1. These two applications can be disposed of by a common judgment since they raise a common question. The material facts lie within a narrow ambit. The petitioner is doing business with his headquarters at Nagpur in coal and manganese ore. He is also a director and managing director of several companies. There is a company known as 'The Byramji Mining Combine Limited' with its headquarters at Hornby Road, Bombay. This is a private limited company and was registered in July, 1949. The only two shareholders and also directors of this company are the petitioner and his wife, Mrs. Kamalrukh D. Cassad. The assessment of the personal income of the petitioner was made by the Income-tax Officer on January 10, 1952, and the entire income received by the petitioner was assessed to income-tax. This income included the remuneration which the petitioner received for carrying on the business of the private limited company, namely, 'The Byramji Mining Combine Limited'. The case for the assessment of the Byramji Mining Combine Limited, which would hereinafter be referred to as the company, was also taken up for consideration. The company had shown a sum of Rs. 39,487 on account of remuneration and bonus paid to the petitioner as an item of expenditure. The assessing officer, however, refused to deduct the whole of this amount from the assessable income of the petitioner on the ground that the business of the company did not have any use of the petitioner's engineering skill and experience. The Income-tax Officer, however, allowed half the amount, that is, Rs. 19,743-8-0, as reasonable deduction. Therefore, the petitioner made an application to the Income-tax Commissioner on July 25, 1953, under section 33A of the Income-tax Act, 1922, for a revision of the order passed in his personal case on January 10, 1952. He contended that the remuneration paid to him came out of the profits of the company and, therefore, that was exempt from assessment by reason of the provisions of notification No. 878-F, dated March 21, 1922, as amended from time to time up to date, issued under section 60 of the Income-tax Act by the Central Government. The Income-tax Commissioner refused to interfere with the order passed by the Income-tax Officer holding, in effect, that the exemption given by the notification issued in 1922 had become obsolete by reason of the subsequent amendments in the Income-tax Act. The petitioner, therefore, filed an application to the then High Court of Judicature at Nagpur for an appropriate writ under articles 226 and 227 of the Constitution of India for quashing the order of the Commissioner, dated March 4, 1954. The High Court of Nagpur held that the notification was still in force and directed the Commissioner to consider the effect of that notification on the assessable income of the petitioner. After the case went back to the Commissioner, the petitioner made several submissions by way of elucidation and produced two documents, the first, a resolution passed by the company and the second, a copy of the articles of association. According to the petitioner, the remuneration that was paid to him came out of the profits of the business and was determined by the profits accrued to the company. The Income-tax Commissioner, on a consideration of the evidence placed before him, came to the conclusion that the remuneration allowed to the petitioner could not be exempted because condition (2) of the notification had not been fulfilled. Consequently, he rejected the petition. It is against this order that the petitioner has preferred Special Civil Application No. 230 of 1959. Special Civil Application No. 231 of 1959 relates to the order of assessment for 1952-53. For this year a sum of Rs. 44,487 was shown to have been paid by the company on account of remuneration and bonus to the petitioner. In that case also, the Income-tax Officer refused to allow deduction of the entire amount and allowed deduction for half the amount paid to him as remuneration and bonus. In the personal case of the petitioner, the Income-tax Officer assessed the entire remuneration received by the petitioner of income-tax. The petitioner made an application under section 33A of the Income-tax Act before the Income-tax Commissioner and the Income-tax Commissioner has passed an order which is identically worded to the order passed in the other case.
2. In both these petitions, the petitioner has prayed for the issue of a writ of certiorari and also of mandamus. So far as the prayer for the issue of a writ of mandamus is concerned. Mr. Padhye explained that that writ can be issued in respect of the process for recovery of income-tax. We are unable to understand how such a writ can be issued so long as the order of the Income-tax Officer stands as it is. The petitioner had referred to article 265 of the Constitution of India in his petition and contended that this was a case of tax being levied without any legal authority for the same. Article 265 applies to a case where the tax is being levied or collected without lawful authority in that respect. Article 265 runs thus :
'No tax shall be levied or collected except by authority of law.'
3. The tax that has been levied and will be recovered from the petitioner does not fall within the mischief of this article because the assessment order has been passed by the Income-tax Officer and the collection will proceed on the authority of that order. Unless the order passed by the Income-tax Officer and confirmed by the Commissioner in his order, which is impugned in these petitions, is quashed, there is no scope for the grant of a writ of mandamus against the authorities who would proceed to recover the amount of income-tax from the petitioner.
