Income Tax Appellate Tribunal - Ahmedabad
Navnitlal Sakarlal vs Income-Tax Officer on 3 August, 1990
Equivalent citations: [1990]35ITD355(AHD)
ORDER
R.M. Mehta, Accountant Member
1. These appeals involving a common issue were heard together and are accordingly being disposed of by means of a consolidated order. The common issue in question is the taxability of the income under the head "Salary". It may be mentioned at this stage that the appellant at the relevant point of time was the Managing Director of M/s. Sarangpur Cotton Mfg. Co. Ltd.
2. The assessment years involved are 1982-83 and 1983-84. The original returns in respect of these assessment years were filed on 30th December, 1982 and 24-10-1983. In these returns the income under the head "Salary" was shown at Rs. 73,456 and Rs. 46,064. In the revised returns filed on 22-3-1985 and 26-3-1985 respectively the income from the same source was reflected at Rs. 25,515 and Rs. 11,510.
3. In the letters accompanying the revised returns the assessee stated that he had not received his salary in full from the company and since the same had gone into liquidation the unpaid amount was not liable to be received. A further submission which was made was that it was the real income which was liable to be taxed under the Income-tax Act and not any notional income. In the course of the assessment proceedings it was stated that although the assessee was entitled to draw remuneration as per the figures shown in the original returns the amounts subsequently received were much less and it was the latter which was required to be subjected to tax and not the former. For this proposition reliance was placed on the decision of the Hon'ble Orissa High Court in the case of Trailokyanath Mohanty v. CIT [1977]110 ITR 254 and that of the Hon'ble Supreme Court in the case of CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144.
4. The ITO rejected the arguments advanced firstly by resort to the provisions of Section 15(a) which reads as under:
(a) any salary due from an employer or a former employer to an assessee in the previous year whether paid or not;
According to the ITO the certificates filed by the assessee along with the original returns stated the actual amounts which became due to the assessee from the company and these were the ones which were required to be taxed under the head "Salary". It was also his view that if due to some reason the entire amount had not been received from the company, it could not be said that the amount which had not been received was not due. In respect of the two decisions (supra) cited before him the ITO on an examination of the relevant facts opined that these were distinguishable and not applicable to the facts of the assessee's case. In this view of the matter he subjected to tax in both the assessment years the amounts which had been shown in the salary certificates filed along with the original returns. The CIT (Appeals) confirmed the action of the ITO on the same lines.
5. The learned counsel for the appellant at the outset stated that nothing had been received by the assessee till today from the company vis-a-vis the difference in the amounts shown in the original returns and those shown in the revised returns. According to him the word "due" had to be strictly interpreted and since the amounts received by the assessee were the ones shown in the revised returns, these were liable to tax and not the amounts shown in the original returns. It was the further submission that there was no scheme for claiming bad debts in respect of salary income as was the position in respect of taxability of income under the head "Business". The theory of "real income" according to the learned counsel required to be invoked in the present cases. In support of his arguments the learned counsel placed reliance on the following decisions :
(i)Trailokyanath Mohanty's case (supra)
(ii) Shoorji Vallabhdas and Co.'s case (supra)
(iii) E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 (SC) at page 52,
6. The learned D.R. on the other hand, strongly supported the orders of the tax authorities and the subsequent arguments advanced by him were a reiteration of the reasons recorded by these authorities in rejecting the assessee's claim. He however highlighted the following :
(1) The salary certificates filed along with the original returns indicated the actual amounts that became due to the assessee from the company. (2) The tax had been deducted at source and deposited in the Government Account on the basis of the amounts shown in the salary certificates. (3) The balance sheet of the assessee available on record did not show anything as due on account of unpaid salary. (4) Section 192 of the IT Act envisaged a deduction at source only on the actual amount paid or becoming due to an assessee and which in this case happened to be the one mentioned in the salary certificates filed along with the original returns. (5) That salary had accrued within the meaning of Section 15(a) of the IT Act, 1961.
(6) That the "real income" theory did not apply to income taxable under the head "Salary" but related primarily to the computation of income under the head "Business". (7) That the various decisions relied upon on behalf of the assessee were distinguishable on facts as had been rightly done by the ITO.
The learned D.R. finally made an impassioned plea for the confirmation of the orders of the CIT (Appeals).
7. In reply, the learned counsel for the assessee stated that the tax was deducted at source not at the time of making the actual payment but at the time of making a provision in the books of accounts. According to him it was not a disputed fact that a part of the amount stated in the salary certificates had not been received by the appellant. It was further stated that the assessee had accounted for the income under the head "Salary" on receipt basis and not on accrual basis and hence nothing was required to be shown in the Balance Sheet on account of unpaid salary.
It may be mentioned at this stage that in response to a specific query from the Bench the learned counsel stated that the terms of appointment of the assessee had been approved by the Government and the salary which had been shown in the salary certificates and claimed as a deduction in the assessments of the company was in accordance with those terms. It was also stated that there was no subsequent resolution of the Board reducing the remuneration due to the appellant and nor were there any changes in the terms of appointment originally approved by the Government.
8. We have examined the rival submissions and have also perused the orders of the tax authorities. The paper book furnished by the assessee's counsel and the authorities cited at the bar have also been duly considered by us in deciding these appeals. In our opinion, the orders of the CIT(A) merit approval inasmuch as the view taken therein is justified on an examination of the legal position. Section 15(a) of the IT Act is absolutely clear since it speaks of "salary due from an employer ...Whether paid or not." In the present case what had become legally due to the assessee was the amount stated in the salary certificate and on which the tax had been deducted at source. In the original returns the assessee included these amounts as having become due to him on the basis of his terms of appointment which had been approved by the Government of India. In other words M/s. Sarangpur Cotton Mfg. Co. Ltd. was required to pay the assesses the amounts which he had reflected in the original returns of income. If subsequently these amounts were not paid over to the assessee on the ground that the company had gone into liquidation then the only action to which the assessee could have resorted was to stand in line with other creditors and await the outcome of the liquidation proceedings.
9. It may not be out of place to point out that the revised returns were filed in March 1985 and in case the ITO had completed the assessments prior to this date then the assessee would not have been able to file the revised returns and the only alternative left to him was to pursue the matter at a different level. As rightly pointed out by the Revenue authorities the decisions relied upon by the learned counsel are distinguishable on facts. In the case of Trailokyanath Mohanty (supra) there was a resolution of the Board whereby it was decided not to pay any remuneration to the Managing Director and as we have already mentioned earlier in the present appeals there is no such resolution and the salary income included in the returns is the one due on the basis of approved terms of appointment. In the case of ED. Sassoon & Co. Ltd. (supra) there was a transfer during the accounting year of the Managing Agency rights and the question was whether the commission paid to the assignee was liable to be apportioned between the assignor and assignee. These distinguishing features would not help the present appellant before us. A similar observation can also be made by us regarding the decision of the Supreme Court in the case of Shoorji Vallabhdas & Co. (supra). In the final analysis we uphold the orders of the CIT(A) in respect of the main issue under consideration.
10 and 11. [These paras are not reproduced here as they involve minor issues.]