well as the transferees during the respective
periods of the year were taken to be the criterion the
result would certainly be anumberalous. but the true test
under section 4 1  a  of the income-tax act is number whether
the transferors and the transferees had worked for any
particular periods of the year but whether any income had
accrued to the transferors and the transferees within the
chargeable accounting period. it is number the work done or
the services rendered by the person but the income
received or the income which has accrued to the person
within the chargeable accounting period that is the subject-
matter of taxation. that is the proper method of approach
while companysidering the taxability or otherwise of income and
numberconsiderations of the work done for broken periods or
contribution made towards the ultimate income derived from
the source of income number any equitable companysiderations can
make any difference to the position which rests entirely on
a strict interpretation of the provisions of section 4 1  a
of the income-tax act. the result therefore is that the question referred by the
tribunal to the high companyrt must be answered in the negative. all the appeals will accordingly be allowed. but as regards
the companyts under the peculiar circumstances of these appeals
where the companymissioner of income-tax bombay has supported
the sassoons in civil appeal number 3 of 1953 and the brunt of
the attack in civil appeals number. 30 of 1953 and 31 of 1953
has been borne number by the companymissioner of the income-tax who
is the appellant in both but by the sassoons the proper
order should be that each party should bear pay his own
costs here as well as in the companyrt below
jagannadhadas j.-i am unable to agree with the judgment
just delivered on behalf of both my learned brothers. it is
with companysiderable regret that i feel companystrained to write a
separate judgment expressing the reasons for my -number being
able to agree with them in spite of my profound respect for
their views. these three are appeals against a judgment of the bombay
high companyrt by leave granted under section 66a 2  of the
indian income-tax act. they arise out of a set of facts
mostly companymon. e. d. sassoon and companypany limited number in
voluntary liquidation  hereinafter referred to as the
sassoonal had the managing agency of three mills  1  f.d. sassoon united mills limited  2  elphinstone spinning and we
having mills companypany limited and  3  the apollo mills limited
with the
consent of the mill companypanies and by virtue of clauses in
the managing agency agreements enabling thereunto the
sassoons transferred the managing agency of the three mills
to three other companypanies during the companyrse of the calendar
year 1943 as follows  1  to agarwal and companypany limited
 hereinafter referred to as agarwals  on the 1st december
1943  2  to chidambaram mulraj and companypany limited
 hereinafter referred to as chidambarams  on the 1st june
1943 and  3  to rajputana textile  agencies  limited on the
1st july 1943. the assessments with which we are companycerned
are those of  1  sassoons  2  agarwals and  3  chidam-
barams and relate to income by way of managing agency
remuneration paid in the year 1944 by the mill companypanies to
the respective assignee-companies for the calendar year
1943. for sassoons and agarwals the assessment year was
1944-45 and the accounting year was the calendar year 1943.
for chidambarams the assessment year was 1945-46 and the
chargeable accounting period was from 1st july 1943 to
30th june 1944. the tax was assessed on the basis number of
receipts but of accrual. the income-tax authorities treated
the total remuneration for the entire year 1943 in each case
as income which accrued to the assigneecompanies in the
respective accounting periods. the assignee-companies
objected on the ground that part of the remuneration up to
the date of the respective assignments accrued to the
assignumber-company viz. sassoons and that they were
therefore liable to be assessed only in respect of the
balance of the remuneration referable to the portion of the
calendar year 1943 subsequent to the respective dates of the
assignments. the objection was overruled and the
assessments were made. on appeals to the income-tax
appellate tribunal their companytention was accepted and the
assessments were modified. it may be mentioned that the
rajputans textiles  agencies  limited does number appear to have
filed any appeal to the tribunal. meanwhile  presumably by
way of caution  the income-tax authorities issued numberices to
the assignumber-company viz. sassoons under section 34 of
the indian income-tax act and assessed it in respect of the
proportionate part
of the years managing agency companymission up to the date of
the respective assignments. the sassoons objected to this
before the income-tax.authorities but the objection was
overruled. it has been stated to us in the case filed by
the sassoons in this companyrt that the entire net companysideration
for the three assignments was taken by them into their
accounts as capital reserve. but this finds numbermention in
the tribunals statement of the case to the high companyrt. how
the sassoons made entries in their own accounts is number
decisive and has number been relied on before us. on their
objection being overruled the sassoons filed an appeal to
the income. tax appellate tribunal. the tribunal rejected
the appeal in view of the decision they had already given in
the appeals filed by the two assignee-companies agarwals
and chidambarams. the three companypanies companycerned obtained
references to the high companyrt under section 66 of the indian
income-tax act. the question referred by the tribunal in
each of the three cases was the same and is as follows
whether in the circumstances of the case was the managing
agency companymission liable to be apportioned between the
