Law:

Section:

JUDGMENT A.N. Sen, J.-This reference under section 66(1) of the Indian Income-tax Act, 1922, raises the question of applicability of the provisions of section 10(4A) of the said Act to the remuneration paid to the directors of Edward Keventer Pvt. Ltd. which happens to be the assessee in the instant case. The assessee is a private limited company of which at the material times there were only 5 members, all of whom, except Sri K.A. Dikshit, were also directors of the company. They are: (1)Rani Jagadamba Kumari Devi who holds 65% of the total shares. (2)Sri A.C. Roy Chowdhury who holds 10.5% of the total shares. (3)Sri J.C. Chowdhury who holds 10.5% of the total shares, (4)Sri S. Das Gupta who holds 10.5% of the total shares. (5)Sri K.A. Dikshit who'holds 3.5% of the total shares. It may be noted that the assessee was originally a Swedish concern which was taken over in 1949. Lt. Genl. Madan Shumshere Jung Bahadur Rana of Nepal, since deceased, made the largest investment and purchased the majority of shares. The Rana during his lifetime had been a director of the company and the chairman of the board of directors. Rani Jagadamba Kumari Devi is the widow of the late Rana and upon the death of the Rana she inherited the shares and succeeded to the office of the chairman of the board of directors of the company. The articles of association of the company at the material times, inter alia, provided: Article 109. "Sri Animesh Chandra Roy Chowdhury, Sri Jagadish Chandra Chowdhury and Sri Sukhomoy Das Gupta or their nominees or successors in the board, as the case may be, each, shall successively by rotation, become managing director of the company, each to hold office for a maximum of two years at a stretch." Article 110. "The remuneration of the directors shall be as follows: The board of directors shall from time, to time fix the remuneration of the directors, but in no case shall be less than Rs. 4,000 per month as office allowance and an amount equivalent to 10% of the net profit of the company earned in the previous year. This amount shall be distributed as follows: (1)Lt. Genl. Madan Shumshere Jung Bahadur Rana or his nominee or successor in the board, 40%.…

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