2008 (4) TMI 280 - HC - Income Tax

Commission paid to the directors - there is no fixed commission that is paid to any of the directors and the amount of commission may vary depending upon the decision of the board of directors of assessee - different amounts were paid to different directors and no fixed amount was paid or determined therefore it is held that the commission paid to the directors cannot be said to be remuneration as contemplated by section 40(c) - disallowance was permissible in view of section 40(c)

Summary

Issues:
1. Disallowance of expenditure on maintenance of Kamla retreat
2. Admissibility of depreciation for assets in different premises
3. Interpretation of the limit prescribed in section 80VV for legal expenses
4. Admissibility of payment to directors under section 40(c) of the Income-tax Act
5. Admissibility of interest claimed under section 40A(8) of the Act

Analysis:

1. The court did not address questions 1, 2, and 3 due to the smallness of the amount involved.
2. Regarding question 5, the court ruled in favor of the Revenue based on a previous decision.
3. The main issue left for consideration was question 4, concerning the payment of Rs. 8,18,000 to directors under section 40(c) of the Income-tax Act.
4. The court examined the relevant provisions of section 40(c) which disallows certain expenditures in the case of a company related to remuneration or benefits to directors.
5. The court noted that the commission paid to directors was determined by the board and varied based on net profits, without a fixed amount for each director.
6. The court analyzed whether the commission paid to directors could be considered as remuneration under section 40(c) of the Act.
7. The court distinguished the case from previous rulings where remuneration was fixed, emphasizing the variable nature of the commission in this case.
8. The court concluded that since the commission paid to directors was not fixed and could vary, it did not qualify as remuneration under section 40(c) of the Act.
9. Consequently, the court ruled in favor of the assessee, holding that the commission paid to directors was not subject to disallowance under section 40(c) of the Income-tax Act.
10. The court disposed of the reference after addressing the relevant issues comprehensively.