# E. D. Sassoon anti Company Ltd v. The Commissioner of /neome.·tax, Bombts.J c;vi - **Citation:** [1955] 1 S.C.R. 313 - **Court:** Supreme Court of India - **Decided:** 1955 - **Bench:** S. R. DAs, Bhagwati, ]AGANNADHADAs - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/e-d-sassoon-anti-company-ltd-v-the-commissioner-of-neome-tax-bombts-j-c-vi-393 - **Pages:** 68 ## Headnote Indian Income-tax Act (XI of 1922), s. 4(1)(a)(b)-"lncome," ~'accrues", "arises", 11 is received" -Meaning of-" Earned" -Meanin g of-s. 10(1)-"Carried on by him"-Connotation of-Managing Agency Agreement-Transfer of rights thereunder-Apportionment between assignors and assignees. The Sassoons had entered into three Managing Agency agreements as the Managing Agents of three different companies. They transferred their Managing Agencies to three other companies by formal deeds of assignment and transfer on several dates during the accounting year. The question for determination was 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 of them for the respective portions of the accounting year and the decision turned upon the question whether any income had accrued to the Sassoons for the purpose of income-tax on the dates of the respective transfers of the Managing Agencies to the transferees. Under clause 2(d) of the Managing Agency agreements, the commission to the Sassoons as Managing Agents was to be due to them yearly on the 31st of March in each and every year and was to be payable immediately after the annual accounts of the company had been passed by the shareholders. Held per S. R. DAs and BHAGWATI JJ. (JAGANNADHADAS J. dissenting).-answering the question in the negative, that on, the Bose]. 1954 E. D. Sassoon anti Company Ltd. v. The Commissioner of /neome.·tax, Bombts.J c;vi. 314 SUPREME COURT REPORTS [1955] construction of the Managing Agency agreements, the contract of service between the companies and the Managing Agents was entire and indivisible, that the remuneration or commission became due by the companies to the Managing Agents only on the completion of a definite period of service and at stated intervals, that it was a condition precedent to the recovery of any wages or salary in respect thereof that the service or duty should be completely performed, that such debt constituted a debt only at the end of each ·period of Service and that no remuneration or commission was payable to the Managing Agents for broken periods. The Sassoons had not earned any income for lh.e broke~ periods nor 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 not include any income which they had earned or had accrued to them during the chargeable accounting period and which the transferees by virtue of the assignment in their favour \Vere in a position to collect. _ The true test under section 4(!)(a) of the Indian Income-tax Act, for the purpose of ascertaining liability for income-tax in the case of transfer of Managing Agency is not 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. The word "profit" in section 4 of the Indian Income-tax Act has a well-defined legal meaning. The term impiies a comparison between the state of business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. "Income" connotes a periodical monetary return "coming ·in" with some sort of regularity, or expected regularity from definite sources. The source is not necessarily expected to be continuously productive but its object is the production of a definite return excluding anything in the nature of windfall. The word "income" clearly implies the idea of receipt, actual or constructive. The words "accrues", "arises" and "is received" are three distinct terms. The \Vord "accrues" conveys the distinct sense of gro\ving up by \Vay of addition or increase or as an accession ·or advantage connoting the idea of a growth or accumulation. T ## Text _Characters 0–39,976 of 158,071. This is a partial read: ask again with offset=39976 for what follows._ - - S.C.R. SUPREME COURT REPORTS 313 1954 meaningless writs we must dismiss this appeal and leave the appellant con~ent with an enunciation of the law. But as he has m reality won his case and is prevented from reaping the full fruits of his victory because of circumstances for which he is not responsible, we direct that the first respondent, the State of Mysore, and the fourth respondent, Thim_mappa, pay the appellant his costs . here and in the High Court. The other respondents will bear their own costs . K. N. Guruswamy v. The Stat• of Mysor1 and Others. • Appeal dismissed. E. D. SASSOON AND COMPANY LTD. v. THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY. (With connected Appeals) [S. R. DAs, BHAGWATI and ]AGANNADHADAs JJ.) Indian Income-tax Act (XI of 1922), s. 4(1)(a)(b)-"lncome," ~'accrues", "arises", 11 is received" -Meaning of-" Earned" -Meanin g of-s. 10(1)-"Carried on by him"-Connotation of-Managing Agency Agreement-Transfer of rights thereunder-Apportionment between assignors and assignees. The Sassoons had entered into three Managing Agency agreements as the Managing Agents of