COMMISSIONER OF INCOME TAX, GUJARAT-I versus NAVNIT LAL SA KAR LAL ETC.

Citation: [2000] SUPP. 4 S.C.R. 652 · Decided: 15-11-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX, GUJARAT-I 
v. 
NA VNIT LAL SA KAR LAL ETC. 
NOVEMBER 15, 2000 
j.· 
..
B 
(S.P. BHARUCHA AND D.P. MOHAPATRA, JJ.] 
Income Tax Act, 1961-Section 17-Commission payable to employee-
Assessee expended in purchase of Deferred Annuity Policy from life Insurance 
c 
Corporation by the employer for the benefit of assessee-Whether includib/e 
in the hands of assessee as income chargeable under the head Salaries-
Held, yes. 
Assessee-respondents are Managing Directors of employer-company. 
Under the terms of agreement, they are entitled to remuneration. Later, a 
D 
resolution was passed by the Board of Directors of the company to expend the 
commission payable to the assessees in purchase of Deferred Annuity Policies 
from Life Insurance Corporation on the life of the concerned assessees. The 
Income Tax Officer included the amounts expended under the head Salaries 
in their assessments for the reason that the payment was made out of the 
remuneration payable to the assessees. In appeal, the Appellate Assistant 
"'" 
E Commissioner agreed with the Income Tax Officer while the Tribunal and 
the High Court accepted the contention of the assessees. Hence these appeals 
by the Revenue. 
The assessees contended that the amount expended for purchase of 
annuities did not form part of remuneration payable to them as per the 
~ -
F agreement entered into and, therefore, they are not includible as part of 
Income from salary. The assessees further contended that the resolutions 
must be so read as to deny the obligation to pay to·the assessees that particular 
part of their remuneration utilised in purchase of policies and, therefore, there 
was no accrual to them. 
Allowing the appeals, the Court 
--
G 
HELD: The Resolutions set out the format of Resolutions to be passed 
by the Extraordinary General Meetings of the Mills; they are exactly the same 
terms. The resolutions do not refer to the clauses of the Agreements. They 
do not say that the Managing Directors shall not be paid any remuneration 
H 
or any part of such remuneration. In fact, they refer specifically to the 
652 
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C.l.T. v. NAVNIT LAL SAKAR LAL [BHARUCHA, J.] 
653 
"amount of commission payable to each of the Managing Directors" and A 
resolve that that commission payable to each of the Managing Directors shall 
be "expended in the purchase of annuity policies on the life of the concerned 
managing director". It is impossible, in the circumstances, to conclude that 
the amounts of the commission that were expended to purchase the policies 
had been diverted and had not accrued to the Managing Directors. A proper B 
construction would be that such commission had accrued to them at the end 
of tiJe relevant financial years and that thereafter the sums thereof were 
resolved to be spent to purchase annuity policies for each ofthem. (657-C-E} 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7723 of 1997. 
From the Judgment and Order dated 10.7.96 of the Gujarat High Court C 
in M.C.A. No. 17 of 1996. 
WITH 
Civil Appeal Nos. 7724-26of1997. 
From the Judgment and Order dated 13.7.93 of the Gujarat High Court D 
in l.T.R. Nos. 445/80, 212 and 213of1982. 
Ranbir Chandra, Ms. Sushma Suri and Shail Kumar Dwivedi for the 
Appellant. 
S.K. Dholakia, M.N. Shroff and Chirag M. Shroff for the Respondents. 
The Judgment of the Court was delivered by 
BHARUCHA, J. We are concerned with the Assessment Years 1973-74 
and 1974-75 in these appeals. Common questions of law arise. They read: 
E 
"I. Whether the amount of Rs. 26,221 being I/3rd of the sum of Rs. 
78,663 paid to Life Insurance Corporation by Sarangpur Mills for F 
purchase of Deferred Annuity Policy is includible in the hands of the 
assessee as income chargeable under the head Salaries? 
2. Whether on the facts, circumstances and the evidence on record, 
the Income-tax Appellate Tribunal was right in law in coming to the 
conclusion that the amount of Rs. 26,221 utilised by Sarangpur Mills G 
towards purchase of Single Premium for obtaining the Deferred 
Annuity Policy did not form part of remuneration payable to the 
assessee for the calender year 1972 relevant to the assessment year 
1973-74 in question?" 
The assessee-respondents are Managing Directors of a public limited H 
654 
SUPREME COURT REPORTS (2000] SUPP. 4 S.C.R. 
A Company called Sarangpur Mills Limited. They had entered into agreements 
with the Mills. Under the terms thereof they were, inter a/ia, entitled to 
receive remunerat
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