COMMISSIONER OF INCOME TAX Vs. NANDKISHORE SAKARLAL

JUDGEMENT

(1.) ALL these three references have been made by the Tribunal under S. 256(1) of the IT Act, 1961 at the instance of the Revenue. As the questions are, in substance, the same they are disposed of by this common judgment. However, in order to avoid any confusion, we set out the questions referred in each of these references respectively. IT Ref. No. 445 of 1980 :

(2.) THE assessee in IT Ref. No. 445 of 1980 and 212 of 1982 is Nandkishore Sakarlal. The assessee in IT Ref. No. 213 of 1982 is Navnitlal Sakarlal. Both are brothers and, at the relevant time, they were managing directors of Sarangpur Cotton Mfg. Co. Ltd. There were in all three managing directors and the total remuneration payable to them was 10% of the profits of the Mills. In the year relevant to the asst. year 1973 74, the total remuneration worked out to Rs. 2,19,335. Out of this amount, Rs. 90,000 were paid to the three directors; Rs. 50,673 related to perquisites allowable to them and the balance amount of Rs. 76,662, which would have been otherwise paid to the three directors, was, because of the resolution passed by the board of directors, not paid to them, but was paid to the Life Insurance Corporation for purchasing deferred annuity policies. The share of the assessee being 1/3rd in the said amount, during the assessment proceedings, a question arose whether Rs. 26,221 being the value of the LIC (policy) taken out by the Sarangpur Mills for the benefit of the assessee was includible as income of the assessee Nandkishore. In the year relevant to the asst. year 1974 75, the Mills company had spent Rs. 97,000 for the purpose of single premium deferred annuity policy for the benefit of the assessee Nandkishore Sakarlal and a similar policy of equal amount for the benefit of the assessee Navnitlal Sakarlal. During the assessment proceedings of both the assessees for the asst. year 1974 75, a similar question arose as to whether the amount of Rs. 90,000 should be treated as income of the concerned assessee. In respect of the amount of commission payable to the managing directors for the calendar year 1972, the board of directors had passed a resolution on 12th April, 1973 whereby it was resolved to purchase single premium deferred annuity policies for the concerned managing directors. Instead of paying the commission payable for the relevant year, it was resolved by the board of directors to provide for the payment of annuity to each of them for his life and upon his death to his dependents. Such payments were to commence from the date of his retirement as managing director of the company or such other date as was mutually agreed between the company and the concerned managing director or from the date of his death whichever was earlier. But in the said resolution, it was further provided that, "no benefit shall occur to any of the said managing directors or his dependents as the case may be nor shall any of the said managing directors have any right, lien or interest in any of the aforesaid policies until the date of the first payment of annuity and the balance sheet and profit and loss account of the company for the year 1972 be prepared accordingly". Similar resolution for the remuneration payable for calendar year 1973 was passed on 20th Dec., 1973.

(3.) IN the appeals filed by the assessees, the AAC confirmed the finding of the ITO that the remuneration did in fact accrue to the assessees and as the remuneration had become due, it became chargeable under S. 15 of the Act even though the same was not paid to the assessees but was invested in their insurance policies. The AAC, therefore, dismissed the appeals of the assessees on this point.