A.N. Sen, J. - (1.) THIS reference under Section 66(1) of the Indian Income-tax Act, 1922, raises the question of applicability of the provisions of Section 10(4A) of the said Act to the remuneration paid to the directors of Edward Keventer Pvt. Ltd. which happens to be the assessee in the instant case.
(2.) THE assessee is a private limited company of which at the material times there were only 5 members, all of whom, except Sri K.A. Dikshit, were also directors of the company. THEy are : (1) Rani Jagadamba Kumari Devi who holds 65% of the total shares. (2) Sri A.C. Roy Chowdhury who holds 10.5% of the total shares. (3) Sri J.C. Chowdhury who holds 10.5% of the total shares. (4) Sri S. Das Gupta who holds 10.5% of the total shares. (5) Sri K.A. Dikshit who holds 3.5% of the total shares. It may be noted that the assessee was originally a Swedish concern which was taken over in 1949. Lt. Genl. Madan Shumshere Jung Bahadur Rana of Nepal, since deceased, made the largest investment and purchased the majority of shares. The Rana during his lifetime had been a director of the company and the chairman of the board of directors. Rani Jagadamba Kumari Devi is the widow of the late Rana and upon the death of the Rana she inherited the shares and succeeded to the office of the chairman of the board of directors of the company. The articles of association of the company at the material times, inter alia, provided : Article 109. "Sri Animesh Chandra Roy Chowdhury, Sri Jagadish Chandra Chowdhury and Sri Sukhomoy Das Gupta or their nominees or successors in the board, as the case may be, each, shall successively by rotation, become managing director of the company, each to hold office for a maximum of two years at a stretch." Article 110. "The remuneration of the directors shall be as follows : The board of directors shall from time to time fix the remuneration of the directors, but in no case shall be less than Rs. 4,000 per month as office allowance and an amount equivalent to 10% of the net profit of the com pany earned in the previous year. This amount shall be distributed as follows : (1) Lt. Genl. Madan Shumshere Jung Bahadur Rana or his nominee or successor in the board, 40%. (2) Sri Animesh Chandra Roy Chowdhury or his nominee or successor in the board, 20%. (3) Sri Jagadish Chandra Chowdhury or his nominee or successor in the board, 20%. (4) Sri Sukhomoy Das Gupta or his nominee or successor, 20%. Besides the above remuneration the directors who will be in the active management of the company shall be entitled to such conveyance allowances as may be fixed by the directors from time to time." Article 111. "The directors may, from time to time, confer upon a managing director for the time being such of the powers exercisable under these presents by the directors as they may think fit and may confer such powers for such time and to be exercised for, such objects and for the purposes, and upon such terms and conditions and. with such restrictions as they think expedient, and they may confer such powers either collaterally with or to the exclusion of and in substitution for all or any of the powers of the directors in that behalf, and may from time to time revoke, withdraw, alter or vary-all or any of such powers." Article 120. "If any director being willing shall be called upon to perform extra service or to make any special exertion in going or residing away from Calcutta for any of the purposes of the company or in giving special attendance to the business of the company as a member of the committee of directors, the company may remunerate the director so, doing either by a fixed sum or by a percentage of profits or otherwise as may be determined by the directors, and such remuneration may be either in addition to or in substitution for his or Her share in the remuneration above provided for the directors."
(3.) ON the basis of the articles, the directors have been receiving their shares of the remuneration. The said Articles 109, 110 and 111 along with various other articles of the company came to be amended later on. The amended articles, however, were not in force during the relevant years. The assessment years in question are 1956-57 to 1959-60, the relevant previous years being the financial years which ended on 31st March, 1956, 31st March, 1957, 31st March, 1958, and 31st March, 1959, respectively.;