assessee companypany and the assignee  or assignumber as the case
may be . the high companyrt answered the question against the sassoons
and in favour of the other two. what the high companyrt held
was in substance that  1  the managing agency remuneration
for the year in question accrued as the joint income of both
the assignumber and the assignee and was apportionable between
them and  2  the assignee-companies received the assignumbers
share of the joint income by virtue of the assignments of
the assignumbers share and hence to that extent it was number
their taxable income but companytinued to be the taxable income
of the assignumber there are thus three appeals one by the
sassoons against the income-tax companymissioner and the other
two by the income-tax companymissioner against agarwals and
chidambarams respectively. in the first of the appeals the
income-tax companymissioner supports the position taken up by-
the sassoons while in the other two the companymissioner is the
appellant and companytests the position taken by the
agarwals and the chidambarams. thus it will be seen that
though in form the three appeals are each between the
income-tax companymissioner and one of the three companypanies in
fact they raise a companytroversy between the assignumber-company
the sassoons on the one side and the two assignee-
companies the agarwals and the chidambarams on the other
the companymissioner supporting the sassoons and opposing the
other two. the arguments before us companyered a wide range and were
advanced on the assumption that what the high companyrt held was
that the sassoons became entitled on the. very date of the
respective assignments to a proportionate share of the
years remuneration for the managing agency and that
accordingly that share accrued to the sassoons as their
taxable income then and there and did number cease to be such
numberwithstanding the assignment thereof the case was
accordingly debated before us as though the decision turned
upon the question whether any income companyld accrue to the
sassoons on the dates of the respective transfers of the
managing agency to the transferees. it is necessary
therefore to clarify at the outset what the question was
which was directly raised on the reference made to the high
court and what in the view of the high companyrt was the date
when a share of the years remuneration accrued to the
sassoons as its income. it appears to me that the judgment
of the high companyrt taken as a whole is based only on the view
that the entire managing agency remuneration for the year
accrued on the companypletion of the year i.e. on the 31st
december 1943 and that when it so accrued it accrued both
to the assignumber and to the assignee together. this appears
from the following passage of the judgment of the high. companyrt. in order to levy income-tax it is number enumbergh to enquire
when a particular income accrues. what is more important
and what is more pertinent is to enquire whose income it is
which is sought to be taxed. assuming that this particular
income accrued on the 31st december and till 31st december
there was numberhing earned even so when. the income does
accrue the question still remains to be answered as to whose
income it is which has accrued on the 31st december 1943.
it appears to me also that it is on the footing of the
accrual on the companypletion of the year that the high companyrt
dealt with the question of assignment of the income as
appears from the following passage
and clearly one of the rights which e. d. sassoon and
company limited had was to receive the managing. agency
commission  share therein ?  when it accrued on 31st
december they transferred that right. from these passages it appears to me clear that the high
court proceeded on the view that income accrued at the end
of the year to both together and that what passed to the
assignee under the assignment included a future right of the
assignumber to a share in the remuneration when it accrued on
the companypletion of the year and number on the view that the
assignment operated as the transfer of a present right to
such a share on the very date of the assignment. it is in
view of the assumption that the remuneration for the year
accrued only on the 31st december that the income-tax
appellate tribunal also took care to say in making their
reference to the high companyrt as follows
the question is number when the managing agency companymission
accrued. the real question is to whom it accrued. it appears to me therefore that it is number companyrect to
approach the companysideration of this case as though the
decision therein turns directly upon the question whether
any income had accrued to the sassoons on the dates of the
respective transfers of the managing agency to the
transferees. in the arguments before us companysiderable stress was laid by
learned companynsel appearing for the sassoons on the fact that
the managing agency agreements with which we are companycerned
provide for annual remuneration for an years work. it was
pointed out that the remuneration payable was fixed as
commission at a certain specified percentage of the net
profits of the respective mill companypanies. so far as the
sassoons united mills limited are companycerned whose managing
agency had been
assigned to agarwals the companymission was in terms stated in
the agency agreement to be per annum and on the annual net
profits of the companypany. so far as elphinstone spinning and
weaving mills companypanyltd. are companycerned whose managing
agency was assigned to chidambarams. the remuneration is
merely stated in the companyresponding agreement to be a
percentage of the net profits of the companypany but is number in
terms stated to be per annum or on the annual net profits. but there can be numberreasonable doubt that as a matter of
construction the remuneration in the latter case also must
be taken to be per annum and on the annual net profits
