JUDGMENT
D.K. Jain, J.
1. In these two cross references, arising out of ITA No. 2969 of 1976-77, the Income-tax Appellate Tribunal (for short the Tribunal) has referred under Section 256(1) of the Income-tax Act, 1961 (for short the Act) the following questions for our opinion:
R.A. No. 1339(DEL)/1980-At the instance of the Commissioner:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in recalling its earlier order dated 30th August, 1978 and in directing that the matter regarding the taxability of the directors’ remuneration for M/s. Modipon Ltd. should be decided afresh?”
R.A. No. 546(DEL)/1978-79 -At the instance of the assessed:
(i) “If the answer to the question in R.A.No. 1339(DEL)/1980 is in the negative, whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that remuneration of Rs. 34,016/- from M/s. Modipon Ltd. accrued to the assessed during the previous year relevant to the assessment year 1973-74?”
(ii) “Whether on fact and in the circumstances of the case and in law the determination of value of free water/electricity could be made in accordance with Rule 3(d) when the assessed had proved the value for free use of electricity and water at Rs. 1,000/- on the basis of actual consumption and determination by the Tribunal in the past?”
R.A.No. 603(DEL)/1980-At the instance of the Commissioner:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no remuneration from M/s. Modipon Ltd. accrued to the assessed during the previous year relevant to the assessment year 1973-74?”
2. The factual position, as emerging from the statement of the case is as follows:
During the previous year ended on 31 March 1973 and relevant to the assessment year 1973-74, the assessed was the Managing Director of Modi Industries Limited and a Director in M/s. Modipon Limited (hereinafter referred to as Modipon). In his return of income for the relevant assessment year, the assessed did not disclose any remuneration received from Modipon. Article 111 of the Articles of Association of Modipon, dealing with payment of remuneration to the Directors reads as under:
“111. (1) Subject to the provisions of Section 198, 309, 310 and 311 of the Act, the remuneration and expenses of the Directors may be as hereinafter provided.
(2) The remuneration of each Director for his services shall be Rs. 250/- for each meeting of the Board or committee of the Board attended by him. The Directors shall further be paid, subject to the provisions of the Act, a remuneration of 1 per cent of the Net profits of the Company as determined in the manner laid down in the Companies Act, 1956, to be equally distributed amongst all the Directors of the Company unless they may unanimously decide from time to time to distribute the same in a different manner and in different proportions between themselves. The Directors shall also be remunerated for any extra services done or special exertions or efforts made by them outside their duties as confined by these regulations.”
3. On the basis of the said Article, the Income-tax Officer formed an opinion that the assessed was entitled to a remuneration @ 1% of the net profits of the said company. Since no remuneration from the said company had been declared by the assessed, the Income-tax Officer required him to explain as to why remuneration in terms of the said Article should not be included in his total income. Objecting to the proposed addition, the assessed relied on the following resolution of the Board of Directors of Modipon passed in its meeting held on 17 July 1972:
“RESOLVED that the Directors do not charge any remuneration whatsoever in respect of this year i.e. the year ending 28.2.1973 in the larger interest of the Company’s business.
“Further RESOLVED that this shall not constitute any precedent whatsoever and directors may charge remuneration in the next year.”
4. It was explained that since much prior to the close of the previous year on 28 February 1973, the Board of Directors had decided in 17 July 1972 not to charge any remuneration in the interest of the company’s business, no income by way of remuneration was taxable in his hands. A certificate from Modipon, stating that no remuneration was paid to the assessed was also filed. Rejecting the assessed’s stand, the Income-tax Officer held that the remuneration had accrued to the assessed on month to month basis because income of Modipon was also ascertained on month to month basis. He felt that since Modipon were earning huge profits, the Directors were entitled to remuneration and although they were free to forego the remuneration but had to pay tax on such amount, which had accrued to them. He accordingly calculated the assessed’s share of remuneration at Rs. 34,016/- and brought it to tax.
