HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Bombay City v. Chunilal V. Mehta and Sons (P) Ltd.
Civil Appeal No. 1535 of 1968
[1972] 1 SCR 117 ·
Indian Income-tax Act, 1922: sections 10(5A) and 66(1) · Finance Act, 1955: insertion of section 10(5A)
Sources & disclosures includedDownload original judgment / order
2-judge bench · K. S. Hegde, J. · A. N. Grover, J.
Assessment years: 1956-57
01 · Facts of the case
The assessee's managing agency was terminated on 23 April 1951. Its agreement prescribed compensation for premature termination, but it claimed a larger sum and sued. In November 1955 the High Court decreed Rs.2,34,000 under the contractual liquidated-damages formula, and the amount was received in December 1955. The assessee maintained mercantile accounts. Revenue sought to tax the receipt in AY 1956-57 under section 10(5A), introduced in 1955 without retrospective operation. The High Court held that the principal had accrued in 1951 and was not taxable in that assessment year, while interest was taxable.
Source: SCR pp. 119-122 / PDF pp. 3-6
02 · Discussion by the Hon’ble Court
Clause 14 fixed the compensation, and the right arose on termination in April 1951. Claiming an excessive amount did not make the existing contractual entitlement contingent until the decree. Read with the rest of the Act, section 10(5A) addressed amounts due for a mercantile taxpayer and amounts received for a cash-basis taxpayer. The Court rejected a deemed 1955 accrual simply because the charging provision was new. The delayed profit-and-loss entry reflected the dispute; the accounting method, rather than the date of that entry alone, determined the relevant accrual analysis.
Source: SCR pp. 122-125 / PDF pp. 6-9
03 · Judicial decision
The Court affirmed the High Court's answers and dismissed Revenue's appeal with costs. The Rs.2,34,000 compensation accrued on 23 April 1951 and was not taxable under section 10(5A) in AY 1956-57. The affirmed answer separately treated the interest as taxable in that year.
04 · Outcome / in whose favour
The assessee succeeded on the compensation principal and the attempted 1956-57 charge. That success did not extend to interest, whose taxation under the High Court's answer was left intact.
05 · AKHB REVIEW POINT
AKHB analysis: read the compensation clause to decide whether an enforceable, quantified entitlement already existed or depended on future determination. Record the termination, contractual accrual, litigation, decree and receipt dates separately, together with the taxpayer's accounting method and commencement of the charging provision. Distinguish principal from interest, and do not extend this fixed-contract holding automatically to contested unliquidated damages or modern statutory compensation rules.
Source: AKHB analysis based on SCR pp. 122-126 / PDF pp. 6-10
Source & verification
Download original judgment / order · Open cited source rendition
Full 10-page SCR report read, separating editorial headnote from judicial text.
- Full source read; original bytes match catalogue SHA-256. Judicial text is unnumbered, so SCR and PDF page pinpoints are used.
Statutory scope
The ruling concerns compensation fixed by a particular contract, a mercantile accounting method and non-retrospective enactment of section 10(5A). It is not a blanket rule for disputed or unliquidated damages or present compensation taxation.
Later treatment
Source checked 2026-10-10. Comprehensive subsequent treatment has not been verified; no current citator clearance is represented.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Coverage, AI disclosure & professional disclaimer
Selected Supreme Court income-tax decisions and procedural orders checked against their identified sources. This collection is not exhaustive. The research catalogue has 2,569 indexed PDF assets, including alternate copies and incidental matches; that is not a count of unique or reviewed judgments. Historical and unreported coverage remains open.
AI-assisted research checked against the identified source. Extraction, interpretation or omission errors remain possible. Source review does not mean independent approval by a practising professional. Verify every material statement against the complete original judgment.
General research information only; not legal or tax advice, a certified judgment or a substitute for the full order. Applicability depends on facts, assessment year, statutory version and jurisdiction. Subsequent treatment is unverified unless a note expressly identifies the sources checked. Downloading does not create a professional engagement. Obtain case-specific advice before reliance.
The official 1961–2025 structural correspondence does not establish that a precedent applies under the new Act. Verify the enacted wording, commencement and transitional provisions separately.