M.K. Abdul Rahiman vs Commissioner Of Income-Tax on 13 February, 1979

Madras High Court
M.K. Abdul Rahiman vs Commissioner Of Income-Tax on 13 February, 1979
Equivalent citations: 1979 119 ITR 93 Mad
Author: Sethuraman
Bench: Sethuraman, Balasubrahmanyan


Sethuraman, J.

1. The Appellate Tribunal has referred the following questions for the opinion of this court under Section 256(1) of the I.T. Act, 1961:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its view that the sum of Rs. 24,000 was assessable in the hands of the assessee (Abdul Rahiman) for the assessment year 1971-72?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its view that the sum of Rs. 12,000 was assessable in the hands of the assessee (Adam Sahib) for the assessment year 1971-72 ?”

2. The relevant facts are in a short compass. It is enough to mention the facts in the case of Abdul Rahiman as the facts in the case of Adam Sahib stand on the same footing. Abdul Rahiman was the managing director of A.R.T. Bus Service (P.) Ltd., Jayankondan. During the previous year ending December 31, 1970, the ITO considered that a sum of Rs. 24,000 had accrued to him as his salary. As he had not returned the amount the ITO brought it to tax. In doing so, the ITO relied on a resolution passed by the board of directors of the company on January 2, 1967, under which Abdul Rahiman was entitled to a remuneration of Rs. 2,000 per month. There was no subsequent resolution modifying the salary due to him. In the view of the ITO, if the assessee waived his salary that by itself will not involve the consequence of the salary not having accrued, and as salary was assessable at the point of accrual, it was liable to be taxed notwithstanding its non-receipt. There was an appeal to the AAC, who held that, as no salary had been credited to the account of the assessee in the books of the company, the amount could not represent income and he, therefore, deleted the addition. At the instance of the department, the matter was taken on appeal to the Tribunal. The Tribunal, after extracting the resolution, came to the conclusion that the salary income due to the assessee was properly brought to tax in the assessment year under consideration. In the case of the other assessee, namely, Adam Sahib, the same conclusion was also drawn, and the only difference in the case of Adam Sahib was that he was not the managing director but only a full time director and the salary due to him was Rs. 1,000 and not Rs. 2,000 per month. The assessees have obtained a reference of the questions above extracted as they felt aggrieved by the decision of the Tribunal.

3. The Tribunal has found in para. 7 of its order as follows:

” In the present case, there is no resolution of the company in the accounting period rescinding the resolution of January 2, 1967, or modifying it in any manner. There is also no documentary evidence to show that the assessee had irrevocably waived the right to receive the salary at any time before the close of the accounting period. ”

4. From the facts and from the findings of the Tribunal it is thus clear that the salary accrued to the respective assessees under the terms of the resolution dated January 2, 1967, and that there was actually no waiver as such by them before the accrual. The amounts were not taken by them because the company had suffered loss. The Tribunal’s further finding was that there was a debt due by the company to the respective assessees which could have been enforced by them in view of the resolution which subsisted during the relevant year. There is no error in this conclusion.

5. The question whether the respective assessees can be treated as recipients of salary does not really arise here. In the case of a managing director or a full-time director, it may be that they cannot be treated as mere employees unless the terms of the agreement with the company showed, having regard to the extent of control over their services, that there was the relationship of master and servant. However, since the amounts have been brought to tax under the head ” Salary “, it is not necessary to go into this aspect.

6. Even assuming that this is not salary and is liable to be assessed under the head ” Other sources “, the matter is concluded by a decision of this court in CIT v. P. Nataraja Sastri . In that case, the director of a company was entitled to remuneration but in view of the loss suffered by the company it was resolved by the directors, after the close of the year, to waive the remuneration payable to them. The ITO, however, brought the amount due to the directors to tax under the head ” Other sources “. When the matter came up on reference it was held that where income had accrued already to a director or managing director, no waiver of the remuneration or any denial thereof would have the effect of affecting the taxability of the said sum, and that once the income had accrued, its waiver would only be in the nature of application of the income. A similar view has also been taken by the Gujarat High Court in CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551. It was a case of salary. The decision in Nataraja Sastri’s case has been followed in T.C. No. 426 of 1971 in the case of CIT v. V. R. Raja-ratnam [since reported in [1979] 119 ITR 89 (Mad)], which was also the case of a managing director who was being assessed under the head ” Salary”. Taking into account these decisions, the Tribunal cannot be said to have committed any error in its conclusion.

The learned counsel for the assessee drew our attention to a passage in the decision of the Gujarat High Court in CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551, at page 563, and wanted us to make an observation similar to those made therein. It has been pointed out by the learned judges of the Gujarat High Court that when the amount was not received, appropriate relief must be given by way of deduction to the assessee concerned, as otherwise the very basic principle of accrual will be violated. However, having regard to the nature of the questions referred to us, we do not think it necessary or proper to go into this aspect. The questions are answered in the affirmative and in favour of the revenue. The revenue will be entitled to its costs. Counsel’s fee Rs. 500.

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