1962 (2) TMI 113 - HC - Income Tax

Summary

Issues:
1. Whether the directors' remuneration received by the assessee is exempt from tax under Notification No. 878-F, dated March 21, 1922, as amended.
2. Whether it was necessary for the company to claim the amount of remuneration as a deduction in its assessment return for the assessee to be entitled to exemption.

Analysis:
The judgment pertains to three references under section 66 of the Indian Income-tax Act involving the payment of directors' remuneration by a company to its directors. The company paid &8377; 10,000 to each director as remuneration, which was not claimed as a deduction in the company's return for the assessment year 1950-51. Consequently, the amount remained part of the company's income and was subject to income tax. The assessees contended that the remuneration should not be taxable in their hands as tax had been paid or was payable by the company, to avoid double taxation.

The Income-tax Appellate Tribunal opined that since the company did not claim the remuneration as a deduction, the assessees were not entitled to exemption under Notification No. 878-F. The notification exempts income if it has not been allowed as a deduction but included in the profits of the business. The Tribunal framed questions regarding the applicability of the notification and double assessment. The Tribunal's questions aligned with those referred to by the court, focusing on the necessity of claiming the deduction by the company.

The court analyzed the notification's language and previous decisions to determine the applicability of the exemption. It emphasized that the exemption applies when a deduction is claimed but not allowed. Since the company did not claim the remuneration as a deduction, the notification did not apply. The court highlighted that each assessment year requires a fresh determination by the Income-tax Officer based on the nature of the payment. The court concluded that the assessees were not entitled to exemption as the company did not claim the remuneration as a deduction, leading to the dismissal of their claims.

In conclusion, the court ruled against the assessees, stating that the exemption under the notification was not applicable due to the absence of a deduction claim by the company. The judgment clarified the requirement for the company to claim deductions annually for the assessees to be exempt from taxation on the directors' remuneration. The court directed the assessees to pay the costs of the Commissioner of Income-tax.