1968 (8) TMI 11 - SC - Income Tax

Notification No. 878-F - purpose of the Notification was to avoid double taxation by providing that if the amount has been assessed in the hands of the company the same should not be assessed over again in the hands of the assessee. There was nothing in the Notification to suggest that it was a condition precedent for getting the benefit of the Notification that the company should have expressly made a claim for deduction and that claim should have been expressly disallowed - exemption granted

Summary

Issues:
1. Interpretation of Notification No. 878-F dated March 21, 1922, regarding exemption of director's remuneration from tax.
2. Whether the company's claim for deduction is a prerequisite for the director to benefit from the exemption.

Analysis:

Issue 1: Interpretation of Notification No. 878-F dated March 21, 1922
The case involved the interpretation of Notification No. 878-F dated March 21, 1922, regarding the exemption of director's remuneration from tax. The appellant, a director of a company, received remuneration which the company did not claim as a revenue expenditure. The High Court held that the company's claim for deduction was necessary for the director to benefit from the exemption. However, the Supreme Court disagreed with this interpretation. The Court emphasized that the Notification aimed to prevent double taxation and did not require an explicit claim for deduction by the company. The Court concluded that as long as the amount was assessed and charged in the hands of the company, it should not be taxed again in the hands of the director. Therefore, the Court set aside the High Court's judgment and ruled in favor of the appellant.

Issue 2: Necessity of Company's Claim for Deduction
The second issue revolved around whether the company's claim for deduction was a prerequisite for the director to benefit from the exemption under the Notification. The appellant argued that the company's claim for deduction, regardless of its allowance, was not a condition for the director to be exempt from tax. The Supreme Court agreed with the appellant, stating that the Notification did not mandate an explicit claim for deduction by the company. The Court emphasized that as long as the deductions were not allowed to the company, the director should be entitled to the exemption. Consequently, the Court ruled in favor of the appellant in both Civil Appeal No. 2521 of 1966 and Civil Appeal No. 2522 of 1966, setting aside the High Court's judgments and holding in favor of the directors against the Commissioner of Income-tax, Delhi, Rajasthan, and Madhya Pradesh. The appeals were allowed with costs.

This judgment clarifies the application of Notification No. 878-F dated March 21, 1922, in cases of director's remuneration, emphasizing that the company's claim for deduction is not a prerequisite for the director to benefit from tax exemption under the Notification.