Law:

Section:

Income-tax--Business income- Deductions-Company-Remuneration paid to Directors-Test---Company having two directors, one being managing director-Retirement of managing director-Other director performing functions of two directors undertaking entire responsibility-Dis­allowance of part of remuneration paid to managing director-Not valid in law. C. I T. v. Edward Keventer (F.) Ltd. (1972) 86 I T R 370 approved. Nund & Samont Co P. Ltd. v. C. I.T. (1970) 78 I T R 268 ref. Eastern Scales P. Ltd, v. C. I. T. (1970) 78 I T R 268 fol. JUDGMENT SABYASACHI MUKHARJI, J.-In this reference under section 256 (1) of the I. T. Act, the following question has been referred to this Court "Whether, on the facts and in the circumstances, of the case, the Ap­pellate Tribunal was correct in holding that the disallowance made out of salary paid to Mr. J. D. Somerville could be sustained under sec­tion 40 (c) of the Income-tax Act, 1961 ?" The assessee is PI/s. Eastern Scales Pvt. Ltd. and the present statement elates to the assessment years 1973-7d and 1974-75 for which the corresponding previous years are the financial years ending on 31st March, 1973, and 31st March, 1974, respectively. In the appeals which were filed by the assesses for these two years the Tribunal was called upon to decide two issues ; one relating to the curtailment of the deduction in respect of the managing director's salary from Rs. 42,350 per annum as claimed, to Rs 36,000 per annum under the provisions of section 40 (c) and the other regarding the disallowance of Rs. 14,572 (for the assessment years 1973-74) .nd Rs. 15,295 (for the assessment year 1974-75) being the deduction claimed by way of gratuity liability under the Compulsory Gratuity Act, 1971. In so far as the first of these two issues was concerned, it was observed the Tribunal that in restricting the deduction in respect of the manag­ing director's remuneration the authorities below had merely followed the decision of the Tribunal on this very issue for the earlier years. An attempt however, made by the learned counsel for the assessee to urge that a vital aspect of the matter had not been considered by the Tribunal in the earlier years and…

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