5. Aggrieved, the assessed preferred appeal to the Appellate Assistant Commissioner of Income-tax (for short the AAC) and pleaded that Modipon, having closed their accounts on 28 February 1973 and the remuneration of the Directors being dependent on the company’s profits, which could be ascertained only on 28 February 1973 or thereafter, the remuneration, if any, would accrue to the Directors only after that date and the Directors having foregone their remuneration vide resolution dated 17 July 1972 i.e., much before the date of accrual, no income by way of remuneration by the said company could be included in the total income of the assessed for the relevant assessment year. The AAC, accepting the stand of the assessed, deleted the addition.
6. Being aggrieved, the Revenue took the matter in further appeal to the Tribunal, which was allowed vide Tribunal’s order dated 30 August 1978. However, on 19 April 1979 and 20 May 1979, the assessed moved two miscellaneous applications under Section 254(2) of the Act, seeking rectification of the said order. The first application was dismissed but in the second application the Tribunal accepted the stand of the assessed that in para 19 of its order it had relied upon Section 310 of the Companies Act, 1956 which had since been amended and had no application to the assessment order under appeal. The Tribunal, therefore, recalled its order dated 30 August, 1978.
7. Thereafter, Revenue’s appeal on the point was heard afresh. After referring to Article 111 of the Memorandum and Articles of Association of Modipon and Section 310 of the Companies Act, 1956, the Tribunal accepted the submission of the assessed that for payment of remuneration to the Directors in terms of the said Article, approval of the Central Government was necessary. It also felt that Article 111(2) did not create a contract between the company and the Directors and in any case without the approval of the Central Government, the said Article could not be made operative. Relying on the decisions of the Apex Court in E.D. Sassoon & Co. Ltd. and Ors. v. Commissioner of Income-tax, (1954) 26 ITR 27 and Commissioner of Income-tax v. Ashokbhai Chimanbhai, (1956) 56 ITR 42, the Tribunal took the view that the net profits of Modipon for the year ending 28 February 1973 could be determined only on that date and, therefore, the remuneration to the Directors would arise only on 28 February 1973, after the profits of the company were determined. The Tribunal held that since the amount of remuneration was foregone by the Directors even before the right to receive the same had accrued, no remuneration had accrued to the assessed and the assessed was thus, not liable to pay any tax on the same. thus, the second round the Tribunal affirmed the view taken by the AAC. On Revenue and assessed moving applications under Section 256(1) of the Act, the aforenoted questions have been referred.
8. We have heard learned counsel for the parties. Mr. O.P. Vaish, learned senior counsel assisted by Mr. S.K. Aggarwal, submitted on behalf of the assessed that in the facts and circumstances of the case no income had accrued to the assessed on account of remuneration in terms of Article 111 of the Articles of Association because: (i) Article 111(2) being subject to the provisions of Sections 198, 310 and 311 of the Companies Act, under Section 310 approval of the Central Government was necessary for paying any remuneration to the Directors and, therefore, in the absence of such approval, no remuneration accrued or arose to the assessed; (ii) Unless the net profit of Modipon was determined in accordance with the provisions of the Companies Act at the end of the accounting year, which is terminus a quo for the making up of the accounts and ascertaining the net profits earned by the company, no remuneration would either arise or become due to the Directors; and (iii) Even before any remuneration could accrue on the company’s accounts being finalised on 28 February 1973 (end of the previous year) or thereafter, the Directors by resolution of the Board of Directors dated 17 July 1972 had foregone the same and, therefore, there was no question of surrendering the same after it had become due or accrued.
In support of the last proposition, reliance is placed on a decision of this court in Commissioner of Income-tax v. Mehar Singh Sampuran Singh Chawla, 1973 (90) ITR 219, wherein it was held that the question for determination in such case was, when did the salary, commission and bonus accrue to the assessed and whether assessed gave up his right to claim them from the company prior to those amounts crystallising into a debt due from the company to the assessed and becoming recoverable by him as such from the company. Learned counsel also placed strong reliance on the letters and circulars issued by the Company Law Board, clarifying that approval of the Central Government was necessary both for fixing the original remuneration as also for increase in remuneration.
