Judgement SATYANARAYANA RAO, J. :- By an order of this Court in C.M.P. No. 2928 of 1947 dated 25th August 1947, the Appellate Tribunal was directed under S. 66(2) of the Indian Income-tax Act to refer to this Court the following two questions and they have been accordingly referred to us. They are : "1. Whether there is any material for the Tribunals finding that the appellants (Respondents in this case) were being assessed on cash basis in the prior years? 2. Whether on the facts and in the circumstances of the case the Appellate Tribunals finding that the sum of Rs. 2,26,850/- could not be assessed for the assessment year 1942-43 is correct in law?" The assessment year with which we are now concerned in this reference is the year 1942-43, corresponding to the accounting year ending with 31st March 1942. The assessees are the firm of Messrs. K.R.M.T.T. Thiagaraja Chetty and Company. They were originally members of an undivided Hindu family and after partition in the family they constituted themselves into a firm. They are the managing agents of Sri Meenakshi Mills, Ltd., Madura and under the terms of the Managing Agency agreement then in force the managing agents were entitled to remuneration of Rs. 1000/- per mensem and ½ per cent. commission on sales of yarn, waste cotton etc., made by the mills and 10 per cent. commission on the nett profits of the mills before allowing for depreciation. There is no dispute now with reference to the remuneration of Rs. 1000/- per mensem and with regard to the sum of Rs. 12,000/- the remuneration earned at that rate per mensem, during the accounting year and the assessees do not dispute their liability to pay Income-tax. The dispute is confined to the commission on sales and the 10 per cent. commission on the nett profits of the mills. The amounts which the assessees were entitled to under these two heads during the account year amounted to Rs. 2,26,850-5-0. There is no dispute regarding the amount. The amount was shown in the accounts of the mills and in the assessment of income of the mills, the mills claimed this amount as deduction which was allowed. This income however was not admitted by the assessees in the return they submitted during the assessment year as the amount was not actually received by the firm in the year of account. This income however was not admitted by the assessees in the return they submitted during the assessment year as the amount was not actually received by the firm in the year of account. 2. On the 30th March, 1942, the managing agents wrote to the mills (the reference is to the Sri Meenakshi Mills, Ltd., Madura) requesting the mills to write off their previous indebtedness and pay the amount earned by them in full. It would appear that the managing agents were indebted to me mills from a long time even when their family was joint in a sum which amounted in the accounting year to Rs. 2,04,058-11-8. On receipt of this letter the Board of Directors of the Mills met and passed a resolution on that date in these terms : "Read the letter dated 30-3-1942 from the managing agents to the Board of Directors regarding the debt due by the former to the Company and decided that until the Board of Directors came to a final decision on this matter, the commission due to the Managing Agents for 1941-42 on the purchases and sales and the 10 per cent. commission on the net profits should not be paid but should be kept in suspense. As the amount involved is large, without the approval of the general body, the Board thinks that it will not be proper to debit it as an expenditure. As the managing agents object to the withholding of their remuneration and want the matter to be settled by arbitration it has been decided to take up that question in the next meeting." As a result of this resolution the mills kept the amount in suspense and did not pay it over to the managing agents as they did in the previous years. On the ground therefore, that this amount was not paid over to the managing agents and was not even credited in the Mills accounts to the managing agents the assessees claimed that they were not liable to pay tax on this amount. It has now been found conclusively that the assessees themselves maintained no accounts of their own with regard to the commission and remuneration payable by the mills to them; and, in fact, they have not followed any method of accounting in respect of this source of their income. The Income-tax Officer rejected the claim of the assessees. It has now been found conclusively that the assessees themselves maintained no accounts of their own with regard to the commission and remuneration payable by the mills to them; and, in fact, they have not followed any method of accounting in respect of this source of their income. The Income-tax Officer rejected the claim of the assessees. He was of opinion that the resolution of the Board of Directors passed at its meeting on 30th March 1942 was collusive and that the income which accrued to the assessees whether received or not was chargeable to income-tax, particularly as there was no dispute regarding the actual amount payable to the assessees firm under the terms of the managing agency agreement and in respect of the working for 1941-42. 3. When once the income had accrued, as it did, according to the Income-tax Officer, its disposal did not affect the liability of the income to assessment under the Act. The refusal of the mills to permit the managing agents to withdraw the amount was not on absolute refusal or denial of their right but the Board of Directors while admitting the right of the managing agents to receive the income claimed that they were entitled to apply it for the discharge of the prior indebtedness of the managing agents. On appeal this decision was affirmed by the Appellate Assistant Commissioner. On a further appeal to the Tribunal by the Assessees the Tribunal disagreed with the view of the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal on a consideration of the facts and circumstances came to the definite conclusion that the resolution of the Board of Directors was not at all collusive but was bona fide, that in the previous years the income was assessed on cash basis as the commission and remuneration were paid to the assessees by the mills and that as in the present year the amount was not paid by the mills, the managing agents had acquired only a right to receive the income and the income itself had not accrued to the assessees. According to the Tribunal the assessees were definitely assessed in the previous years on cash basis for this income and that as no cash was paid during the accounting year and received by the assessees they were not liable to pay tax on the amount. 