Case: Ishwar Lal Vs. Commissioner of Income Tax, Delhi, Rajasthan and Madhya Pradesh

1. The appellant, Shri Ishwar Lal, hereinafter referred to as " the assessee ", was one of the Directors of M/s. J. N.Singh & Co. Ltd., hereinafter referred to as " the company ". The assessee received for the financial yearby way of directors fee a sum of Rs. 1, 200 in addition to an annual remuneration of Rs. 10, 000. This remuneration was paid to the assessee in pursuance of a resolution passed at a meeting of the board of directors held on January 6, 1949, which read as follows" Resolved that the remuneration of the three directors R. B. Mr. Suraj Narain, R. B. Mr. Devi Singh and Mr. Ishwar Lal be fixed at Rs. 10, 000 each for the yearand these amounts shall be payable out of the profits of the company. "2. The resolution was confirmed in an extraordinary general meeting of the shareholders held on February 8, 1949, but the assessee was actually paid this sum as a remuneration on April 5, 1949. The assessment year in this case isthe previons year being the financial yearThe predecessor of the assessee, Mr. C.B. Lall, was similarly paid a remuneration of Rs. 9, 000 as directors fee for the year ending on June 30, 1940, corresponding to the assessment yearThis and other similar amounts paid to other directors were claimed by the company as revenue expenditure, but the claims were disallowed by theOfficer3. The disallowance was confirmed on appeal by the Appellate Assistant Commissioner. As a result of the disallowance the directors claimed that the tax paid on the respective amounts paid to them had resulted in double assessments and refunds should be granted. The Commissioner ofaccepted this claim. The order of the Commissioner ofin the case of Mr. C.B. Lall dated April 2, 1945, reads as follows" In theassessment of M/s. J. N. Singh and Co. Ltd. a sum of Rs. 9, 000 on account of directors remuneration was disallowed. This disallowance was upheld in appeal. Meanwhile the assessee was also assessed on the above remuneration in hisassessment which was paid earlier in 1940. There has, therefore, been a double assessment of this sum. I, therefore, direct that this sum shall not be subjected to tax in his personal assessment but will be included in his total income for rate purposes. "4. The company did not pay any such remuneration for the years ending June 30, 1941, to June 30, 1948, and thereafter, the remuneration was paid for the first time to the assessee and other directors for the previous year ending on June 30, 1949, corresponding to the assessment yearThe company did not claim the amount paid as remuneration to the directors as revenue expenditure in view of the orders of theauthorities passed for the assessment yearThe assessee claimed that the remuneration paid to him should not be taxed for the relevant assessment year as it will result in double assessment. The claim of the assessee was rejected by theOfficer and also by the Appellate Assistant Commissioner in appeal. The assessee took the matter in appeal to theAppellate Tribunal which dismissed the appeal holding that since the company did not claim the amount paid to the assessee as revenue expenditure the question of allowance or disallowance of such a claim did not arise, with the result that exemption was not available to the assessee according to the Notification No.dated March 21, 1922, as amended by Notification No. 8 dated March 24, 1928. Under section 66(2) of theAct, 1922, the Appellate Tribunal made a statement of the case to the High Court on the following questions of law" (1) Whether the directors remuneration of Rs. 10, 000 received by the assessee from Messrs. J. N. Singh and Co. Ltd., under the terms of the shareholders resolution dated the 8th February, 1949, is exempt from tax under Notification No.dated March 21, 1922, as amended and issued by the Finance Department of the Government of India under section 60 of the IndianAct or otherwise under the Act ?(2) Whether it was a necessary condition for the application of the terms of the Notification referred to in question No. (1) to the facts of the present case that the amount of remuneration should have been claimed as a deduction by the company in its assessment and whether it was necessary for the company to make the claim year after year ? "By its judgment dated February 5, 1962, the High Court answered the questions in favour of the Commissioner ofand against the assessee. This appeal is brought by certificate granted by the High Court under section 66A(2) of the

Reasoning: 5. On behalf of the appellant the argument was stressed that the High Court erred in holding that it was a condition precedent to the assessee getting the benefit of the Notification that the company should have made a claim for the deduction, whether such a claim was allowable or not under thes argued that, on a plain reading of the Notification, it was sufficient that deduction should not have been allowed to the company by the, whether or not the company claimed such deduction and that the amount should have been included in the profits of the company and was assessed to tax.In our opinion, the argument put forward on behalf of the appellant isand must be accepted as correct. The obvious Purpose of the Notification in question is to avoid double taxation by providing that if the amount has been assessed and charged in the hands of the company the same should not be assessed and charged over again in the hands of the assessee. There is nothing in the language of the Notification to suggest that it was a condition precedent for getting the benefit of the Notification that the company should have expressly made a claim for deduction and that claim should have been expressly disallowed. The words used in the Notification are " have not been allowed as a deduction " and there is no warrant for construing these words as " have been claimed and not allowed as a deduction ". We are, on the contrary, of the opinion that, on a plain reading of the language of the Notification, the only requirement is that the deductions should not have been allowed to the company, whether or not it had claimed such deductions, and, in such a case, the assessee was entitled to get the benefit of the NotificationFor these reasons we hold that the judgment of the High Court dated February 5, 1962, should be set aside and the question referred to the High Court by theTribunal should be answered in favour of the assessee and against the Commissioner ofDelhi, Rajasthan, and Madhya Pradesh.6. Civil Appeal No. 2522 of 1966. The material facts of this case are almost identical with those of Civil Appeal No. 2521 of 1966 and the questions of law are also identical with those arising in that case and for the reasons given in that judgment, we hold that the judgment of the High Court of Punjab dated February 5, 1962, should be set aside and the questions referred by theAppellate Tribunal should be answered in favour of the appellant and against the Commissioner of