NATE NANDHA NEE NATARAJAN NANDHAGOPAL,CHENNAI vs. ACIT, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

5. Shri J. Prabhakar, the Ld. representative for the assessee, further submitted that in the original round of litigation, this Tribunal remitted back the matter to the file of the Assessing Officer. In the remand proceeding, according to the Ld. representative, the Assessing Officer found that the assessee received ₹1,37,52,396/- from the company and the salary was revised as per the company law only after the financial year was completed. According to the Ld. representative, the Assessing Officer also found that as per Form 26AS statement, the receipt was shown as ₹1,37,52,396/-. Hence, the difference between ₹1,37,52,396/- and the amount of ₹27,76,011/- disclosed as income from salary was added as income of the assessee towards income from salary. According to the Ld. representative, what was paid to the assessee is contrary to the provisions of Companies Act, therefore, that cannot be construed as income of the assessee. On a query from the Bench whether the company has initiated any recovery proceeding for excess amount paid to the assessee? The Ld. representative submitted that the assessee has paid lot of money to the company, therefore, by way of book adjustment, the amount was recovered.

SCOPE OF TOTAL INCOME

Provided that in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which— (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.— Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance- sheet prepared in India. Explanation 2.— For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 9. In view of the above, whatever money is received by the assessee from whatever source or accrues or arises shall form part of total income of previous year. It is also to be remembered that all the money received by the assessee cannot be treated as income. The assessee should have a legal right to retain the money received. In case the assessee received the money as a trustee with an obligation to return the same to some other person, then such kind of money received cannot be construed as income of the assessee at all. Therefore, when the assessee has received salary of ₹1,37,50,776/-, the assessee should have a legal right to retain the same. In this case, what was paid to the assessee is a salary in the capacity as Managing Director of the company. Therefore, at the time of payment, the assessee had all the right to retain the money. Subsequently, the company revised the salary on the basis of the provisions of Companies Act restricting the salary to 5% of the net profits of the company. The question arises for consideration is whether the so-called excess payment of ₹1,09,78,005/- would form part of taxable income of the assessee?

Since the required material was not filed either before the Assessing Officer or before the CIT(Appeals) or even before this Tribunal, mere oral claim that the amount was adjusted by way of book entry cannot be accepted at this stage. Merely because the payment was contrary to the provisions of Companies Act, this Tribunal is of the considered opinion that the Income-tax Act, being a special provision, the Companies Act cannot override the Income-tax Act.

In other words, the Income-tax Act will override the Companies Act.

Even the illegal payment or the payment received by the assessee contrary to the provisions of Companies Act by way of salary has to be assessed as income in the assessee’s hands provided the same was not recovered by the company. In the absence of any details or material to support the claim of recovery or adjustment in the books with regard to excess payment of salary, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.