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TMI Blog1979 (12) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... st 25, 1960. This resolution was to the following effect : " It was felt necessary to have a managing director for running the day to day administration of the company. After discussion it was unanimously resolved that Mr. Gian Singh Kalsi be and is hereby appointed as managing director of the company and the question of his remuneration shall be taken up later. " The articles of this company also provided that the directors might be allowed any amount either as salary or as commission on net profits or otherwise as was settled by the board of directors. This company was a closely held company in which the assessee and the members of his family were substantially interested. Although there was no formal resolution of the board determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh Kalsi agreed not to press for his remuneration and it was decided that the entry which was passed in the accounts should be reversed. It was further resolved to pay him Rs. 2,000 p.m. as remuneration with effect from 1-1-1962." Accordingly the account of the assessee with the company was debited with the amounts which the asseesee had withdrawn and which were credited to his account. The assessee then filed further revised returns in which he excluded the salary incomes so drawn. The ITO, however, treated the amounts of those salary incomes as part of the assessee's assessable incomes. Their surrender later to the company, it was held, could not obliterate the accrual and receipt earlier by the assessee of those amounts during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution which had been passed on August 25, 1960. In second appeals, however, the Appellate Tribunal deleted the amounts of those salaries from the incomes of the assessee for these years. It was observed that the fact that the assessee had withdrawn certain amounts or that certain amounts were credited did not create an enforceable right in his favour. What he received must be taken as borrowings against anticipated right which did not materialise. Reliance in this regard was placed upon the decision of the Supreme Court in the case of CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144, wherein it was observed that if income does not result at all, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the account books of the company and the assessee. The latter too treated the receipts as his salary income and duly disclosed them in the returns which were filed. Once those salary amounts had accrued and had been actually realised by the assessee, any subsequent surrender by him in favour of the company, it has been urged, could not obliterate the assessability of that income in the hands of, the assessee. It has been pleaded that the resolution dated August 25, 1960, bad the effect of, conceding that the assessee was entitled to salary. Only the quantum thereof was left over to be determined later. Moreover, the fact that all the directors and other family members were aware of the withdrawal of the salary amounts by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts and utilising them in partly meeting his household expenses. The fact that he had little misgivings that all those amounts constituted his legitimate remuneration was further amply borne out from the returns which he filed in which he entirely owned those amounts and sought their assessments as salaries in his hand. This contemporaneous conduct for a considerable length of period cannot be lightly ignored. Any subsequent withdrawal of those amounts by the company from him or their surrender by him in favour of the company could not obliterate the accrual and receipt of those amounts by him in those years. Had the assessments of the assessee followed soon after the filing of those returns, the salary amounts would have been assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed to the managing director in case the company did not make profits, was not mentioned at all in the earlier resolution dated August 25, 1960. This resolution purporting to justify the withdrawal of salary already enjoyed by the managing director, therefore, had to be treated as a mere after-thought. The nature of the constitution of the company, it being a closely held family concern, and the course of events as to how salary was being credited to the assessee and even withdrawn by him, show that the other directors were well aware of what was happening and they were plainly acquiescing in that. The account books of the company must have been closed after each year, and the withdrawal of the salary amounts by the assessee from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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