TaxTMI 
TaxTMI 
1992 (10) TMI 54
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....e provisions ofthe Companies Act, 1956. According to the terms of his appointment as modified by the resolution passed at the general meeting of the company held on December 28, 1970, the I assessee, in addition to his monthly payment, was also entitled to receive a commission at the rate of 0.2% of the net profits of the company computed in the manner laid down under the Companies Act subject to a maximum of Rs. 30,000 per annum or 50% of the salary, whichever was less. The terms of appointment of the assessee were approved by the Department of Company Affairs, Government of India. Later on, by a resolution at the general meeting of the company held on January 25, 1972, the original terms of employment of the assessee were varied. The said resolution dated January 25, 1972, is as follows: "That, in partial modification of the resolution passed at the extraordinary general meeting of the company held on 28th December, 1970, the company hereby approves the variation of the terms of remuneration payable to Mr. J. G. Keshwani to the extent that in lieu of the commission thereby approved an amount not exceeding 0.2% of the net profits of the company computed in the manner laid down ....
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....evious years pertaining to each of the assessment years in question, the company had spent Rs. 20,000 in purchasing deferred annuity policies from the Life Insurance Corporation of India as envisaged under the resolution referred to above. During the assessment proceedings, the assessee claimed that the said amount spent by the company is not liable to be assessed in his hands as a part of his income since that cannot amount to any income accrued to him. But the Income-tax Officer added the same to his income by holding that the amount spent by the company in purchasing the deferred annuity policies for the benefit of the assessee was merely a change in the mode of payment of commission which was payable to the assessee under the terms of his employment as a director. Aggrieved by the said order, the assessee preferred an appeal to the Appellate Assistant Commissioner, who took the view that the amount in question spent by the company cannot be deemed to have accrued to him as income in the years in question since the assessee would be entitled to receive the benefits under the policies only in future years and, as such, he deleted the addition. Against this appellate order, the De....
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....in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC). Section 309 of the Companies Act provides for remuneration to directors and sub-section (3) thereof, inter alia, provides that a director who is either in the whole-time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profit of the company or partly by one way and partly by the other. In view of clause (d) of the Explanation to section 198 of the Companies Act, "remuneration" payable to a director includes any expenditure incurred by the company to effect any insurance on the life of, or to provide any pension, annuity or gratuity for, directors or his spouse or child. Therefore, in view of the provisions contained under the Companies Act which govern the transactions of the company in question, the amount in question forms part of the remuneration paid to the assessee. The relevant provisions of the Act as they stood at the relevant time may first be noticed. Section 15. Salaries. -The following income shall be chargeable to income-tax under the head " Salaries " (a) any salary....
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....ary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of ... a company . . . Explanation 1. - For the purposes of this section "perquisite" includes-... (v) any sum payable by the employer, whether directly or through a fund to which the provisions of Chapters IXA and IXB do not apply, to effect an assurance on the life of the assessee or in respect of a contract of annuity on the life of the assessee. On an interpretation of the aforesaid provisions, it was held by the Supreme Court as below ( at page 96 ) : " A combined reading of the substantive part of section 7(1) and clause (v) of Explanation I thereto makes it clear that if a sum of money is allowed to the employee by or is due to him from or is paid to enable the latter to effect an insurance on his life, the said sum would be perquisite within the meaning of section 7(1) of the Act and, therefore, would be exigible to tax. But before such sum becomes so exigible, it shall either be paid to the employee or allowed to him by or due to him from the employer. So far as the expression 'paid' is concerned, there is no difficulty, for it takes in every rece....