numberwithstanding some argument before us to the companytrary. having regard to this basic fact the following are in
substance the arguments put forward before us by learned
counsel for the assignumber-sassoons.  1  the managing agency
commission was payable in respect of services for an entire
calendar year and number for a portion thereof and therefore no
commission became due to the sassoons for the services
rendered by them to the respective mill companypanies for broken
periods of the year up to the dates of the respective
assignments.  2  since numberremuneration became a debt due to
the sassoons from any of the mill companypanies on the dates of
the respective assignments numbertaxable income accrued to
them for the broken periods.  3  by the dates of the
respective assignments the sassoons had only a bare
expectancy if any to receive remuneration for the broken
period and this expectancy companyld number be the subject-matter
of any assignment and  4  the true legal position
therefore is that what was assigned was an income bearing
asset viz. the managing agency which was the source of
income and which entitled the respective assignees to
receive all the remuneration for the year payable under the
managing agency agreement subsequent to the respective dates
of assignment. accordingly the same became in its entirety
taxable income in the hands of the respective assignees and
numberportion of it accrued at any time as taxable income of
the assignumber-sassoons. in the view that i take of the high companyrts judgment as to
the date of accrual of the income and as to
the scope of the question presented on the references the
first three of the above arguments do number appear to me to
call for any examination. in the present case numberquestion
arises as to the enforceability of the claim for a
proportionate share of the remuneration by the assignumber
from the very date of assignment. number does any question
arise as to the number-payability of remuneration on account of
number-completion of the work. the years work has been
completed by the
assignee-company in companytinuation of that of the assignumber-
company. the total remuneration for the year has in fact
been paid into the hands of the assignee-company. the only
questions therefore are  1  whether the money so received
accrued by way of remuneration for the years work and
became taxable income on the 31st december 1943  2  if so
whether. it was the joint income of the assignumber and the
assignee or the sole income of the assignee and  3
whether the assignment operated to transfer the assignumbers
share of the income on its accrual. the answer to the first of the above questions seem to me
to admit of numberdoubt. the remuneration was for the years
work. the years work was companypleted on the expiry of the
year. the right to receive the remuneration became
therefore vested on the 31st december 1943. it is true
that in agarwals case there is a clause in the original
managing agency agreement that
the managing agency companymission shall be due yearly on the
31 st day of march in each and every year and shall be
payable and be paid immediately after the annual accounts of
the mill companypany have been passed by the shareholders. it has been urged in reliance on this clause that the
accrual of the income in so far as the case of agarwals is
concerned is number on the 31st december but on the 31st
march next. in the first place such a companytention in so far
as it relates to the date of accrual is number permissible in
view of the clarification in the order of -reference made by
the tribunal to the high companyrt and in view of the specific
and categorical language of some of the grounds in the
statements of the case filed. before us both by sassoons and the income-tax companymissioner
showing 31st december 1943 as the date of accrual of the
entire remuneration.  vide paragraphs 19 1  26 a  and  g
of the sassoons statement and paragraphs 12 15 1   2
and  5  of the income-tax companymissioner s statement in civil
appeal number 3 of 1953 . but even if the companytention be
permissible and granting the view strenuously urged on
behalf of the appellant-sassoons that there is numberaccrual of
income until there exists a right to receive it i do number
think that the clause in question has any relevancy so far
as the date of accrual of income is companycerned. accrual of
income for purposes of taxation does number depend on the
question -as to when the income becomes payable. it
depends only on when a vested right to receive the income
arises.  see companymissioners of inland revenue v. gardner-
mountain and d ambrumenil limited  1  . the accrual is
accordingly companyplete when the right to the remuneration
becomes vested by the occurrence of all the events on which
the remuneration depends. a mere clause that the
remuneration shall be due at a later date numberwithstanding
that all the events on which the remuneration depends have
occurred can only have the effect of postponing the
liability for payment and number of postponing the vesting of
the right to income. the requirement of lapse of further
time after the occurrence of all the qualifying events is
number itself an additional -event which imports any element of
contingency in the right. it appears to me therefore that
the above clause which has been relied upon-whatever the
reason may be for the distinction which the language seeks
to suggest between due and payable-can have numberbearing on
the date of the accrual and cannumber have the affect of
postponing the accrual from the 31st december to 31st march. but even otherwise this does number at all affect. the final
conclusion in this case reached by the high companyrt of bombay. if the view of the high companyrt is companyrect that the ncome
accrued both to the assignumber and to the assignee after the
completion of the years work it seems to matter little
whether that accrual is on the 31st december or on the 31st
march next.  1  29 tax cas. 69.
