AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (2) TMI 30
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....he shareholders the seat of management and control of the company was transferred from United Kingdom to India on the 6th April, 1952. This decision was taken by a special resolution at an extraordinary general meeting of the company held on the 26th March, 1952. There was also an ordinary resolution passed at the same meeting of the company to the effect that the present directors should be paid as compensation for the loss of office the following amounts noted against their respective names : Sir Godfrey B.H. Fell (Chairman) ... GBP 5,800 H.R. Mackillingin GBP 2,840 The Hon. R.M.P. Preston ... GBP 2,840 Captain H. Vivian ... GBP 2,840 D.S. Warren ... GBP 2,840 A.R.O. Williams GBP 2,840 In pursuance of the resolution the amounts were paid to the respective directors. It was claimed by the assessee that these amounts should be deducted for the purpose of income-tax under section 10(2)(xv) of the Indian Income-tax Act. The Income-tax Officer disallowed the claim on the ground that the expenditure was not laid out wholly and exclusively for the purpose of business. The matter was taken in appeal before the Appellate Assistant Commissioner who affirmed....
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.... A retiring director shall be eligible for re-election." Article 94 states as follows: "94. The directors shall be paid out of the funds of the company as remuneration for their services an amount at the rate of GBP250 per annum for each director, with an additional sum at the rate of GBP150 per annum for the chairman. The directors shall also be entitled to receive by way of further remuneration in each year in which the net profits of the company (including any sum or sums carried to any reserve account) shall be more than sufficient to pay a dividend at the rate of GBP10 per cent. on the average amount of the capital paid up on the issued shares of the company during such year, an amount equal to 5 per cent. of the profits remaining after calculating such dividend as aforesaid. The directors shall also be entitled to such further sums as the company may in general meeting determine. The certificate of the auditors of the company as to the amount of such net profits shall be conclusive and binding on all members of the company. The further remuneration payable under this clause shall be divided amongst the directors proportionately to the period of office held by them respectiv....
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....made to In re Dover Coalfield Extension Ltd. [1907] 2 Ch. 76, where it was held that the remuneration paid by a company under powers in its articles of association to a director was not profit derived from the use of his qualification shares, but payment for work done by him under his contract with the company. I accept, therefore, the submission made by learned counsel on behalf of the assessee that there was a contract between the company and its directors, and the compensation of GBP 20,000 paid by the company to the directors for the loss of office was made under the terms of that contract. It was argued by the standing counsel of the Income-tax Department that under article 98 the company could have dismissed the directors by an extraordinary resolution even before the expiry of the period of office. Article 98 states that "the company may by extraordinary resolution remove any one or more of the directors before expiration of his or their period of office, and may by an ordinary resolution appoint any other qualified person or persons in his or their stead." But we cannot proceed on the assumption that the company may have removed the directors by an extraordinary resolution,....
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....ted out by the learned counsel for the assessee that the London directors had been in office for a long term of years and because of their experience and technical qualifications it was likely that they would be re-elected in future for an uncertain number of years. By asking the London directors to retire and paying them compensation the company was putting an end to an expensive method of carrying on business. It was an advantage from the commercial point of view for the company to ask its London directors to retire, and the compensation paid to the London directors was, therefore, a payment made wholly and exclusively in the interest of business. In my opinion, the argument put forward on behalf of the assessee is correct. Even assuming that there was no contract, I am of opinion that the payment of compensation made to the London directors in the circumstances of this case was payment made for commercial expediency and would fall within the ambit of section 10(2)(xv) of the Indian Income-tax Act. This view is borne out by a decision in Anglo-Persian Oil Co. Ltd. v. Dale ( H.M. Inspector of Taxes) [1931] 16 Tax Cas. 253. In that case the appellant company had entered into an agr....
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....nd therefore it is not unreasonable to suppose that the increased revenue of the company will more than cover the expenditure in question. But whether that be so or not does not affect the principle that such a payment is an income expenditure. Even if the company had been mistaken in its policy, and by getting rid of its agent had increased the working expenses instead of diminishing them, the payment would still have been a mere working expense, and as such chargeable to revenue." The principle to be applied to a case of this description has been stated by Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 Tax Cas. 155 at 191 as follows : "My Lords, I think it clear that the deduction from the profits of the above-mentioned sum of GBP31,784 is not prohibited by the First Rule applicable to Cases I and II, which prohibits the deduction of a disbursement not being money wholly and exclusively laid out or expended for the purposes of the trade. It was made clear in the above cited cases of Usher's Wiltshire Brewery v. Bruce [1914] 6 Tax Cas. 399, 429, 436 and Smith v. Incorporated Council of Law Reporting [1914] 6 Tax Cas. 477 that a sum of money expen....
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....sidered, in itself actually gains or produces income. It is an outgoing, not an incoming. Its character can be determined only in relation to the object which the person making the expenditure has in view. If the actual object is the conduct of the business on a profitable basis with that due regard to economy which is essential in any well conducted business, then the expenditure (if not a capital expenditure) is an expenditure incurred in gaining or producing the assessable income. If it is not a capital expenditure it should be deducted in ascertaining the taxable income of the taxpayer." The same view has been expressed by the Madras High Court in P. Orr & Sons v. Commissioner of Income-tax [1959] 35 ITR 556. On behalf of the Income-tax Department reliance was placed upon two decisions, Overy (H.M. Inspector of Taxes) v. Ashford Dunn & Co. Ltd. [1933] 17 Tax Cas. 497 and James Snook & Co. Ltd. v. Blasdale (H.M. Inspector of Taxes) [1952] 33 Tax Cas. 244. These cases are, however, distinguishable and the principle laid down in those cases does not govern the present case. In Overy (H.M. Inspector of Taxes) v. Ashford Dunn & Co. Ltd. case (isupra) the respondent company, whose ....
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....hich there was a clause that the purchaser would procure the appellant company to pay compensation for loss of office to the directors and the auditor of the company who, under the agreement, were to resign. It was held by the Court of Appeal that the compensation for loss of office was part of the bargain between the incoming shareholders and the outgoing shareholders and that there was no payment made in the trading interest of the company. It was, therefore, held that the compensation paid was not an allowable deduction in computing the company's profits. In the present case the material facts are manifestly different and the principle laid down in James Snook & Co. Ltd.'s case (supra) has no application. The argument was stressed by the learned standing counsel for the Income-tax Department that the question at issue in this case is a question of fact and the High Court has no jurisdiction to interfere with the finding of the Income-tax Appellate Tribunal on this question. It was contended by learned counsel that the question whether the payment was an admissible deduction under section 10(2)(xv) of the Indian Income-tax Act is purely a question of fact and the finding of the ....
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....mmissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the Commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that Commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by Commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado." It was also observed by learned counsel in the course of his argument that the Appellate Tribunal has misdirected itself in several matters before reaching its conclusion. In the first place, the Appellate Tribunal was wrong in holding that there was no contract ....