COMMISSIONER OF INCOME TAX Vs. JATINDER

JUDGEMENT

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

(2.) THE assessee in each case was Director of a company, Bhagat Construction Co. (P) Ltd. The assessment years involved are 1970 -71 and 1971 -72. The company was incorporated on 19th Oct., 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 Arts. 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 8th March, 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 fixed salary of Rs. 2,500 per month w.e.f. 1st Nov., 1965, and commission at the rate of 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 20th Oct., 1968, corresponding to the asst. year 1969 -70 the assessee claimed to have adopted a resolution on 1st Sept., 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 asst. year 1969 -70, the company claimed commission at the rate of 1 per cent of the contractual receipts. The assessee in 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 8th Nov., 1969 relevant to the asst. year 1970 -71, assessee in each case claimed that there was a further resolution on 12th Sept., 1970 reducing the commission from 1 per cent to 1/2 per cent purportedly on the basis that further loss was incurred during the asst. year 1970 -71. On the basis of this resolution company claimed commission paid to directors at the reduced rate of 1/2 per cent. The assessee in each case filed return indicating the fixed salary and the commission on the basis of resolution dt. 12th Sept., 1970. The ITO completed assessment on the basis of return filed. For the previous year ending on 28th Oct., 1970 relevant to the asst. year 1971 -72, the Board of Directors of the company again passed a resolution on 21st Aug., 1972, reducing the commission to 1/4 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 asst. year 1971 -72 assessee in each case filed a return of income showing commission receivable at 1/2 per cent but subsequently revised return was filed indicating a revised commission of 1/4 per cent. Assessments for two years were completed by the ITO accepting the claims. The CIT was of the view that the assessments so done were prejudicial to the interests of Revenue and, therefore, initiated proceedings under S. 263 of the Act and issued notice. The foundation of the CIT's notice was that purported resolutions were passed after the income had accrued and, therefore, they were inconsequential. Orders of the CIT were challenged before the Tribunal, New Delhi by the assessee. There was divergence of view between the two members who originally heard the matter. While the A.M. was of the view that the resolutions were passed prior to accrual of the income, the J.M. held otherwise. The matter was referred to the Third Member and was heard by the Vice -President, who agreed with the A.M.. On being moved for reference, common questions have been referred for opinion of this Court. Relating to the asst. year 1970 -71, the question reads as follows :

(3.) WE find that in CIT vs. Shiv Prakash Janak Raj and Co. (P) Ltd. (1996) 136 CTR (SC) 421 : (1996) 222 ITR 583 (SC) : TC S39.3523 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 have been noted in the said case. In the light of those decisions determinative question would be the date of accrual of income. This aspect has to be determined on consideration of factual aspects with reference to materials and evidence brought on record by the parties. Though the Vice -President agreed with the A.M. and differed with the view expressed by the J.M., he did not discuss as to how the conclusion of the J.M. was not in order. It was open to him to hold that factual position noted by J.M. 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 rehear the appeals and adjudicate the matter afresh keeping in view the decision of the apex Court in Shiv Prakash Janak Raj & Co. (P) Ltd. case (supra). 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. All the references are, accordingly, disposed of.