LAWS(MAD)-1976-9-43

COMMISSIONER OF INCOME TAX Vs. RAJARATNAM V R

Decided On September 22, 1976
COMMISSIONER OF INCOME-TAX Appellant
V/S
V.R. RAJARATNAM Respondents

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, has under Section 256(1) of the I.T. Act, 1961, referred the following question of law for the opinion of this court:

(2.) THE assessee was the managing director of M/s. Tube Agencies (P.) Ltd. Under a resolution dated January 22, 1961, he was appointed as the managing director on a remuneration of Rs. 2,000 per month with effect from January 1, 1961, for a period of three years. On December 27, 1963, when the original period covered by the resolution was about to come to a close, another resolution was passed reappointing him as the managing director for a further period of three years with effect from January 1, 1964, with a pay of Rs. 2,000 per month and such bonus as the directors might from time to time declare or sanction to him. THE assessee was being paid remuneration at the rate of Rs. 2,000 per month up to May, 1964. He was paid a sum of Rs. 6,000 at the rate of Rs. 2,000 per month for the months of June, July and August, 1964, in the month of March, 1965. He did not draw any pay at all referable to the months of September to December, 1964. On April 30, 1965, there was a resolution of the company in which it was noted that the managing director had waived the remuneration payable to him for the months of September, October, November and December, 1964. THE company's accounts were being closed at the end of the calendar year, and in the accounts for the calendar year 1965, a sum of Rs. 1,500 was provided as salary payable to the assessee for the months of January to March, 1965, at the rate of Rs. 500 per month. He was actually paid this sum of Rs. 1,500 on July 1, 1966. Meanwhile, on May 27, 1966, the board of directors passed the following resolution :

(3.) SUBSEQUENT to March, 1965, which is relevant for the assessment year 1966-67, there was no resolution during the year ended March, 1966. The resolution which was passed on May 27, 1966, was after the relevant year, that is, after the accrual of the remuneration at the rate of Rs. 2,000 per month. The resolution dated May 27, 1966, which we have already extracted itself shows, that the managing director was entitled to a remuneration of Rs. 2,000 per month and that, only in view of the financial position of the company, he had agreed to draw a sum of Rs. 500 per month for a period of twelve months. As to when that twelve month period commenced is also not clear from the resolution. In these circumstances, in the absence of any arrangement between the assessee and the company, at any rate during the relevant year, it follows that the amount that was due to the assessee was at the rate of Rs. 2,000 per month, and his drawal of a lesser amount would only constitute a unilateral act of waiver of the balance of the remuneration to which he was entitled. That, in such circumstances, the assessee is liable to be taxed on the amount to which he was entitled, is clear from two decisions of this court. The first case is K. R. Kothandaraman v. CIT [1966] 62 ITR 348 (Mad). The second one is CIT v. P. Nataraja Sastri to which one of us was a party. In these two cases, it has been held that the waiver of the amount due to the assessee would only be an application of the income of the assessee. As the income of the assessee had accrued, he was liable to be taxed whatever he may have done in the form of waiver of a part of the income. It would follow that the question that is referred to us has, therefore, to be answered in the negative and against the assessee and we do so accordingly. There will be no order as to costs.