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Interpretation of section 40(c) of the Income-tax Act, 1961 regarding the treatment of commission paid to a director as remuneration for the purpose of determining the ceiling limit. Analysis: The case involved a company where the Income-tax Officer applied section 40(c) of the Act to limit the deduction of expenditure incurred in respect of a director to a specific amount. The company contended that the amount paid to the director was commission and should not be included in the ceiling prescribed under section 40(c). The Income-tax Officer disagreed and restricted the allowance of the expenditure based on section 40 of the Act. The Commissioner of Income-tax (Appeals) ruled in favor of the company, but the Income-tax Appellate Tribunal, in an appeal by the Revenue, held that the commission paid to the director should be considered within the ceiling limit of section 40(c). The company challenged this decision, leading to the Tribunal referring the question of law to the High Court. The arguments presented by both parties revolved around whether the commission paid to a director should be classified as remuneration falling under section 40(c) of the Act. The company's counsel cited a Bombay Tribunal decision supporting their stance, while the Revenue's counsel argued that the commission constituted remuneration subject to the ceiling limit under section 40(c). The High Court analyzed previous legal precedents, including the Supreme Court's decision in Gestetner Duplicators P. Ltd. v. CIT [1979] 117 ITR 1, which established that remuneration paid for services rendered by an employee, whether fixed or based on turnover, qualifies as remuneration. Additionally, the court referred to the case of Rane (Madras) Ltd. v. CIT [1995] 212 ITR 583, where it was held that commission paid to a director should be considered under section 40(c) of the Act. Based on these precedents, the High Court concluded that the commission paid to the director, even if termed as such, still constituted remuneration within the scope of section 40(c) and was subject to the prescribed ceiling limit. Therefore, the court upheld the Tribunal's decision that the commission should be factored into determining the limit of allowance under section 40(c) of the Act. In the affirmative, the High Court answered the referred question of law against the company, with no order as to costs in the circumstances of the case.
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