JUDGMENT
Rankin, C.J.
1. In this ease the assessee, Mr. V.M. Bason, is a shareholder in three private companies limited by shares. In 1917 and after, it would appear that these companies had some arrangement for pooling their profits. The three companies were Samuel Pitze & Co., Ltd., Murray & Co., Ltd., and Devereux & Co., Ltd.
2. On 6th November 1917 a resolution was passed by the directors of Samuel Fitze & Co. Ltd. to the effect that after a dividend of not less than 10 per cent, had been paid, out of the net pooled profits of the three companies on any year’s working, a sum equal to one-third of the balance remaining of the said net pooled profits should be applied to the distribution of a bonus between the working directors, in India. The assessee, as a substantial shareholder in each of these three companies, objected to this proposal and claimed that the resolution was ultra vires and illegal. It would appear that in the companies’ books entries were made on the basis of the resolution, but the assessee having brought a suit and obtained an injunction, the special bonus proposed to be given to the working directors out of the companies’ profits was not in fact handed over to the directors. The sums in dispute appear to have been held in suspense by the companies concerned pending a decision as to the validity of the resolution. In the end the matter was compromised as appears from a resolution passed at an extraordinary general meeting of the shareholders of Samuel Mtze & Co., Ltd., held on the 16th December 1924 which shows that the bonus scheme was ultimately confirmed upon certain terms as regards the assessee of which the following is the chief:
The company with the consent of the directors will pay Mr. Bason one lakh of rupees which shall be accepted by him upon the basis that it represents the share of the bonus claimed by him to 31st December 1923, which has been set aside for the directors in terms of the resolution of 6th November 1917 which Mr. Bason has objected to and in respect of which these suits have been filed.
3. The present question has reference to this payment of one lakh of rupees, As the companies have in each year paid income-tax, together with, the companies’ super-tax upon their profits, the assessee has not been required by the asaessment now in dispute to pay income-tax upon this figure. But this figure has bean included in computing his total income under Section 16, Income-tax Act of 1922 and he has been assessed to super-tax in respect of this total income.
4. The assessee’s real grievance is that if the resolution of 6th November 1917, which he regards as illegal, had not been passed and acted upon, he would in each of the years between 1917 and 1923, have received a larger dividend upon his share, a dividend upon which income-tax would not have been payable by him and which would not have been in amount sufficient in any year to expose him to super-tax.
5. The Commissioner of Income-tax has stated for the opinion of the Court two questions, namely:
(1) Whether under the circumstances of the present case the lakh of rupees could be said to be the income of the petitioner for 1921-25 as dividends or otherwise, and whether the whole or any portion of it is assessable under the Income-tax Act.
(2) Whether their liability to assessment attached to each of the directors, as he received each year for several years his shire of the bonus either by actual withdrawal or by credit to his private account with the companies, and whether this liability was in any way modified or in any way transferred to the petitioner by the subsequent payment to him of a lump sum on 26th July 1924, as recorded in the terms of settlement in the High Court suit of 1920.
6. The only question which really requires to be answered is the first. The Commissioner of Income-tax has in my opinion correctly held that the sum in question was income assessable in 1925-26. No part of this sum was due or payable to the assesses until the companies declared it as dividend or otherwise dealt with it by making a payment thereof to Mr. Bason and the amount was part of his income in the year of receipt. It cannot be regarded, as the assessee has claimed, as representing the assessee’s profits, for previous years.
7. The second question stated to us, as framed by the assessee, appears to be altogether misconceived. The directors in fact did not receive the money and it never was taxed or taxable in their hands. The claim to assess the assessee upon this sum does not in any way rest upon any theory that the directors’ liability to income-tax has been transferred to the assessee. The Commissioner of Income-tax has rightly held that the correct answer to this question is that it does not arise.
8. In my opinion the assessment is in order; the questions referred to us should be answered in the sense which I have indicated and the assessee should pay the cost of this reference.
C.C. Ghose, J.
9. I agree.
Buckland, J.
10. I agree.