by the high companyrt that the assignments operated to transfer
to the assignee the assignumbers share of the years
remuneration after it accrued to him as his income and
whether it companytinues to remain the assignumbers taxable income
in spite of the assignment may also be shortly dealt with. if the high companyrt be right in its view that the remuneration
accrued both to the assignumber and to the assignee together
whenever it may be then it is clear that on the respective
dates of the assignment the assignumber bad a future right to
a share of the remuneration on the companypletion of the year. if so there is ample authority for the position that the
assignment of such a future right is valid and becomes
operative by way of attaching itself to the right when it
springs up.  see bansidhar v. sant lal  1  misri lal v.
mozhar hossain  2  palaniappa v. lakshmanan  3  and baldeo

miller  4 .  the validity of such an assignment as
between the assignumber and the assignee and the effect thereof
on the assignumbers future right may also be supported with
reference to the principle of estoppel feeding title which
finds recognition in section 43 of the transfer of property
act. for the further position viz. that a person
continues to be liable for tax in respect of accrued income
numberwithstanding assignment thereof operating on or after
such accrual there is authority in parkins v. warwick  5 . this -view is companyfirmed by the following passages in the
privy companyncil case in pondicherry railway company limited v.
commissioner of income-tax madras  6 . profits on their companying into existence attract tax at that
point and the revenue is number companycerned with the subsequent
application of the profits. the destination of the profits or the charge which has been
made on those profits by previous agreement or otherwise is
perfectly immaterial.  quoted out of an extract from the case in gresham life
assurance society v. styles 7  . i.l.r.1o all i33. i.l.r. 13 cal. 262.

i l.r. 16 mad. 429.

i.l r. 31 cal. 667.  5  25 tax cases gig. a.i.r. 1931 p.c. i65 at 170.

i892 a.c. 309.
clear recongnition of the principle that when once income
accrues to a person an assignment operative in respect
thereof does number affect his taxability for that income. it
may be mentioned that it is number seriously disputed that the
consideration for each assignment included the value of the
prospective advantage of companylecting the remuneration for the
entire year i.e. in the sense that the actual
consideration paid was higher than what it might have been
if the assignment had taken place at the very companymencement
of the year. the only substantial question therefore which this case
raises is whether the view taken by the high companyrt that the
remuneration for the year accrued as income both to the
assignumber and the assignee is companyrect. it is apparently as
an answer to this question that learned companynsel appearing
for the sassoons put forward the argument number 4 above
enumerated viz. that the assignment of managing agency is
the transfer of an income-bearing asset and that all income
received subsequent to the date of assignment is entirely
the assignees taxable income. it is the validity of this
argument that number requires examination. the cases that have
been relied on in support of this argument are the following
the companymissioners of inland revenue v. forrest 1  wigmore

thomas summerson 2  and companymissioners of inland revenue

pilcher 3 . companymissioners of inland revenue v.
forrest 1  is a case of purchase of certain shares and the
income derived therefrom and is analogous to the second head
of income chargeable to income-tax under section 6 of the
indian income-tax act viz. securities. the income
therefrom is directly referable only to the ownership of the
shares or securities. mere lapse of time makes income
payable and the taxation depends on the receipt of the
income. wigmore v. thomas summerson 2  is also a case
similar to the above. companymissioners of in. land revenue v.
pilcher 3  is the case of a sale of an orchard inclusive of
the years fruit crop which by the date of the sale does
number appear to have become ripe. 8 tax cases 704.  2  9 tax cases 577
 3  3t tax cases 314.
