COMMISSIONER OF INCOME TAX BOMBAYCITY vs CHUNILAL V. MEHTA AND SONS (P) LTD.

The Supreme Court ruled that under Section 10(5A) of the Income-tax Act, 1922, compensation received for the termination of a managing agency is taxable in the assessment year when it becomes due. The Court held that the assessee's right to compensation arose on April 23, 1951, when the termination resolution was passed, and since the assessee maintained accounts on a mercantile basis, the compensation was not taxable in the assessment year 1956-57. The High Court's decision that the compensation was not taxable but the interest thereon could be taxed was upheld.