Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1957-58 - Assessee-company appointed two persons as agents and paid remuneration during relevant year - As on account of mutual bickering they did not render any service to company for period between 13-9-1956 to 31-12-1956, AAC held that assessee was liable to pay remuneration only upto 12-9-1956 - Tribunal confirmed this view - Whether since agents were entitled under article 75 of company's articles of association, to get prescribed remuneration for rendering their services and not otherwise, said two persons having not rendered any services to assessee-company beyond 12-9-1956, were not entitled to any remuneration for period between 13-9-1956 to 31-12-1956 - Held, yes FACTS Two persons were appointed as managing agents by the assessee-company under article 75 of its articles of association during the period relevant for the assessment year 1957-58 - On account of mutual bickerings they did not render any service to the company for the period between 13-9-1956 to 31-12-1956. The assessee, after obtaining approval of the general body, paid the remuneration to the two persons for the relevant year. The ITO, disallowed the entire payment. On the assessee's appeal, the AAC, took the view that the company was liable to pay the managing agents, commission for the period upto 12-9-1956 and not beyond, as they were not managing the company during that period. He, accordingly, disallowed proportional payment for period between 13-9-1956, to 31-12-1956,and allowed the rest. On second appeal, the Tribunal took the same view. On reference: HELD Under article 75 of the articles of association, the agents were entitled to get 16 per cent of the net profits of the earnings of the company as remuneration for their services and not otherwise. On account of mutual bickerings, they did not render any service to the company for the period between 13-9-1956 to 31-12-1956 and they, therefore, could not claim any remuneration for this period. The view taken by the Tribunal was therefore correct. Note : The case…

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