three different companies. They transferred their Managing Agencies to three other companies by formal deeds of assignment and transfer on several dates during the accounting year. The question for determination was 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 of them for the respective portions of the accounting year and the decision turned upon the question whether any income had accrued to the Sassoons for the purpose of income-tax on the dates of the respective transfers of the Managing Agencies to the transferees. Under clause 2(d) of the Managing Agency agreements, the commission to the Sassoons as Managing Agents was to be due to them yearly on the 31st of March in each and every year and was to be payable immediately after the annual accounts of the company had been passed by the shareholders. Held per S. R. DAs and BHAGWATI JJ. (JAGANNADHADAS J. dissenting).-answering the question in the negative, that on, the Bose]. 1954 E. D. Sassoon anti Company Ltd. v. The Commissioner of /neome.·tax, Bombts.J c;vi. 314 SUPREME COURT REPORTS [1955] construction of the Managing Agency agreements, the contract of service between the companies and the Managing Agents was entire and indivisible, that the remuneration or commission became due by the companies to the Managing Agents only on the completion of a definite period of service and at stated intervals, that it was a condition precedent to the recovery of any wages or salary in respect thereof that the service or duty should be completely performed, that such debt constituted a debt only at the end of each ·period of Service and that no remuneration or commission was payable to the Managing Agents for broken periods. The Sassoons had not earned any income for lh.e broke~ periods nor 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 not include any income which they had earned or had accrued to them during the chargeable accounting period and which the transferees by virtue of the assignment in their favour \Vere in a position to collect. _ The true test under section 4(!)(a) of the Indian Income-tax Act, for the purpose of ascertaining liability for income-tax in the case of transfer of Managing Agency is not 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. The word "profit" in section 4 of the Indian Income-tax Act has a well-defined legal meaning. The term impiies a comparison between the state of business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. "Income" connotes a periodical monetary return "coming ·in" with some sort of regularity, or expected regularity from definite sources. The source is not necessarily expected to be continuously productive but its object is the production of a definite return excluding anything in the nature of windfall. The word "income" clearly implies the idea of receipt, actual or constructive. The words "accrues", "arises" and "is received" are three distinct terms. The \Vord "accrues" conveys the distinct sense of gro\ving up by \Vay of addition or increase or as an accession ·or advantage connoting the idea of a growth or accumulation. The word "arises" means comes into existence or notice or presents itself and conveys the idea of the growth or accurnulation with a tangible shape so as to be receivable. Both the \Vords "accrues" and "arises" are used in contradistinction to the word ' 4receive" :and indicate a right to receive income. The accrual of income to an assessee does not mean the actual receipt of the same by him and it may be received later on its being ascertained. The word "earned" does not appear in section 4 of the Income-tax Act but it has been very often used in the course of judgments by learned Judges. It conveys the concept of income accruing to the assessee. • - • - --• S.C.R. SUPREME COURT REPORTS 315' Per JAGANNADHADAS J.-In the present case the profits and gains of the whole year clearly related to the business carried on both by the assignor and the assignee taken together and were hence taxable a.s income accruing to both and apportionable as such between them. The phrase "carried on by him" in section 10(1) of the Indian Income-tax Act connotes the fundamental idea of the continuous exercise of an activity as an essential constituent of that which is to produce the taxable income and that the taxable income is that of the very assessee or the combination of assessees whose continuous activity produces the income. Therefore the continuous and successive functioning by both the assignor and the assignee under the Managing Agency agreement was the effective source of the year's income. That income accrued on the completion of the year and was the joint income of both the assignor and the assignee. The prior assignments in the course of the year operated as assignments of this future right to a share of the income. It was only by virtue of inter se arrangement between the assignor and the assignee resulting from the transaction of assignment, that the assignee had the right to collect the entire income. But the share in this income which accrued to the Sassoons