Royalty to director as trade mark proprietor fell outside director remuneration disallowance under section 40(c).

Royalty paid to directors in their capacity as proprietors of a trade mark was held not to be a benefit or remuneration derived from their office as directors, so section 40(c) of the Income-tax Act, 1961 did not apply. Where payment is made to a person in a capacity other than as director, it is outside the disallowance provision. The record also did not indicate that the royalty arrangement was a device to disguise director remuneration. The disallowance was therefore not justified and the issue was answered in favour of the assessee.

---

---

Issues: Whether royalty paid to directors as proprietors of a trade mark could be treated as a benefit or remuneration derived by them in their capacity as directors and disallowed under section 40(c) of the Income-tax Act, 1961.

Analysis: The payment was found to have been made not because of the recipients' status as directors but because they were the proprietors of the trade mark. Payments made to a person in a capacity other than as director do not attract section 40(c). The record also did not suggest that the royalty arrangement was a device or screen to disguise remuneration.

Conclusion: The royalty could not be treated as a benefit or remuneration falling within section 40(c) of the Income-tax Act, 1961. The disallowance was therefore not justified and the question was answered against the Revenue and in favour of the assessee.

---