JAGADISAN J.

This reference arises out of the assessment of one Nagi Reddy to income-tax for the assessment year 1956-57, the relevant " previous year " being the calendar year 1955. He received in the year of account Rs. 72, 426 and Rs. 5, 142 as remuneration from the two companies, " Vijaya Productions Ltd." and " B. N. K. Press Ltd. " respectively, of which he was the managing director. He claimed that this was business income assessable to tax under section 10 of the Act. This was not accepted by the Income-tax Officer, but on appeal, the Appellate Assistant Commissioner upheld the claim. The department filed an appeal to the Income-tax Appellate Tribunal which held that the amount is not to be dealt with under section 10 of the Act, but granted relief to the assessee in allowing a sum of Rs. 29, 485 to be set off against the profits of the year. Both the assessee and the department filed an application under section 66(1) of the Act before the Tribunal, and the following questions stand referred to us " 1. Whether the additional remuneration of Rs. 77, 569 from both the companies aforesaid constitute income assessable under section 10 ?

2. If the answer to the above question is in the negative, whether the depreciation allowance of Rs. 29, 485 unabsorbed in the assessment of 1955-56 is available to be included in the computation of the profits from business for the year 1956-57 under proviso (b) to section 10(2)(vi) ?

Question No. 1 has been referred at the instance of the assessee and No. 2 at the instance of the department

The assessee is the sole proprietor of a business called " Chandamama Publications. " The business that was carried on was that of printer and publisher. He was the managing director of a company, Vijaya Productions Ltd., which carried on the business of producing films. He was also the managing director of another concern, called B. N. K. Press Ltd. It appears that he was deriving income from another film producing company called Vauhini Productions Ltd. He was appointed the managing director of Vijaya Productions Ltd., under an agreement dated August 3, 1949. By the terms of that agreement, he became entitled to a monthly remuneration of Rs. 500. The board of directors of the company, Vijaya Productions Ltd., passed a resolution on December 8, 1949, entitling the assessee to a remuneration of 12 1/2% of the net profits of the company. This was stated to be " in consideration of his services as producer of the company's pictures. " The resolution expressly mentioned that this remuneration of 12 1/2% would be without prejudice to the terms and conditions set out in the managing director's agreement aforesaid. This resolution was ratified by the shareholders of the company at an extraordinary general meeting held on March 21, 1950The assessee entered into an agreement on August 27, 1951, with B.N.K. Press Ltd. The assessee was appointed as the managing director by the terms of this agreement for a term of 5 years, and his remuneration was fixed by clause 4 of the agreement in these terms :

" There shall be paid to Mr. B Nagi Reddy, the managing director, a fixed salary at the rate of Rs. 500 per month from the date of incorporation of the company. In addition to the above-said fixed salary, the said Mr. Nagi Reddy shall during the tenure of his office be paid a commission equivalent to 10% of the net profits of the company. " *

For the calendar year 1954, the relevant previous year for the assessment year 1955-56, the assessment of Nagi Reddy was completed as follows

Profits Loss

Rs. Rs

Property 2, 292

Salary 19, 053

Business " Chandamama " 45, 466

Loss

Depreciation 29, 485

Other sources

Rs

Addl. remuneration 1, 611

Sitting fees 125

Dividends 127 1, 953

Total 24, 942 74, 951

Net loss carried forward 50, 009

In that year the assessee did not receive the additional remuneration from Vijaya Productions Ltd. The business loss of Rs. 20, 524 carried forward and the unabsorbed depreciation value of Rs. 29, 485 were