1996 (4) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee is liable to be assessed on the income of Rs. 25,000 as remuneration from the company of which he was the managing director for the assessment year 1973-74.

Issue-wise Detailed Analysis:

1. Assessment of Remuneration Based on Resolutions:

The primary issue is whether the assessee should be taxed on Rs. 25,000 or Rs. 10,000 as remuneration for the assessment year 1973-74. The assessee's remuneration was initially fixed at Rs. 2,500 per month by a board resolution dated 4th June 1971. However, a subsequent resolution on 31st December 1972 reduced the remuneration to Rs. 10,000 per annum due to the company's difficult financial position. The Income Tax Officer (ITO) computed the salary at Rs. 25,000 for the year, considering Rs. 2,500 per month for the first nine months and Rs. 10,000 per annum for the last three months.

2. Appeal to the Appellate Assistant Commissioner (AAC):

The assessee appealed to the AAC, who found that the latter resolution was within the accounting year itself and should be given effect to. However, the AAC noted that the assessee had actually drawn Rs. 12,000 during the accounting year and adopted this amount as the assessable income.

3. Tribunal's Decision:

The Department appealed to the Tribunal, which found that the income for the first nine months had already accrued to the assessee as per the first resolution. The Tribunal held that the subsequent resolution could not reduce the salary retrospectively and could only operate prospectively. Thus, the Tribunal restored the ITO's order, assessing the income at Rs. 25,000.

4. Legal Precedents and Counsel Arguments:

The assessee's counsel argued that the second resolution, passed within the accounting year, should determine the remuneration at Rs. 10,000, the amount actually received. They contended that the tax should be computed on the remuneration received, which was Rs. 10,000 per annum. Alternatively, they argued for a deduction of the balance amount not received. The Department's counsel countered that under Section 15 of the IT Act, 1961, salary due from an employer is assessable whether paid or not. They maintained that the second resolution could not operate retrospectively.

5. Court's Analysis and Conclusion:

The Court examined similar cases, including K.R. Kothandaraman vs. CIT, CIT vs. P. Nataraja Sastri, CIT vs. V.R. Rajaratnam, and M.K. Abdul Rahiman vs. CIT. These cases established that once income has accrued, subsequent waivers or resolutions cannot affect its taxability. The Court noted that the second resolution was passed within the accounting year but could not have retrospective effect. Therefore, the income for the first nine months was correctly assessed based on the first resolution.

6. Final Judgment:

The Court held that the Tribunal was correct in setting aside the AAC's order and restoring the ITO's order. The assessee's income was assessable at Rs. 25,000, and the question referred was answered in the affirmative and against the assessee. No costs were awarded.

This comprehensive analysis ensures that the legal terminology and significant phrases from the original text are preserved while providing a detailed understanding of the judgment.