on the completion of the year remained the taxable income of the Sassoons and they were rightly taxed in respect thereof. Case-lrw discussed. C1viL APPELLATE JuRISDICTION : Nos. 3, 30 and 31 of 1953. Appeals Civil ' Appeal from the Judgment and Order dated the 12th day of September, 1951, of the High Court of Judicature at Bombay in Income-tax Reference No. 27 of 1951 arising our of .the order dated the 23rd day of November, 1949, of the Income-tax Appellate Tribunal m Income-tax Appeal No. 122 of 1947-48. B. /. M. Mackenna (D. H. Dwarka Das and Rajinder Narain, with him) for the appellant in C. A. No. 3 of 1953. M. C. Setalvad, Attorney-General for India, (G. N. Joshi and P. A. Mehta, with him) for the respondent in C. A. No. 3 and for the appellant in C. A. Nos. 30 and 31. C. K. Daphtary, Solicitor-General for India, (R. /. Kolah, N. A. Palkhiwala and I. N. Shroff, with him) for the respondent in C. A. No. 30, R. /. Kolah, N. A. Palkhiwala and /. N. Shroff for. the . respondent in C. A. No. 31. 2-87 S. C. India/59 'Fi:. D .Sassoon and CompaQ) lid. v. ~ The '70.-nmissioner of Income-tax, Bombay City. 1954 £."D. Sassoon and Com/Jany Ltd. v. The Commissiont.' of Income-tax, Bombay City BhagwaJi]. 316 SUPREME COURT REPORTS [1955] 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 Court of Judicature at Bombay in Income-tax References Nos. 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. E. D. Sassoon and Company Ltd., (hereinafter referred to as the Sassoons) were the Managing Agents of (1) E. D. Sassoon United Mills Ltd., under Agreements dated the 24th February, 1920, and the 2nd October, 1934, (2) Elphinstone Spinning and Weaving Mills Company Ltd., under the Agreement dated 23rd May, 1922, and (3) Apollo Mills Ltd., under the Agreement dated the 23rd May, 1922. The Sassoons agreed to tr~sfer their Managing Agencies of the said Companies to Messrs. Agarwal and Company, Chidambaram Mulraj and Company Ltd., and Rajputana Textile (Agencies) Ltd. respectively by letters dated the 3rd September, 1943, 16th April, 1943, and the 27th April, 1943. The consent of the shareholders of the respective companies 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 Company, Chidambaram Mulrai and Company Ltd., and Rajputana Textile (Agencies) Ltd., formal deeds of assignment and transfer and received from them Rs. 57,80,000, Rs. 12,50,000 and Rs. 6,00,000 respectively on transfers of the Managing Agencies, and the net consideration, viz., Rs. 75,77,693, received by them on such transfers was taken by them to the "Capital Reserve Account''. The accounts of the Managing Agency commission payable by the respective Companies to the Managing Agents for the year 1943 were made up in the year 1944 and Messrs. Agarwal and Company received from the E. D. Sassoon United Mills Ltd., a sum of Rs. 27,94,504, Chidambaram Mulraj and Comfany Ltd., received from the Elphinstone Weaving and - - - .. :S.C.R. SUPREME COURT REPORTS 317 :Spinning Mills Company Ltd., a sum of Rs. 2,37,602 and the Rajputana Textile (Agencies) Ltd., received from the Apollo Mills Ltd., a sum of .Rs. 3,82,608 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 excess profits tax assessments of the Sassoons were made on the 31st May, 1945, at a total income of Rs. 46,48,483. This income however did not include any part of the Managing Agency commission received by the transferees. The entire amounts of the Managing Agency comm1ss1on 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 Commissioner who confirmed the orders of the Income-tax Officer. When the matter was taken in further appeal to the Incometax Appellate Tribunal, the Tribunal by its order dated the 28th December, 1949, accepted the transfere's contention that the Managing Agency commission received by them should be apportioned on a proportionate basis and the transferees should be made liable to pay tax only on the commission earned by them during the period that they had worked as the Managing Agents of the respective Companies. The Income-tax Officer and the Excess Profits Tax Officer appear to have discovered that the amounts of the Managing Agency commission earned by the Sassoons prior to the dates of the respective transfers were not brought to tax and therefore issued on the 29th June, 1946, notices 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 m the assessable mcome of the Sassoons Rs. 28,51,934 made up of Rs. 25,61,629 m respect of the Managing Agency of the E. D. Sassoon United Mills Ltd., for the period of 11 months from the 1st January, 1943, to the 30th November, 1943, Rs. 99,001 m respect of the Managing Agency of the 1954 E. D. Sassoon and ComPllf!Y Ltd. v. The Commissioner of Income-tax, Bombay City. Bhagwati]. 