Law:

Section:

Section 40A(5), read with section 40(c) of the Income-tax Act, 1961 - Business disallowance - Remuneration, etc. paid in excess of prescribed limits in case of company etc. - Assessment year 1975-76 - Assessee-company paid Rs. 1,38,750 as remuneration to its managing director and claimed deduction for such - Tribunal by applying section 40A(5) disallowed part of such remuneration - Whether remuneration of managing director can be allowed only with reference to section 40A(5) and not section 40(c) - Held, yes - Whether, therefore, no referable question of law arose out of Tribunal's order - Held, yes Section 28(i) of the Income-tax Act, 1961 - Business loss - Allowable as - Assessment year 1975-76 - Tribunal restricted loss of sulphur claimed by assessee to 2.5 per cent of total sulphur handled - Whether Tribunal's finding was based on materials on record and was pure finding of fact and no referable question of law arose therefrom - Held, yes FACTS The petitioner/assessee-company claimed deduction of Rs. 1,38,750 towards remuneration paid to the managing director. It also claimed Rs. 2,01,788 by way of deduction, being loss on shortage of sulphur. The ITO by applying the provisions of section 40A(5) allowed the remuneration of the managing director to the extent of Rs. 60,000. The deduction on account of the loss of sulphur was limited to 2.5 per cent of the total sulphur handled. The full loss claimed was not allowed. This was sustained by the Appellate Tribunal. The application for reference under section 256(1) was rejected. On application under section 256(2): HELD As to whether the disallowance of the remuneration paid to the managing director was justified and whether section 40A(5) could be invoked, had been decided in the case of the very same assessee, for the earlier years, against the assessee in the decision in Travancore Rayons Ltd. v. CIT [1986] 162 ITR 732 (Ker). A Bench of the same High Court held that the expenditure regarding the remuneration of the managing director can be allowed only with reference to section 40A(5) and section 40(c ) has no application. In the light of the above said decision, the Tribunal was right in law in confirming…

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