Managerial remuneration to holding company held outside section 40(c) and allowable as business expenditure

Managerial remuneration paid to a holding company on a contractual basis for services rendered was held not to attract disallowance under section 40(c) of the Income-tax Act, 1961, because that provision applies to remuneration paid to a director, a person substantially interested in the company, or their relatives, and not to a payment made to a holding company. The arrangement was found bona fide, supported by business expediency, and in the interest of the assessee's business. The expenditure was therefore allowable as business expenditure under section 37, and the issue was answered in favour of the assessee.

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Issues: Whether managerial remuneration paid to a holding company was liable to disallowance under section 40(c) of the Income-tax Act, 1961, and whether the amount was allowable as business expenditure.

Analysis: The remuneration was paid to the holding company on a contractual basis for services rendered. The payment was found to be made on grounds of business expediency and the arrangement with the holding company was bona fide and in the interest of the assessee's business. Section 40(c) applies only to remuneration paid to a director, a person substantially interested in the company, or their relatives, and not to a payment made to a holding company.

Conclusion: The disallowance under section 40(c) was not justified, and the expenditure was allowable under section 37 of the Income-tax Act, 1961. The question was answered in favour of the assessee and against the Revenue.

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