COMMISSIONER OF INCOME TAX Vs. NATARAJA SASTRI P

JUDGEMENT

(1.) THE assessee was one of the seven directors of the United Industries Private Ltd., which was the managing agent of Cauvery Spinning and Weaving Mills Ltd. The company in which the assessee is a director closes its accounts on the 31st March every year. At the fifteenth annual general meeting of the company held on September 29, 1962, a resolution was passed as follows :

(2.) WE are omitting the names of the other directors mentioned in the resolution with whom we are not concerned here. The company in which the assessee is a director consists of nine shareholders, seven of whom, as already seen, are directors. The total remuneration payable to all the directors monthly would have involved an outlay of Rs. 68, 400 per year, at the rate of Rs. 5, 700 per mensem. The company appears to have suffered losses and, according to the balance sheet as on March 31, 1963, the profit and loss account stood at a deficit of Rs. 25, 490 and there was no reserve of any kind. On January 23, 1964, that is, after the close of the year, there was another resolution passed by the company. On that day letters had been received from all the directors, including the assessee here, waiving their remuneration for the year ending March 31, 1963, in view of the large amount of debit balance of the profit and loss account of the company and also in view of the fact the company and also in view of the fact that the company had been incurring losses for the past few years. These letters were placed before the board of directors for consideration. It was resolved by the board to accept the letters od waivers received from the directors waiving the remuneration due to them for the period ended March 31, 1963, and also the undertaking to waive till such time as the existing debit balance in the profit and loss account was wiped off.The monthly remuneration in the hands of the assessee was being assessed under the head "other sources". For the previous year ended March 31, 1963, relevant for the assessment year 1963 -1964, now under reference, the assessee had not declared any income by way of director's remuneration from the United Industries(Pudukottai) Private Ltd. It was stated before the Income Tax Officer that the assessee had waived his remuneration and that the waiver has been approved by the company in January, 1963. The Income Tax Officer held that, as the waiver was approved by the company only on January 31, 1963, the income at the rate of Rs. 500 per month for the period of ten months should be treated as having accured to him from the said company. He, therefore, brought this amount of Rs. 5, 000 to tax. It may be mentioned here that there were no entries crediting the assessee with the monthly resmuneration of Rs. 500 in accordance with the resolution of September 29, 1962, mentioned already.

(3.) THE learned counsel appearing for the revenue submitted that this was a case where the income had accured to the assessee month after month, that the absence of any credit in his favour in the books of the company was immaterial and irrelevant and that the subsequent waiver by the assessee did not affect its taxability on the ground of accrual. He further submitted that the decision followed by the Tribunal related to a case of managing agency and that the remuneration in that case was governed by an agreement which that the remuneration in that case was governed by an agreement which was modified retrospectively. He drew our attention to the decision of this court in Kothandaraman v. Commissioner of Income Tax as completely supporting his submission. For the assessee, learned counsel argued that the income having been waived, the amount was not at all assessable in the assessee's hands, that the accounts of the company supported the stand of assessee and that it would be wrong to tax him on income which had not accrued to him. He also relied on the principle that the assessee could be taxed only on the real income earned by him.