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Issues Involved:
1. Whether the additional remuneration of Rs. 77,568 from both companies constitutes income assessable under section 10. 2. If the answer to the above question is in the negative, whether the depreciation allowance of Rs. 29,485 unabsorbed in the assessment of 1955-56 is available to be included in the computation of the profits from business for the year 1956-57 under proviso (b) to section 10(2)(vi). Issue-Wise Detailed Analysis: 1. Whether the additional remuneration of Rs. 77,568 from both companies constitutes income assessable under section 10: The assessee, a managing director of two companies, claimed that the additional remuneration received was business income assessable under section 10 of the Income-tax Act. The Income-tax Officer treated this remuneration as income from "other sources" under section 12, arguing that the assessee did not carry on any business. The Appellate Assistant Commissioner, however, upheld the assessee's claim, relying on the Supreme Court's decision in Lakshminarayan Ramgopal and Sons Ltd. v. Government of Hyderabad, which held that rendering services could constitute business even if restricted to one concern. The Appellate Tribunal reversed this decision, holding that the remuneration was from "other sources" and not business income, as the agreements were service agreements creating a contract of employment, not business activity. The High Court agreed with the Tribunal, stating that the mere appointment as managing director did not constitute carrying on business. The remuneration was not business income under section 10 but could be taxed under section 7 or section 12. Hence, question No. 1 was answered against the assessee. 2. If the answer to the above question is in the negative, whether the depreciation allowance of Rs. 29,485 unabsorbed in the assessment of 1955-56 is available to be included in the computation of the profits from business for the year 1956-57 under proviso (b) to section 10(2)(vi): The Tribunal allowed the unabsorbed depreciation allowance of Rs. 29,485 to be set off against the business profits of the subsequent year. The High Court explained that depreciation allowance, a charge on profits or gains, must be adjusted against business income and carried forward if unabsorbed. The allowance should be added to the depreciation for the following year and set off against business profits. The High Court disagreed with the view that depreciation allowance could be treated as a loss to be set off against other income sources. The correct computation should add the unabsorbed depreciation of Rs. 29,485 to the depreciation allowance of Rs. 32,050 for the year 1956-57 and set off against business profits of Rs. 17,866, neutralizing the profit but not treating the carried forward depreciation as a loss for other income sources. Thus, question No. 2 was answered affirmatively, allowing the set-off of the unabsorbed depreciation against business profits but not treating it as a loss for other income sources. Conclusion: The additional remuneration was not business income under section 10 but could be taxed under section 7 or 12. The unabsorbed depreciation allowance of Rs. 29,485 from the previous year could be set off against the business profits of Rs. 17,866 for the subsequent year but could not be treated as a loss for other income sources. The assessee was directed to pay the costs of the department with counsel's fees of Rs. 250.
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