KRISHNA TILES AND POTTERIES MADRAS PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is a private limited company called Sri Krishna Tiles and Potteries (Madras) Private Ltd., engaged in the manufacture and sale of roofing tiles, etc. THE above company was originally a public limited company managed by an agency company by name, A.K. Ranganathan and Sons (P.) Ltd., on a remuneration of Rs. 1,000 p.m. together with a commission of 10% on the net profits. One A.R. Krishnamoorthy and A.R. Rajagopalan were the directors in the managing agency company. THE managing agents resigned with effect from December 1, 1956. THE directors of the company appointed the said two persons as the managing directors of the company. THE articles of association was suitably altered and an agreement was entered between these two persons and the company on November 22, 1956, whereunder these two persons were to be managing directors for a period of 10 years from December 1, 1956, on a remuneration of Rs. 1,000 per month for each and a commission of 5% each on the net profits of the company. THE share capital of the company was 3,500 preference shares of Rs. 100 each and 35,000 ordinary shares of Rs. 10 each. THE shareholding of the above two persons and their father, A.K. Ranganathan, were as under : <FRM>JUDGEMENT_439_ITR90_1973Html1.htm</FRM>

(2.) THE father, A.K. Ranganathan, was the technical director and he was being paid a remuneration of Rs. 1,500 per month, from July 1, 1954, and it was increased to Rs. 2,000 per month from January 1, 1960.

(3.) THE assessee appealed to the Appellate Tribunal on the question of the disallowance of bonus. THE revenue also filed an appeal against the allowance of the remuneration by the Appellate Assistant Commissioner. THE Tribunal upheld the order of the Appellate Assistant Commissioner in regard to bonus as well as remuneration. Aggrieved against the disallowance of the bonus the assessee sought a reference to this court; and the following question has been referred to us under Section 66(1) of the Indian Income-tax Act, 1922: