Madras High Court
Nilgiri Finance And Hire Purchase Pvt. ... vs Commissioner Of Income-Tax on 22 August, 1994
Equivalent citations: [1995]213ITR384(MAD)
JUDGMENT Thanikkachalam, J.
1. In accordance with the direction given by this court in T.C. No. 284 of 1979, under section 256(2) of the Income-tax Act, 1961, the Tribunal referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that on the merits and in view of the provisions of section 314 of the Companies Act, 1956, the enhancement of remuneration for the director is not warranted ?"
2. According to the facts arising in this case the wife of the managing director who is also a director in the company was paid a remuneration of Rs. 1,000 per mensem. Formerly, she was paid a remuneration of Rs. 500 per mensem. For the enhancement of Rs. 500, according to the Income-tax Officer, the approval was not obtained in the first meeting of the general body held after such increase was made. This was confirmed by the order passed by the Appellate Assistant Commissioner. On appeal, the Tribunal held that since there was no approval for enhanced remuneration to the director as per the first general body meeting, the assessee is not entitled to deduction of Rs. 500 per mensem claimed as amount paid towards one of its directors.
3. Learned counsel appearing for the assessee submitted before us that the enhancement of remuneration though not proposed before the general body meeting held, was subsequently placed before the extraordinary general body meeting and approved. Therefore, according to learned counsel, it was only a technical mistake which can be condoned. Further, learned counsel also submitted that any infringement of the company law as contemplated under section 314 of the Companies Act may not give any room for the Income-tax Officer to disallow the deduction claimed by way of payment of remuneration to any one of its directors. In support of his contention, learned counsel for the petitioner referred to two decisions of this court rendered in CIT v. Ramakrishna Mills (Coimbatore) Ltd. [1974] 93 ITR 49 and CIT v. Sree Rajendra Mils Ltd. [1974] 93 ITR 122, wherein this court has clearly held that even though there is an infringement of the company law the assessee is entitled to deduction of the amount paid by the company to its director as remuneration.
4. On the other hand, learned junior standing counsel for the Department submitted that the remuneration was paid to the wife of the managing director, and since the approval was not obtained tn the first meeting held after the enhancement was made, such enhancement of remuneration cannot be allowed as deduction under section 314 of the Companies Act.
5. We have heard the rival contentions. The fact remains that the enhancement of remuneration to one of the directors was made and such enhancement was not placed before the first general body meeting. But it was placed before the extraordinary general meeting which took place subsequently and approved. It remains to be seen that in the earlier decisions of this court on this point it was held that even if the amount was paid in violation of the provisions contained in the Companies Act as remuneration towards its directors, it is not for the Income-tax Officer to disallow the same, since it is a payment for the services rendered by the director. Therefore, it is an admissible deduction.
6. In view of the foregoing reasons, we consider that the Tribunal was not correct in disallowing the enhancement of remuneration paid by the company to one of its directors. Accordingly, we answer the question referred to us in the negative and in favour of the assessee. No costs. Counsel fee Rs. 1,000.