9. Mr. R.C. Pandy, learned senior standing counsel for the Revenue, supporting the addition made by the Income-tax Officer, vehemently argued that in the first instance the Tribunal erred in law in recalling its order dated 30 August 1978 as there was no mistake apparent from the order or the record, which the Tribunal could rectify under Section 254(2) of the Act. On the scope of Section 154 and 254(2) of the Act, learned counsel has placed reliance on the decisions of this court in Commissioner of Income-tax v. K.L. Bhatia, (1990) 182 ITR 361; Deeksha Suri v. Income-tax Appellate Tribunal and Ors., (1998) 232 ITR 395; Karan and Co. v. Income-tax Appellate Tribunal, (2002) 253 ITR 131; Hotz Hotels Pvt. Ltd. v. Commissioner of Income-tax, (2001) 248 ITR 647 and Smt. Baljeet Jolly v. Commissioner or Income-tax, (2001) 250 ITR 113. On the merits of the addition, Mr. Pandey would submit that the right to receive remuneration having accrued to the assessed in terms of Article 111(2) of the Articles of Association and till the said Article was changed in the manner provided in Section 31 of the Companies Act, the assessed could not be divested of his right to receive remuneration. It is urged that the Articles of Association having not been changed by a special resolution, in the general meeting of the shareholders, the resolution passed by the Board of Directors on 17 July 1972, foregoing their remuneration, was non est in the eye of law. It is asserted that Article 111 being in the nature of a contract between Modipon and the assessed, is binding on the parties and without changing the same in accordance with the procedure prescribed, remuneration had accrued in favor of the assessed ad was liable to be included in its total income. In support of the proposition that the income having accrued in terms of the said Article, resolution dated 1 July 1972 was of no consequence and the assessed could not escape liability to tax on this amount, learned counsel has placed reliance on a decision of the Supreme Court in Morvi Industries Ltd. v. Commissioner of Income-tax, .
10. Before taking up the main point, we may first deal with the question with regard to the propriety of the Tribunal in recalling its order dated 30 August 1978 on assessed’s application under Section 254(2) of the Act.
11. While interpreting and explaining the scope of Section 154 of the Act, which provision is in pari materia with Section 254(2) of the Act, the Supreme Court in T.S. Balaram, ITO v. Volkart Bros. and Ors., held that a mistake apparent from the record within the meaning of Section 154 of the Act must be an “obvious” and “patient” mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. In Hotz Hotels Pvt. Ltd. case (supra), a Division Bench of this Court, to which one of us (D.K. Jain, J.) was a party observed thus:
“In order to attract the application of Section 154, the mistake must exist and the same must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. “Mistake” means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error; a fault, a misunderstanding, a misconception. “Apparent” means visible; capable of being seen, obvious; plain. It means open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming. A mistake which can be rectified under Section 154 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration.”
12. In Master Construction Company (P) Limited v. State of Orissa, (1966) 17 STC 360, the Supreme Court dilated on the term “an error apparent from record” to be one which is not an error which depends for its discovery on elaborate arguments on questions of fact or law. A similar view has been expressed by the Apex Court in a recent decision in CIT v. Hero Cycles Pvt. Limited, (1997) 228 ITR 463, wherein it is again said that for invoking jurisdiction under Section 154 of the Act, for exercising power of rectification of mistake, it is a condition precedent that the mistake must be “glaring and obvious”.
13. Applying the aforenoted principles, governing an application under Section 254(2) of the Act, we are of the opinion that the Tribunal was justified in recalling its order dated 30 August 1978 on the ground that while deciding the appeal, it had admittedly relied on a wrong section, which had no application to the year under appeal. We do not find any illegality in the observation of the Tribunal that it was difficult for them to say as to what extent reliance on a wrong section had affected the mind of the Tribunal. Obviously, reliance on a wrong provision of law is tantamount to an error apparent from the record within the meaning of the said section. Accordingly, the question referred at the instance of the Commissioner in RA No. 1339(DEL)/1980 is answered in the affirmative i.e. in favor of the assessed and against the Revenue.
