Law:

Section:

Section 15 of the Income-tax Act, 1961 – Salaries – Chargeable as – Assessment years 1968-69 to 1970-71 – Assessee was managing director in a company – There was a provision in articles of association and in accounts of company for payment of remuneration to assessee – However, on account of continuous loss sustained by company, Board of Directors passed a resolution not to make payment of remuneration to assessee – Accordingly no payment was made – Whether, on facts, amounts said to have been due to assessee by way of remuneration qua managing director was not income of assessee – Held, yes FACTS Assessee was the managing director of a company. In his return he had not included any salary income qua managing director. The ITO found that provision had been made by the company for such remuneration under the articles of association and in the accounts. When the ITO proceeded to include these sums in the respective assessment years, as income, the assessee contended that though provision had been made for it, the amounts had not been paid nor were payable to him as the board of directors had resolved not to permit any payment on account of continuous loss sustained by the company. The ITO, however, brought the amount into the net of taxation. Assessee's appeals before the AAC were dismissed and the Tribunal also upheld the taxability of the amounts. On reference : HELD In the face of the resolution of the board of directors that the managing director should not be paid his remuneration, the managing director was not entitled to draw the salary. The resolution of the board to write back the remuneration to the managing director meant that the provision in the balance-sheet was to stand deleted and the accounts were accordingly to be readjusted. In such circumstances, it was not open to be revenue to contend that section 15(a) applied and, on the basis that the salary was due from the employer, the same could be treated as income. Therefore, the amounts said to have been due to the assessee by way of remuneration qua managing director was not income of the assessee. Note: The decision was in favour of assessee. JUDGMENT R.N. Misra, J.—These are three references…

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