4. According to the Tribunal the assessees were definitely assessed in the previous years on cash basis for this income and that as no cash was paid during the accounting year and received by the assessees they were not liable to pay tax on the amount. 4. The Income-tax Commissioner thereafter applied to the Tribunal for a reference under S. 66(1) of the Indian Income-tax Act and he formulated in his application three questions. The second of the questions related to the finding of the Appellate Tribunal that the resolution of the Board of Directors was not collusive. The Tribunal by their order referred only two questions and declined to refer the question relating to the bona fide nature of the resolution for the reason that that question was a question of fact and raised no question of law. The Tribunal therefore omitted question No. 2 and referred the other two questions which were substantially on the same terms as the questions which had been formulated by the Court. On this the Income-tax Officer applied to this Court in C.M.P. 2928 of 1947 for directing the Tribunal to refer all the questions including the question relating to the bona fide character of the resolution of the Board of Directors. This Court modified the language of the two questions which were already directed by the Appellate Tribunal to be referred to this Court but the second of the questions relating to the collusive nature of the resolution was not referred. That question was abandoned at the time of the hearing of the application for reference before this Court and the two questions as set forth above were directed to be referred to this Court after altering the language of the questions as formulated by the Appellate Tribunal. 5. From this it follows that this reference must be dealt with on the footing that the finding of the Tribunal that the resolution of the Board of Directors was not collusive but bona fide is final and it cannot now be reopened by the Income-tax Commissioner. 6. The first question relates to the point whether the previous assessments were on cash basis. It is now beyond dispute that the assessee himself mainatined no accounts. Under S. 13 of the Act "Income, profits and gains shall be computed for for purposes of Ss. 6. The first question relates to the point whether the previous assessments were on cash basis. It is now beyond dispute that the assessee himself mainatined no accounts. Under S. 13 of the Act "Income, profits and gains shall be computed for for purposes of Ss. 10 and 12, in accordance with the method of accounting regularly employed by the assessee provided that if no method of accounting has been regularly employed or if the method employed is such that in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine." If, therefore, the assessee himself had maintained any accounts and had adopted either the method of mercantile system or cash basis the Income-tax Officer will be bound to compute his income on a particular basis adopted in the accounts unless the conditions of the proviso are satisfied in which case liberty is given to the Income-tax Officer to assess the income in any manner he deems proper. From an examination of the accounts of the mills it no doubt appears that in the prior years the amount was paid to the assessees in cash; and the cash books of the mills bear out the fact. The argument on behalf of the assessees by Mr. Alladi Krishnaswami Ayyar was that under the terms of the managing Agency agreement, the assessees as managing agents of the mills were bound to maintain proper and complete books of account in respect of all the transactions of the mills and such accounts in so far as they related to the assessees may by treated as really their accounts as there is no magic in insisting on the managing agents to maintain a duplicate set of accounts relating to their managing agencys commission and remuneration. The method of accounting contemplated however by the section is the method of accounting employed by the assessee in respect of his income profits and gains; and not an account maintained by him for the purpose of the mills. What is material under the section is an election by the assessee between the two systems of accounting as to which system he decides to adopt as the proper method of accounting in respect of his transactions. What is material under the section is an election by the assessee between the two systems of accounting as to which system he decides to adopt as the proper method of accounting in respect of his transactions. It cannot be said with any propriety that the managing agents choice on behalf of the mills in adopting a particular method of accounting for the purpose of the mills is also an indication of their method of accounting for the purpose of their individual transactions. They hold two capacities, one, as managing agents of the mills and the other their own individual right as partners of a firm. When there are no accounts of their own, it is impossible to determine that they had unalterably indicated their mind regarding the choice of the method of accounting which they would adopt in respect of their dealings. I am, therefore, unable to accept the argument of the learned counsel on behalf of the assessees that the accounts of the mills are also the accounts of the assessees and the method of accounting adopted in those accounts should be treated also as a method of accounting for the purposes of the assessees income. It follows, therefore, that the view of the Appellate Tribunal that merely because in the previous years cash was paid to the assessees by the mills as shown by their accounts, it would justify a finding that the method of accounting adopted by the assessees was on cash basis is wrong. Of course, if cash basis was adopted in the accounts maintained by the managing agents for purposes of their transactions, unless cash was received they would not be liable to pay tax on the amount which admittedly was not received by the assessees. The first question therefore must be answered in the negative and against the assessees. 