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Issues: Disallowance of remuneration to professional director exceeding approved limit
Analysis: The appeal before the Appellate Tribunal ITAT BOMBAY-C pertained to the disallowance of Rs. 17,784 paid as remuneration to a professional director by the company for the assessment year 1978-79. The disallowance was made under section 40(c) of the Income-tax Act, 1961, as the payment exceeded the approved limit set by the Government of India. The key contention was whether the remuneration paid to the professional director was reasonable and allowable as a deduction. The assessee argued that the remuneration was justified based on the professional qualifications and services rendered by the director. The Government's approval letter dated 13-12-1976 was presented as evidence, but the assessee contended that it was not determinative of the reasonableness of the remuneration. The departmental representative, however, maintained that any payment exceeding the approved limit was not allowable under section 37 of the Act. The Tribunal held that all directors of a company, including professional directors, were covered under section 309 of the Companies Act after the 1965 amendment. The Government's approval of remuneration not exceeding Rs. 20,000 per annum for the professional director was binding, and any payment exceeding this amount was considered illegal. The Tribunal rejected the argument that the recovery provision under sub-section (5A) of section 309 applied only to whole-time or managing directors, emphasizing that it encompassed all directors. Consequently, the excess payment was deemed to be in violation of the law and not incidental to business, leading to the disallowance upheld by the Commissioner (Appeals). Ultimately, the Tribunal dismissed the appeal, affirming the disallowance of the excess remuneration paid to the professional director.
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