TMI Blog1983 (3) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... as, however, not received in respect of the proposal. It is stated by the IAC that the position is the same as in the earlier year and in keeping with the inclusion of remuneration for the earlier year he has no alternative but to uphold the addition made by the ITO as i n the previous year. Similarly, the guarantee commission in respect of the bank loans proposed, it was claimed by the assessee, requires the approval of the Company Law Board and unless the approval comes the amount was paid to him. It was also pointed out that the amount was being repaid by the assessee as no approval of the Govt. had been obtained. The IAC upheld the inclusion on the ground that similar addition was made in the previous year and appellate decision in respect of the appeal preferred has not been received. Following the direction of the IAC the amounts were included by the ITO in the assessment made by him. In the appeal preferred by the assessee, the CIT(A) upheld the addition of these amounts and hence aggrieved by his order the assessee has come in further appeal. 2. It is contended by the ld. representative for the assessee that in the facts and circumstances of this case the additions were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 976 was still pending with the department a fresh application come to be made, the position was explained by the assessee stating that the later application made seeking approval of Ravikant Ruia s appointment w.e.f. 1st Oct 1977 superseded the earlier one as it was decided to appoint him in the past only from 1st Oct 1977 for reasons firstly because it was given to understand that the Company Law Authorities may not approve the company s proposal to have two Joint Managing Directors and also because the company found that the other Managing Director would be vacating his office from 30th Sep 1977 and, therefore, Ravikant Ruis could be appointed as regular Managing Director w.e.f. 1st Oct 1977. In the circumstances, it is stated that the original resolution seeking to appoint the assessee as Joint Managing Director was not pursued and it is also stated that whatever remuneration was provisionally drawn on the basis of the resolution was repaid by the assessee either by payment in cash or by adjustment against remuneration that became due to him on the basis of subsequent appointment w.e.f. 1st Oct 1977. The contention of the assessee on these facts is that no remuneration accrued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. Thus, both the parties, namely the assessee and the company had acted on the basis of the agreement contained in the resolution and the assessee had actually rendered services on the basis of the same and thus earned the remuneration and commission. It is particularly pointed out that the assessee, on the basis of the agreement the company had secured substantial finance. It is further contended by the departmental representative that so far as the guarantee commission is concerned, all that was necessary to be complied with was a special resolution u/s 314 of the Companies Act, 1956 and that is how both the assessee and the company have understood the position to be. There is no requirement in s. 314 of the Companies Act for approval of the Government and mere opinion of the Registrar of Companies cannot alter the correct requirement of law. In these circumstances it is argued that both the remuneration and commission has become due to the assessee by virtue of his having rendered the services pursuant to the resolution and the subsequent conduct of the assessee in forgoing the same and repaying it only amounts to application of income already earned. It is also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves the terms and conditions of appointment and the payments on that basis. Moreover, in this case the conduct of parties, namely the assessee and the company that both of them understood that the appointment and remuneration proposed would become effective only in the event of the approval of the Government. It is to be noted that u/s 269 of the Companies Act, sub-s(5) thereof if the appointment of a person as a managing or whole time director is not approved by the Central Government the person so appointed shall vacate his office a such managing or whole time Director on Government is communicated to the company and if he omits or fails to do so he shall be punishable with fine which may extent to Rs. 500 for every day during which the omits or fails to vacate such office. If the parties had really intended that the original resolution should be given effect to atlas until the date or the Governments approval they could have waited for the approval of the Government on the application made by them with reference to the original resolution, but evidently they did not pursue the original proposal in view of Government s approval for having two Managing Directors and as the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain the approval of the Central Government. Both the assessee and the company are merely abiding by this ruling when the said amounts were being recovered from the assessee. On the basis of the ruling of Register of Companies both of them understood that the guarantee commission will not be due to the assessee unless the Government s approval is received and they decided not to give effect to the resolution seeking to pay the guarantee commission. If both the parties, namely the company and the assessee agreed to the payment of any remuneration or guarantee commission subject to the approval of the Government according to their understanding and which would become valid only on the approval of the Government and before any such approval is given they decide not to proceed with the terms of the agreement and make necessary adjustment in their respective positions to restore the status quo ante, it is not open to any other person to say how the parties hold have acted by incising on there legal rights, which according to him exist. Coming to the decision cited by the departmental representative is totally distinguishable and does not support his contention. All that the decision lays ..... X X X X Extracts X X X X X X X X Extracts X X X X
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