Pre-incorporation director remuneration is not deductible where the company was not yet in existence and the business remained with the family.

Remuneration paid to directors for the period before a company's incorporation was not deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The business during that period was still carried on by the Hindu undivided family, so payments made in respect of that earlier period could not be treated as expenditure laid out wholly and exclusively for the company's business. The assessee's unilateral description of the pre-incorporation business as the company's business did not bind the tax authorities. The deduction claim was therefore rejected and the issue was answered against the assessee.

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Issues: Whether remuneration paid to directors for the period before the company's incorporation was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: For the relevant period, the company was not in existence and the business was still being carried on by the Hindu undivided family. Expenditure incurred in respect of members of the family before incorporation could not be treated as expenditure laid out wholly and exclusively for the purposes of the company's business. The assessee's unilateral treatment of the earlier business as that of the company could not bind the income-tax authorities for the purpose of allowing a deduction.

Conclusion: The remuneration paid for the period before incorporation was not deductible and the question was answered in the negative, against the assessee.

Ratio Decidendi: A deduction under section 10(2)(xv) is allowable only for expenditure incurred wholly and exclusively for the purposes of the assessee's business, and amounts paid for a period when the assessee-company was not yet in existence cannot be allowed as its business expenditure.

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