COMMISSIONER OF INCOME-TAX CENTRALBOMBAY Vs. MULRAJ KARSONDAS

JUDGEMENT

(1.) This reference relates to two assessments years 1947-48 and 1948-49. A private limited company known as "Chidambaram Mulraj & Co., which will hereafter be referred to as the company, was incorporated on April 30, 1943, with the object of acquiring the managing agency of the Elphinstone Spinning & Weaving Mills Co. Ltd. The company appointed the assessee, Mulraj Karsondas, as its managing director and agreed to pay him 25 percent. of the annual managing agency commission and also a salary of Rs. 1,000 per month. The salary was later increased to Rs. 2,000 per month because Chidambaram, who was the director chairman of the company, retired from active management and the assessee was "saddled with higher burden and responsibilities". In completing the assessment of the company for the assessment year 1946-47 the taxing authorities disallowed the salary paid to the assessee in excess of Rs. 1,100 as a business deduction. In the assessment years 1947-48 and 1948-49 the taxing authorities disallowed the claim of the company for Rs. 8,700 and Rs. 7,500 respectively out of the salary paid to the assessee as, in their view, it was not an expenditure laid out or expended wholly or exclusively for the company's business within the meaning of section 10(2)(xv). In the hands of the assessee, his entire remuneration received from the company was, however, sought to be taxed. The assessee contended that the salary paid to him in excess of the amount allowed as deduction in the assessment of the company having already been taxed in the hands for his employers was not liable to be taxed over again in his hands, and in support of that contention he relied upon Notification No. 878F dated March 21, 1922, as amended by Notification No. 8 of March 24, 1928, issued by the Central Government in exercise of the powers under section 60 of the Income-tax Act. The Income-tax Tribunal was of the view, following the judgment of this court in Commissioner of Income-tax v. R. R. Jacques and M. K. Kirtikar v. Commissioner of Income- tax, that on the amounts which were disallowed in the assessment of the company, tax could not be levied over again in the hands of the assessee. At the instance of the Commissioner, the Tribunal has referred the following question :

(2.) Mr. Joshi for the Department contends that the view taken by this court in M. K. Kirtikar's case has now been overruled by their Lordships of the Supreme court and, therefore, the judgments in Commissioner of Income-tax v. R. R. Jacques and M. K. Kirtikar v. Commissioner of Income-tax are overruled and no reliance can be placed upon the principle of those cases in support of the view that the two amounts referred to in the question are not liable to be taxed in the hands of the assessee.

(3.) The Notification issued by the Government of India on March 21, 1922, as amended on march 24, 1928, in so far as it is material stands as follows :