Orissa High Court
Trailokyanath Mohanty vs Commissioner Of Income-Tax on 11 August, 1977
Equivalent citations: [1977]110ITR254(ORISSA)
JUDGMENT R.N. Misra, J.
1. These are three references made under Section 256(2) of the Income-tax Act of 1961 by the Income-tax Appellate Tribunal, Cuttack Bench, and the following common question has been referred to us for our opinion :
" Whether, in the facts and circumstances of the case, the amount said to have been due to the assessee by way of remuneration qua managing director of M/s. Orient Engineering Works Private Ltd., Cuttack, in each of the three years in question was income of the assessee ? "
2. The relevant years of assessment are 1968-69, 1969-70 and 1970-71, the respective previous years having ended with 31st of March of the corresponding years. Assessee was the managing director of M/s. Orient Engineering Works Private Ltd. and was assessed to income-tax in the status of an individual. In his return the assessee had not included any salary income qua managing director. The Income-tax Officer found that provision had been made by the company for such remuneration being Rs. 15,000 for the first year and Rs. 12,000 for each of the two subsequent years. When the Income-tax Officer proceeded to include these sums in the respective assessment years as income, the assessee contended that though provision had been made for it, the amounts had not been paid nor were payable to him in view of the fact that the board of directors had resolved not to permit any payment on account of continuous loss sustained by the company. The Income-tax Officer overruled the stand of the assessee and brought the amount into the net of taxation. Assessee's appeals before the Appellate Assistant Commissioner were dismissed and the Tribunal also upheld the taxability of the amounts. Assessee asked for a statement of the case to this court and that having been rejected moved this court for a direction to the Appellate Tribunal to state a case in each of these years. This court ultimately directed the Tribunal to state a case and refer the question already indicated.
3. Mr. Mohanty, for the assessee, contends that though under the articles of association provision had been made for remuneration of the managing director and in the office accounts provision had also been made to that effect, merely making of such provision would not entitle the managing director to draw the remuneration. Whether such a contention is acceptable or not, tn'e facts of this case clearly support the assessee in his stand that the amounts are not exigible to tax. The board did decide not to pay any, remuneration to the managing director on account of continuous loss to the company in its business operation. In the face of the resolution of the board that the managing director shall not be paid his remuneration, the managing director was not entitled to draw the salary. The resolution of the board to write back the remuneration to the managing director meant that the provision in the balance-sheet was to stand deleted and the accounts were accordingly to be readjusted. In such circumstances, it was not open to the revenue to contend that Section 15(a) of the Act applied and, on the basis that the salary was due from the employer, the same could be treated as income.
4. Our answer to the question referred, therefore, is :
" On the facts and in the circumstances of the case, the amounts said to have been due to the assessee by way of remuneration qua managing director of M/s. Orient Engineering Works Private Ltd., Cuttack, in each of the three years in question was not income of the assessee."
5. Assessee shall have his costs. Consolidated hearing fee is assessed at rupees one hundred and fifty.
Panda, J.
6. I agree.