Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Company---Director---Remuneration to Director to violation of provisions of Companies Act---Not relevant for purposes of Income-tax Act---Remuneration cannot be disallowed---Indian Income Tax Act, 1961, S.37---Indian Companies Act, 1956, S. 314. Even where an amount is paid by a company in violation of the provisions contained in the Companies Act as remuneration to its directors, it is not for the Income-tax Officer to disallow the same, since it is a payment for the services rendered by the director. Therefore, it is an admissible deduction. The assessee7company enhanced the remuneration of one of its directors by Rs.500. The Tribunal held that since there was no approval for enhanced remuneration to the director at the first general body meeting, the assessee was not entitled to the deduction of Rs.500 per month. On a reference: Held that the Tribunal was not correct in disallowing the enhancement of remuneration paid by the company to the director in question. CIT v. Ramakirishna Mills (coimbatore) Ltd.(1974) 93 ITR 49 (Mad) and CIT v.Sree Rajendra Mills Ltd. (1974) 93 ITR 122 (Mad.) fol. JUDGMENT THANIKKACHALAM, J.---In accordance with the direction given by this Court in T.C. No.284 of 1979, under section 256(2) of the Income Tax Act 1961, the Tribunal referred the following question for our opinion: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that on the merits and in view of the provisions of section 314 of the Companies Act, 1956, the enhancement of remuneration for the director is not warranted?" According to the facts arising in this case the wife of the managing director who is also a director in the company was paid a remuneration of Rs.1,000 per mensem. Formerly, she was paid a remuneration of Rs.500 per mensem. For the enhancement of Rs.500, according to the Income-tax Officer, the approval was not obtained in the first meeting of the general body held after such increase was made. This was confirmed by the order passed by the Appellate Assistant Commissioner. On appeal, the Tribunal held that since there was no approval for enhanced…

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