HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Calcutta, now West Bengal III v. Imperial Chemical Industries (India) Private Ltd.
Civil Appeals Nos. 1549-1552 of 1968
[1969] 3 SCR 804 ·
Indian Income-tax Act, 1922: sections 3, 10(2)(xv), 66(1) and 66(2)
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by V. Ramaswami, J. · J. C. Shah, J. · V. Ramaswami, J. · A. N. Grover, J.
Assessment years: 1949-50, 1950-51, 1951-52, 1952-53
01 · Facts of the case
The assessee, an Indian subsidiary in the ICI group, became sole Indian selling agent for ICI (Export) Ltd. from 1 April 1948 after four former agents were terminated. ICI (Export) agreed to compensate those former agents, and payments passed through the assessee's accounts over three years. For AYs 1949-50 to 1952-53 the assessee returned only net commission after transferring amounts to an ex-agents compensation reserve. The Income-tax Officer disallowed the reductions; the Appellate Assistant Commissioner and Tribunal agreed. The Tribunal found no proved agreement obliging the assessee to pay compensation out of its commission and added that any such agreement had not been acted upon. The Calcutta High Court nevertheless reappraised the material and answered the referred inclusion question for the assessee (SCR pp.806-809; PDF pp.3-6).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The Court reaffirmed that a High Court under section 66(1) was not an appellate fact-finder. A perverse or unsupported finding could be challenged only through a specifically sought reference; here the Tribunal had rejected the requested factual question and the assessee had not moved under section 66(2), so the Tribunal's finding controlled (SCR pp.808-810; PDF pp.5-7). Without proof of the agreement's exact terms, the payments could not be accepted as expenditure laid out wholly and exclusively for business under section 10(2)(xv) (SCR p.810; PDF p.7). Nor did overriding title divert the commission before accrual: the available documents indicated that compensation was the principal's liability and showed no legal obligation that prevented the commission becoming the assessee's income. The Court distinguished diversion at source from later application of income and applied the test whether the amount truly never reached the assessee as income (SCR pp.810-812; PDF pp.7-9).
Source: Primary judgment: discussion
03 · Judicial decision
The Court set aside the Calcutta High Court's judgment, answered the referred inclusion question in the affirmative and against the assessee, and allowed the four appeals with costs and one hearing fee (SCR p.812; PDF p.9).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of the Commissioner/Revenue. The compensation amounts of Rs.2,03,503, Rs.5,41,526, Rs.5,29,284 and Rs.4,00,052 remained included in the assessee's total income for the four assessment years on the record and question before the Court (SCR pp.808, 812; PDF pp.5, 9).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: when an assessee says a receipt was reduced before it became income, document the governing contract, the person legally liable, the accounting entries and the point of accrual. Keep a business-expense claim distinct from diversion by overriding title. In a reference proceeding, also identify whether the factual premise was separately challenged through the prescribed route before trying to recast it as part of a broader legal question (based on SCR pp.808-812; PDF pp.5-9).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The ruling applies section 10(2)(xv) and section 66 procedure under the repealed Indian Income-tax Act, 1922. Its procedural setting and deduction provision should not be equated with later appellate or business-expenditure provisions without independent verification. No current-law or later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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