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TMI Blog1984 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... at the payment of commission was not approved by the Government of India, Company Law Board ? " The Tribunal came to the conclusion on the facts that the commission was paid to the directors for collecting empty ACC cement bags and selling the same. The total profit made by the company for the two assessment years resulting from this sale was Rs. 4,75,000. The Tribunal held that there was no doubt that the commission was paid by the assessee-company to the directors for adequate services rendered by them in furthering the business of the company. It was held that the infringement of the provisions of the Companies Act was no ground for disallowing the deductions under section 37 of the Income-tax Act, 1961. In this respect, two decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gitimate expenditure and the amount returned later was subjected to tax in the proper year. It was pointed out that this was the situation also in the case decided by the Madras High Court in CIT v. Sree Rajendra Mills Ltd. [1974] 93 ITR 122 just referred to. The learned counsel referred to a passage at page 126 of the Report which reads as follows: " The amount has really been paid out by the company to the said person. It is true that the provision in section 363 of the Companies Act makes him a trustee in respect of that amount, but as and when the amount is recovered from him on the basis of section 363, the Revenue can invoke section 10(2A) and proceed to treat the amounts recovered as income of the company. As a matter of fact, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case had not determined as a fact as to what was the excess, if any, under the Companies Act. It was further submitted that no reference could be asked for regarding the question reproduced earlier. This is question of the utmost importance. Normally, a reference has to be asked for on the basis of the record before the court. We find that the submission of the learned counsel is borne out from the facts on record. For this purpose, we have examined the case in some greater detail. According to the assessment order, the commission paid to the three directors in the accounting period corresponding to the assessment year 1974-75 was Rs. 62,491, in which year it seems to have been allowed as a deduction. In the assessment year 1975-76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order is incorrect as there is no such provision. Learned counsel for the Department urged that the reference to section 198 by the Income-tax Officer was wrong and the relevant section was section 309. This section provides that the remuneration of the directors of a company is to be determined in accordance with and subject to the provisions of section 198 and section 309 read with the articles of the company or a resolution of the company. This section provides that the services rendered by a director in any other capacity is to be included in the limit, but if other services are provided in some other capacity, they may not be included if the services are of a professional nature or the director possesses the requisite qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 309 is quite a complex section. The legal position appears to be as follows. The total remuneration payable to all the directors taken together cannot exceed eleven per cent. of the net profits. The method for determining this would be to determine the net profits and then find the maximum remuneration. It is only the extra amount that can be added back and not the entire amount. It is thus only the excess above eleven per cent. which is to be added back, in case the approval of the Company Law Board is not granted. Learned counsel for the Department submitted that if we call for the question and answer it, the Department can work out the excess for the purpose of working out the method by which our answer is to be given effect to. But, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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