Malik, C.J. - (1.) This is a reference under Section 21, Excess Profits Tax Act read with Section 66(1), Income-tax Act.
(2.) The assessee is the Maheshwari Devi Jute Mills Limited, Kanpur. The assessee claimed that, in the relevant account period, it had paid a salary of Rs, 28,850/- to one Lala Hari Shankar Bagla who had been appointed along with Munna Lal Khetan as joint general manager of the company. The assessee, therefore, claimed a deduction of this amount from its assessable income which contention, however, was overruled by the Income-tax Appellate Tribunal. On an application made by the assessee, the following question has been referred to this Court for our decision: "Q. Whether, in the circumstances of the case, the salary paid to Lala Hari Shankar Bagla amounting to Rs. 28,850/- has rightly been treated as director's remuneration in the assessment of the payer-company under Sub-rule 2(1) of Rule 7 of Schedule I to the E. P. T. Act read with Sub-section (1) of Section 2 of the said Act?"
(3.) Lala Hari Shankar Bagla was one of the directors of the assessee company and, on 27-9-1941, at a directors' meeting at which he was present but did not vote, the following resolution was passed: "R. B. Rameshwar Prasad Bagla reported that Company's work had considerably increased, and it was absolutely essential that two Joint General Managers, who should give their substantial time to the work, be appointed and they should be paid a suitable remuneration for such work. It was resolved that Mr. Hari Shankar Bagla and Mr. Munna Lal Khetan be appointed as Joint General Managers from 1-10-1941, at Rs. 2,000/- (Rupees two thousand) per mensem each free of all taxes to look after the management of the Company." That resolution was put up before an ordinary general meeting of the shareholders on 10-1-1942, at which the shareholders approved of the said resolution and confirmed it unanimously. Lala Hari Shankar Bagla, who was again present at the meeting, did not take part in either the discussion or the voting. The question arises whether this sum of Rs. 2,000/- free of income-tax, which was paid to Lala Hari Shankar Bagla per month after his appointment as one of the joint general managers, was director's remuneration and can, therefore, be not excluded from the taxable income.;