Director remuneration deduction allowed despite company law approval defect where services were actually rendered

Enhanced remuneration paid to a director was held allowable as a deduction where the payment was for services actually rendered, even though approval under section 314 of the Companies Act, 1956 was not obtained at the first general body meeting. The amount was later placed before an extraordinary general meeting and approved, and the Court followed its earlier rulings that an Income-tax Officer cannot deny deduction merely because there was a company law infraction in the mode of payment. The deduction was therefore allowed.

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Issues: Whether remuneration enhanced and paid to a director could be disallowed as a deduction merely because the approval contemplated by section 314 of the Companies Act, 1956 was not obtained at the first general body meeting.

Analysis: The enhancement of remuneration was not placed before the first general body meeting, but it was later placed before an extraordinary general meeting and approved. The governing principle applied was that even if there is an infraction of company law in making the payment to a director, the Income-tax Officer cannot deny deduction where the payment is made for services actually rendered. The prior decisions of the Court were followed on this point.

Conclusion: The enhancement of remuneration was admissible as a deduction and could not be disallowed on the ground of non-compliance with section 314 of the Companies Act, 1956.

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