1. The Income-tax Appellate Tribunal, Delhi Bench 'A' (hereinafter called 'the Tribunal'), has made this reference under Section 66(1) of the Income-tax Act, 1922 (hereinafter called 'the Act').
2. The Mahalakshmi Mills Co. Ltd., the assessee in the case, is a limited company established in accordance with and subject to the provisions of Indian Companies Act, 1913. It carried on business of manufacturing cotton textiles at Beawar. Article 75 of the articles of association of this company provided for the appointment of agents, secretaries, treasurers, chairman and managing director and for their remuneration. It runs as follows :
'Rai Sahib Seth Kundan Mal, son of Seth Hansraj, proprietor of the firm of Seth Kundan Mal Lal Chand of Beawar, and Seth Vithal Das Rathi, son of Seth Damodar Das Rathi, proprietor of the firm of Seth Thakurdas Khinvaraj of Beawar, or their heirs, executors, administrators, successors, representatives or their duly authorised agents or such other person or persons as may from time to time be appointed by them shall be agents, secretaries, treasurers, the chairman and the managing director of this company and shall not be required to vacate the said office until they resign of their own accord and as a remuneration for their services a fixed amount of Rs. 351 (three hundred and fifty-one) per month shall, from the date of the commencement of the business up to the date the machinery may begin to work, be given to them ; and afterwards the said Rai Sahib Seth Kundan Mal, proprietor of the firm of Seth Kundan Mal Lal Chand of Beawar, and Seth Vithal Das Rathi, proprietor of the firm of Seth Thakurdas Khinvaraj of Beawar, shall be allowed 16 per cent. only on the net profits of the earnings of the company as their commission. As to the way in which the respective duties of the chairman and the managing director shall be discharged, Rai Sahib Seth Kundan Mal and Seth Vithal Das Rathi will from time to time settle between themselves and inform the office of the company of the same.'
3. The statement of the case shows that Seth Lalchand Kothari and Shri Mukand Das Rathi were the two agents appointed under Article 75 during the period relevant for the assessment year 1957-58. Strong differences of opinion had arisen between them in August, 1956, and the relations were strained to such an extent that Shri Kothari lodged a complaint in the court of the Sub-Divisional Magistrate, Beawar, against Mr. Rathi on 10th September, 1956, under Section 145 of the Code of Criminal Procedure. The said Magistrate issued attachment warrant for the attachment of the mills. Shri O. N. Sharma, Labour Commissioner of the State of Ajmer, was ordered to hold possession of the mills on behalf of the court. Shri Sharma commenced management of the mills with effect from 12th September, 1956. This order was vacated by this court on 1st July, 1957. This court, however, acting under Section 398 of the Indian Companies Act, appointed Shri O. N. Sharma, Labour Commissioner of the State of Rajasthan, as receiver of the mills on 25th September, 1957, who remained in charge of the management of the mills up to 17th September, 1958. Then under the orders of this court, an interim board of management was appointed which managed the company from 17th November, 1958, to 30th May, 1959. On 30th May, 1959, a new board of directors was appointed with Shri Mardia, official liquidator, as chairman and this board managed the company from 30th May, 1959, to 2nd July, 1959. Ultimately, normal relations were restored between Mr. Kothari and Mr. Rathi and this court on 9th July, 1959, restored the company's normal organisation.
4. In their report dated 30th September, 1959, for the year ending on 31st December, 1956, the directors proposed to sanction Rs. 46,884-13-0 to the managing agents as their remuneration for the whole of the calendar year 1956. This proposal was approved in the annual general meeting of the shareholders held on 27th October, 1959. After obtaining this approval, the company paid the said amount by crediting to the account of Shri Kothari alone in its books.
5. The Income-tax Officer, Beawar, disallowed the entire payment of Rs. 46,884-13-0 as an item of admissible expenditure. On the assessee's appeal, the Appellate Assistant Commissioner of Income-tax, B-Range, Jaipur, took the view that the company was liable to pay the managing agents commission for the period up to 12th September, 1956, but the company was not liable to pay remuneration to them for the period from 13th September, 1956, to 31st December, 1956, as they were not managing the company during that period. He, accordingly, disallowed proportional payment for the period between 13th September, 1956, to 31st December, 1956, and allowed the rest. The assessee went in appeal to the Tribunal and the Tribunal took the same view as the Appellate Assistant Commissioner. On an application made by the assessee, the following question has been referred to this court for its opinion :
' Whether, on the facts and in the circumstances of the case, the assessee-company was liable in law to pay the remuneration for the period between 13th September, 1956, to 31st December, 1956, under the provisions of Article 75 of the articles of association ;'
6. In our opinion, the answer to this question depends on the terms contained in Article 75 of the articles of association of the company which has been quoted above. Under this article Mr. Kothari and Mr. Rathi were entitled to get 16% af the net profits of the earnings ot the company as remuneration for their services and not otherwise. On account of mutual bickerings, they did not render any service to the company for the period between 13th September, 1956, to 31st December, 1956. This is evident from the statement of the case and they, therefore, cannot claim any renumeration for this period. In our opinion, the view taken by the Tribunal in correct. The question is answered in the negative. No order as to costs.