Ramaswami, J. - (1.) The appellant, Shri Ishwar Lal, hereinafter referred to as "the assessee", was one of the Directors of M/s. J. N. Singh & Co. Ltd., hereinafter referred to as "the company". The assessee received for the financial year 1948-49 by way of directors fee a sum of Rs. 1,200 in addition to an annual remuneration of Rs. 10,000. This remuneration was paid to the assessee in pursuance of a resolution passed at a meeting of the board of directors held on January 6, 1949, which read as follows;"Resolved that the remuneration of the three directors R. B. Mr. Suraj Narain, R.B. Mr. Devi Singh and Mr. Ishwar Lal be fixed at Rs. 10,000 each for the year 1948-49 and these amounts shall be payable out of the profits of the company."
(2.) The resolution was confirmed in an extraordinary general meeting of the shareholders held on February 8, 1949, but the assessee was actually paid this sum as a remuneration on April 5, 1949. The assessment year in this case is 1950-51, the previous year being the financial year 1949-50. The predecessor of the assessee, Mr. C.B. Lall, was similarly paid a remuneration of Rs. 9,000 as directors fee for the year ending on June 30, 1940, corresponding to the assessment year 1940-41. This and other similar amounts paid to other directors were claimed by the company as revenue expenditure, but the claims were disallowed by the Income-tax Officer. The disallowance was confirmed on appeal by the Appellate Assistant Commissioner. As a result of the disallowance the directors claimed that the tax paid on the respective amounts paid to them had resulted in double assessments and refunds should be granted. The Commissioner of Income-tax accepted this claim. The order of the Commissioner of Income-tax in the case of Mr. C.B. Lall dated April 2, 1945, reads as follows : "In the 1941-42 assessment of M/s. J.N. Singh and Co. Ltd. a sum of Rs. 9,000 on account of directors remuneration was disallowed. This disallowance was upheld in appeal. Meanwhile the assessee was also assessed on the above remuneration in his 1941-42 assessment which was paid earlier in 1940. There has, therefore, been a double assessment of this sum. I, therefore, direct that this sum shall not be subjected to tax in his personal assessment but will be included in his total income for rate purposes."
(3.) The company did not pay any such remuneration for the years ending June 30, 1941, to June 30, 1948, and thereafter, the remuneration was paid for the first time to the assessee and other directors for the previous year ending on June 30, 1949, corresponding to the assessment year 1950-51. The company did not claim the amount paid as remuneration to the directors as revenue expenditure in view of the orders of the income-tax authorities passed for the assessment year 1941-42. The assessee claimed that the remuneration paid to him should not be taxed for the relevant assessment year as it will result in double assessment. The claim of the assessee was rejected by the Income-tax Officer and also by the Appellate Assistant Commissioner in appeal. The assessee took the matter in appeal to the Income-tax Appellate Tribunal which dismissed the appeal holding that since the company did not claim the amount paid to the assessee as revenue expenditure the question of allowance or disallowance of such a claim did not arise, with the result that exemption was not available to the assessee according to the Notification No. 878-F dated March 21, 1922, as amended by Notification No. 8 dated March 24, 1928. Under Section 66(2) of the Income Tax Act, 1922, the Appellate Tribunal made a statement of the case to the High Court on the following questions of law : "(1) Whether the directors remuneration of Rs. 10,000 received by the assessee from Messrs. J. N. Singh and Co. Ltd., under the terms of the shareholders resolution dated the 8th February, 1949, is exempt from tax under Notification No. 878-F,dated March 21, 1922, as amended and issued by the Finance Department of the Government of India under Section 60 of the Income Tax Act or otherwise under the Act (2) Whether it was a necessary condition for the application of the terms of the Notification referred to in question No. (1) to the facts of the present case that the amount of remuneration should have been claimed as a deduction by the company in its assessment and whether it was necessary for the company to make the claim year after year - ;