Kapur, J. - (1.) This is an application under Section 66(2) of the Income-tax Act and it arises in the following circumstances. The petitioners who are a public limited company took over in November 1947 the business of hiring 'kohlus' and pans from a partnership, trading under the name and style of Hansraj Gupta and Co. One Pt. Mela Ram who was the General Manager of the partnership was employed by the Company because he was greatly experienced, and well versed in the 'kohlu' hiring business having looked after the business of the firm and its predecessors for the last 30 to 40 years. The Company entered into an agreement with Pt. Mela Ram by which the remuneration of the Pandit was "to consist of 10 per cent of the yearly profits of the Company after allowing the usual working expenses, interest on loans and advances, repairs and outgoings, depreciation etc., but without any deduction for taxes, appropriation to reserves and payment of Managing Agent's commission, subject to a minimum of Rs. 12,000/-". Mela Ram was also a shareholder in the Company, but he held shares of the value of Rs. 10,000/- only, and it is stated that he is no relative of Hans Raj Gupta or any other shareholder. In their petition filed in this Court it is stated that Mela Ram was paid by the partnership sometimes a fixed salary and at another time commission. In their application made under Section 66(1) to the Appellate Tribunal the petitioners have given the amounts of commissions paid in the previous years and what was disallowed by the Income-tax authorities then, and they are: JUDGEMENT_60_TLP&H0_1955Html1.htm
(2.) On 18-2-1949 an agreement was entered into between the Company and Pt. Mela Ram which was in pursuance of a resolution passed at an extraordinary general meeting of the Company held on that day. At that meeting were present the following: (1) Pt. Mela Ram, (2) Shmt. Bhagwati Devi, (3) Shmt. Angira Devi, (4) Sh. Shiv Raj Gupta, (5) Sh. R. C. Sharma, (6) Sh. Sita Ram. The amount to be paid by way of remuneration to Pt. Mela Ram is contained in Clause 2 of this agreement which runs as follows: "2. That this remuneration shall be a sum equal to 10% of the yearly profits of the Company after allowing the usual working expenses, interest on loans and advances, repairs and outgoings, depreciations etc. but without any deduction in respect of income-tax, super tax or any other tax or duty on income or revenue or allowance for Managing Agents' commission or for expenditure by way of interest on debentures or otherwise or capital account or on account of any sums which may be set aside in each year out of the profits for reserve or any other special fund, subject to minimum of Rs. 12,000/-in case of absence of inadequacy of profits".
(3.) For the year under assessment the total income of the Company was Rs. 6,34,277/- and according to Clause 2 of the agreement the amount payable by way of commission to Pt. Mela Ram came to Rs, 81,961/-, and the Company claims this as a deduction under Section 10 (2) of the Income-tax Act.;