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TMI Blog1971 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... l is justified in law in disallowing the claim of the assessee for deduction of Rs. 1,03,547 and Rs. 18,294 from the income of the assessment years 1958-59 and 1959-60 as not an admissible business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922 ? " The reference relates to the assessment years 1958-59 and 1959-60, the accounting years being the calendar years 1957 and 1958. The assessee is a public limited company carrying on the business of manufacture and sale of yarn and having its registered office at Alagappanagar, Kerala State. The assessee entered into an agreement dated November 10, 1955, with Kamala Mills Ltd., Coimbatore, for financing and managing the assessee's mill at Alagappanagar for a period of five years. A copy of the agreement is annexure " A ". Kamala Mills Ltd. was paid Rs. 1,03,547 and Rs. 18,294 towards their remuneration for the calendar years 1957 and 1958 by the assessee. The claim of the assessee for deduction of these amounts under section 10(2)(xv) of the Indian Income-tax Act, 1922, was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal on the ground that Kamala Mills Ltd. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and " C-1 " that the Appellate Assistant Commissioner for both the years that Kamala Mills Ltd. was the manager of the assessee as defined in the Companies Act, 1956. The Tribunal in its order produced as annexure " F " no doubt observed : " ......... the learned counsel for the assessee sought to argue that Kamala Mills Ltd. was not only managers but were also financiers and that the remuneration paid could be treated as having been made to the remuneration paid could be treated as having been made to the financiers. We feel that this is a new canse put forward by the assessee and be permitted." In spite of the above statement it is seen from annexure " F " that the Tribunal discussed the several clauses of the agreement and found as follows : " It is not possible to construe the terms of the agreement as conferring on Kamala Mills Ltd. any power other than as managers and, in our opinion, there is no warrant for taking that they were functioning separately as financiers . It is no doubt true that Kamala Mills Ltd., was appointed as managers so that they may provide financial aid for the running of the mills but for the purpose of affording financial assistance no separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act." It is now necessary to consider whether Kamala Mills Ltd. was on the basis of the agreement the manager of the assessee under the Companies Act, 1956, during the relevant years. The agreement between Kamala Mills Ltd. and the assessee was executed when the Companies Act of 1913 was in force. The definition of " manager ", according to section 2(9) of the said Act, is as follows : " ' Manager ' means a person who, subject to the control and direction of the directors has the management of the whole affairs of a company, and includes a director or any other person occupying the position of a manager by whatever name called and whether under a contract of service or not." Clause (14) of the agreement dated November 10, 1955 (annexure "A"), reads : " The managers' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or from continuing as manager of a company under the Companies Act, 1956. The effect of section 384 is to prevent a firm, body corporate or association from exercising the functions of a manager mentioned in section 2(24). To attract section 384 a firm, body corporate or association should be in management of the whole or substantially the whole of the affairs of a company, subject to the superintendence, control and direction of the board of directors, which are the attributes of a manager in section 2(24) of the Companies Act, 1956. To this extent section 2(24) should govern in the interpretation of the term " manager " in section 384 of the Companies Act, 1956. When section 384 imposes a disqualification on a firm, body corporate or association to be appointed or continued as manager the said word has only to be understood in the light of the definition clause. There was considerable debate at the bar as to whether on the basis of the several clauses in " A ", Kamala Mills Ltd. can be considered to have been in management of substantially the whole of the affairs of the assesses. In our view, it is not necessary to express a final opinion on the matter in view of our further d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors in all matters a managing agent is not to be so. If section 2(24) does not apply, Kamala Mills Ltd. cannot be said to be managers within the meaning of the Companies Act, 1956. Considering the various clauses in annexure " A " it is not possible to hold that Kamala Mills Ltd. was under the control, superintendence and direction of the board of directors of the assessee during the currency of the agreement. Further, the assessee also agreed not to exercise any of the powers delegated to Kamala Mills Ltd. This is, inconsistent with the position of Kamala Mills Ltd. being a manager of the assessee as defined in the Companies Act, 1956. The fact that Kamala Mills Ltd. was referred to as manager in annexure " A " does not lead to the conclusion that they are the managers under the Companies Act, 1956. We, therefore, hold that Kamala Mills Ltd. is not the manager of the assessee within the meaning of section 384 read with section 2(24) of the Companies Act, 1956. In view of our finding that Kamala Mills Ltd. is not the manager of the assessee under the Companies Act, 1956, it is not necessary to examine the second submission on behalf of the assessee that even if there was a violat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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