Law:

Section:

Rule 7 of Schedule 1 to Excess Profits-Tax Act, 1940 - Directors' Remuneration - 'H' owned certain share capital of assessee-company - Assessee appointed 'H' along with 'M' as joint general managers and paid salary to 'H' and claimed deduction - Tribunal disallowed assessee's claim treating salary paid to 'H' as director's remuneration - Whether appointment of 'H', as one of two joint general managers did not depend on fact that he was a director and was not made dependent on his continuing as such and even if he had resigned from directorship, he would not have ceased to be a joint general manager by merely ceasing to be a director of company - Held, yes - Whether, therefore, there was no reason to make any distinction between amounts paid to 'H' and 'M', and amount paid to 'H' could not be deemed to be "director's remuneration" - Held, yes FACTS In the relevant accounting period, the assessee-company had paid a salary to one H who had been appointed along with another person M as joint general managers of the company and claimed deduction. The Tribunal disallowed the assessee's claim. On reference : HELD The definition of director in section 2(10) of 1922 Act extends the meaning of the word "director" to include not only a director as such but also a person who is a manager and is remunerated out of the funds of the business and who is a beneficial owner of not less than twenty per cent of the share capital of the company. 'H' admittedly owned only 9 per cent share capital of the company and, therefore, he did not come within this extended meaning of the word "director". He was a director as ordinarily understood under the Indian Companies Act. As a director, he must have been entitled to and must have received the ordinary remunerations of a director. The sum paid to him per month was obviously not being paid to him for his normal work as a director but as one of the two joint general managers. The resolution the board of directors showed that the chairman suggested that two persons should be appointed as joint general managers and it was open to the board to appoint any two outsiders and it was not necessary that one of the two joint general managers should…

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