1961 (9) TMI 103 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the Commissioner's refusal to exempt the petitioner's remuneration from income tax.
2. Applicability of Article 265 of the Constitution of India.
3. Jurisdiction to issue a writ of certiorari.
4. Consideration of evidence and documents by the Commissioner.
5. Interpretation of the notification dated March 21, 1922, and its conditions.

Issue-wise Detailed Analysis:

1. Validity of the Commissioner's refusal to exempt the petitioner's remuneration from income tax:
The petitioner contended that the remuneration paid to him by "The Byramji Mining Combine Limited" should be exempt from income tax based on a notification issued under section 60 of the Income Tax Act, 1922. The Income Tax Commissioner refused to exempt the remuneration, stating that the conditions of the notification were not met. Specifically, the Commissioner concluded that the remuneration was not paid out of, or determined with reference to, the profits of the business, thus failing to satisfy one of the essential conditions of the notification.

2. Applicability of Article 265 of the Constitution of India:
The petitioner invoked Article 265, arguing that the tax was levied without legal authority. Article 265 states, "No tax shall be levied or collected except by authority of law." The court held that the tax did not fall within the mischief of this article because the assessment order was passed by the Income Tax Officer and confirmed by the Commissioner. Therefore, unless the assessment order was quashed, there was no basis for the issuance of a writ of mandamus to prevent tax recovery.

3. Jurisdiction to issue a writ of certiorari:
The court examined whether the order passed by the Commissioner was of a judicial or quasi-judicial character. It referred to the Privy Council's decision in Commissioner of Income Tax v. The Tribune Trust and the Andhra High Court's decision in Edara Venkaiah v. Commissioner of Income Tax, which held that the powers exercised by the Commissioner under section 33A were administrative. Consequently, the court concluded that it had no jurisdiction to issue a writ of certiorari to quash the Commissioner's administrative order.

4. Consideration of evidence and documents by the Commissioner:
The petitioner argued that the Commissioner failed to consider two important documents: a resolution passed by the company and a copy of the articles of association. The court found that even if the Commissioner had referred to these documents, they did not support the petitioner's contention that the remuneration came out of the company's profits. The articles of association merely stated that the remuneration was to be mutually agreed upon, and the resolution did not specify that the remuneration was paid out of profits. Therefore, the court held that the Commissioner was right in concluding that the condition was not fulfilled.

5. Interpretation of the notification dated March 21, 1922, and its conditions:
The court clarified that the notification embodied two cumulative conditions: (i) the sums must be paid out of, or determined with reference to, the profits of the business, and (ii) such sums must not have been allowed as a deduction but included in the profits of the business on which income tax was assessed. The court agreed with the Commissioner that the second condition was not satisfied since the deduction was disallowed on the grounds of excessiveness and not because the remuneration was paid out of profits. The court also referred to the Supreme Court's observations in Commissioner of Income Tax v. M.K. Kirtikar, which supported this interpretation.

Conclusion:
The applications were dismissed with costs, as the court found no merit in the petitioner's arguments. The court upheld the Commissioner's decision and confirmed that the conditions for exemption under the notification were not met.