2019 (3) TMI 1403 - HC - Income Tax

Assessment of managerial remuneration under the head salary within the scope of sections 15 and 17 - taxing the managerial remuneration on accrual basis - salary due from an employer or a former employer whether paid or not - HELD THAT - Assessee has admitted to have maintained his accounts on mercantile basis and therefore any negation on this aspect could be verified only by the learned Tribunal. The finding on fact as recorded by the Tribunal, is binding on this Court. It appears that no such evidence or withdrawal of the managerial remuneration, which was debited by way of provisions in the books of accounts maintained by the Company appears to have been placed before the authorities below. Had it been so, the Tribunal as well as CIT (Appeals) were bound to take note of the same and the effect thereof on the taxability of the said managerial remuneration in the hands of the present Assessee, could have been discussed by them. Going by the facts that the Company for which the Assessee was the Managing Director during the period had made a provision for managerial remuneration of ₹ 9 lakhs to be paid to the Assessee creates an obligation on the present Assessee to bear the tax liability in respect of the same, in view of the definition of the word salary under Section 15 of the Act which includes both salary actually received or accrued to the person concerned. We are of the clear opinion that the order of the Tribunal does not suffer from any legal infirmity and the Appeal of the Assessee deserves to be dismissed and the same is accordingly dismissed.- Decided against the Assessee and in favour of the Revenue.

Summary

Issues:
1. Taxability of managerial remuneration for Assessment Year 1999-2000.
2. Interpretation of provisions under Sections 15 and 17 of the Income Tax Act.
3. Accrual basis of taxation for managerial remuneration.
4. Maintaining accounts on mercantile basis.
5. Effect of subsequent events on tax liability.

Analysis:

1. The Assessee filed an appeal challenging the Income Tax Appellate Tribunal's decision to tax the managerial remuneration of ?9 lakhs in the hands of the Assessee for the Assessment Year 1999-2000. The Tribunal held that even though the remuneration was not paid, the accrual of income during the financial year was sufficient for taxation. The Assessee argued that since the remuneration was not received, it should not be taxed. However, the Tribunal found the Assessee maintained accounts on a mercantile basis, making the accrual of income taxable.

2. The questions raised in the appeal involved the correct interpretation of Sections 15 and 17 of the Income Tax Act regarding the taxation of managerial remuneration under the head of 'salary.' The Tribunal justified taxing the remuneration based on provisions in the company's accounts. The Assessee contended that subsequent events nullified the accrual theory for taxation. The Court upheld the Tribunal's decision, emphasizing that the definition of 'salary' under Section 15 includes amounts due but not necessarily paid.

3. The Assessee argued that the managerial remuneration should not be taxed on an accrual basis as it was not received during the assessment year. However, the Court upheld the Tribunal's decision, stating that the obligation to pay the remuneration created a tax liability for the Assessee. The Court emphasized that the accrual of income is not affected by subsequent events and must be taxed accordingly.

4. The Assessee claimed that the accounts were not maintained on a mercantile basis, contrary to the Tribunal's finding. The Court noted that such factual findings are binding and can only be challenged before the Tribunal. Since no evidence of withdrawal of remuneration was presented, the Tribunal's decision stood. The Assessee's obligation to bear tax liability was based on the company's provision for remuneration.

5. The Court concluded that the Tribunal's order was legally sound, dismissing the Assessee's appeal. The questions of law were answered in favor of the Revenue, highlighting the Assessee's obligation to pay tax on accrued income, regardless of actual receipt. The appeal was dismissed with no costs awarded.