Managerial status under company law failed where board control was absent, preserving deduction of remuneration paid under the arrangement.

An agreement conferring extensive operational powers on Kamala Mills Ltd. did not make it the assessee's manager, because the essential statutory element of subjection to the board's superintendence, control and direction was absent; the dominant object of the arrangement was financing and enabling the business to run, so section 384 of the Companies Act, 1956 was not attracted. As the remuneration paid under that arrangement was not in violation of section 384, it was not illegal expenditure on that ground and was deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: (i) Whether Kamala Mills Ltd. was the assessee's manager within the meaning of section 2(24) read with section 384 of the Companies Act, 1956. (ii) Whether the remuneration paid to Kamala Mills Ltd. for the relevant years was deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Issue (i): Whether Kamala Mills Ltd. was the assessee's manager within the meaning of section 2(24) read with section 384 of the Companies Act, 1956.

Analysis: The agreement, read as a whole, showed that although Kamala Mills Ltd. was given extensive powers to conduct the mill's operations, the real and dominant object was to secure finance for the assessee and to enable the business to run. Clause 13 made it clear that the board's role was confined to general supervision and advice and that it could not interfere with the discretion of Kamala Mills Ltd. in the exercise of its powers. The essential element of managerial status under section 2(24), namely subjection to the superintendence, control and direction of the board of directors, was absent.

Conclusion: Kamala Mills Ltd. was not the manager of the assessee within section 2(24), and section 384 was not attracted.

Issue (ii): Whether the remuneration paid to Kamala Mills Ltd. for the relevant years was deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: Since the payment was not made in violation of section 384 of the Companies Act, 1956, it could not be treated as illegal expenditure on that ground. The remuneration was paid for services rendered under the financing and management arrangement, and the disallowance based on illegality therefore failed.

Conclusion: The remuneration was allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Final Conclusion: The agreement did not create a managerial relationship prohibited by the Companies Act, so the remuneration paid under it remained deductible for income-tax purposes, and the assessee's claim succeeded.

Ratio Decidendi: Where a person or body corporate is engaged under an agreement whose dominant object is financing and whose managerial powers are not subject to the board's superintendence, control and direction, it is not a manager within the statutory definition, and payments made under such agreement are not disallowed merely because they relate to management functions.

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