4. Turning to the question about the propriety of issuing a writ of certiorari, the first hurdle which the petitioner will have to cross is to show that the order passed by the Commissioner was of a judicial or quasi-judicial character. The present section 33A of the Income-tax Act corresponded to section 33 of the Income-tax Act of 1922. The question relating to the character of the machinery set up under section 33 was considered by the Privy Council in Commissioner of Income-tax v. The Tribune Trust and their Lordships held that the machinery set up under section 33 for revising the order passed by the Income-tax Officer was administrative in its complexion and character. The Andhra High Court in a recent case reported as Edara Venkaiah v. Commissioner of Income-tax have come to the conclusion that having regard to the limited scope of section 33A, the nature of the power under section 33A(2) cannot be in any way different to that in section 33A(1), in that, the power to be exercised by the Commissioner is only in his administrative capacity. It was held that section 33A(3) does not alter the nature of the power conferred upon the Commissioner and it is only a safeguard against vexatious and frivolous applications. Finally, they took the view that the order of the Commissioner under section 33A(1) dismissing the revision petition, being an administrative order, cannot be interfered with under article 226 of the Constitution. With respect we are in agreement with the decision of the Andhra High Court, which in its turn is based on the principles laid down by the Privy Council in the case referred to above. The decision of the Calcutta High Court reported as Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, also suggests that the orders passed by the Income-tax Officer are in the nature of administrative fiats. If that is so, this court has no jurisdiction to issue a writ of certiorari for quashing the order passed by the Commissioner under section 33A.
5. We do not, however, propose to dismiss these petitions on the ground set out above because we are satisfied that even on merits the petitioner has no case. The main grievance made by the petitioner is that the Commissioner's order does not refer to the two important documents that were produced by the petitioner after the case was remanded to him for consideration by the High Court. Mr. Padhye complained that the Commissioner has reproduced the extracts from the order of the Income-tax Officer passed in the assessment case of the company and has held that it was clear from the said extracts that the remuneration was not paid by the company to the assessee out of its profits nor had his remuneration been determined with reference to the profits of the business. According to Mr. Padhye, it was the duty of the Commissioner to have applied his mind to the question independently of the order passed in the company's case and to come to his own conclusions as to whether the remuneration paid to the petitioner was or was not a part of the profits of the company and came out of other sources of its own such as income. According to Mr. Padhye, there is, therefore, an error apparent on the face of the record and, since this is a speaking order, it deserves to be set aside. Before considering this line of reasoning, it is necessary to consider the nature of the claim made on behalf of the petitioner which is based on the notification first issued on March 21, 1922, and thereafter amended from time to time. The relevant portion of the notification reads thus :
'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 :
(i) sums received by an assessee on account of salary, bonus, commission, or other remuneration for services rendered, or in lieu of interest on money advanced, to a person for such business,
where such sums have been paid out of, or determined with reference to, the profits for the purposes of his business,
and by reason of such mode of payment or determination, have not been allowed as a deduction but have been included in the profits of the business on which income-tax has been assessed and charged under the head 'business.'
6. The Commissioner of Income-tax read this notification to embody three conditions and took the view that the first and the third conditions were satisfied. According to him, the second condition was not satisfied and for that purpose he mainly relied upon the terms of the assessment order in regard to the taxable income of the company. Before proceeding further, we would like to clear one confusion and it is this. There are no three conditions laid down in the notification. The first clause which is supposed to embody the first condition does not lay down any condition at all. It merely relates to the sums, which according to the notification, would be exempt from the category of taxable income. That clause speaks of sums received by an assessee on account of salary, bonus, commission or other remuneration for services rendered, or in lieu of interest on money advanced, to a person for the purposes of his business. Now, the clauses that follow lay down the conditions which must be satisfied before the sums so received are exempt from payment of income-tax. Those two conditions are : (i) where such sums have been paid out of, or determined with reference to, the profits of such business and (ii) by reason of such mode of payment or determination, have not been allowed as a deduction, but have been included in the profits of the business on which income-tax has been assessed and charged under the head 'business'. It is evident from the language employed and particularly the use of the conjunctive 'and ' that the two conditions are cumulative and both of them must be satisfied before any exemption can be claimed on the basis of this notification. The Income-tax Commissioner had held two out of what he called the three conditions as satisfied, relying on certain observations made by the Patna High Court in Hasan Sasamusa v. Commissioner of Income-tax. The facts of that case were more or less similar, but there is no discussion in the judgment as to why their Lordship held that the third condition preceded by the word 'and' was satisfied in that case. It is clear from the order passed by the Income-tax Officer in the assessment case of the company that a deduction on account of the remuneration paid to the petitioner was reduced on the ground that the remuneration claimed by him was excessive and out of proportion to the duties performed by him so far as the affairs of the company were concerned. The deduction in that case was not disallowed nor reduced on the ground that the salaries were paid out of the profits or were determined with reference to the profits of the business. In our view, therefore, the last condition, viz., that deduction must be disallowed on account of salary having been paid out of profits or determined with reference to profits of the business, also remains unfulfilled, and the Commissioner was not right in holding that the said condition was satisfied.