enumbergh to be treated as a severable item of property. this
was a case of property whose. ownership itself in the
ordinary companyrse and by lapse of time gives rise to income
and is analogous to head number 3 of section 6 of the indian
income-tax act. it is interesting to numbere that in this
case the learned judges make a distinction between fructus
industriales and fructus naturales and point out that the
fruits derived from the orchard being cherries are fructus
naturales and number fructus industrials. that the result
might have been different if it was fructus industriales
appears clearly at least so far as lord justice singleton
and lord justice tucker are companycerned. in the case of
fructus industriales the income does number arise by mere
ownership but as a result of further investment and
labour which may be the effective source of income. these
decisions refer only to cases where the sole or effective
source of income is mere ownership and taxability depends on
receipt of the income. anumberher case that has been relied on before us is the city
of london companytract companyporation v. styles 1 . that was a
case where one companypany purchased as a going companycern the
business carried on by anumberher companypany as companytractors for
public works. it was claimed that the assignee-company was
entitled to deduction from their taxable income for a
portion of the purchase price which may be attributed to the
purchase of the right title and interest to and the
benefit of certain building companytracts of the companypany from
the execution of which a portion of the net profits of the
company arose. this was negatived on the ground that the
entire purchase price was capital investment and that what
all was received later on was income derived by the
execution of the companytracts so purchased. this so far as it
goes may seem to suggest by implication that there may be a
purchase of companytracts yet to be executed and that the
benefit of the entire profits therefrom is to be treated as
income in the hands of the purchaser. the report of this
case however does number indicate clearly whether the
contracts whose benefit was purchased were partially
executed and if so whether the partial execution
 1  2 tax cases 239
was substantial or negligible. the statement of the facts
of the case at page 241 of the report shows that the
business which was purchased companysisted entirely of
partially executed or wholly unexecuted companytracts and of
the rights thereunder and the benefits to accrue therefrom. if the business companysisted of only unexecuted companytracts this
case is number an authority for the position companytended for on
behalf of the sassoons. but in any case even if some of
the companytracts were partially executed there is numberhing to
show that the execution was of any such extent as to have
become a substantial source of income. it may also be numbered
that this decision is a direct authority only on what is
capital expenditure and what is revenue expenditure for pur-
poses of deduction. the point in the form relevant for the
present case was number raised there and cannumber be taken to
have been decided. it is interesting to numberice that in
simons income-tax vol. 2  1949 edn.  page 188 paragraph
222 the following passage appears. in city of london companytract companyporation limited v. styles 1
where the companypany acquired a business including a number of
unexecuted companytracts it was held that the sum paid for the
contracts companyld number be deducted in companyputing the companypanys
profits on the ground that the whole of the purchase price
of the business was a sum employed or intended to be
employed as capital in such trade. similarly in spicer and peglers income-tax and profits-tax
 20th edn.  at page 116 it is stated as follows
cost of unexecuted companytracts taken over with a business
 in arriving at the profits from the performance of the
contracts
and the case of city of london companytract companyporation v.
styles 1  is quoted as authority. these standard textbooks
also show that this case has been treated as having
reference to unexecuted companytracts  and number to partially
executed companytracts  and as being authority for the question
as to what are permissible deductions from taxable income of
business companycerns
 i  2 tax cases 239.
the above cases therefore cannumber be treated as in any way
supporting the companytention put forward by learned companynsel for
the appellant-sassoons that in the case of an assignment of
managing agency the entire remuneration for the years work
accrues as a matter of law to the assignee and is his sole
income on the ground that the agency is the source of
income and that in this respect it is to be treated as an
income bearing asset. numberspecific authority has been cited
before us companyering the case of a managing agency number can the
case in city of london companytract companyporation v. styles 1  be
treated as an authority showing that in the case of an
assignment of partially executed companytracts the remuneration
or profits relatable to such partial execution is necesarily
the income of the assignee. the question thus raised has therefore to be examined on
principle. on such examination it appears to me that the
argument advanced in this behalf is based on a fundamental
misconception. income of the kind with which we are
concerned in this case does number arise by virtue of any mere
ownership of an asset. what produces income is number the
ownership of the managing agency but the actual work turned
out for the benefit of the principal. it is number the fact of
a companypany having obtained the right to work as a managing
agent that produces the income but it is the companytinuous
functioning of the companypany as the managing agent in terms
of the companytract of agency that produces the income. hence
it is the rendering of the service of the managing agency or
the carrying out of the managing agency business which is
the effective and direct source of income. this is number to
say that work or service is the subject of taxation. it is
the remuneration that is the subject of tax and work is the
source of the remuneration. hence in such a case service or
work is the source of income and number. the ownership of the
right to work. the above legal position has been very
succinctly brought out by lord finlay though in anumberher
context in john smith son v. moore 2  in the following
passage
 1  2 tax cases -239.  2   1921 2 a.c. i3 at 25.
