Judgment

VENKATARAMIAH, J.:- Since these appeals by certificate involve a common question of law, we find it convenient to dispose them of by this common judgment.

2. Civil Appeal No. 2501 of 1972 is filed against the judgment of the High Court of Bombay in Income-tax Reference No. 58 of 1963 and Civil Appeals Nos. 2502-2504 of 1972 are filed against the judgment of that High Court in Income-tax Reference No. 87 of 1963. The assessee, M/s. Sessoon J. David & Co. Pvt. Ltd. (hereinafter referred to as the Company) is the appellant in all these cases and the assessment years are 1957-58, 1958-59, 1959-60 and 1960-61, the relevant calendar years being 1956, 1957, 1958 and 1959 respectively.

3. The Company is an investment company and its shares were originally held either directly or through their nominees by Sir Percival David, Lady David and Mr. V. P. David (hereinafter collectively referred to as Davids). The issued capital of the Company consisted of 1000 ordinary shares of the face value of Rs. 10,000 each. According to the valuation made by the auditors, the assets of the Company were worth Rs. 155 lacs as on December 31. 1955. At a meeting of the directors of the Company held on December 2, 1955, a resolution was passed recommending that the employees of the Company whose names were set out in the statement attached thereto be paid certain sums or annuity as set out against the names of each of them as and by way of retrenchment compensation and compensation for termination of employment and also for long and faithful services rendered by them to the Company in the past and that their services might be terminated. It was also resolved to call an extraordinary general meeting of the share-holders of the Company to consider and if thought fit to approve the recommendation made by the directors as stated above. Accordingly an extraordinary general meeting of the shareholders of the Company was held on January 17, 1956 but it was adjourned to January 25, 1956. On the adjourned date, the meeting passed a resolution approving the recommendation made by the directors to pay the employees retrenchment compensation and compensation for termination of employment and also additional retrenchment compensation and compensation for termination of employment in the case of some of them and to terminate their services on or after April 1, 1956. Thereafter an agreement was entered into between Davids and Tata Sons Ltd. (hereinafter referred to as the Tatas) on March 23, 1956 agreeing to sell the 1000 shares held by Davids or their nominees in the Company in favour of Tatas or their nominees for a sum of Rs. 155 lacs. The said agreement inter alia provided that the sum voted by the Company for payment of gratuities and/or as compensation for loss of employment to existing directors and employees of the Company with respect to their services up to and inclusive of March 31, 1956 and a further amount of Rs. 16,188 payable to the Managing Director, Mr. Mathalone should be paid in accordance with the resolution by the Company and the amount so paid should be deducted from the purchase price of Rs. 155 lacs agreed upon. It also provided that Davids should arrange to terminate the services of all employees with effect from March 31, 1956 and also to arrange that all directors (including the Managing Director) resign their offices and Tatas or their nominees should thereafter be entitled to appoint or elect all or any of the members of the staff and directors (including existing directors and members of the staff) of the Company as they deemed fit.

4. Of the 22 employees covered by the resolution of the directors dated December 2, 1955 followed by the confirmation at the extraordinary general meeting on January 25, 1956, 9 were re-employed and 13 persons were not re-employed. In the books of the assessee, there was a debit for a total sum of Rs. 1,64,899 during the accounting year 1956, the details for which were as follows:-

Amount payable to the 22 em