- (1.) THIS is a reference under s. 66(1) of the Indian IT Act, 1922, and arises out of the Tribunal's order in Income -tax Appeal No. 583 of 1951 -52. The following question has been referred by the Tribunal, Bombay, for judgment : "Whether on the facts and circumstances of the case the sum of Rs. 10,000 received by the assessee is liable to be assessed as the assessee's income -
(2.) THE assessee is K. B. M. E. R. Malak. He was governing director of the Mechanical Transport (1942) Ltd., which were originally the managing agents of the Nagpur Omnibus Co. Ltd., and later of the Provincial Transport Co. Ltd., which in the year 1945 took over the business of the Nagpur Omnibus Co. Ltd. The original remuneration of the managing agents was fixed at a monthly rate of Rs. 2,000 plus 12 1/2 per cent of the profits. This was reduced in 1945 to Rs. 1,000 per month plus 10 per cent of the profits. In consideration of this modification the Provincial Transport Co. Ltd. paid to the managing agents a sum of Rs. 40,000.
(3.) THE managing agents used to employ three persons to do their work. They were : (1) Shri K. S. Chitnavis, chairman of the company ; (2) Shri K. B. M. E. R. Malak, governing director of the company ; and (3) Shri P. B. Kale, managing director of the company. These three persons were collectively paid by the managing agents a monthly remuneration of Rs. 2,000 which was divided amongst the three persons in the ratio of 3:4:9. In the meeting of the board of directors of the managing agents held on 8th May, 1945, the following resolution was passed : "Resolved unanimously that the shares worth Rs. 40,000 (Rupees forty thousand) which are being allotted as fully paid up shares by the Provincial Transport Co. Ltd. for the loss of emoluments as office allowance to the company, be allotted to Shrimant K. S. Chitnavis, chairman of the company, Khan Bahadur M. E. R. Malak Saheb and Mr. P. B. Kale, governing director and managing director of the company respectively in the ratio of 3:4:9 which is the ratio of their remuneration in this allowance." The Provincial Transport Co. paid to the managing agents the sum of Rs. 40,000 in cash, which was distributed amongst the three persons mentioned above in the ratio of 3:4:9. The assessee received a sum of Rs. 10,000 out of the amount of Rs. 40,000. This amount has been held as his income by the taxing authorities. The question is whether this amount can be said to be compensation for loss of employment within the meaning of explanation 2 to s. 7(1) of the Indian IT Act.;