TaxTMI 
TaxTMI 
1980 (3) TMI 63
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....assessment years 1970-71 and 1973-74, the company paid the following amounts as annual remuneration to its directors, other than the managing directors: 1. Rs. 6,000 for the assessment year 1970-71. 2. Rs. 13,500, for the assessment year 1973-74. The assessee in I.T.R. No. 86 of 1978 and 87 of 1978 is M/s. Marketing Services Agency (P.) Ltd., which too is a company registered under the Indian Companies Act. Daring the previous years relevant to the assessment years 1971-72, 1972-73 and 1973-74, this assessee also paid a sum of Rs, 3,069, Rs. 6,684 and Rs. 6,257, as annual remuneration to its directors. Both the assessees claimed that the amount of annual remuneration paid by them to their directors should be deducted while compu....
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....t in law in holding that the sum of Rs.6,684 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction under section 40(c) of the Income-tax Act 1961?" For the year 1973-74 (Ref No. 87 of 1978): "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs. 6,257 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction from the income of the assessee?" For the year 1973-74 (Ref No. 88 of 1978): "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs.13,500 paid by ....
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....or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,.... if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom..." Accordingly, while computing the income of a company chargeable to tax under the head " Profits and gains of business or profession ", any deduction in respect of remuneration paid to its directors has to be disallowed, if the ITO feels that such expenditure is excessive or unreasonable having regard to the l....
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....anything more than attending the board's meeting. It was pointed out that the assessee did not claim that the remuneration paid to the members of the board of directors for attending the meetings of the board was inadequate. There was thus no material to indicate that the members of the board of directors did anything for the benefit of the company to justify the payment of the additional remuneration to them. The said remuneration, not being justified by the legitimate business needs of the company and the benefit derived by it, was not eligible for deduction in computing the company's income. The Income-tax Appellate Tribunal observed thus: "It cannot be denied that theoretically the directors of the company shoulder the entire resp....
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....nal is that even though according' to the articles of association it was possible for the directors of the company to render service for the benefit of the company on occasions other than at the time of the meeting of the board, of directors, there was absolutely no material to show that the directors, in fact, rendered any such service to the company outside the board's meetings. There was thus good reason for the ITO to think that the payment of annual remuneration was unreasonable, specially when the said annual remuneration was not in consideration of any benefit that the company derived from any service rendered by the directors to the company. In the case of Nund & Samont Co. P. Ltd. v. CIT [1970] 78 ITR 268 the Supreme Court expresse....
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....the I.T authorities that the remuneration had been sanctioned for extra commercial considerations does not appear to be unreasonable or unjustified. Learned counsel appearing on behalf of the assessee cited before us the cases of CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370 (Cal) and J.K Steel & Industries Ltd. v. CIT [1978] 112 ITR 285 (Cal). Relying upon the observation made in these two cases, he urged that as the Tribunal had itself observed that theoretically the directors of the company's shouldered the entire responsibility for conducting the company's business, this shouldering of responsibility by itself would constitute sufficient consideration for payment of the annual remuneration involved in these cases specially when ....