0 • 1954 E. D. Sassoon and Compaf!,.'IJ Ltd. ~ v. Th~ Commissioner of Incomt-tax, Bombay Ci{p. Bhagwati J. 318 SUPREME COURT REPORTS [1955] Elphinstone Spinning and Weaving Mills Ltd., for th<~ period of five months from the 1st January, 1943, t(} the 31st May, 1943, and Rs. 1,91,304 in respect of the Managing Agency of the Apollo Mills Ltd., for the period of six months from the 1st January, 1943, to the 30th June, 1943, contending that such Managing Agency commission 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 Companies 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 Commissioner 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 Commissioner. The Tribunal was of the opinion that the Managing Agency commission 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 not in the hands of the person to whom it was assigned, and that therefore so far as the Sassoons were concerned the Managing Agency commission · 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 Court 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 commission liable to be apportioned between the assessee Company and the assignee" observing that in its opinion the question was not when the Managing Agency commission accrued but the real question was to whom it accrued. This reference was made by the ' 1 _-, - ... • -" - - ' .t S.C.R. SUPREME COURT REPORTS 319 Tribunal in R. A. No. 474 of 1950-51, and R. A. No. 475 .-0f 1950-51 referring the question of law thus framed in regard to the Managing Agency commission of the E. D. Sassoon United Mills Ltd., and the Elphinstone Spinning and Weaving Mills Ltd., the whole of the Managing Agency commission having been paid respectively to Messrs. Agarwal and Company and to Chidambaram Mulraj and Company Ltd., in the year 1944 . This was Income-tax Reference No. 27 of 1951. The Commissioner of Income-tax/Excess Profits Tax, Bombay City, also required the Tribunal to refer to the High Court the question of law arising out of its order in the appeal of Messrs. Agarwal and Company in which the Tribunal had held as above that the Managing Agency commission 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 Court. This reference was Income-tax Reference No. 24 of 1951. A similar application was made by the Commissioner of Income-tax/Excess Profits Tax, Bombay City, for reference in the appeal of Chidambaram Mulraj and Company Ltd. The Tribunal submitted its statement of case also on the same day and referred the very same ques- ·tion to the High Court. This reference was Income-tax Reference No. 23 of 1951. All these references came for hearing and final disposal before the High Court. Income-tax References Nos. 24 and 27 of 1951 were heard together and one judgment was delivered, answering the question submitted to the High Court in both the references in the affirmative. Following upon this . judgment the High ·Court also answered in the affirmative the question which had been referred to it by the Tribunal in Income-tax Reference No. 23 of 1951. The decision ·of the High Court was thus against the contentions -which had been urged both by the Sassoons and the ·Commissioner of Income-tax and the Sassoons as well :as the Commissioner of Income-tax obtained leave un- .der section 66A(3) of the Indian Income-tax Act and 1954 E. D. Sassoon an Company Ltd. v. The Commissioner of Income-tax, Bombay City. BhagwatiJ, 1954 E. D. Sassoon and Company Ltd. v. The CommissioMr of Income-tax, Bombay City. Bha.f!wati J. 320 SUPREME COURT REPORTS (1955J section 133 ( 1) ( c) of the Constitution for filing appeals. to this Court. The appeal of· the Sassoons was Civil· Appeal No. 3 of 1953, and it was filed against theCommissioner of Income-tax, Bombay City. Theappeals of the Commissioner of Income-tax against Messrs. Agarwal and Company and Chidambaram Mulraj and Company Ltd., respectively were Civil Appeal No. 3(} of 1953, and Civil Appeal No. 31 of 1953. These appeals. have come for hearing and final disposal before us. All the appeals raise one common question of law, viz., whether ip 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 cover our decision· in all the appeals. It will be convenient 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 Company. The Managing Agency was: transferred with the consent of the Company by E. D_ Sassoon and Company to the Sassoons and another Managing Agency Agreement was executed between theCompany and the Sassoons on the 2nd October, 1934,. appointing and recognising the latter as the Agents of theCompany from the 1st January, 1921, for the residue of the period and upon the same terms and conditions set out in the original Agreement dated the 24th February1920. Under clause 1 of that Agreement the Sassoons: and their assigns were appointed the Agents of th<" Company for a period of 30 years from the date of the~ registration thereof and thereafter until they resignect or were removed from office by a special resolution of ' ,,_ - - - - f {_ S.C.R. SUPREME COURT REPORTS 321 the Company. Under clause 2 the remuneration of the 'Sassoons and their assigns was fixed at a commission of 7-! per cent. per annum on the annual net profits of the Company after making all proper allowances and deductions from revenue for working expenses chargeable against profits, provided however that if in any year no such commission was earned or it fell short of Rs. 1,20,000 the Company was to pay to