S. R. Das, C. J. - (1.) This appeal by special leave is directed against the order of the High Court of Calcutta passed on 8-9-1955, on a reference made by the Income-tax Appellate Tribunal under S. 66 (1) of the Indian Income-tax Act whereby the High Court answered the first question referred to it in the negative and the second question in favour of the respondent assessee. The facts leading up to the present appeal are briefly as hereinafter narrated.
(2.) The respondent was at all material times a Hindu undivided family of which one B. K. Rohatgi was the eldest male member and as such its 'karta'. It appears that in 1930 the said B. K. Rohatgi became interested in a concern called the India Electric Works carried on by Milkhi Ram and other persons none of whom was a member of the assessee family. Evidently it was decided that a Company would be floated, 'inter alia', for the purpose of acquiring and taking over the said India Electric Works as a going concern. The said B. K. Rohatgi was one of the promoters of that Company. Pursuant to an agreement with the vendors of the business of India Electric Works the said B. K. Rohatgi, as such promoter as aforesaid and on behalf of the said Company then to be formed, took over the said business as a going concern on and from 1-3-1930, and carried on the same since then until 19-12-1930, when the contemplated Company was eventually incorporated under the Indian Companies Act as a private company with limited liability under the name of India Electric Works Ltd. (hereinafter called "the said Company").
(3.) Article 132 of the Articles of Association of the said Company provided that the first Managing Director would be the said B. K. Rohatgi or "his assigns or successors in business whether under his name or any other style or firm" and that the said B. K. Rohatgi would continue to be the Managing Director until he would resign or be found guilty of any act of fraud or dishonesty or be removed in the manner thereinafter provided. Article 133 laid down the circumstances in which and the conditions on which the Managing Director might be removed. Article 135 provided for the remuneration of the Managing Director which was fixed at Rs. 6,000 per annum or a commission of 15 per cent on the net profits of the Company to be computed in the manner therein mentioned. The powers of the Managing Director were enumerated in Art. 136 under twenty sub-heads. Article 138 provided that the Company should "forthwith enter into an agreement under the seal with Mr. Benoy Krishna Rohatgi in terms of the draft which has been approved on behalf of the Company." For some reason or other, not apparent on the record, it was not till 31-1-1934, that an agreement was actually entered into between the said Company and the said B. K. Rohatgi. The terms and conditions contained in the agreement and the powers and authorities conferred thereby on B. K. Rohatgi were in substance the same as those mentioned in the Articles of Association referred to above.;