1984 (2) TMI 84 - HC - Income Tax

Summary

Issues:
- Validity of disallowance of directors' remuneration under s. 263 of the Income Tax Act, 1961.
- Applicability of Table A in Sch. I of the Companies Act to determine directors' remuneration.
- Interpretation of articles of association in relation to directors' remuneration.
- Authority to make payment of remuneration to directors without specific clause in articles of association.
- Justification of retrospective resolution rectifying payment to directors.
- Scope of remuneration under s. 40 of the Income Tax Act.

Analysis:

The High Court of Madhya Pradesh addressed a reference from the Income-tax Appellate Tribunal regarding the disallowance of directors' remuneration amounting to Rs. 38,188 under s. 263 of the Income Tax Act, 1961. The Commissioner of Income-tax set aside the assessment order, stating that the remuneration was not authorized as per the company's articles of association. The Tribunal upheld the Commissioner's decision, leading to the reference to the High Court. The assessee argued that the company, being a private limited company, could pay directors' remuneration as per Table A in Sch. I of the Companies Act, which was applicable due to s. 28. The company's retrospective resolution rectifying the payment was also cited as justification for the remuneration. The Department contended that the Commissioner's decision was not a final direction to disallow the remuneration, and the matter was open for reassessment by the ITO. The Court noted that the articles of association did not exclude Table A regulations, which allowed for directors' remuneration, including expenses. The resolution rectifying the payment further supported the legitimacy of the remuneration, leading the Court to conclude that the Tribunal erred in confirming the disallowance. The reference was answered in favor of the assessee, and each party was directed to bear their own costs.