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Issues:
Interpretation of sections 40(c) and 40A(5) of the Income-tax Act, 1961 for disallowance of remuneration paid to a managing director. Analysis: The case involved a dispute regarding the disallowance of remuneration paid to the managing director under sections 40(c) and 40A(5) of the Income-tax Act, 1961 for the assessment years 1975-76 and 1976-77. The Income-tax Officer initially made additions in respect of the remuneration paid to the managing director under section 40(c)(i) and (ii), read with section 40A(5) of the Act. The Commissioner of Income-tax (Appeals) held that any excess to be disallowed should be computed under section 40(c) specifically for directors, not under section 40A(5), relying on relevant case law. The Tribunal upheld the Commissioner's direction, citing previous decisions and directing the Assessing Officer to recompute the liability under section 40(c) after assessing the reasonableness of the expenditure. The Tribunal also addressed the issue of apportionment of rent and considered repairing charges as a perquisite in the hands of the employee-director. The Department argued that section 40A(5) should apply, along with section 40(c)(i) and (ii) of the Act, treating repairing charges borne by the employer as a perquisite for the employee-director. However, the Tribunal's decision to apply section 40(c) was supported by the assessee's counsel. The Court noted that in a similar case, the Supreme Court had held that both section 40(c) and section 40A(5) would apply to directors who are also employees, with the higher of the two ceilings to be applied. Therefore, the Court found no issue with the Tribunal's order directing the Assessing Officer to recompute the liability under section 40(c) and upheld the decision in favor of the assessee, rejecting the Department's argument.
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