Chakravartti, C.J. - (1.) This Reference comes to us on a supplementary case stated by the Income-tax Appellate Tribunal in pursuance of an order made by us on 11-5-1953.
(2.) The assessee is a Hindu undivided family of the name of Kalu Babu Lalchand of which the. Karta is one Mr. B. K. Rohatgi. It appears that in the year 1930 Mr. Rohatgi became interested in a concern called the India Electric Works and promoted the formation of a company for taking it over. The actual incorporation of the company took place on 19-12-1930. Article 132 of the Articles of Association provided that the first Managing Director would be Mr. B. K. Rohatgi or "his assigns or successors in business whether under his name or any other style or firm" and that he would continue to be Managing Director until he resigned or was found guilty of any act of fraud or dishonesty or was removed in the manner provided in the Article next following. The next Article laid down the procedure which would have to be followed if the company desired to remove Mr. Rohatgi from his position of Managing Director at any time. Article 138 next provided that the company would forthwith enter into an agreement with Mr. Rohatgi in terms of a draft which had already been approved on behalf of the company and that the validity of that agreement would not be liable to be impeached on the ground that Mr. Rohatgi stood in a fiduciary relation to the company or on any other ground. The Article proceeded to provide that every person who might at any time become a member of the company would be deemed to approve of and confirm the said agreement.
(3.) Although Article 138 stated that an agreement had already been drafted and the terms had been approved by the company, it would appear that it was not till 31-1-1934, that an agreement was actually entered into between the company and Mr. Rohatgi. The recitals in the prefatory part of that agreement as to how the draft had come into existence and when its terms had been formally approved do not correspond with what is stated in Article 138 of the Articles of Association, but it is not disputed that it is under the agreement, executed on 31-1-1934, that Mr. Rohatgi was occupying the position of a Managing Director at the relevant time. The agreement recited that inasmuch as Mr. Rohatgi had been one of the promoters of the company and had taken over the business of the India Electric Works as such promoter and had carried on the business since then for the benefit of the company, it was being agreed that he would be the Managing Director upon the terms and conditions and with the powers and authorities set out in the body of the agreement. Those terms and conditions and powers and authorities were practically the same as set out in Article 136 of the Articles of Association. Mr. Rohatgi's remuneration under the agreement is an annual sum of Rs. 6000/- payable in equal monthly instalments or a commission of 15 per cent. on the net profits of the company, whichever might be larger.;