Bharucha, J. - (1.) We are concerned with the Assessment Years 1973-74 and 1974-75 in these appeals. Common questions of law arise. They read:"1. Whether the amount of Rs. 26,221/- being 1/3rd of the sum of Rs. 78,663/- paid to Life Insurance Corporation by Sarangpur Mills for purchase of Deferred Annuity Policy is includible in the hands of the assessee as income chargeable under the head Salaries 2. Whether on the facts, circumstances and the evidence on record, the Income-tax Appellate Tribunal was right in law in coming to the conclusion that the amount of Rs. 26,221/- utilised by Sarangpur Mills towards purchase of single Premium for obtaining the Deferred Annuity Policy did not form part of remuneration payable to the assessee for the calendar year 1972 relevant to the assessment year 1973-74 in question -
(2.) The assessee-respondents are Managing Directors of a public limited company called Sarangpur Mills Limited. They had entered into agreements with the Mills. Under the terms thereof they were, inter alia, entitled to receive remuneration from the company. The relevant clauses in that behalf was Clause (6). Clause 6(d) permitted the company to pay to the Managing Directors additional remuneration. Clause 6(e) read thus: "(e) Notwithstanding anything to the contrary, the Directors may in respect of any year resolve that the Managing Director shall not be paid any remuneration mentioned in sub-clause (a) or (b) or the perquisites mentioned in the sub-clause (a) hereof for that year or that he shall be paid such lesser remuneration or benefits than these mentioned in sub-clause (a) and/or sub-clause (b) hereof in respect of that year as they may think fit in their absolute discretion in respect of such year and the Managing Director shall refund any sum as may be necessary as a consequence of such resolution of the Directors from any sum on account of remuneration for that year drawn by him during the year."
(3.) On 12th April, 1973 a resolution was passed by the Board of Directors of the Mills relating to the Financial Year 1972, which in the case of the Mills ended on 31st December, 1992. The resolution reads thus: "EXTRACT FROM THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE SARANGPUR COTTON MFG. CO. LTD. HELD ON 13-4-1973. ********** Resolution No. 2 "RESOLVED that subject to the approval of the Company in General Meeting to be obtained by way of abundant safety and caution, for the financial year 1972, the amount of commission payable to each of the Managing Directors Shri Navnitlal Sakarlal, Shri Nandkishore Sakarlal and Shri Saurabh Navnitlal under the respective Managing Directors Agreements executed with each of them should be expended in the purchase of single premium deferred Annuity Policies from the Life Insurance Corporation of India on the life of the concerned Managing Directors so as to provide for the payment of annuity to each of them for his life and upon his death to his dependants, such payments to commence from the date of his retirement as a Managing Director of the Company or such other date as may be mutually agreed upon between the Company and the concerned Managing Director or from the date of his death whichever shall occur first provided always that no benefit shall occur to any of the said Managing Director or his dependants as the case may be nor shall any of the said Managing Director or his dependants be entitled to any benefit or have any right, lien or interest in any of the aforesaid Policies until the date of the first payment of annuity and the Balance Sheet and Profit and Loss Account of the Company for the year 1972 be prepared accordingly. FURTHER RESOLVED that the following Resolution which is hereby approved by proposed to be passed as an ordinary Resolution at an Extra-ordinary General Meeting of the members of the Company to be convened for the purpose and the Secretary is authorised to send the relevant notice and explanatory statement to the member of the Company. ORDINARY RESOLUTION "RESOLVED that for the sake of safety and caution the Company hereby approves and confirms that the amount of commission on the net profits payable by the company to each of the Managing Director Shri Navnitlal Sakharlal, Shri Nandkishore Sakarlal and Shri Saurabhabhai Navnitlal in accordance with provisions of law. for the financial year 1972, be expended by the Company for such year towards the purchase of single premium deferred payment Annuity Policies from the Life Insurance Corporation of India on the life of each of the said three Managing Directors concerned so as to provide for the payment of annuity to each of them for his life and upon his death to his dependents, such payments to commence from the date of his retirement from the company as a Managing Director or such other date as may be mutually agreed upon between the company and the concerned Managing Director, it being clarified that the re-appointment of a Managing Director on the expiry of his present tenure of office will not amount to his having retired as Manging Director or having ceased to be a Managing Director of the Company or from the date of his death whichever shall occur first provided always that no benefit shall occur to any of the said Managing Director or his dependants as the case may be nor shall any one of the said Managing Directors or his dependants be entitled to any benefit or have any right, lien or interest in the aforesaid Annuity Policies until the date of the first payment of the annuity. Directors Shri Navnitlal Sakharlal, Shri Nandkishore and Shri Saurabhabhai Navnitlal did not take part in the discussions nor did they vote on the resolution. Certified true. Chairman." ;