T.P. Mukerjee, J. - (1.) THE question raised in this reference relates to the situs of accrual of income being remuneration paid to a director of a company limited by shares.
(2.) THE assessee was one of the six directors of M/s. Straw Products Ltd. (hereafter referred to as the company). THE company was registered in Bhopal where the manufacturing operations were carried on. At all material times, Bhopal was an Indian State to which the Indian Income-tax Act, 1922, as it then stood (hereafter referred to as the Act), did not apply. The directors were entitled to receive sitting fees for attending meetings of the board under Article 105A and further remuneration from the company under Article 105B of the articles of association, the terms of which were as follows : "In the event of the company making profits, the directors shall be entitled to appropriate out of such profits, either a sum which is sufficient to allow a further remuneration of Rs. 5,000 to each director or a sum equal to 5 per cent. of the net profits as defined under Section 105 of the Bhopal State Companies Act, 1945, whichever is higher, and, in the latter case, the directors may distribute among themselves the sum as appropriated in such proportion as they may mutually agree upon, or, in the absence of any agreement, equally. In either case, the sum appropriated shall be considered to be a pirt of the working expenses of the company." The dispute in this case relates to the place of accrual of the further remuneration earned by the assessee as a director in terms of Article 105B. It may be noted that Article 105B is silent about the place where such remuneration is payable but there is no dispute that the remuneration was credited to the accounts of the directors in the books of the company maintained at Bhopal and it was not received at or brought into British India during any of the relevant years of account.
(3.) IN the assessments for the accounting years 1942-43 to 1948-49 the assessee claimed thit the director's remuneration received by the assessee during the relevant periods had accrued in Bhopal which was an INdian State, and, therefore, it was exempt under Section 14(2)(c) of the Act. The INcome-tax Officer, however, did not accept the claim. He noted that in the relevant years the affairs of the company were managed and controlled by the directors entirely from Cawnpore, and he held that, as the assessee was a resident in British INdia, the remuneration paid to him for his services were assessable to INdian INcome-tax. The Appellate Assistant Commissioner also found that the assessee performed the duties attaching to his office almost entirely from Cawnpore. He observed as follows in his appelhte order for the accounting year 1942-43: "Daring the year the appellant himself never went to Bhopal to attend a meeting of that company. From the copies of the resolution filed by the Straw Products Ltd., Bhopal, in connection with its own assessment, it is evident that almost all the resolutions of this company were being passed by the directors by circulating drafts among the different directors ... Even the resolution with regard to the interim dividend was adopted in like manner. It has thus to be further held that the services rendered were not rendered outside British India but from the place of residence of the appellant which was in British India." ;