Director commission deduction depends on quantified excess remuneration under company law before tax reference can be answered.

Commission paid to directors for services rendered in the course of business was examined against the deductibility claim under section 37 of the Income-tax Act and the remuneration ceiling under the Companies Act. The High Court noted that section 198 fixes the managerial remuneration limit, while section 309(5A) requires only the excess amount, if any, to be treated as refundable and held in trust. Because the assessment order did not determine the permissible limit or quantify any excess remuneration, the proposed reference lacked the factual foundation needed for decision and was declined on the existing record.

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Issues: Whether the proposed reference on the allowability of commission paid to directors as a deduction under section 37 of the Income-tax Act, 1961, could be called for when the factual foundation necessary to determine the excess remuneration under the Companies Act was absent.

Analysis: The commission was found to have been paid to the directors for services rendered in the course of the company's business, but the tax authorities had not determined the amount, if any, that exceeded the permissible limit under the Companies Act. The Court noted that section 198 fixed the ceiling for managerial remuneration and that section 309, particularly sub-section (5A), required only the excess amount, and not necessarily the whole commission, to be treated as refundable and held in trust. Since the assessment order did not work out the permissible limit or the excess amount, the question framed did not arise properly on the existing record.

Conclusion: The reference was declined because the necessary factual determination was not made and the proposed question could not be answered on the present facts.

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