Tax exemption for directors' remuneration requires a claimed and disallowed deduction; mere non-claim does not qualify.

Directors' remuneration was not exempt under Notification No. 878-F dated 21.03.1922, as amended, because the exemption applied only where the sum had been paid out of profits and had not been allowed as a deduction after a deduction was in fact claimed and disallowed in assessment. The High Court treated the words "not been allowed as a deduction" as requiring an actual claim and rejection of the deduction, not a mere omission to claim it. As the company never sought deduction of the remuneration, the statutory condition was not met, and the referred question was answered in the negative.

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Issues: Whether directors' remuneration was exempt under Notification No. 878-F dated 21.03.1922, as amended, when the company had not claimed the amount as a deduction in its assessment.

Analysis: The notification exempted sums received as salary, bonus, commission or other remuneration only where such sums were paid out of, or determined with reference to, the profits of the business and, by reason of that mode of payment or determination, had not been allowed as a deduction but had been included in the business profits on which tax had been assessed. The crucial words were held to contemplate a case where a deduction had in fact been claimed and then disallowed. Since the company never claimed the directors' remuneration as a deduction, there was no disallowance and the statutory condition was not satisfied. The suggested alternative basis of exemption from any other aspect of double taxation was not pressed.

Conclusion: The remuneration was not exempt under the notification. The answer to the referred question was in the negative, and the assessees failed.

Ratio Decidendi: A tax exemption tied to an amount's not having been allowed as a deduction applies only when a deduction was claimed and disallowed in assessment; mere omission to claim the deduction does not satisfy the condition.

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