9911796707
TMI Blog1981 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... 73-74 and 1974-75, being in excess of Rs. 72,000. On appeal, the AAC upheld the ITO's orders. There was a further appeal before the Appellate Tribunal and it was contended before the Tribunal that the provisions of s. 40(c)(i) of the I.T. Act, 1961, placed a limit on the allowance of remuneration to a director of Rs. 72,000, but it only applied to a case where the ITO came to the conclusion that the payment of the remuneration to the director was excessive or unreasonable having regard to the legitimate business needs of the assessee. It is common ground that in this case there is no such finding by the ITO. In the premises, it was urged before the Tribunal on behalf of the assessee that the disallowance was unreasonable. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed (A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the previous year, the amount of seventy-two thousand rupees; (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period: Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be; "this addition was inserted by s. 5 of the Finance Act (No. 2) of 1971, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of a particular statute should be harmoniously construed. Our attention was drawn to the provisions of s. 40A(5). Section 40A deals with expenses or payments not deductible in certain circumstances and the material portion of s. 40A(5) of I.T. Act, 1961, provides as follows: "(5)(a) Where the assessee (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identally mentioned that this limitation was also inserted by s. 10 of the Finance (No. 2) Act, 1971, with effect from 1st April, 1972. Now if these two provisions are read harmoniously, then it is clear that the legislative intent was not to allow any expenditure or allowance in excess of Rs. 72,000. This view seems to be corroborated by the Notes on Clauses in the Finance (No. 2) Bill, 1971, which sought to introduce the amendment. Clause 9, which dealt with the amendment of s. 40 of the I.T. Act, inter alia, provided as follows: " Sub-clause (b) seeks to amend section 40(c) under which expenditure incurred by a company on the provision of any remuneration or benefit or amenity to directors, persons who have a substantial interest in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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