1988 (8) TMI 54 - HC - Income Tax

Summary

Issues:
Interpretation of section 40(c) of the Income-tax Act, 1961 regarding managing director's remuneration.
Rectification of original order under section 254(2) of the Income-tax Act for assessment years 1972-73 and 1973-74.

Interpretation of Section 40(c):
The case involved a dispute regarding the interpretation of section 40(c) of the Income-tax Act, 1961, specifically related to the managing director's remuneration. The assessee, India Carbon Ltd., claimed a deduction for the remuneration paid to the managing director, which was partially disallowed by the Income-tax Officer. The Appellate Tribunal later allowed the full remuneration claimed by the assessee. However, an application was filed for amendment of the order based on an amendment to section 40(c) introduced by the Finance Act, 1971. The Appellate Tribunal held that the order allowing full remuneration was a mistake apparent from the record and rectified it. The Tribunal directed that the managing director's remuneration be limited to Rs. 72,000 for the assessment years 1972-73 and 1973-74, in line with the amended provision. The argument presented by the assessee's counsel was that section 40(c) would apply only if the remuneration was found to be excessive and unreasonable by the Revenue authorities, which was contested by citing relevant case laws. The High Court, however, disagreed with this interpretation and upheld the Tribunal's decision, concluding that section 40(c) did not allow for any other interpretation except as answered by the Tribunal.

Rectification under Section 254(2):
The second issue pertained to the rectification of the original order under section 254(2) of the Income-tax Act for the assessment years 1972-73 and 1973-74. The Appellate Tribunal, upon noting the amendment to section 40(c), rectified the original order to limit the managing director's remuneration to Rs. 72,000 for each of the assessment years in question. The Tribunal held that the original order allowing full remuneration was a mistake apparent from the record and corrected it based on the amended provision. The High Court affirmed the Tribunal's decision in this regard, ruling in favor of the Revenue and against the assessee. The Court found no grounds to support the possibility of an alternative interpretation of section 40(c) as argued by the assessee's counsel, thereby upholding the rectification made by the Tribunal under section 254(2) for the relevant assessment years.

In conclusion, the High Court upheld the decisions of the Appellate Tribunal regarding the interpretation of section 40(c) and the rectification of the original order under section 254(2) for the managing director's remuneration. The Court ruled in favor of the Revenue, affirming the rectification based on the amended provision and rejecting the alternative interpretation proposed by the assessee.