TMI Blog1984 (2) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Commissioner of Income-tax passed under section 263 of the I.T. Act, 1961, directing the disallowance of the directors' remuneration of Rs. 38,188 ?" The year of assessment is 1976-77 ending on September 30, 1975. The ITO framed the assessment under section 143(3) of the I.T. Act, 1961, on February 16, 1979. While completing the assessment he had allowed the claim for directors' remuneration to the tune of Rs.38,188 paid to them for the period between February 1, 1975 to September 30, 1975. This amount included the remuneration paid to the directors to the tune of Rs.14,800, house rent Rs.3,300 and travelling expenses of the directors Rs.20,088. The Commissioner of Income-tax exercising jurisdiction under section 263 issued a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this court on the question referred to above. Learned counsel appearing for the assessee contended that so far as private companies are concerned, the definition of "company" is provided in section 3 and "private company" in section 3(1)( iii ) and it has been further provided in this definition that the restrictions on private company are only what have been provided in this definition and they are not all those restrictions which apply to a public limited company. Section 28 of the Companies Act provides for adoption and application of Table A in Sch. I in the case of companies limited by shares and it was contended that it is not disputed that this is a company limited by shares and because of section 28 as there is no specific provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter and has come to the conclusion that this payment to the directors as remuneration and other expenses was not justified in accordance with the provisions contained in the Companies Act but it was contended that it was only a prima facie view to justify the exercise of jurisdiction under section 263 but there is no direction made by the Commissioner to disallow this as the matter was sent back with a direction to proceed with the assessment in accordance with law. It was also contended that similarly the order passed by the Tribunal on appeal also has not decided the question as the matter was open before the ITO afresh and it was contended, therefore, that the question does not arise from the order of the Tribunal and an answer to the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion, he clearly held that the company could not make payment to the directors without there being any specific clause in the articles of association. The Commissioner also clearly held that the resolution which was passed by the company in 1977 retrospectively justified the payment made to the directors. It could not, therefore, be said that the. Commissioner did not decide the question finally. This view taken by the Commissioner has been maintained by the Tribunal, and, therefore, the contention advanced by the learned counsel for the Revenue that the matter is yet open does not appear to be justified. It is further clear that when the assessee sought a reference from the Tribunal to this court, the Tribunal made a reference framing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company; or ( b )in connection with the business of the company." This Regulation follows Regulation 76 of the English Act. It is subject to the provisions of sections 198, 309, 310 and 311. Unless there is express provision in the articles of a company similar to this regulation, the directors will not be entitled to travelling expenses, etc . Young v. Naval, Military and Civil Service Co-operative Society of South Africa Ltd. [1905] 1 KB 687. It may be noted that remuneration under section 309 does not include travelling expenses. In this view of the matter, it could not be said that without modifying or amending the articles of association, remuneration could not be paid to the directors. Apart from it, the remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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