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TMI Blog1979 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... um and articles of association, the company was entitled to retain or charge a commission at such rate as may be determined from time to time by the members, in their general meeting, on the total amount fetched for each trip or on the total gross monthly income of each vehicle. The company had been charging a commission of 6% on the total gross monthly income of each vehicle of its constituent members. It used to maintain an account of the gross monthly income of each vehicle of its constituent members, and also the commission collected from them. Apart from this, it also maintained accounts of its management unit. Separate balance-sheets used to be prepared, but in pursuance of the directions issued by the Registrar of Companies, a consolidated balance-sheet, as required by s. 227 of the Companies Act, was prepared and it was found that the company incurred a loss of Rs. 1,88,754.21, which was attributable mainly to the management section of the company. In order to cover up this loss, the general body passed a resolution No. 5 in its meeting held on September 30, 1967, resolving unanimously that the losses be neutralised by contribution by deduction of Rs. 20 per month from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the relevant previous year the subject of dealing in any recognised stock exchange in India or were freely transferable by the holder to other members of the public ; and (iii) the affairs of the company, or the shares carrying more than fifty per cent. of its total voting power were at no time during the relevant previous year, controlled or held by five or less persons. Explanation 1.--In computing the number of five or less persons aforesaid,-- (i) the Government or any corporation established by a Central, State or Provincial Act or company to which this clause applies or the subsidiary company of such company shall not be taken into account, and (ii) persons who are relatives of one another, and persons who are nominees of any other person together with that other person, shall be treated as a single person. Explanation 2.--In its application to an Indian company whose business consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, sub-clause (b) shall have effect as if for the words ' not less than fifty per cent.' and ' more than fifty per cent.', the words ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess conducted by the assessee. It was also urged, that it was a donation made by members to cover up the losses, and being casual in nature did not have the characteristic of income. He invited our attention to a number of decisions of various courts, which we shall be presently referring to. Before we consider the section, it would be useful to quote cl. 27(a) of the memorandum and articles of association of the company. " 27. The company shall be entitled to retain or charge a commission at such rate as may be determined from time to time by the members in their general meeting on the total amount fetched for each trip or on the total gross monthly income of each vehicles. (a) The board of directors is authorised to wipe off the whole amount of loss whenever occurring in a financial year after completion of the audit of that year by distributing the same equally among the vehicles of the members on roll in that financial year. " This clause permits the company to charge a commission on a route to be determined at the general meeting either trip-wise or on the gross monthly income of each vehicle. The company opted to make a charge on the latter basis. Cl. 27(a) permits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 434 [FB]. In the first case, the assessee was an employee of a sugar factory. The owner of the factory decided to transfer this sugar factory to a limited company. A large number of shares were disposed of by the assessee, and in recognition of the assessee's services, shares of the value of Rs. 15,000 were allotted. It was held that the shares allotted to him were in the nature of a windfall as the assessee had not done any activity with the object of acquiring profits. The question in that case was as to whether the amount of Rs. 15,000 was received by the assessee for any business activity, and the answer to it was obvious, as the assessee had sold the share without any object of making any profit from the sales. In the present case, it has been seen that the company passed the resolution for deducting Rs. 20 per month per vehicle in exercise of its power granted to it under its charter. The next case is also not in point as in that case the creditor had with the permission of the court acted as an auctioneer of the debtor's property and collected an amount of 5% on the sale proceeds. In the circumstances, it was held that the amount so received was not the assessee's inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d losses. Payment thus received was referable to cl. 27 of the memorandum and articles of association and the business of the assessee. Sri Ashok Gupta has also referred to two English decisions, one in the case of Cowan v. Seymour, [1919] 7 TC 372 (CA) and the other in the case of Reed v. Seymour [1927] 11 TC 625 (HL). In Cowan's case, the assessee was a secretary of a company for remuneration. On the company being liquidated, a surplus remained. The shareholders, who were entitled to the surplus by a unanimous resolution voted the sum in equal shares to the chairman and the secretary. The question arose whether the amount received was the income of the assessee. It was held that as the amount did hot accrue in respect of an office or employment of profit it was not chargeable to tax under Schedule 'E'. This case was thus concerned only with the question as to whether the amount received could be charged as income from an office or employment of profit. The law laid down in this case can possibly have no application to the present case, as no question arises as to whether the payment received by the company was related to any office or employment of profit. The other case, i.e., R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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