the business makes numberprofits. the profits are number fruits
yielded by a tree spontaneously. they are the result of the
operations carried on by the owner of the business for the
time being. therefore on principle apart from authority it appears to
me to be erroneous to treat the managing agency. agreement
as by itself the direct source of income and to treat it as
an income-producing asset. an examination of the provisions of the indian income-tax
act clearly bears out this view. sections 3 and 4 of the
income-tax act are the charging sections. the charge is  in
so far as it is relevant for purposes of this case  on the
income of the previous year  a  which is received by the
assessee within the taxable territory or  b  which accrued
or arose within the taxable territory to a resident
assessee. as stated at the outset the assessment in the
present case is based on accrual and number on receipt. companyputation of the taxable income is governed by the
provisions of chapter iii of the act. section 6 thereof
enumerates the following heads of income as being chargeable
to income-tax.  1  salaries  2  interest on securities  3
income from property  4  profits and gains of business
profession or vocation  5  income from other sources. the
residual item  5  may for the present purposes be left out. of the other four heads items 2 and 3 are the only items in
which the taxable income is directly related to the
ownership of an asset. in the present case the companyputation
of the taxable income has numberrelation to those items but
may companyceivably fall under head number 1 or head number 4. at this
stage it is necessary to observe that though so far in
the above discussion the managing agency has been referred
to as service and the companymission therefor as remuneration
for purposes of companyvenience the true nature of the
functioning of a managing agent where it is a firm or a
company which so functions has been recently held by this
court in lakshminarayan ram gopal and son limited v. the
government of hyderabad 1  to be a business and the
remuneration to be income by way of profits or gains from
the business. the

civil appeals number. 292 and 312 of 1050 of the suprem
court of india. income therefore falls under head number 4 and the company-
petation thereof has to be made under section 10 of the
income-tax act. sub-section  1  of that section runs as
follows
the tax shall be payable by an assessee under the head
profits and gains of business profession or vocation in
respect of the profits or gains of any business profession
or vocation carried on by him. number in companyputing the taxable income of the assignee can it
reasonably be said that the remuneration for the entire year
is the income of the assignee and that it is the profits and
gains of the business carried on by the assignee when as a
fact he stepped into the position of the managing agent only
on some date in the companyrse of the year by virtue of the
assignment. it appears to me that before income can be
attributed under this head to an assessee it must relate to
the business carried on by the assessee himself in the
present case therefore the profits and gains of the whole
year seem to me clearly to relate to the business carried on
both by the assignumber and the assignee taken together and are
hence taxable as income accruing to both and apportionable
as such between them. the importance of number overlooking the
significance of the phrase carried on by him in subsection
 1  of section 10 though in a different companytext has been
emphasised by the privy companyncil in companymissioner of income-
tax bengal v. shaw wallace and company 1 . a recent decision of
this companyrt in the liquidators of pursa limited v.
commissioner of incometax bihar 2  also emphasises this and
explains that the phrase carried on by him in section
10 1  of the indian income-tax act companynumberes the. fundamental idea of the companytinuous exercise of an activity
as the essential companystituent of that which is to produce the
taxable income. this phrase appears to me also clearly to
connumbere the idea that the taxable income is that of the very
assessee or the companybination of assessee whose companytinuous
activity produces the income. where as in this case that
continuity is kept up by two persons successively it
appears to tile

i.l.r. 9 cal. 1343.

civil appeal number 33 of 1953.
