1991 (8) TMI 12 - HC - Income Tax

Summary

Issues:
Interpretation of section 40(c)(i)(A) of the Income-tax Act, 1961 regarding deduction of remuneration paid to directors and committee meeting fees.

Analysis:

The judgment pertains to the deduction of remuneration paid to directors and committee meeting fees by a public limited company for the assessment years 1972-73 and 1973-74. The Income-tax Officer disallowed a portion of the claimed amount, citing the ceiling of Rs. 72,000 under section 40(c)(i)(A) of the Income-tax Act, 1961. The Appellate Assistant Commissioner restricted the disallowance to the excess remuneration paid to each director over the prescribed limit. The Tribunal upheld the Income-tax Officer's decision, leading to a reference to the High Court.

The question referred to the court was whether the ceiling of Rs. 72,000 under section 40(c)(i)(A) applied to directors' meeting fees and fees for considering the disallowable excess. The court analyzed the relevant provisions of the Companies Act, 1956, and the Income-tax Act to determine the scope of "remuneration." It was established that fees paid to directors for attending meetings constituted remuneration under section 40(c)(i) of the Income-tax Act, thus falling within the ambit of the disallowance provision.

The court distinguished previous judgments cited by the assessee, emphasizing that the payment of fees for attending meetings was indeed remuneration and not subject to the exceptions outlined in those cases. The court highlighted the broad definition of "remuneration" as encompassing quantifiable payments made for services rendered, aligning with the statutory framework and the intent of the Income-tax Act.

In conclusion, the court split the reference into two for the assessment years in question and answered the posed question in the affirmative, supporting the Tribunal's decision. The court affirmed that the directors' fees and board meetings' fees paid to the directors were to be included in the disallowance calculation as per section 40(c)(i)(A) of the Income-tax Act.