them a sum sufficient to make up the minimum remuneration of Rs. 1,20,000 per annum on account of such commission. The said commission was under clause 2(d) to be due to them yearly on the 31st of March in each and every year during the continuance of the Agreement and was to be payable and to be paid immediately after the annual accounts of the Company had been passed by the shareholders. Under clause 3 the Sassoons and their assigns agreed with the Company that they would be and act as the Agents of the Company during the said term for the said remuneration and uoon and subject to the terms and conditions 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 Company having authority by its constitution to become bound by the obligations undertaken by the said firm hereunder and upon such assignment being made and notified to the ·said Company the said Company shall be 'bound to recognise the person or firm or Company aforesaid as the Agents of the said Company in like manner as if the name of such person, firm or Company had entered into this Agreement with the said Company and the said Company shall forthwith upon demand by the said firm enter into an Agreement with the person, firm or Company aforesaid appointing such person, firm or Company the Agents of the said Company 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 conditions as are herein contained." The letter dated the 3rd September, 1943, recording the Agreement of transfer of the Managing Agency E. D. Sassoon and Company Ud. v The Commissio•w of lncome-tsx, Bombay Ci!!' BhaJ:Wali 7. 1954 E. D. Sassoon and Compnn'Y Ltd. 7 lit Commissioner oJ Income-tax1 B(lmbay City. Bha:;wati]. 322 SUPREME COURT REPORTS [1955] provided that in the event of the transaction being completed in its entirety as therein stated the transferees would be entitled to receive the commission payable by the Company under the Managing Agency Agreement on the profits for the calendar year 1943. The deed of assignment and transfer executed between the Sassoons and Messrs. Agarwal and Company in pursuance of this Agreement on the 26th January, 1945, stated that the Sassoons thereby transferred to Messrs. Agarwal and Company as from the 1st December, 1943, their office as Managing Agents of the Company 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 Company agreed to be the Managing Agents of the Company from the 1st December, 1943, in place and stead of the Sassoons for the said unexpired residue of the term with like powers authorities remuneration and emoluments as were coJ1J.tained in the ·said Agreements. It may be noted that even though the letter recording the Agreement of transfer expressly provided that the transferees would be entitled to receive the commission payable by the Company under the Managing Agency Agreement on the profits for the calendar year 1943 no such term was incorporated in the deed of assignment and transfer. The original Agreement entered into by the Elphinstone Spinning and Weaving Mills Company Ltd., was with Messrs. Hajee Mahomed Hajee Esmail and Com-· pany and was dated the 24th July, 1919. The Managing Agency was transferred with the consent of the Company by Messrs. Hajee Mahomed Hajee Esmail and Company to the Sassoons and on the 23rd May, 1922, another Managing Agency Agreement, was executed by the Company in favour of the Sassoons their successors and assigns employing them the Agents of the Company from the 1st February, 1922, for the unexpired period of the term of 60 years commencing from the 3rd July, 1919. Under clause 3 of the Agreement the Company was during the continuance thereof to pay to , . ii<-- - - • - t { :S.C.R. SUPREME COURT REPORTS 323 the Sassoons, their successors and assigns by way of remuneration a commission of ten per cent. on the net profits of the Company and a further sum of Rs. 1,500 per month. Under clause 6 the Sassoons, their successors and assigns were to be at liberty to retain, reimburse and pay themselves out of the moneys of the Company inter alia all sums due to them for commission and otherwise. The deed of transfer executed by the Sassoons in favour of Chidambaram Mulraj and Company Ltd., on the 2nd June, 1943, stated that the Sassoons assigned and transferred the Agreement dated the 23rd May, 1922, between themselves and the Company 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 Company under or by virtue of the said Agreement and tqgether with the benefit of all rights, privileges, powers and authorities given and conferred on the Sassoons thereunder. It is significant to observe that before the income- ·tax authorities as also the High Court no distinction was drawn between the provisions of these two Agency Agreements in regard to the right of the Managing Agents 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 not disput- .ed in each case though the principle of apportionment ·was in dispute. The Sassoons were assessed for this "escaped income" ·on the basis that they had earned the income by rendering services as Managing Agents to the Companies for the respective periods that they continued to be the Managing Agents and the transferees had rendered the services for the balance of the periods completing the full year of accounting and had earned the proportionate commission and therefore the amount of commission which the latter actually received included the Sassoons' share of commission in respect of which they were not liable to tax but the Sassoons. The High ·Court adopted this test of the services rendered by . the :Sassoons as well as the transferees during the whole of E. D. Sassoon and Company Ltd. v. The Commissioner of lncome-taic, Bombay City. Bhagwati]. 