9911796707
TMI Blog1993 (5) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... rued to the assessee from the said company, viz., Rs. 12,330 for the assessment year 1981-82; Rs. 16,200 for assessment year 1982-83; Rs. 17,550 for assessment year 1983-84; and Rs. 18,000 for assessment year 1984-85, was brought to tax in those four assessment years respectively. Thereupon, the assessee went in appeal for each of these four assessment years before the AAC, Visakhapatnam. AAC by his consolidated order dated 12-8-1986 in ITA Nos. 73, 74/85-86 and 23 24/86-87 observed that the ITO was correct in applying section 15 of the Income-tax Act for taxing the salary due to the assessee, though not actually paid for the assessment years 1981-82 to 1984-85. He further directed that "In view of some further developments in the matter i.e., the writing off of the amount by the resolution of the Board of Directors of M/s. Kalpana Tanning Materials Ltd., it will be proper to investigate the matter further, wait for the approval of the Annual General Meeting, see that the company offers the aforesaid salary, held to be not payable to the appellant, as its income, in its assessments, and watch the conduct of the appellant actually foregoing the aforesaid salary payable to her for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l General Meeting contained the following : "To write back the provisions for salaries of Rs. 60,930 due to the Managing Director (Assessee) in view of the written consent of the Managing Director Smt. B. Kalavathi to give up her claim in view of the continuous losses to the company." The ITO noted that this resolution clearly shows that the assessee gave up her claim to draw salary after it accrued and became payable to her. Under law, salary accrues when the accounts were credited, and subsequent surrender by the assessee in favour of the company could not obliterate the accrual to the assessee. So also, salary becomes due when it accrues to the employee, i.e., when the employee becomes entitled to receive it, and the employer becomes liable to it. From the approval of the Central Government and from the salary payable to the assessee shown to be outstanding liability in the books of account of the company, it is clear that the company was liable to payment of salary and the assessee is entitled to it. Subsequent developments will not alter the position. Already, the AAC held that salary is assessable in the hands of the assessee when it accrues and becomes due to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation while computing the income. The ITO simply held that salary has been once again found to be payable to the assessee without going into 'further developments'. It was contended on behalf of the assessee before the AAC that salary has been already written off by the company, and the write off had also been approved by the Annual General Meeting. She produced before the AAC, the minutes of the Annual General Meeting, which wrote off the salary payable to her. The AAC under these circumstances, deleted the income added under the head 'salary' under section 15(a) for all these four years, and directed the ITO to compute the income accordingly. He thus, allowed the appeals filed before him. 7. Having been aggrieved by the impugned order passed by the AAC, revenue came up in second appeals before this Tribunal, and thus common grounds raised in these appeals, stand for the consideration of this Tribunal. 8. It is contended that the AAC ought to have upheld the order of the ITO, relying on the following decisions: (a) CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551 (Guj.). (b) M.K. Abdul Rahiman v. CIT [1979] 119 ITR 93 (Mad.), (c) CIT v. V.R. Rajaratnam [1979] 119 ITR 89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd./SFC before the actual drawal." 11. At page-3, the approval of the Central Government dated 20-8-1981 was filed. Inter alia, it states that the Central Government has been pleased to approve under section 269 of the Companies Act, the appointment of Smt. Boddu Kalavathi as the Managing Director of Kalpana Tanning Materials Ltd. for a period of five years from 27-6-1980, on a salary of Rs. 1,500 including D.A., if any, payable under the Companies Rules, which has to be treated as part of the salary. We are not concerned here, about the other benefits to which she was made entitled to, like company's perquisites, gratuity, provident fund, medical benefits, etc. Para-5 of the said approval letter reads as follows : "5. The remuneration as stated in para 1 above is subject to the approval of the company in general meeting as required by sub-section (1) of section 309 of the Act, and subject further to such reduction as the company in general meeting may like to make, unless the same has already been approved by the company in general meeting." 12. On 9-7-1986 at 11 AM, the Board of Directors again assembled at Parishram Bhavan, Hyderabad in the office of the APSSIDC, and minu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary amount in its accounts. But no drawal of the same was ever made from out of the salary so credited in her name. 15. The question that arises in this set of circumstances and in view of the AAC's order, is whether the ITO is correct in treating the salary income as 'already accrued' and taking the same as income in the hands of the assessee in each of the four assessment years under consideration is correct. The revenue had relied upon the decisions reported at 104 ITR 551, 119 ITR 89 and 119 ITR 93, referred to above. Besides, the learned Departmental Representative, appearing for the revenue had also cited the decision of the Delhi High Court in CIT v. Gian Singh Kalsi [1980] 123 ITR 373. It is contended on behalf of the Revenue that every month salary has been debited to the Company's account and credited to the account of the assessee. The monthly salary is due to the assessee on rendering the services, and she is obliged to show all her salary income accruing in each of the accounting years relevant to these assessment years, as income in her hands. Unlike incomes falling under other heads, the principle under section 15 is that income becomes chargeable to tax with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls under the head 'salaries' cannot help the assessee and his waiver cannot amount to anything more than the disposal of the income already received by the assessee. The Tribunal erred in law in coming to the conclusion that the remuneration of Rs. 4,800 forgone by the assessee was not income liable to tax." The other decisions cited by the learned Departmental Representative, also support the proposition, which the Gujarat High Court has laid down in Bachubhai Nagindas Shah's case from which portions were already extracted above. 16. As against this argument, learned counsel for the assessee has firstly drawn the attention of this Tribunal to the fact that accrual of salary in the particular facts and circumstances of this case is not automatic. It depends upon the company showing surpluses, and the drawal of the salary requires the prior written approval of the financial institutions APSSIDC/SFC. In all these years, losses were sustained by M/s. Kalpana Tanning Materials Ltd. The argument that accrual of salary income is automatic on completion of every month cannot be accepted as correct. In view of the special conditions imposed for the drawal of salary allowed to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw the remuneration. Where the Board of directors by a resolution decided not to pay any remuneration to the managing director on account of continuous loss to the company in its business operations, the managing director was not entitled to draw his salary. The resolution of the Board to write back the remuneration of the managing director meant that the provision in the balance-sheet was to stand deleted and the accounts were accordingly to be readjusted. Held that the revenue cannot contend that section 15(a) of the Income-tax Act, 1961, applied on the basis that the salary was due from the employer. The same could not be treated as income of the assessee." Thus, the learned counsel for the assessee contended that the salary income cannot be said to be due to the assessee even though a provision of such salary income is made in the accounts of the company. 19. After hearing both sides, this Tribunal prefers to accept the arguments advanced on behalf of the assessee. Firstly, the Tribunal is of the view that the Board meeting dated 29-3-1980 specifically stated that the assessee should not draw any remuneration until the unit generates surpluses, and also that she should take ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
