High Court rules for assessee on director's remuneration disallowance without sanction, approval backdated for favorable outcome.

The High Court ruled in favor of the assessee, disposing of the reference regarding the disallowance of director's remuneration without Central Government sanction. The Court considered the subsequent approval by the Government of India, which deemed pending applications for approval as approved if the remuneration did not exceed certain guidelines. This approval related back to the date of application, leading to a favorable outcome for the assessee.

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Issues:
1. Disallowance of premium on debentures and its spreading over 7 years.
2. Disallowance of director's remuneration without Central Government sanction.

Analysis:

Issue 1: Disallowance of premium on debentures and its spreading over 7 years
The Tribunal upheld the disallowance of a sum of Rs. 70 lakhs as the premium on debentures issued by the assessee to the public for subscription. The question was whether this disallowance was justified and if the amount could be spread over 7 years from the issue to redemption of the debentures. The applicant-assessee decided not to press this question, leading to it being returned unanswered.

Issue 2: Disallowance of director's remuneration without Central Government sanction
The second question pertained to the disallowance of Rs. 1,46,027 being the remuneration paid to the director without the sanction of the Central Government. The Central Government's sanction was pending due to a challenge to the guidelines framed under the Companies Act, which were subsequently struck down by the Delhi High Court. The Union of India filed a special leave petition, which was converted into a Civil Appeal. The Supreme Court, upon fresh guidelines being issued, recorded a statement by the Additional Solicitor General that pending applications for approval would be deemed approved if the remuneration did not exceed the 1969 guidelines. The Government of India communicated its approval to the pending proposal of the assessee and the director, which related back to the date of application. Consequently, the question was answered in favor of the assessee, as the subsequent event of approval rendered the Tribunal's previous view unjustified.

In conclusion, the High Court disposed of the reference, ruling in favor of the assessee on the second issue regarding the director's remuneration disallowance, citing the subsequent approval by the Government of India.

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