1954 E. D. Sassoon and Company Ltd. v. The Commissiontr of Income-tax, Bombay City. BhagwatiJ. 324 SUPREME COURT REPORTS [19551 the year and considered the proportions of the services. rendered by the Sassoons and the transferees as the Managing Agents of the Companies as decisive of the portions of the Managing Agency commission earned respectively by each. The parenthood of the income received by the transferees was considered to be the real test of the apportionability of the amounts of the Managing Agency commission and the total amount of the Managing Agency ·commission was thus apportioned between the Sassoons and the transferees in the· proportion of 11 to I in the case of the E. D. Sassoon· United Mills Ltd., and 5 to 7 in the case of the Elphinstone Spinning and Weaving Mills Company Ltd., the transfers of the Managing Agencies having been made with effect from the !st December, 1943, and the 1st June, 1943, respectively. The income was held assess-- able to tax not on the basis of receipt but on the basis. of accrual. The receipt by the transferees was considered of no consequence. What wa.s received by the· transferees was treated as including the proportionate· shares of the Sassoons in the income which could be· attributed to their periods of service as the Managing: Agents of the respective Companies and even though actually received by the transferees they were treated! as income which had accrued to the Sassoons by reason of their having acted as the Managing Agents of the respective Companies for the respective periods. The Sassoons' shares of the income were thus considered as having been earned by them during the year 1943 and were held on the construction of the deeds of assign·· ment and transfer executed by the Sassoons in £avow· of the transferees as having been assigned by them to the transferees and even though the transferees receiv-· ed the whole of the Managing Agency commission payable by the Companies to the Managing Agents under the terms of the respective Managing Agency Agree·· ments, the Sassoons, the assignors, and not the trans·· ferees, the assignees, were assessed to tax in respect of the proportionate shares of income earned by the Sassoons in the year 1943. It was urged before us on behalf of the Sassoons that no part . of the managing agency commission for the broken periods of 1943 was earned by them. It did not - _l , - - S.C.R. SUPREME COURT REPORTS 325 ""'1' _ become a debt due by ·the Companies to the Sassoons and it could not 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 Companies to the Sassoons thereunder was payable at stated periods. It was a condition precedent to the Sassoons - earning the remuneration that they fulfilled the terms of their employment, completed - "- the period for which the remuneration was payable to them and the service for the particular period was a condition precedent to their earning the remuneration for that period. The stated period was that of a year and no remuneration was payable to the Sassoons till the end of the year and unless and until they completed the period of the year they would not be entitled to any commission or remuneration for the year, much less for JI'. the broken period. It was therefore contended that the Sassoons had not earned any commission for the broken periods and that not having earned the same they could not have assigned it to the transferees with the result that when the transferees were paid the commission under the terms of the Managing Agency Agreements, the transferees received the same in their own right even though they had not rendered the f...,· services to the Company for the whole of the calendar year 1943. It was contended that in any event, whatever be the position as between the Companies and the transferees, the Sassoons had not earned any part of the Managing Agency commission which had been paid by the Companies to the transferees and were not liable to tax in respect of the same. It was on the other hand urged on behalf of the ' -t transferees that even though under the terms of the deeds of assignment and transfer they were paid by the Companies the whole of the Managing Agency commission for the calendar year 1943 they had merely earned the commission or remuneration for the period of actual services rendered by them to the Company and the portions of the Managing Agency commission proportionate to the services actually rendered by the Sassoons to the Companies had accrued to the Sassoons ~ though it had been ascertained and paid to the transferees in the year 1944. Even though the ascertainment 1954 E. D. Sassoon and Compaf!Y Ltd •. v. The Commissioner of Income-tax, Bombay Ciry. BhagwatiJ. E. D. Sassoon tJnd Company Ltd. v. T ht Commissiontr of Income·lax, Bombay Cif}'. Bha.gwati ]. 