Law: Income Tax Act, 1961

Section: 66

JUDGMENT This judgment will dispose of three References Nos. 20 to 22 of 1958 under sub-section (1) of section 66 of the Indian Income-tax Act. The facts of the case are that R.B. Devi Singh, Ishwar Lal and Rai Bahadur Suraj Narain, as directors of Messrs J.N. Singh and Co. Ltd., were each paid Rs. 10,000 by way of directors' remuneration by the resolution of the board of directors passed on January 6, 1949- "resolved that remuneration of the three directors-R.B. Suraj Narain, R.B. Devi Singh and Mr. Ishwar Lal be fixed at Rs. 10,000 each for the year 1948-49 and these amounts shall be payable out of the profits of the company." A shareholders' meeting confirmed the resolution on February 8, 1949. The payment of the amount was made to R.B. Devi Singh on April 5, to Mr. Ishwar Lal on March 19 and to R. B. Suraj Narain on April 7, 1949. The company's accounting year ended on June 30, 1949, for the assessment year 1950-51. In this assessment year the company did not claim the total amount paid to the three directors as a deduction in its return. The amount thus remained part of its income and was subject to income-tax. In the case of each assessee a claim was made that the amount of Rs. 10,000 paid to him as remuneration by the company was not chargeable to income-tax in his hands as tax had been paid or was payable by the company on the amount, otherwise it was said it would be a case of double taxation. Earlier a similar situation having arisen in regard to this very company for the assessment year 1941-42, and the company having claimed the amount as revenue expense on account of its having paid the amount to its directors as remuneration, the claim was disallowed up to the Appellate Assistant Commissioner but the Income-tax Commissioner on April 2, 1945, allowed the claim holding that otherwise it would turn out to be a case of double assessment of the amount, once in the hands of the company and again in the hands of the assessee director. It is on this instance, so it has been said at the hearing, that the company relied in not claiming the amount as a deduction in its return for the assessment year 1950-51. In all the three cases the claim made by the…

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