1996 (8) TMI 30 - HC - Income Tax

Court Fee, Development Allowance, Expenditure Incurred, Foreign Currency, Remuneration Paid To Directors, Remuneration Paid To Managing Director, Sales Promotion, Weighted Deduction

Summary

Issues:
1. Interpretation of section 40(c)(i) of the Income-tax Act regarding remuneration paid to managing director in foreign currency.
2. Allowability of weighted deduction under section 35B for specified expenses incurred in Libya.

Analysis:
1. The case involved the interpretation of section 40(c)(i) of the Income-tax Act concerning the remuneration paid to the managing director in foreign currency. The Income-tax Officer disallowed the balance salary paid to the managing director, considering it excessive. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this decision. The court analyzed the provisions of section 40(c) and concluded that the disallowance of the excess salary was justified. The court referenced a similar case from the Calcutta High Court to support its decision, emphasizing the limit of Rs. 72,000 for allowable remuneration under the provision.

2. The second issue revolved around the claim of weighted deduction under section 35B for various expenses incurred in Libya by the company. The assessee argued that these expenses should be allowed under sub-clause (iv) or sub-clause (vii) of section 35B(1)(b). However, the court found that the expenses were not related to sales promotion outside India and, therefore, were not eligible for deduction under the specified sub-clauses. The Tribunal's decision to disallow these expenditures was upheld by the court based on the lack of nexus between the expenses claimed and sales promotion activities.

In conclusion, the court answered all questions in the affirmative, ruling against the assessee and in favor of the Revenue. The judgment highlighted the application of section 40(c)(i) to disallow excessive remuneration and the limitations on allowable deductions under section 35B for expenses not directly related to sales promotion activities. The court's decision was based on a thorough analysis of the relevant provisions of the Income-tax Act and previous judicial interpretations.