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TMI Blog1993 (5) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, the salary accrued to the assessee from the said company, viz., Rs. 12,330 for the assessment year 1981-82; Rs. 16,200 for assessment year 1982-83; Rs. 17,550 for assessment year 1983-84; and Rs. 18,000 for assessment year 1984-85, was brought to tax in those four assessment years respectively. Thereupon, the assessee went in appeal for each of these four assessment years before the AAC, Visakhapatnam. AAC by his consolidated order dated 12-8-1986 in ITA Nos. 73, 74/85-86 and 23 & 24/86-87 observed that the ITO was correct in applying section 15 of the Income-tax Act for taxing the salary due to the assessee, though not actually paid for the assessment years 1981-82 to 1984-85. He further directed that "In view of some further developments in the matter i.e., the writing off of the amount by the resolution of the Board of Directors of M/s. Kalpana Tanning Materials Ltd., it will be proper to investigate the matter further, wait for the approval of the Annual General Meeting, see that the company offers the aforesaid salary, held to be not payable to the appellant, as its income, in its assessments, and watch the conduct of the appellant actually foregoing the aforesaid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution of the Annual General Meeting contained the following : "To write back the provisions for salaries of Rs. 60,930 due to the Managing Director (Assessee) in view of the written consent of the Managing Director Smt. B. Kalavathi to give up her claim in view of the continuous losses to the company." The ITO noted that this resolution clearly shows that the assessee gave up her claim to draw salary after it accrued and became payable to her. Under law, salary accrues when the accounts were credited, and subsequent surrender by the assessee in favour of the company could not obliterate the accrual to the assessee. So also, salary becomes due when it accrues to the employee, i.e., when the employee becomes entitled to receive it, and the employer becomes liable to it. From the approval of the Central Government and from the salary payable to the assessee shown to be outstanding liability in the books of account of the company, it is clear that the company was liable to payment of salary and the assessee is entitled to it. Subsequent developments will not alter the position. Already, the AAC held that salary is assessable in the hands of the assessee when it accrues and becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 13,543 Rs. 33,480 15-12-1986 Rs. 26,360 1983-84 Rs. 12,030 12-3-1986 Rs. 27,530 15-12-1986 Rs. 25,480 1984-85 31-10 1984 Rs. 12,571 11-3 1985 Rs. 28,524 15-12-1986 Rs. 28,950 -------------------------------------------------------------------------------------------- 6. Aggrieved by the fresh assessments made, the assessee went in appeal before the AAC, Visakhapatnam, and contended that the salary from M/s. Kalpana Tanning Materials Ltd. should not have been added in her hands, and on the other hand, it should have been deleted. As already stated, AAC disposed of the appeals for all the four assessment years, by a common impugned order dated 18-8-1987. The AAC found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. The conditions are stated to be as follows: (1) She was appointed as Managing Director for five years beginning from 27-6-1980 on a monthly consolidated remuneration of Rs. 1,500; (2) Benefits of Provident Fund, Gratuity and Bonus as applicable to the employees of the company though not applicable to Directors as such; (3) Free Telephone facility at her residence; (4) Reimbursement of expenses incurred by her in connection with the business of the company; (5) Medical expenses for herself and the members of her family. It also states that the Chairman informed the Board that the appointment of Smt. B. Kalavathi as Managing Director and fixation of her remuneration is subject to the approval of the shareholders and the Central Government. 10. Again a Board meeting was held on 23-9-1990 at 11 AM at APSSIDC, Hyderabad. In that Board meeting, by means of a resolution of the Board, the decision to appoint Smt. B. Kalavathi as the Managing Director of the unit has been approved by the Directors. Her period of appointment is for five years from 27-6-1980. She was appointed in place of one Shri B. Paidanna and her remuneration was fixed at Rs. 1,500 per month. Other bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 986 at 11.30 A.M., passed a resolution under Ordinary Business Item No. 2, a copy of which is furnished at page 6 of the paper compilation. It reads as follows: "RESOLVED to write back the provisions of salaries of Rs. 60,930 due to the Managing Director in view of the written consent of the Managing Director, Smt. B. Kalavathi to give up her claim in view of continuous losses to the company." From the minutes of the meeting of that day, it is clear that Rs. 60,930 represents salary due to Smt. B. Kalavathi from 1980-81 to 1983-84, and in the said minutes, it is also stated that the Board of Directors' meeting dated 9-7-1986 already wrote off the amount due to Smt. B. Kalavathi, but they have stated that it should also be approved by the General Meeting. 14. Thus, it is clear that a reading of all the above documents makes it clear that the payment of salary to the assessee was not automatic, and her monthly salary would not accrue to her at the end of every month. It depended upon the unit generating surpluses, and before the drawal of the salary, written approval of the financial institutions, viz., APSSIDC and SFC should be obtained. Even the Government in para 5 of its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h's case. The facts before the Gujarat High Court are that the assessee was appointed a Director of a private company on a remuneration of Rs. 400 per month. In 1962 for which the assessment year was 1963-64, the company incurred losses and on 18-3-1963, the Board of directors resolved that the directors should waive their remuneration for 1962. Accordingly, the assessee had waived his right of remuneration of the sum of Rs. 4,800 which had become due to him for the year 1962. The ITO included the amount as income of the year, whereas the Appellate Tribunal had excluded it. When the matter came up before the Gujarat High Court, it held the following (as per the head-note in the Reports) : "....Unlike incomes falling under other heads of income, as regards salaries, the principle under section 15 is that the income becomes chargeable to tax with reference to the previous year in which it fell due, not on the basis of actual receipt but on the basis of the amount becoming due. The position as regards income falling under the head 'Salaries' is altogether different from the income falling under the head 'income from business' because what can be deducted from the commercial point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s debited to the profit and loss account and credited to the account of the assessee does not alter the true legal position, and does not make the amount not due to the assessee under law, into one due to her. The learned counsel also stressed the fact that the Board of Directors by its resolution dated 9-7-1986 had written off the salary due to the assessee for these four years and on 29-9-1986, the General Body Meeting also approved that resolution and it had also resolved to write back the provision for salaries of Rs. 60,930 due to the Managing Director, in view of the written consent of the Managing Director, Smt. B. Kalavathi to give up her claim considering the continuous losses suffered by the company. Thus, the General Meeting, which is all powerful has also ultimately resolved to write off the dues. In fact, there are no dues inasmuch as the salary can be claimed only when the company shows surpluses, and she is not entitled to salary when it is continuing in losses. 18. The attention of the Tribunal is also drawn to Orissa High Court's decision in Trailokyanath Mohanty v. CIT [1977] 110 ITR 254. As per the head-note of the said decision, the following is held : "Though ..... X X X X Extracts X X X X X X X X Extracts X X X X
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