SUHAS CHANDRA SEN, J. - (1.) THE Tribunal has referred the following questions of law to this Court under S. 256(1) of the IT Act, 1961 : (1) Whether on the facts and in the circumstances of the case, the amount paid to Sri S.R. Roy constituted a compensation and that such compensation would amount to profits in lieu of salary and the limits provided under S. 40A(5) of the IT Act, 1961 would apply ? (2) Whether on the facts and in the circumstances of the case for the purpose of applying the limits prescribed under S. 40A(5) of the IT Act, 1961, payments made to Sri S.R. Roy in each of the year should not be separately considered but the limits would be applicable in respect of the entire amount payable as a result of the approval of the Central Government and the approval by the shareholders ? (3) Whether on the facts and in the circumstances of the case, the surtax liability is allowable ? The facts as stated by the Tribunal are as under :
(2.) THE assessee is a limited company carrying on business in manufacture points. The first question that came for consideration in the appeal was about the claim of the assessee for deduction of a sum of Rs. 1,50,000 paid as rehabilitation allowance to Sri S.R. Roy in the following circumstances. On 1st Sept., 1968 Sri S.R. Roy was appointed as Director Secretary for a period of 3 years 4 months, i.e., upto 31st Dec., 1971 by a resolution of the Board dt. 28th June, 1968. Sri Roy was a Chartered Accountant of England. It appears that there were some sort of difference between the management and Sri S.R. Roy and so he proposed for his premature retirement. The proposal came on 11th June, 1969. By an agreement dt. 3rd Nov., 1969 between Sri S.R. Roy and the assessee company, the latter accepted his premature retirement as Secretary and as an employee. One of the preambles to the agreement reads as follows : "And whereas one of the terms of retirement of S.R. Roy is that in consideration fo his premature retirement he should be allowed by a company a Rehabilitation Allowance of the sum of Rs. 1,50,000 to be paid in the manner hereinafter mentioned".
(3.) ACCORDINGLY , it was agreed that a sum of Rs. 1,50,000 shall be paid to Sri. S.R. Roy by the company in consideration of his premature retirement from the service of the company by five equal annual instalments of Rs. 30,000 each payable in the first week of April every year commencing from the year 1970 and ending with the year 1971. On 1st Dec., 1969 Sri S.R. Roy went out of the company in terms of the agreement dt .3rd Nov., 1969. The Central Government approved under S. 310 of the Companies Act, 1956 the payment of rehabilitation allowance to Sri Roy by a letter dt. 18th Sept., 1972. The payment was, however, to be made subject to the approval of the company at the Annual General Meeting. On 8th June, 1973 the Annual General Meeting was held and the mode of payment was approved.;