Nav Ketan International Films Pvt. Ltd. vs Commissioner Of Income-Tax on 22 November, 1993
In Nav Ketan International Films Pvt. Ltd. v. CIT [1994] 209 ITR 976 (Bom), the assessee carried on business of producing motion pictures. Mr. Dev Anand, the famous film actor, was a permanent director of a company. The assessee-company produced two motion pictures. In the said two pictures, Mr. Dev Anand was the writer, director and the leading man. He was paid remuneration of Rs. 50,000 which was payable in annuity instalments from 1974 up to 2003 for which the asses-see-company undertook to purchase a single premium policy for Rs. 7.77 lakhs from the LIC. Similarly, for the second picture, the assessee paid Rs. G.33 lakhs for purchase of the policy from the LIC. Thereafter, the assessee debited a total amount of Rs. 14 lakhs against the cost of production of the above two pictures. The Assessing Officer did not accept the deduction in view of Section 40(c). He, therefore, disallowed the deduction to the extent of Rs. 13 lakhs in the computation of the total income. It was held by the Bombay High Court that the payments which have been made by the assessee-company for the purchase of annuities in favour of Dev Anand who was one of the directors of the company was not covered by Section 40(c) because Section 40(c) applies only to cases where the director is paid remuneration or where any expenditure is incurred to provide benefits to him in his position as a director. Since the expenditure was incurred to provide him with benefits in his position as an actor and as a writer, Section 40(c) was held to be not applicable. The ratio of the judgment of this court in Pai Paper and Allied Industries Pvt. Ltd. [1994] 207 ITR 410, is also to the same effect. In view of the a fore stated two judgments of the Bombay High Court in the cases of Pai Paper and Allied Industries Pvt. Ltd. [1994] 207 ITR 410 and Nav Ketan International Films Pvt. Ltd. [1994] 209 ITR 976, there is no dispute regarding the legal position. However, in ihe present case, it is not clear from the decision of the Tribunal as to on what account the commission was paid. It is not clear as to whether the commission was paid to the director as part of his remuneration or whether it was paid for some other services rendered by him. It is not clear whether the expenditure incurred by the assessee-company was to provide any benefit to the two directors as directors or whether the
payment was made by the assessee-company for some other services rendered by the two directors. In this reference, we are concerned with the assessment year 1976-77.