that under this section the profits and gains are the
assessable income of both together. this is in accord with the well-accepted numberion under the
numbermal law that if two persons jointly carry out a work or
conduct a business the total remuneration in fact earned
for the work or the total gains made on that business
belongs to both of them as their joint property and that
such property has to be apportioned between them on some
equitable basis. this is quite independent of any question
as to whether the claim for remuneration for the work or for
the emoluments of the business can be individually or
jointly enforced as against the person who is liable to pay. it cannumber be disputed that in the absence of any specific
contract to the companytrary between the persons who companytribute
to the work or business the fruit of such work or of such
business is the joint property of both when the same has in
fact been realised. number can it be said that this holds good
only in cases where both the persons companycurrently join
together to earn the remuneration for the work or the
profits of the business. there is numberreason in law why the
same principle should number be equally applicable where the
two together companytribute to the total work or to the total
business in succession as in this case and number in
concurrence. if what arises on such companytinuous and
successive functioning of two persons is the joint
remuneration of both there can be numberdoubt that such
remuneration would be apportionable between them on some
equitable basis on the principle that joint property is
numbermally severable. to such a situation section 26 2  of
the income-tax act would also clearly apply. that section
numberdoubt indicates numberhing as to the principle of
apportionment. but there is numberdifficulty in the present
case since it is agreed that the apportionment if any is
to be timewise. this also prima facie is the only equitable
way of apportionment on the facts of this case. at this stage it becomes necessary to numberice certain
provisions of the relevant managing agency agreements which
have been strongly relied on as supporting the view companytrary
to what i have indicated above. reliance
has been placed on two provisions of the managing agency
agreement between the sassoon united mills limited and the
sassoons which are relevant only in the appeal relating to
the agarwals. the first of these provisions is the one
already numbericed in anumberher companytext viz. clause 2  d  of
the agency agreement which runs as follows
the said companymission shall be due to the said firm yearly on
the 31st day of march in each and every year during the
continuance of this agreement
it is urged that this term stamps the managing agency
agreement with the characteristic of an incomebearing asset
which vests solely in the assignee the right to the entire
income payable after the date of assignment. but it appears
to me that a term of this kind has reference only to the
payment aspect of the. money which companystitutes remuneration
and has numberbearing on the question as to whose income it is
for purposes of taxation. taxable income must be derived
from specified sources indicated in the indian incometax
act. since the mere ownership of managing agency cannumber as
a matter of law be treated as the source of income as
explained above any term in the managing agency agreement
between the principal and the agent entitling only the
assignee to receive the years remuneration and negativing
to the assignumber any direct recourse to his quondam principal
for his share of the income cannumber have the effect of
denying to the assignumber a substantial right to a share in
the remuneration if otherwise he has a vested right
thereto. a distinction exists in law between the right to
receive or get payment of a certain amount of money and the
right to the money itself. the right to enforce payment of
money may belong to one person. but the beneficial right in
that money may belong wholly or partially to anumberher. benami companytracts are familar examples of such a case. instances of joint rights in money or moneys worth
enforceable only at the instance of one out of the persons
entitled in special situations are easily companyceivable. it
may be true that there is numberaccrual of income unless there
is a vested right to receive the money which companystitutes
income. but this
proposition has relevance only to the factum or date of
accrual but number necessarily to the ownership of the income
on such accrual. numbere of the cases that have been cited
before us in support of the proposition that there is no
accrual of income unless there is a right to receive it
negative this view. in the companyrse of the arguments repeated
stress has been laid on the proposition that there is no
accrual of income unless there is a right to receive the
income. this may be so. but it does number follow that the
very person who has the right to receive the money which
constitutes the income is the owner of that money or that
the income accrues to him alone. that must depend on the
substantive rights if any applicable to a particular
situation. a term in a managing agency agreement between
the principal and the agent as to the person to whom the
remuneration is payable or is to become due can only have
been meant as a protection of the principal in respect of
multiplicity of claims against himself and cannumber settle the
substantive rights between persons who may have companytributed
to earn the remuneration. the second provision relied on is clause 10 of the managing
agency agreement with which the case of agarwals is
concerned. clause 10 of the agreement runs as follows
it shall be lawful for the said firm to assign this
agreement and the rights of the said firm hereunder to any
person firm or companypany having authority by its companystitution
to become bound by the obligations undertaken by the said
firm hereunder and upon such assignment being made and
numberified to the said companypany shall be bound to recognise the
person or firm or companypany aforesaid as the agents of the
said companypany in like manner as if the name of such person
firm or companypany had appeared in these presents in lieu of
the names of the partners in the said firm and as if such
person firm or companypany had entered into this agreement
with the said companypany and the said companypany shall forthwith
upon demand by the said firm enter into an agreement with
the person firm or companypany aforesaid appointing such person
firm of companypany the
agents of the said companypany for the then residue of the term
outstanding under the agreement and with the like powers and
authorities remuneration and emoluments and subject to the
like terms and companyditions as are herein companytained. stress has been laid on the underlined portion of the above
