Law:

Section:

section 10(4a) of the income-tax act, 1922 [corresponding to section 40(c)(i) of the income-tax act, 1961]—amounts not deductible—terms and conditions of appointment of director were approved by company law board—whether revenue was justified in disallowing part of remuneration paid to the director on the ground that qualification and experience did not justify the quantum of remuneration paid—held, no Facts In the financial year 1960-61, the assessee paid a sum of Rs. 1,00,777 to one of its directors, Shri M.M. Thapar, son of its managing director, as his remuneration by way of salary, allowance and share of profit. The main income of the assessee was agency commission mostly received from Srigopal Paper Mills Ltd. and Ballalpur Paper & Straw Board Mills Ltd. Shri M.M. Thapar had a diploma in Textile Engineering from California University. He gained experience both in India and USA. His appointment as a director was approved by the Company Law Board under section 269 of the Companies Act, 1956. At the material time, he was supervising and in control of Jagatjit Cotton Textile Mills Ltd. and Srigopal Paper Mills which were in a stage of expansion. He was paid the same remuneration as that paid to other directors. The ITO held that the remuneration was paid to Shri M.M. Thapar on higher scale not on genuine business considerations but because of his being the son of the managing director and as such allowed only a part of the remuneration being Rs. 36,000. The AAC confirmed the ITO's order but the Tribunal held that no disallowance was called for in this case. On reference: Held The appointment of Shri M.M. Thapar as a director was approved by the Company Law Board under section 269 of the Companies Act, and the authority concerned must have found the terms and conditions of his appointment fair and reasonable. Therefore, the payment of remuneration of Rs. 1,00,777 to him could net be treated as excessive or unreasonable so as to justify disallowance of any part of it. Case review Nund& Samont Co. Pvt. Ltd. v. CIT [1970] 78 ITR 268 (SC) distinguished. Cases referred to CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370 (Cal.), CIT v. India Carbon (P.)…

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