1965 (11) TMI 146 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 11,250 is assessable under section 7 of the Income-tax Act.
2. Whether the relationship between the assessee and the company is that of an employer and employee.
3. Whether the remuneration credited to the assessee represents salary.
4. Whether the salary accrued to the assessee during the relevant period.

Detailed Analysis:

1. Assessability under Section 7 of the Income-tax Act:
The primary question is whether the sum of Rs. 11,250 is assessable under section 7 of the Income-tax Act. The court concluded that the sum represents salary and is assessable under section 7. The assessee's contention that no real income accrued due to the company's resolution was rejected. The court emphasized that the agreement conferred a right to monthly remuneration, and the resolution to stop payment did not negate the accrual of salary.

2. Relationship Between Assessee and Company:
The court examined whether the relationship between the assessee and the company was that of an employer and employee. The terms of the agreement and the functions assigned to the assessee indicated that he was under the superintendence, direction, and control of the board of directors. The court held that the relationship was indeed that of an employer and employee, as the assessee was effectively a manager under a contract of service. The court distinguished this from cases involving managing agencies, where the relationship might be different.

3. Remuneration as Salary:
The court analyzed whether the remuneration credited to the assessee represented salary. It was determined that the monthly remuneration of Rs. 1,250 was indeed salary. The court referred to the agreement, which specified that the company shall pay this amount monthly, and the entries in the company's books confirmed the accrual of salary. The court rejected the argument that the resolution to stop payment affected the accrual of salary, emphasizing that the resolution only stopped payment but did not deny or withdraw the remuneration.

4. Accrual of Salary:
The court addressed whether the salary accrued to the assessee during the relevant period. The agreement provided for monthly remuneration, and the company's books showed consistent credit entries for the salary. The court held that the salary had accrued to the assessee, and the subsequent resolution to stop payment did not negate this accrual. The court cited previous cases to support the view that the resolution was ineffective in altering the accrued salary for the assessment year.

Conclusion:
The court answered the question against the assessee, concluding that the sum of Rs. 11,250 is assessable under section 7 of the Income-tax Act. The relationship between the assessee and the company was that of an employer and employee, the remuneration represented salary, and the salary had accrued to the assessee during the relevant period. The resolution to stop payment did not affect the accrual of salary, and the entries in the company's books were considered irrevocable. The assessee was liable to tax on the accrued salary.