Commissioner Of Income-Tax vs Jatinder And Ors.
2000 Latest Caselaw 1242 Del

JUDGMENT

Arijit Pasayat, C.J.

1. All these cases involve an identical issue and, therefore, are taken up together to be governed by this common judgment.

2. The assessed in each case was a director of a company, Bhagat Construction Company (P.) Ltd. The assessment years involved are 1970-71 and 1971-72. The company was incorporated on October 19, 1965. It followed the accounting year on the Diwali day basis. The question as to whether the fixed salary or commission on net profit or sales or partly by one or partly by the other in respect of the directors, was to be decided by the board of directors as laid down in articles 25 and 29 of the memorandum and articles of association of the company. By resolution passed at an extraordinary meeting of the shareholders held on March 8, 1966, D. R. Bhagat was appointed as the managing director and three other persons, namely, Jatinder Kumar, Prem Sagar Bhagat and Vidya Sagar Bhagat, were appointed as directors. D. R. Bhagat was to be paid a fixed salary of Rs. 2,500 per month with effect from November 1, 1965, and commission at 1 1/2 per cent, of the total contractual receipts, and other directors were to be paid salary of Rs. 2,000 per month and a commission of 2 per cent. For the previous year ending on October 20, 1968, corresponding to the assessment year 1969-70 the company claimed to have adopted a resolution on September 1, 1969, to reduce the rate of commission payable to the managing director and directors. This was done on the ground that loss was suffered by the company. For the assessment year 1969-70, the company claimed commission at 1 per cent, of the contractual receipts. The assessed jn each case also declared in his return of income to have received commission at the reduced rate of 1 per cent. For the previous year ending on November 8,1969, relevant to the assessment year 1970-71, the assessed in each case claimed that there was a further resolution on September 12, 1970, reducing the commission from 1 per cent, to 1/2 per cent, purportedly on the basis that further loss was incurred during the assessment year 1970-71. On the basis of this resolution the company claimed commission paid to the directors at the reduced rate of 1/2 per cent. The assessed in each case filed a return indicating the fixed salary and the commission on the basis of resolution dated September 12, 1970. The Income-tax Officer completed the assessment on the basis of the return filed. For the previous year ending on October 28, 1970, relevant to the assessment year 1971-72, the board of directors of the company again passed a resolution on August 21, 1972, reducing the commission to 14 per cent, of the payments received. It was purportedly done on the basis that the company had suffered a loss of Rs. 7.83 lakhs. Accordingly, returns were filed. It appears that for the assessment year 1971-72, the assessed in each case filed a return of income showing the commission receivable at 1/2 per cent, but subsequently a revised return was filed indicating a revised commission of 1/4 per cent. Assessments for the two years were completed by the Income-tax Officer accepting the claims. The Commissioner of Income-tax (in short, "the Commissioner") was of the view that the assessments so done were prejudicial to the interests of the Revenue and, therefore, initiated proceedings under Section 263 of the Act and issued notice. The foundation of the Commissioner's notice was that the purported resolutions were passed after the income had accrued and, therefore, they were inconsequential. The orders of the Commissioner were challenged before the Income-tax Appellate Tribunal, New Delhi (in short "the Tribunal"), by the assessed. There was divergence of views between the two members who originally heard the matter. While the Accountant Member was of the view that the resolutions were passed prior to accrual of the income, the Judicial Member held otherwise. The matter was referred to the Third Member and was heard by the Vice-President, who agreed with the Accountant Member. On being moved for a reference, common questions have been referred for the opinion of this court. Relating to the assessment year 1970-71, the question reads as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that only 1/2 per cent, commission on the business receipts accrued to the assessed during this year and thereby cancelling the order passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act ?"

3. For the assessment year 1971-72, the following question has been referred :

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that only 1/4 per cent, commission on the business receipts accrued to the assessed during this year and thereby cancelling the order passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act ?"

4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. Learned counsel for the Revenue submitted that the pivotal question is whether the income had accrued prior to the purported resolutions. The assessed's stand was based on an oral agreement. The Judicial Member with reference to the subsequent resolutions has factually recorded that there was no reference to any oral agreement in the subsequent resolutions. In fact, he also noticed about the original return which was filed on the basis of commission fixed by the previous resolution. Unfortunately, though.the Vice-President agreed with the Accountant Member he did not refer to these aspects which were noticed by the Judicial Member to hold that the plea of oral agreement was an afterthought.

5. We find that in CIT v. Shiv Prahash Janah Raj and Co. Pvt. Ltd. guidelines to be followed in such matters have been indicated in detail. Various decisions of the apex court rendered earlier were referred to and the essence of the decisions has been noted in the said case. In the light of those decisions the determinative question would be the date of accrual of income. This aspect has to be determined on consideration of the factual aspects with reference to materials and evidence brought on record by the parties. Though the Vice-President agreed with the Accountant Member and differed from the view expressed by the Judicial Member, he did not discuss as to how the conclusion of the Judicial Member was not in order. It was open to him to hold that the factual position noted by the Judicial Member was one of the factors to be considered and not determinative. Nevertheless, he was required to consider that aspect. In view of this position we feel the best course would be to direct the Tribunal to re-hear the appeals and adjudicate the matter afresh keeping in view the decision of the apex court in Shiv Prakash Janak Raj and Co. Pvt. Ltd.'s case [1996] 222 ITR 583. Ordered accordingly. We make it clear that we have not expressed any opinion on the factual aspects as the Tribunal has to re-adjudicate the matter.

6. All the references are accordingly disposed of.