NARAYANASWAMI IYER V Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioner Narayanaswami Iyer, was employed as the manager of Swami and Co., a proprietary concern owned by his wife. His remuneration under the agreement dated 16th October, 1948, between himself and his employer, was Rs. 750 a month or half per cent. of the annual turnover, whichever was higher. A fresh agreement was entered into betwe`en the petitioner and his employer on July 1, 1949, which revised the scale of remuneration. THE petitioner was to get thereafter one per cent. of the annual turnover, if it exceeded Rs. 24 lakhs, subject to the minimum of Rs. 750 a month. For the period between July 1, 1949, and June 30, 1950, the petitioner was paid a sum of Rs. 33,146, as remuneration under the revised agreement, as the turnover amounted to Rs. 33,14,620. Swami and Co. claimed this payment as an admissible item of deduction in the assessment proceedings for 1951-52. THE Tribunal ultimately held that only a deduction of Rs. 16,573 was admissible in computing the taxable profits of the employer, Swami and Co. THE petitioner was, however, assessed on the actual receipt of Rs. 33,146, which was apportioned between his years of account, which ended with 31st March each year in the assessment proceedings for the assessment years 1950-51 and 1951-52.

(2.) THE petitioner claimed that under the terms of the Notification No. 878-F dated February 21, 1922, as it was subsequently amended, the petitioner was entitled to exclude from his assessable income the amount that was disallowed in the assessment proceedings of his employer, Swami and Co. that is, the difference between Rs. 33,146 that was paid to the assessee, and Rs. 16,573 which alone was allowed as a deduction by the Tribunal. That claim was rejected by the Income-tax Officer by his order dated August 25, 1955. THE petitioner invoked the revisional jurisdiction of the Commissioner under section 33A(2) of the Income-tax Act. THE petitioners request was rejected by the Commissioner by his order dated June 21, 1956.

(3.) THE first of the conditions was satisfied, and there was no dispute about that. THE petitioner received Rs. 33,146 as his remuneration for services rendered by him to his employer for purposes of her business. THE next question is whether the second test has been satisfied, whether this sum of Rs. 33,146 was paid out of the profits of the business carried on by the petitioners employer. Before answering that question shall deal with the third of the tests to be satisfied by the petitioner that by reason of such mode of payment the sum which the petitioner seeks to exclude from his assessable income was not allowed as a deduction but was included in the profits of the business on which income-tax was charged under the head "business" so far as the employer was concerned.