7. This leads me on to the consideration of the more difficult question raised by the second of the two questions above set forth. 8. The main argument advanced on behalf of the assessees by their learned counsel, Mr. Alladi Krishnaswami Iyer is that the amount in dispute was not income of the assessees which had accrued or arisen in the accounting year. 8. The main argument advanced on behalf of the assessees by their learned counsel, Mr. Alladi Krishnaswami Iyer is that the amount in dispute was not income of the assessees which had accrued or arisen in the accounting year. It is no doubt true, says the learned counsel, that under the terms of the managing agency agreement the amount was earned by the assessees during the accounting year but as the directors refused to pay the amount until the question of writing off the prior indebtedness of the assessees to the mills was decided and kept the amount in suspense without even crediting it to the assessees it cannot be treated as income of the assessees which would be chargeable to Income-tax under the provisions of the Income-tax Act. In support of this contention the learned Counsel drew our attention to the scheme learned counsel drew our attention to the scheme underlying the provisions of the Act and also to the decisions, English and Indian, which have construed the word income which is assessable to tax under the income-tax laws. 9. The connotation of the words income, profits and gains accruing and arising has therefore to be considered. Under S. 3 of the Act which is the charging section, income-tax shall be charged for any year in accordance with, and subject to the provisions of the Act, in respect of the total income of the previous year of every individual, Hindu undivided family etc. S. 4 enumerates the heads of income that should be included in the total income of an assessee which is chargeable to tax, from whatever source it may be derived. There are three categories indicated in the section. It is either income which is received or which is deemed to be received or which accrues or arises. "Received" means actual receipt or constructive receipt. Deemed to be received is statutorily defined in some of the provisions of the Act. Income which accrues or arises has nowhere been explained in the Act though in 1947 by S. 2 of the Income-tax Act and Excess Profits Tax (Amendment Act) 1947, (Act XXII of 1947), an inclusive definition of income was introduced into the Act by sub-s. 6(c) of S. 2 of the Act. Income which accrues or arises has nowhere been explained in the Act though in 1947 by S. 2 of the Income-tax Act and Excess Profits Tax (Amendment Act) 1947, (Act XXII of 1947), an inclusive definition of income was introduced into the Act by sub-s. 6(c) of S. 2 of the Act. In the present case the amount under consideration is not profits of a business falling under S. 10 and must necessarily fall under S. 12 which relates to income, profits and gains from other sources. All the heads of sources are indicated in S. 6. S. 13 was introduced for the first time by the Act of 1922 so as to fill up the lacuna which was noticed in the Full Bench decision of this Court in SECY. to the Board of Revenue Income-tax Madras v. Arunachalan Chettyar, 44 Mad 65 (FB). When there is no method of accounting employed by the assessee and when there are no accounts maintained by him, the Income-tax Officer has to compute the income of the assessee by recourse to other material that is available for him to arrive at the Income of the assessee. In the present case, therefore, in order to arrive at the income the Income-tax Officer relied on the accounts maintained by the Mills and the managing agency agreement and arrived at the figure that the remuneration and commission amounted to Rs. 2,26,850-5-0. In order to constitute income, according to the learned counsel for the assessees, it must be established that the assessees had dominion over the sum and that it lay to their order in the hands of their agent or banker. It must be money available, for the assessees use and deposited at their direction and under their control either with a bank or with another person who holds the money on their behalf. Actual receipt may not be necessary but there must be potential receipt in the sense that it was at their disposal and they were at liberty to enjoy it. A mere right to receive an amount from a third person would not, according to the learned counsel, be income though it may be a debt. There must be an incoming to constitute an income and it is not a mere debt which could be reduced to possession by appropriate proceedings. A mere right to receive an amount from a third person would not, according to the learned counsel, be income though it may be a debt. There must be an incoming to constitute an income and it is not a mere debt which could be reduced to possession by appropriate proceedings. In other words, it must be possible to predicate that the sum was as good as receipt though not actually received and was not a mere claim to receive something from a third person. On the facts of the present case it was argued on behalf of the assessees that the Board of Directors bona fide refused to pay the amount to the assessees and kept it in suspense account though they admitted that it was money of the assessees in their hands. They resisted payment and prevented the managing agents from withdrawing the amount which they were entitled to do under the terms of the managing agency agreement. The claim was resisted by the mills on the ground that they had a counter claim or a cross claim against the agents, thereby making it impossible for the managing agents to call the money. The money was not therefore at their disposal and they could not have called the money if they wanted to utilise it and enjoy it. 10. It may now be convenient to deal with the decisions that have been relied on in support of these contentions. In GRESHAM Life Assurance Society v. Bishop, (1902) AC 287 Lord Lindley considered the meaning of receipt of a sum of money. The Learned Lord observed : My Lords, I agree with the Court of Appeal that a sum of money may be received in more ways than one e.g., by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by businessmen. