Judgment

JAGANMOHAN REDDY, J. :- The assessee and his wife owned a large number of shares in a private limited company engaged in the business of running hotels. By virtue of Art. 109 of the Articles of Association of the said company, the assessee became the first Managing Director on terms and conditions agreed to and embodied in an agreement dated November 20, 1955 between himself and the company. Under the said agreement, the assessee was to receive Rs. 2,000/- per month, a fixed sum of Rs. 500/- p.m. as car allowance, 10 per cent of gross profits of the company and he and his wife were entitled to free board and lodging in the hotel. For the assessment year 1956-57 for which the accounting year is the year ending 30th September 1955, the assessee was assessed in respect of Rs. 53,913/- payable to him as 10% of the gross profits of the company which he gave up soon after the accounts were finalised but before they were passed by the general meeting of the shareholders. The above amount was given up by him because the company would not be making net profits if the stipulated commission was paid to him. The assessee claimed that the amount given up by him was not liable to be incl