14. We not take up the main question, namely, whether any income by way of remuneration had actually accrued to the assessed and did this amount constitute his income taxable in the relevant assessment year?
15. Dealing with the scope of total income, Section 5 of the Act provides that the total income of a person, who is resident, includes all income from whatever source derived and becomes chargeable to tax either when it “is received” or is deemed to be received in India by him or when it “accrues” or “arises” or is deemed to accrue or arise to him in India during the previous year. In other words, receipt of income is not the sole test of taxability. Under this Section, the charge is both on receipt or accrual basis. The expressions “is received”, “accrues” or “arises” as appearing in the Section are three distinct terms but are not defined.
16. In CIT v. Ashokbhai Chimanbhai (1956) 56 ITR 42, the Supreme Court observed that the words “accrue” and “arise” are used to contradistinguish the word “receive”. Income is said to be received when it actually reaches the assessed’s hands, but short of receipt, when the right to receive the income becomes vested in the assessed, it is said to accrue or arise. If income accrues or arises, it may become liable to tax. It is, therefore, manifest that if an assessed acquires a right to receive income, the income can be said to accrue to him, though it may be received later on.
17. The question as to the point at which income could be said to “accrue” or “arise” to an assessed for the purpose of the Indian Income-tax Act, 1922, came up for consideration in E.D. Sassoon and Co. Ltd. (supra). In the majority judgment it was explained that the words “arising” or “accruing” described a right to receive profits and that there must be a debt owed by somebody. It was observed that it cannot be said that an assessed has acquired a right to receive the income or that income has accrued to him unless and until there is created in favor of the assessed a debt due by somebody.
18. On the connotation of the world “debt”, in Kesoram Industries and Cotton Mills Ltd. v. CWT, [1966] 59 ITR 767, the apex court observed as follows:
“A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in futuro; debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt untill the said contingency has happened.”
19. At the same time, however, computation of such income is to be made in accordance with the method of accounting regularly adopted by the assessed. It may be cash system i.e. actual receipt or mercantile system, where entry is made on accrual basis i.e. accrual of right to receive payment. Therefore, when an assessed maintains his account son mercantile system what has to be seen is whether income can be said to have really accrued to him or not. As noted above, if the income has accrued, it is taxable in the year of accrual irrespective of the fact whether he has received the same or not.
20. In State Bank of Travancore v. CIT, , while observing that the concept of reality of income and the actuality of the situation are relevant factors, which go to the making up of the accrual of income, their lordships of the Supreme Court said that whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory but it would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessed. What has really accrued to the assessed has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties, subsequent to the year of closing, an income which has accrued cannot be made “no income”. It was noted that expression of the concept of real income to this field to negate accrual after the amount had become payable is contrary to the postulates of the Act (Emphasis added).
To determine this vexed question, the apex court laid down the following propositions:
“(1) It is the income which has really accrued or arisen to the assessed that is taxable. Whether the income has really accrued or arisen to the assessed must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which is theory may have accrued but in the reality of the situation, no income had resulted because the income did not rally accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessed. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessed is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessed. After debiting the debtor’s account and not reversing that entry — but taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessed or been treated as such by the assessed. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits.”
21. In Commissioner of Income-tax v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144, the apex court had observed as follows:
“Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a “hypothetical income”, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual not receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
22. In Godhra Electricity Company Limited v. Commissioner of Income-tax, (1997) 225 ITR 746, their lordships of the Supreme Court said that the afore-extracted principle laid down in Shoorji Vallabhdas (supra) is applicable whether the accounts are maintained on cash system or under the mercantile system. If the accounts are maintained under the mercantile system, what has to be seen is whether income can be said to have really accrued to the assessed.
23. Therefore, the moot question which arises for consideration is whether there was a right in the assessed to claim remuneration under Article 111 and a corresponding obligation on the company to pay it? Having examined the question in the light of the provisions of the Companies Act, particularly Section 310, and bearing in mind the principles of law laid down in the afore-mentioned decisions, we are of the opinion that even though the assessed was indubitably adopting mercantile system of accounting, no real income by way of remuneration from Modipon had accrued to him, which could be brought to tax in the relevant assessment year.