326 SUPREME COURT REPORTS (1955] and the payment came later it made no difference to the accrual of the mcome which could be referred back to the period during which the income was earned and accordingly whatever amount was earned by the Sassoons during the respective periods that they had acted as the Managing Agents of the Companies 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 commission received by them none the · less constituted income which had accrued to the Sassoons and were liable to ta·~ against the Sassoons the assignors and not against them the assignees. The position of an employee under an entire contract of service has been thus enunciated in Halsbury's Laws of England-Hailsham Edition-Vol. 22, page 133, paragraph 221 :- "\Vhen the contract of service is an entire contract, providing for payment on the completion of a definite period of service, or of a definite piece of work, it is a condition precedent to the recovery of any salary or wages m respect thereof that the service or duty shall be completely performed, unless the employer so. alters the contract as to entitle the servant to regard it at an end, in which case the whole sum payable under the .contract becomes due, or unless there is a usage that the servant rs entitled to wages in proportion to the time actually served. But when the contract, though m respect of work terminating at a particular time, is to be construed as providing that remuneration shall accrue due and become . vested at stated periods, such remuneration constitutes a debt recoverable at the end .of each such period of service." Section 219 of the Indian Contract Act also provides that in the absence of any special contract, payment for the performance of any act is not due to the agent ·until the completion of such act. Our attention was drawn in this connection to the .case of Boston Deep Sea Fishing and Ice Co. v. Ansell( 1 ) • . (1) 39 Ch. D. 339. - - .}, "' - { .• S.C.R. SUPREME COURT REPORTS 327 In that case the defendant was employed as the managing director of the company for 5 years at a yearly salary. He was dismissed for misconduct befor' the expiration of the current year and claimed against the company 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 not 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 continued in their service until the end of the year would have been £800, but in my opinion that would · give him no right 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 behavi· our cannot recover his current salary, that is to say, he cannot recover salary which is not 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 condition that he had fulfilled his duty as a faithful servant down to that later date." The case of Moriarty v. Regents Garage & Engineering Company Limited(1 ) was particularly relied upon by the learned counsel for the Sassoons. No question of dismissal or removal for misconduct arose in that case, but the director whose remuneration was fixed "at the rate of £150 per annum" ceased to be a director on settlement of disputes between himself· and the company, 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 company to recover a proportionate part of the £150 as his fees for the broken period. The Deputy County Court Judge gave judgment for the company, (r) [r92r] 2 K.B. 766. 1954 E. D. Sassoon and Company Ltd. v. The Commission"" of Income-tax, Bomba;• City. Bhagwati]. 1954 E. D. Sassoon rand Compa'!Y Ltd. v. The Commissioner of Income-tax, Bombay City. .Bhagwati J. 328 SUPREME COURT REPORTS [1955] holding that the director was not entitled to remuneration for a broken part of a year. The Divisional Court reversed the decision of the Deputy County Court Judge and there was a further appeal. It was held by the Court of Appeal that neither under the Agreement nor under the articles was the director entitled to the sum he claimed. The question of the applicability of the Apportionment Act was sought to be raised before the Appeal· Court but was not allowed to be raised in appeal as it had not been done in the County Court. In arriving at this decision Lord Sterndale M. R. stated the position as follows at page 774 :- "It seems to me that upon the construction of the agreement it must fail. It is a payment per annum, a payment for a year, and unless he serves for the year he cannot get the payment." The decision in Swabey v. Port Darwin Gold Mining Co.('), had been cited before the Court 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 nothing in 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 receive payment from day to day, and receive payment for the broken period. I do not think in this case there are .circumstances which oblige me or induce me to