DIXIT C.J. - The question that arise for determination in this reference under section 66(1) of the Indian Income Tax Act, 1922, by the Income Tax Appellate Tribunal, Bombay, at the instance of the assessee, the Kalyanmal Mills Ltd., Indore, (hereinafter referred to as the mills), as stated by the Tribunal is :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 66,900 paid to Shri Jall was a permissible deduction under section 10(2)(xv) of the Act in the year of assessment 1952-53 ?"

The material facts are that on 30th August, 1927, Shri Jall was appointed as the managing director of the assessee-mills. In 1933, his salary was Rs. 1,100 per month. In that year, on account of trade depression the mills cut down the salaries of all its employees and members of the staff by twelve and half per cent. This cuts was restored by the assessee-mills in 1941, in the case of all its officers and staff except Shri Jall. It is not known why the cut in Shri Jalls salary was not restored in 1941. The officers and members of the staff of the mills were also paid dearness allowance from 1st July, 1943, and bonus for each of the years from 1941 to 1948. This benefit of dearness allowance and bonus was, however, not given to Shri Jall. In March, 1951, the "secretaries, treasurers and agents" of the mills decided to restore the cut in Shri Jalls salary with effect from 1st May, 1933, and to pay him dearness allowance from 1st July, 1943, and bonus for the years 1941 to 1948. The board of directors approved this decision of the "secretaries, treasurers and agents" by passing on 8th November, 1952, a resolution in the following terms :

"The secretaries, treasurers and agents beg to report that in the year 1933, a general cut of twelve and half per cent was imposed on the salaries of all the officers and staff of the mill-company. This cut was subsequently restored in respect of all the officials except in the case of Shri R. C. Jall, the managing Director of the mill-company. As a result of this cut, his remuneration was reduced by Rs. 137-8-0 per mensem. After taking into consideration the meritorious services of Shri R. C. Jall in managing the affairs of the mill-company successfully through the critical times, the secretaries, treasurers and agents have restored the cut in the month of March, 1951, with retrospective effect, i.e., from the year 1933. The arrears on account of the restoration of the cut, the usual twelve and half percent dearness allowance thereon, and the proportionate arrears and bonus paid from time to time, which aggregate to Rs. 66,990 have been paid to him for the period from 1933 to February, 1951, which requires your sanction.

The board takes note of the above and resolves that the restoration of the twelve and half percent cut in the remuneration of Shri R. C. Jall, the managing director of the mill-company, and the payment of the arrears of Rs. 66,990 on account of the restoration of the cut, the usual twelve and half percent, dearness allowance thereon and the proportionate arrears of bonus paid from time to time to him by the secretaries, treasurers and agents is hereby confirmed."

In accordance with this resolution, a sum of Rs. 66,990 was paid to Shri Jall in 1952. He was also assessed in respect of this amount. In its assessment proceedings for the year 1952-53 the accounting year of which ended on 31st December, 1951, the assessee claimed under section 10(2)(xv) of the Income Tax Act, 1922., a deduction of Rs. 66,990 paid to Shri Jall. The Income Tax Officer disallowed the claim taking the view that the payment made to Shri Jall was "most extraordinary" and "not warranted by the facts of the business"; that the boards resolution was silent in regard to the nature of "meritorious services" rendered by Shri Jall. He also observed that the amount sought to be deducted represented arrears of pay, dearness allowance and bonus relating to the period during which the assessee-mill was not liab