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TMI Blog1980 (12) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of guarantee by the directors of the assessee-company. Accordingly, the directors stood guarantee for the overdraft facilities given by the bank to the assessee-company and for providing this facility to the company, they charged from it commission at the rate of 1per cent of the amount borrowed from the bank by the company. The said commission was shared by all the seven directors, who had stood personal guarantee for and on behalf of the assessee-company to the bank. 3. The authorities below had, at first, rejected the assessee's claim for the deduction of the guarantee commission paid to the directors by it. Against the said orders of the authorities below, the assessee had appealed to the Tribunal, who after examining the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, the matter was once again gone into this time by the CIT (Appeals) to whom the appeal stood transferred in the mean while and he came to the conclusion that the rate of 1 per cent commission paid to the directors by the company was reasonable having regard to the legitimate business needs of the assessee-company. He made enquiries in this connection from the bank as also from some of the companies. 6. The Department feels aggrieved against the aforesaid order of the ld. CIT (Appeals) and the main grievance of the ld. Deptl. Rep. before us was that while reaching the aforesaid decision, the ld. CIT (Appeals) has altogether ignored the opinion of the Registrar of Companies contained in his letter dt. 29th January 1972. addressed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, the aforesaid submissions are resisted and it is pointed out to us that the letter of the Registrar of Joint Stock Companies dt. 29th January, 1972 relied upon by the learned Deptl. Rep. was promptly replied to by the assessee-company vide its letter dt. 7th February, 1972 and it has been explained to him in the said letter by the Company that "according to the legal advice obtained by the Company in this behalf, payment of guarantee commission to the directors does not require approval of the Central Govt. under s. 310 of the Companies Act, 1956". After the company replied to the assessee in the aforesaid manner, the Registrar, Joint Stock Companies did not write back to the company requiring it to obtain nonetheless the permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "reward recompense, pay, wages or salary for services rendered". The guarantee commission does not fall in this category. It is a reward for lending to the company the credit-worthiness of the names of the directors. It is not a remuneration in the sense in which a director is paid for rendering day to day personal services to the company. The payment in question is more akin to the payment of interest than to the payment of salary. Sec. 40(c) of the IT Act, 1961 r/w s. 310 of the companies Act would come in the way of the assessee-company when some remuneration or perquisites in lieu of the services rendered by the director are being given to him. Here what is being paid to the director is not for the personal services rendered by him but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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