1968 (12) TMI 2 - HC - Income Tax

Whether the Tribunal was right in holding that the assessee s remuneration as director of a company registered in Bhopal, did not accrue or arise to him within the State of Bhopal, then an Indian State, and that the provisions of section 14(2)(c) of the IT Act, 1922, were, therefore, not attracted - Held, yes

Issues Involved:
1. Situs of accrual of income for director's remuneration.
2. Applicability of section 14(2)(c) of the Indian Income-tax Act, 1922.
3. Nature of remuneration paid to directors.
4. Determination of the place of accrual of director's remuneration.
5. Relevance of place of receipt of remuneration.
6. Comparison with managing agency commission.
7. Relevance of case laws cited by the parties.

Detailed Analysis:

1. Situs of Accrual of Income for Director's Remuneration:
The primary issue is the situs of accrual of income concerning the remuneration paid to a director of a company. The company in question was registered in Bhopal, an Indian State where the Indian Income-tax Act, 1922, did not apply. The remuneration was credited in the company's books maintained at Bhopal, but the directors performed their duties from Cawnpore, British India.

2. Applicability of Section 14(2)(c) of the Indian Income-tax Act, 1922:
Section 14(2)(c) exempts income accruing or arising in an Indian State unless received or brought into British India. The assessee claimed exemption under this section, arguing that the remuneration accrued in Bhopal. However, both the Income-tax Officer and the Appellate Assistant Commissioner found that the services were performed from Cawnpore, thus the income accrued in British India and was not exempt under section 14(2)(c).

3. Nature of Remuneration Paid to Directors:
The assessee argued that directors are not servants of the company and their remuneration is not for services rendered but akin to a gratuity. This argument was rejected based on the Indian Companies Act, 1913, which indicates that remuneration paid to directors is for services rendered. The court referred to section 132(3) of the Act and Halsbury's Laws of England, which both affirm that directors' remuneration is for services provided.

4. Determination of the Place of Accrual of Director's Remuneration:
The Tribunal and income-tax authorities concluded that the remuneration accrued in British India, where the directors performed their duties. The court upheld this view, referencing the Supreme Court's decision in Shoorji Vallabhdas & Co. v. Commissioner of Income-tax, which established that the place of accrual of managing agency commission is where the services are performed, not where the company's profits arise.

5. Relevance of Place of Receipt of Remuneration:
The assessee contended that the place of receipt of remuneration should determine the place of accrual. The court dismissed this argument, noting that under section 14(2)(c), the place of accrual is decisive, not the place of receipt. The mere fact that remuneration was credited in Bhopal did not exempt it from tax if the services were performed in British India.

6. Comparison with Managing Agency Commission:
The court drew parallels between director's remuneration and managing agency commission, both being payments for services rendered. The principle laid down by the Supreme Court in Shoorji Vallabhdas applies equally to directors' remuneration, affirming that it accrues at the place where services are performed.

7. Relevance of Case Laws Cited by the Parties:
The court examined several cases cited by the assessee, including Commissioner of Income-tax v. Lady Navajbai R. T. Tata, Birla Brothers Ltd. v. Commissioner of Income-tax, and McMillan v. Guest. It found these cases either distinguishable or not supportive of the assessee's contentions. The court emphasized that the principle from Shoorji Vallabhdas remains applicable, determining the place of accrual based on where services are performed.

Conclusion:
The court affirmed the Tribunal's decision that the director's remuneration accrued in British India where the services were performed. The question referred to the court was answered in the affirmative, holding that the remuneration did not accrue or arise in Bhopal and was not exempt under section 14(2)(c) of the Act. The Commissioner of Income-tax was awarded costs of Rs. 200 from the assessee.

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