24. As noted above, answer to the controversy as to whether any remuneration had accrued to the assessed and was taxable in the relevant assessment year, centres around Article 111 of the Memorandum and Articles of Association of Modipon. The said Article, in addition to providing remuneration Rs. 250/- to each of the Directors for each meeting, provided for payment of remuneration @ 1% of the net profits of the company. As is evident from Article 111(1) the provision for payments in terms of the Article was subject to the provisions of the Companies Act, more particularly to Section 310, which deals with the provision for increase in remuneration of the Directors. Section 310 reads as follows:
“310. Provision for increase in remuneration to require Government sanction:–
In the case of a public company or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any Director including a Managing or wholetime Director, or any amendment thereof which purports to increase or has the effect of increasing whether directly or indirectly the amount thereof, whether that provision be contained in the company’s memorandum or articles, or in an agreement entered into by it or in any resolution passed by the company in general meeting or by its Board of Directors shall not have any effect unless it is approved by the Central Government and the amendment shall become void if, and insofar as, it is disapproved by that Government.
Provided that the approval of the Central Government shall not be required where any such provision or any amendment thereof purports to increase or has the effect of increasing the amount of such remuneration only by way of a free for each meeting of the Board or a committee thereof, attended by any such director and the amount of such fee after such increase dues not exceed two hundred and fifty rupees.”
25. The section provides that any provision relating to the remuneration of any Director, including a Managing or Whole-time Director or any amendment of any provision relating to such remuneration, which increases or has the effect or increasing such remuneration, should be sanctioned by the Central Government, in the case of a public company or a private company which is a subsidiary of a public company. If the increase is not sanctioned by the Central Government, it shall be regarded as void. In the said section any provision relating to the remuneration of any Director is considered to have the effect of increasing such remuneration if it provides for a payment beyond the sitting fee of Rs. 250/-.
26. In support of his stand that the approval of the Central Government was required for payment of the said remuneration, learned counsel for the assessed has referred us to a clarification issued by the Company Law Board under Section 310 of the Companies Act in the year 1966. The clarification reads as under:
“369/Section 310 — Remuneration of Directors increase requires Government Sanction
“Section 310 operates only when there is an increase in the remuneration. If a Director is to be remunerated for the first time, the approval of the Central Government under Section 310 is not required — “Section 310 operates only when there is an increase in the remuneration of a Director. As previously advised this section presupposes that some remuneration is being paid to a Director and that there is an increase in such remuneration. The remuneration paid to a Director may take anyone or more of the forms specified in Section 309, e.g. sitting fees for attending Board’s meetings, monthly, quarterly or annual remuneration, commission etc. If a Director is to be remunerated for the first time on making fixed term payments or payments by way of commission in addition to payments by way of sitting fees, there is no question of an increase in the remuneration of the Director as contemplated by Section 310 with the result that the approval of the Central Government under that section is not required in the matter.
It follows that if a Director, who is receiving under Section 309(2) sitting fees for attending Board’s meetings, is to be paid any remuneration over and above the sitting fees, e.g. remuneration under Section 309(3) or Section 309(4), Section 310 would become attracted, even though such remuneration be paid to him for the first time and be within the limits provided in Section 309. In other words even in cases where the intended increase may well be within what is permitted by Section 309 (e.g. 5% of the net profits payable to a whole-time Director without the approval of the Central Government), it will require approval of the Central Government under Section 310, if it is an increase in remuneration of the nature provided in that section.”