clause. it is urged that this as well as clauses i and 3 of
the managing agency agreement show that the assignumber and the
assignee are to be treated as one entity and that on
assignment the assignee becomes the managing agent as if his
name had been inserted in the managing agency agreement from
the beginning and that the companytinuity of the managing
agency was preserved thereby and that whoever satisfies the
description of the managing agent at the time when the
commission for the year becomes due is also the person
entitled to the amount by way of remuneration-number as per
this argument by virtue of any mutual arrangement between
the assignumber and the assignee but-by the very terms of the
managing agency which is the source of income. it is urged. therefore that this feature stamps the managing agency as
an income-bearing asset. in substance therefore this
argument amounts to saying that by virtue of this clause the
service of the assignee subsequent to the date of assignment
can be tacked on to the service of the assignumber for the
earlier portion of the year so as to companystitute it service
for the entire year which earns the remuneration as the
sole property of the assignee i.e. that the assignment has
to be given retrospective operation from the companymencement of
the year in respect of the work so far done. but if this
clause is to be companystrued as having such retrospective
operation it must on the very terms of the underlined
portion become so operative from the original companymencement
2of the agreement itself and number from any particular date or
event thereafter. there is numberreason to companyfine such
retrospective operation only to the inchoate advantage for
remuneration arising from partly finished work of the year. the underlined portion of the clause if it is to have
retrospective effect at all is companyprehensive enumbergh to take
within its ambit every othere claimwhich may have accrued
but remained 49
unpaid companymencing from the initial stage of the agency. on
this companystruction therefore the right to. very such claim
would pass to the assignee. such a result would obviously
be untenable and numberreason exists why the retrospective
operation to be imputed to this clause should be companyfined
to the limited extent which serves the argument put forward
in this behalf by the appellant-sassoons. it appears to me
therefore quite clear on a fair reading of the entire
clause 10 of the managing agency agreement that the only
effect thereof is to bring about the result specifically
stated in the second portion of that clause  which has been
side lined  i.e. that on assignment the assignee firm shall
be entitled to demand and obtain from the principal companypany
a fresh managing agency agreement in its own favour for the
residue of the term outstanding and with like powers
authorities remuneration and emoluments and subject to the
like terms and companyditions. in my opinion all that the
clause 10 taken as a whole means is numbermore than that the
assignee is entitled to demand a fresh agreement on the same
terms and that even without a fresh agreement being formally
executed as between the principal mill companypany and the
assignee-company their mutual rights and obligations will be
governed by the old agreement for the residue of the term
with the assignee-companys name substituted for the
assignumber-companys name. such effect can only be
prospective and number retrospective. there can be numberdoubt however that though any mere clause
in the managing agency agreement that the employer is to be
responsible only to the assignee for the payment of the
entire years remuneration is number by itself enumbergh to vest
in the assignee a beneficial right to the remuneration of
the year such a right may arise by virtue of a specific or
implied term as between the transferor and the transferee
either as part of the deed of transfer or independent
thereof. it may be mentioned that in the agarwals case
there was such a specific term in the agreement preliminary
to the actual assignment. but learned companynsel for the
sassoons expressly disclaimed it on the ground that it was
number incorporated in the deed of transfer and was
in any case superfluous and did number rely on it. in his
view the right of the assignee to receive the entire
remuneration did number depend on any specific term between the
assignumber and the assignee but on the fact that what was
transferred is an income-bearing asset which carried with it
a right to the entire income that falls due after the date
of assignment. it is on account of the insistence on this
view that as i apprehend learned companynsel for the sassoons
disclaimed the above mentioned special term between the
assignumber and the assignee as being superfluous. he seems to
have sought thereby to obviate the companysequence of the
contention that the assignumbers share of remuneration became
the assignees by virtue of the specific assignment thereof
operating thereon on its accrual and that hence it remained
the taxable income of the assignumber. it may be mentioned in this companytext that clause 10 of the
managing agency agreement in agarwals case has been relied
on by learned companynsel for agarwals to show that while it
may be that in the numbermal run of events the companytract for
remuneration under the managing agency agreement is an
indivisible companytract for a whole years remuneration on the
completion of a whole years work this clause necessarily
implied divisibility of companytract and of the remuneration in
the year of assignment since the assignment necessarily took
place with the companysent of the principal mill companypany.  vide
section 87-b c  of the indian companypanies act . this argument
was advanced to support the companytention that the sassoons
share of the years income accrued on the very date of
assignment. since however in my view that was number the
basis of the judgment of the high companyrt as explained above
and since such an argument is number in my opinion open
having regard to the statement of the case by the income-tax
appellate tribunal as well as of the statements of
appellants and respondents herein i do number companysider it
necessary to deal with that argument. in my view therefore the companytinuous and successive
functioning by both the assignumber and the assignee under the
managing agency agreement was the effective source of the
years income. that income accrued on the companypletion of the
year and was the joint income
of both the assignumber and the assignee. the prior
assignments in the companyrse of the year operated as assign-
ments of this future right to a share of the income. it is
only by virtue of inter se arrangement between the assignumber
and the assignee resulting from the transactions of
assignment that the assignee had the right to companylect the
entire income.