PRITHVI RAJ - (1.)The assessee, Shri Ram Pershad, was allotted 30 preference shares of the value of Rs. 30,000 for promoting company, United Hotels, New Delhi, (herein called 'the company'). The Income-tax Officer sought to include the value of the said shares as income of the assessee during the course of assessment for the year 1952-53, accounting year ending on 31st March, 1952. The view taken by the Income-tax Officer for including the amount of Rs. 30,000 being the value of 30 shares was that the value of the shares was assessee's remuneration for services rendered and as such was taxable. The assessee's stand was that the value of the shores was a benefit of casual and non-recurring nature, exempt from income-tax under section 4(3)(vii) of the Indian Income-tax Act, 1922 (herein called 'the Act'). The Income-tax Officer by his order dated 13th May, 1956, rejected the contention of the assessee and included the amount of the shares as income of the assessee and assessed the value of the shates to tax. Being aggrieved by the said finding of the Incopie-tax Officer the assessee challenged the same in an appeal before the Appellate Assistant Commissioner, New Delhi. The Appellate Assistant Commissioner by his order, Annexure B, accepted the contention of the assessee and held that the allotment of the preference shares to him was not assessable either as income under the head 'Salaries' or income under the head 'Other Sources', and accordingly allowed the appeal. The Department challenged the correctness of the view taken by the Appellate Assistant Commissioner by filing an appeal before the Income-tax Appellate Tribunal but remained unsuccessful. The Tribunal by its order dated 20th September, 1961, Annexure 'C' held that the decision of the Appellate Assistant Commissioner was not found upon a mis-conception of law as was urged by the department and accordingly dismissed the appeal.
(2.)The Department filed a reference application under section 66(1) of the Act requesting that a statement of the case bedrawn and the question of law suggested in para 4 of the application be referred to the High Court. The Tribunal rejected the application. The Department accordingly filed a petition in the then Circuit Bench of the Punjab High Court under section 56(2) of the Act registered as Income-tax Case No. 4-D of 1963, praying .that a direction be issued to the Tribunal to draw up a statement of the case and refer the question of law to this Court stated to arise in the case. On a direction issued by this Court the Tribunal by this Income-tax Reference drew up an agreed statement of the case and has referred the following question of law to this Court for opinion :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the 30 Preference shares of the United Hotels, New Delhi, allotted to the assessee were in the nature of a gift and its value was therefore not taxable ?"

"In drawing up the statement of the case the Tribunal noted that the assessee is the managing director of the Company, a private limited company, incorporated on 7th November, 1950. The Tribunal has further stated that the Board of Directors of the Company on 15th November, 1950, approved a draft agreement in connection with the appointment of the assessee as managing director of the company. The agreement was executed between the assessee and the Company on 20th November, 1950. Clause (h) of the agreement envisaged that "in consideration of the services rendered in connection with the formation, promotion of the Company and in particular for the effective arrangements made for the conduct of the business of the company incurring heavy personal expenditure and extraordinary devotion brought to bear on the project the Directors shall, soonafter fifty per cent of the capital of the company is allotted, allot thirty fully paid- up preference shares of the face value of Rs. 1,000 each to the (said) Managing Director without any consideration in money."

(3.)In declining to include the sum of Rs. 30,000, being the value of the shares allotted to the assessee, as his income, the Tribunal observed that the whole question was, as to whether the shares in question had been allotted to the assessee by way of remuneration for his services or by way of present or testimonial. On examining the terms of the agreement, the Tribunal found that under subclause (h) of clause I the shares in question were to be allotted to the assessee in consideration of the services rendered in connection with the formation, promotion of the company and in particular for the effective arrangement made for the conduct of the business of the company incurring heavy personal expenditure and extra-ordinary devoton brought to bear on the project. The Tribunal further observed that the assessee became entitled to the shares by the same agreement whereby he was appointed as managing director and that the decision to give the shares had been decided upon prior to the assumption of the charge of the office of the managing director by the assessee. The Tribunal accordingly concluded that the allotment of thirty shares in question, of the face value of Rs. 1,000 each, to the assessee had all the attributes of being a personal gift to 'him and that it did not cease to be a gift merely because the same had been allotted to the assessee in recognition of the services as a promoter of the company. The Tribunal further held that "the agreement to give reward to the assessee was already there even before the incorporation of the company and it was fulfilled in recognition of his services in promoting the company".