Director-shareholder remuneration is deductible only when incurred wholly and exclusively for business, not as profit distribution.

Remuneration paid to director-shareholders was held not deductible where they rendered no substantial service and the payment was not shown to be laid out wholly and exclusively for business. The court treated the arrangement as lacking genuine business consideration, since the directors lived away from the business, had no relevant business background, and did little beyond attending some meetings. A payment made as a return on investment or as a device to distribute expected profits is not business expenditure under section 10(2)(xv), and section 10(4A) did not save the claim. The expenditure was therefore disallowed.

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Issues: Whether remuneration paid to director-shareholders who rendered no substantial service to the company was allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, in view of section 10(4A) of the same Act.

Analysis: The company's two director-shareholders resided away from the place of business, had no business background justifying the remuneration, and did no work for the company beyond attending some meetings. The allowance accepted by the Tribunal rested only on the view that they had financed the enterprise, but section 10(2)(xv) permits only expenditure laid out wholly and exclusively for the purpose of business, not a return on investment. The facts showed that the payment was not warranted by business consideration and operated as a device to distribute expected profits to the director-shareholders.

Conclusion: The remuneration of Rs. 500 per month each was not an allowable business expenditure and the answer was against the assessee-company.

Ratio Decidendi: A payment to director-shareholders is deductible only if it is genuine business expenditure incurred wholly and exclusively for business purposes; a payment made as a return on investment or as a device to distribute profits is not allowable.

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