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass; and I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the statute which your Lordships have to interpret. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass; and I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the statute which your Lordships have to interpret. But to constitute a receipt of anything there must be a person to receive and a person from whom he receives, and something received by the former from the latter, and in this case that something must be a sum of money. A mere entry in an account which does not represent such a transaction does not prove any receipt whatever else it may be worth." If the mills had adjusted the amount towards the debt due to them and made an entry to that effect in the accounts instead of keeping the amount in suspense there would undoubtedly have been a receipt of the money and apart from any other question the assessees would have been liable. But until such adjustment is made and an entry to that effect in the accounts was made by the mills, it cannot be said that in the present case there was a receipt of the money in the sense in which it is understood under the Income-tax law. 11. The leading case, which in my opinion, strongly supports the contention urged on behalf of the assessees is the decision of the Judicial Committee in ST. LUCIA Usines and Estates Co. v. St. Lucia (Colonial Treasurer), 1924 AC 508 (PC). The Judicial Committee were there construing the Income-tax Ordinance of 1910 of St. Lucia. In that case the assessees sold their property situated in St. Lucia and ceased to reside and carry on business in that State. Under the deed of sale of one of the properties part of the purchase price was left unpaid and was secured by a vendors lien and the purchaser covenanted to pay in November 30, 1921 the sum with interest at 6 per cent. He did not pay the interest and the assessee was obliged to sue and obtain a judgment. The interest was not paid. The company, i.e., the Assessee, was held by the revenue authorities of St. He did not pay the interest and the assessee was obliged to sue and obtain a judgment. The interest was not paid. The company, i.e., the Assessee, was held by the revenue authorities of St. Lucia liable to pay tax for the year 1921 on the interest which accrued due but was not paid. Under S. 3 of the Ordinance every person receiving income or to whom income shall accrue shall in respect of such income pay an annual income-tax at certain defined rates; and S. 4 Sub-s. (1) of the Ordinance provided that the income in respect of which income-tax is imposed shall include (a) certain income arising or accruing to any person residing in the colony, (b) certain income arising or accruing to a person not residing in the colony but derived from profits of property in the colony or from profession or trade carried on in the colony, and (c) income arising or accuring to any person residing in the colony derived from a source in or out of the colony and income arising or accruing to a person not residing in the colony derived from a source in the colony with a proviso that in respect of income derived from sources out of the colony so much of such income as is received in this colony shall be chargeable with income-tax. The assessee ceased to reside in the colony from 1920 but the source of the income was in the colony; and the question that had to be considered was whether the company had received an income or income accrued to it in that year in respect of interest under S. 3 of the Ordinance. The revenue authorities contended that as the interest became payable it was an accrued income even though it was not paid in that year. This contention was rejected by the Judicial Committee. Lord Wrenbury who delivered the judgment considered the meaning of the words income arising or accruing at page 512 of the report in the following words : "The words income arising or accruing are not equivalent to the words debts arising or accruing. To give them that meaning is to ignore the word income. The words mean money arising or accruing by way of income. There must be a coming in to satisfy the word income. To give them that meaning is to ignore the word income. The words mean money arising or accruing by way of income. There must be a coming in to satisfy the word income. This is a sense which is assisted or confirmed by the word received in the proviso at the end of S. 4, Sub-s. 1. If the tax-payer be the holder of stock of a foreign Government carrying say 5 per cent interest, and the Government is that of a defaulting State which does not pay the interest, the tax-payer has neither received nor has there accrued to him any income in respect of that stock. A debt has accrued to him but income has not. It does not follow that income is confined to that which the tax-payer actually receives. Where income-tax is deducted at the source the tax-payer receives the sum deducted but it accrues to him. It is said, and truly, that a commercial company, in preparing its balance sheet and profit and loss account, does not confine itself to its actual receipts - does not prepare a mere cash account - but values its book debts and its stock-in-trade and so on and calculates its profits accordingly. From the practice of commerce and of accountants and from the necessity of the case this is so. But this is far from establishing that income arises or accrues from (as above instanced) an investment which fails to pay the interest due." This passage it may be noticed really deals with two situations. One, income arising or accruing from sources other than business such as investments, and second, profits of a business which is calculated in accordance with the practice of commerce and of accountants. The relevancy of this distinction would presently be adverted to when examining the effect of the introduction of S. 13 by the Act of 1922. As the present case is not one which relates to profits of a business computed on the method of accounting regularly employed by the assessee the definition of income arising or accruing in the first part of this quotation is relevant for the purpose of the present discussion.