ALKALI METALS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Pursuant to the directions of this court under section 256(2) of the Income-tax Act, 1961 (in short "the Act"), the Income-tax Appellate Tribunal referred the following two questions of law for the opinion of this court :

(2.) The income-tax assessments involved are for the years 1971-72, 1972-73 and 1973-74. The assessee is a private limited company. The Andhra Pradesh Industrial Development Corporation has given assistance to the assessee in the manufacture of sodium metal by subscribing to 50% of the equity capital. Initially, the promoters of the assessee-company were : (1) Y. V. S. S. Murthy, (2) Smt. Y. Annapurnamma, (3) Smt. Y. V. Lalitha Devi, and (4) Dr. Y. B. V. Janardhana Rao. The aforementioned four persons were signatories to the memorandum and articles of association. After the assessee-company was established, four more persons also subscribed to the shares of the company. They are : (1) Y. S. R. Krishna Rao, (2) A. L. Narasimha Rao, (3) Y. Joga Rao, and (4) Smt. A. Chellayamma. Pursuant to a resolution dated 18/06/1969, it was decided that a commission calculated at 2.5% on the net price realised on the companys products should be given to the promoters in proportion to their individual shareholdings. It is claimed in connection with the income-tax assessments for the years 1971-72, 1972-73 and 1973-74, that the assessee-company paid commission, in terms of the aforementioned resolution, to all the eight persons mentioned above aggregating in all to Rs. 36,759.74. The Income-tax Officer disallowed the claim for payment of commission to all the eight persons. The grounds for disallowing this claim were two-fold. Firstly, it was held that Y. S. R. Krishna Rao, A. L. Narasimha Rao, Y. Joga Rao and Smt. A. Chellayamma were not "promoters" for the purpose of payment of the commission in accordance with the resolution paid to them was not allowable. The second ground was that, in any event, there was no evidence to show that any of the eight persons rendered service to the assessee-company and consequently no part of the remuneration paid to them was allowable. When the matter went up in appeal, the appellate Assistant Commissioner allowed the payment of commission by the assessee to Y. V. S. S. Murthy, Y. S. R. Krishna Rao, A. L. Narasimha Rao and Y. Joga Rao. He upheld the disallowance of commission claimed to have been paid to Smt. Y. Annapurnamma, Smt. Y. V. Lalitha Devi, Dr. Y. B. V. Janardhana Rao and Smt. A. Chellayamma. Aggrieved by the order of the Appellate Assistant Commissioner, the Revenue was aggrieved against the allowance of commission Y. V. S. S. Murthy, Y. S. R. Krishna Rao, A. L. Narasimha Rao and Y. Joga Rao, while the assessee reiterated its claim for payment of commission to Smt. Y. Annapurnamma, Smt. Y. V. Lalitha Devi, Dr. Y. B. Janardhana Rao and Smt. A. Chellayamma.

(3.) After considering the rival claims, the Tribunal upheld the allowance of commission only to Y. V. S. S. Murthy, managing director. The Tribunal held that commission is not payable to any of the remaining persons basically on the ground that there was no evidence that they rendered any service. The assessee sought for a reference under section 256(1) of the Act of the two questions of law referred to in paragraph 1 supra. The Tribunal rejected the application under section 256(1). Pursuant to the directions of this court on the petition filed by the assessee under section 256(2), as already observed, the aforesaid questions are referred for our consideration.