Accrual of director remuneration depends on prior Government approval; later sanction cannot create a deduction retrospectively.

Additional remuneration and rent-free accommodation perquisites for a managing director and whole-time director do not accrue in the accounting year unless the required Central Government approval is obtained within that year. The approval requirement operates as a condition precedent to the effectiveness of the remuneration increase and related appointment amendments, so a later sanction cannot create an accrued liability retrospectively. The distinction drawn from earlier Supreme Court authority was treated as immaterial because the governing provisions imposed the same restriction on legal effectiveness pending approval. The disallowance of the claimed deduction was therefore upheld.

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Issues: Whether the assessee was entitled to deduction of additional remuneration and rent-free accommodation perquisite for the managing director and whole-time director in the assessment year, despite the Central Government's approval being granted after the close of the accounting year.

Analysis: The liability could be claimed only when it had accrued during the accounting period. Under the governing provisions, an increase in remuneration of a director and an amendment to provisions relating to appointment or re-appointment of a managing or whole-time director had no effect unless approved by the Central Government. The approval requirement operated as a condition precedent, and the later sanction could not relate back so as to create an accrued liability within the relevant accounting year. The distinction sought to be drawn from the earlier Supreme Court authority was held to be immaterial because both provisions imposed a similar restriction on effectiveness until approval was granted.

Conclusion: The additional remuneration and perquisite did not accrue during the accounting year and the disallowance was upheld against the assessee.

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