27. From the said clarification, issued as far back as in the year 1966, it appears that even though the remuneration to be paid to a Director is within the permissible limit fixed under Section 309, it will still require approval of the Central Government if a Director was hitherto receiving only the sitting fee and is sought to be paid remuneration under Section 309 (3) or (4) over and above the sitting fee. Since it is not in dispute that in the present case in the first three years the Directors were being paid only the sitting fee, and, as painted out in the written submissions, it was only by virtue of a special resolution passed by the company on 30 November 1968 it was resolved to start paying remuneration @ 1% of the net profits of the company to its Directors, in terms of Article 111, subject to the approval of the Central Government. Any further payment in, addition to the sitting fee, under the Article did require the approval of the Central Government, which admittedly had not been applied for. The view we have taken also finds support from various letters exchanged between Modipon and Company Law Board. Vide their letter dated 4 May 1977, the Department of Company Affairs, Ministry of Law, Justice and Company affairs had informed the company that in view of the proviso to Sub-section (4) of section 309 of the Companies Act, which was only an enabling provision and should be read with Section 310 of the Companies Act, the approval of the Central Government would be required for the payment of 1% commission, as it would amount to increase in remuneration of the Directors. At this juncture, we may also note that Mr. Pandey, learned counsel for the Revenue had submitted that the correspondence exchanged between Modipon and the Department of Company Affairs being posterior to the end of the relevant previous year, the assessed cannot be permitted to rely upon the same. Since no such objection was raised by the Revenue before the Tribunal, which has taken into consideration these documents, we reject the objection. Moreover, even the afore-extracted clarification issued by the Department of Company Affairs in the year 1966 shows that the department was allthrough holding the view that any payment to the Directors over and above the sitting fee was required to be approved by the Central Government. In our opinion, therefore, Article 111(2) could not be made operative without the approval of the Central Government. That was the mandate in Section 310 of the Companies Act. Having held that on the facts of the present case the approval of the Central Government was required for paying remuneration in terms of Article 111, it must follow as a necessary corollary that in the absence of the approval, neither the assessed had in him a right to claim the remuneration nor Modipon was under obligation to pay the same to him. That being the position in law, we find it difficult to hold that income by way of remuneration from Modipon had accrued to the assessed during the previous year. Further, when there was no accrual, the question of its surrender did not arise, as is alleged by the Revenue.
28. We are also of the opinion that even if it is assumed that approval of the Central Government was not required, as is pleaded by learned counsel for the Revenue, still on the facts and circumstances of the present case, the Board of Directors’ resolution foregoing the remuneration having been passed on 17 July 1972 i.e. much prior to the end of the previous year of the company on 28 February 1973, it could not be said that a right to receive the remuneration had already accrued to the assessed when the said Board resolution was passed.
29. In E.D. Sassoon & Co. Ltd. case (supra), it was held that the right to receive commission would arise and the income, profit or gains would accrue to the managing agents only at the end of the calender year, which was the terminus a quo for the making up of the accounts and ascertaining the net profits earned by the company. Again in Ashokbhai Chimanbhai case (supra), following the principle laid down in Sassoon’s case (supra) their Lordships observed that profits do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. Unless the right to profit comes into existence, there is no accrual of profits and the destination of the “profits must be determined by the title thereto on the day on which they arise”.
30. As noted above, remuneration @ 1% of the net profits of the company was to be determined in the manner laid down in the Companies Act. For the assessment year 1973-74 the company closed its accounts on 28 February 1973 and, therefore, the question of payment of the remuneration to the Directors, based on the net profits in terms of the said Article could arise only on 28 February 1973 or thereafter, when the net profits of the company were determined. The Board of Directors having decided to forego the said remuneration, much prior to the said date, the stand of the learned counsel for the Revenue that right to receive remuneration accrued from month to month and the assessed had relinquished his right to claim the remuneration after it had become due, is without any substance.
31. The decision of the Apex Court in Morvi Industries Limited (supra), relied upon by learned counsel for the Revenue, does not advance the case of the Revenue. In that case it was found as a fact that the amounts of income were given up unilaterally by the assessed after the same had accrued to it, which, as noted above, is not the case here.
32. In view of the foregoing discussion, the question referred at the instance of the Commissioner in RA No. 603(DEL)/1980 is answered in the affirmative i.e. in favor of the assessed and against the Revenue. In view of our answer to the said question, question No. 1 referred in RA No. 546(DEL)/1978-79 (at the instance of the assessed) does not survive for consideration. Question No. 2 learned counsel for the assessed and is, therefore, returned unanswered.
The references stand disposed of in the above terms, leaving the parties to bear their own costs.