7. Mr. Padhye's main grievance was that having come to the conclusion that the two of the three conditions were satisfied the Commissioner should have considered the question as to whether there was material to show that the remuneration was paid out of the profits of the business of the company or determined with reference to the profits of such business. It appears that it was argued before the Commissioner that in view of the fact that the salary was not fixed not was payable from month to month and further in view of the fact that the salary was fluctuating and was determined long after the end of the business year of the company; it should be presumed that the remuneration came out of the profits of the company. The same argument was advanced before the Patna High Court in Hasan Sasamusa's case and was rejected. The observations on pare 344 are apposite :
'Merely because the amount was sanctioned after the accounting period, it cannot be legitimately inferred that the amount was paid out of the profits of the business or the amount was determined with reference to the profits of the business. There is hence no material to support the argument addressed on behalf on the assessee that the second condition mentioned in the Finance Department Circular had been satisfied in this case.'
8. The Commissioner relied on these observations. That means that he held, in effect, that the mere fact that the remuneration was allowed by a resolution, which was passed long after the accounting year of the company, is not a sufficient ground for holding that the remuneration came out of the profits. It is true that he has not referred in so many words to the resolution, a copy of which was produced before him, nor has he referred to the articles of association, a copy of which was also placed before him for his consideration. It is, however, not disputed that the resolution does not refer to the allocation of the amount of remuneration as coming out of the profits of the company and all that the articles of association lay down is that the conditions as to remuneration shall be such as are mutually agreed upon between the said managing director and other directors. This only means that the post of a managing director did not carry a fixed remuneration and the remuneration was fluctuating and was liable to be fixed by mutual agreement between the parties. As has been rightly pointed out, the company comprised only two members, the petitioner and his wife. The amount of remuneration, therefore, could be anything agreed upon between the husband and the wife. Whatever that may be, we are unable to understand how either of these two documents supports the petitioner's contention that the remuneration came out of the profits of the Company. Ordinarily, the remuneration comes out of the income of the company and unless there is a special stipulation for the remuneration being paid or coming out of the source of the profits of the company, the presumption will be that the remuneration is paid out of the regular income of the company. Although, therefore, the Commissioner has not specially referred to these two documents, still we do not think that his decision would have been in any way different even if he had referred to them and discussed the terms thereof. In our view that Commissioner was right in the conclusion he reached, namely, that the second condition (which is really the first) was not fulfilled. The burden lay on the petitioner to prove that this condition was satisfied and he had led no evidence whatsoever before the Commissioner to show that this condition was satisfied.
9. So far as the second condition (which is referred to as the third by the Commissioner) is concerned, we have already expressed our view in the earlier paragraph. We are fortified in the view we have taken above by the observations made by the Supreme Court in Commissioner of Income-tax v. M.K. Kirtikar.
'(7) The second condition, which appears not to have been noticed by the High Court, is that the sum paid out of profits or determined with reference to the profits of the business had not been allowed as a deduction ' by reason of such mode of payment or determinations'. In this case, learned counsel for the department urges, the amount was disallowed not because it had been paid out of profits or had been determined with reference to the profits of the business, but because he held it to be excessive and unnecessary and not a permissible deduction under section 10(2)(xv) of the said Act. There is good deal to be said for this view.'
10. It is true that their Lordships have not expressed a final verdict on the question, namely, whether the second condition cannot be said to have been fulfilled by reason of the fact that the deduction was not allowed because the remuneration was considered as excessive. At the same time, they have observed that there is good deal to be said for this point. At page 188, their Lordships have said that the conditions laid down in the notification are cumulative and all of them have to be fulfilled before the assessee can claim the benefit of the exemption.
11. The result is that the applications fail and are dismissed with costs.
12. Applications dismissed.