RAMANLAL C PAREKH Vs. KRISHNAMACHARI V CIT

JUDGEMENT

(1.) THIS is an application under article 226 of the Constitution. The petitioner, at the material time, was an employee of the Ahmedabad Jaya Bharat Cotton Mills Co. Ltd. (hereinafter referred to as the 'Mills'). Up to the year 1945 -46 he was paid a salary of Rs. 400 per month. From the year 1945 -46 his salary was raised to Rs. 1,500. The petitioner also happens to be the son of one of the directors of the mills, Shri Chimanlal B. Parekh, holding a substantial number of shares of the mills. The petitioner was also paid certain sums as dearness allowance and bonus during all these four years. We may take the figures of the year 1945 -46 to appreciate the contentions raised by the parties. In the year 1945 -46 the petitioner was paid Rs. 18,000 as salary, Rs. 789 as dearness allowance and Rs. 4,500 as bonus. The total amount paid to him during the year thus amounted to Rs. 23,289. In the assessment of the mills for the aforesaid four years, i.e., 1945 -46 to 1948 -49, which was subsequently completed, the Income -tax Officer disallowed the increment given to the petitioner in his salary and bonus. The findings recorded by him were that the increments allowed appeared to be for reasons other than business. The dearness allowance paid to him was, however, allowed in full. Ultimately, when the matter was taken to the Tribunal by the mills, the Tribunal allowed payment of salary to the extent of Rs. 1,000 per month and allowed payment of three months' salary as bonus to the petitioner. The excess payment made to the petitioner by the mills was disallowed by the Tribunal. Now, the petitioner had paid the tax on the entire amount received by him from the mills. When the cases of the mills for the assessment years 1945 -46 to 1948 -49 were concluded by the final decisions of the Tribunal, the petitioner preferred claims for refund under section 60 of the Income -tax Act. It was the petitioner's case that must get refund in respect of the amount which has been disallowed as the legitimate expense of the mills and yet has been taxed in his hands. In short, it is the petitioner's case that, in respect of the expenses disallowed to the mills, that amount has been doubly taxed -once in the hands of the mills as addition to its profits, and the second time in his hands as amounts received by him from the mills. This, according to the petitioner, is not permissible under the Notification No. 878F (I. T.) dated March 21, 1922, issued by the Finance Department under section 60 of the Income -tax Act. This contention of the petitioner has not been accepted by the income -tax authorities and the petitioner, therefore, has preferred this application, wherein he seeks to get quashed the orders of the income -tax authorities and further prays that direction be issued to the income -tax authorities to give the necessary consequential relief which the petitioner is entitled to under the aforesaid notification.

(2.) THE question raised thus turns on the construction of the notification. The question will have to be considered in two different aspects - the first as regards amounts paid to the petitioner by way of salary and the second as regards amounts paid by the mills to the petitioner by way of bonus, which has been disallowed as allowance to the mills. The notification is in the following terms : 'The following classes of income shall be exempt from the tax payable under the said Act, but shall be taken into account in determining the total income of an assessee for the purposes of the said Act -

(3.) IN the light of these observations, the facts of this case will have to be approached. We will first see whether the first of the aforesaid three conditions has been satisfied re salary. Now, it is an admitted position that the agreement between the petitioner and the mills was not that he was to be paid a certain percentage out of the profits as his salary, but the salary payable to him was a fixed monthly sum of Rs. 1,500 per month, irrespective of the fact whether the business of the mills ultimately resulted in profits or not. It is also an admitted position that the salary was paid every month. That being the position that the salary was paid every month. That being the position, in our opinion, it is clear that the first condition is not satisfied. It cannot be said that the salary paid to the petitioner was paid out of the profits or determined with reference to the profits of the business.