KALYANMAL MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question that arises for determination in this reference under S. 66(1) of the Indian IT Act, 1922, by the Tribunal, Bombay, at the instance of the assessee, the Kalyanmal Mills Ltd., Indore, (hereinafter referred to as the mills), as stated by the Tribunal is :

(2.) THE material facts are that on 30th Aug., 1927, Shri Jall was appointed as the managing director of the assessee -mills. In 1933, his salary was Rs. 1,100 per month. In that year, on account of trade depression the mills cut down the salaries of all its employees and members of the staff by 1/2 per cent. This cuts was restored by the assessee -mills in 1941, in the case of all its officers and staff except Shri Jall. It is not known why the cut in Shri Jall's salary was not restored in 1941. The officers and members of the staff of the mills were also paid dearness allowance from 1st July, 1943, and bonus for each of the years from 1941 to 1948. This benefit of dearness allowance and bonus was, however, not given to Shri Jall. In March, 1951, the "secretaries, treasurers and agents" of the mills decided to restore the cut in Shri Jall's salary w.e.f. 1st May, 1933, and to pay him dearness allowance from 1st July, 1943, and bonus for the years 1941 to 1948. The board of directors approved this decision of the "secretaries, treasurers and agents" by passing on 8th Nov., 1952, a resolution in the following terms :

(3.) IN the appeal, which was then taken to the Tribunal, it was contended on behalf of the assessee that the payment made to Shri Jall, though a voluntary one, was yet a payment made out of "commercial expediency" and was not, therefore, a gratuitous payment, and further that as the assessee accepted the liability for the payment and made the payment during the previous year, it was a legitimate expenditure of the previous year. The Tribunal, while accepting that a payment, though voluntary, could be one made out of "commercial expediency", held that the payment made to Shri Jall could hardly be said to be one made on commercial considerations. The Tribunal said that no reason had been given why the cut in Shri Jall's salary was not restored in 1941 itself when the cut in the salary of the employees and members of the staff of the assessee - mills was restored in that year; that Shri Jall was given a favoured treatment in that the cut effected in his salary alone was restored from 1st May, 1933; that no reason whatsoever had been assigned why Shri Jall was not paid dearness allowance and bonus in the beginning when it was paid to the other employees of the assessee -mills; that the resolution passed by the board of directors did not clarify the "meritorious services" rendered by Shri Jall; that Shri Jall might have rendered "such services as to deserve the payments made to him subsequently taking into consideration such past services", but such a payment relating to past services could not be allowed as a legitimate deduction; and that Shri Jall was still in the service of the mills and, therefore, the payment made to him could not be regarded as a gratuity amount. The Tribunal further observed that the payment being admittedly voluntary could not "partake of the nature of the discharge of a liability"; that there was no evidence whatsoever to show that Shri Jall had ever raised a dispute or made a claim regarding the restoration of the cut in his salary and payment to him of dearness allowance and bonus; and that, consequently, the assessee -mills, when it followed the mercantile method of accounting, could not claim that the amount paid to Shri Jall was a liability of the year of account ending on 31st Dec., 1951. On this view, the Tribunal dismissed the assessee's appeal.