1992 (10) TMI 32 - HC - Income Tax

Summary

Issues Involved:
The judgment involves two main Issues:
1. Whether the original remuneration paid or the subsequently restricted remuneration should be allowed as an expenditure for the assessment year 1976-77.
2. Whether the limit prescribed under section 40(c) for maximum remuneration applies only when the remuneration paid is excessive.

Issue 1:
The company paid Rs. 1,56,901 to its directors, but the Company Law Board later restricted the maximum remuneration to Rs. 1,20,000. The Income-tax Officer disallowed the excess remuneration based on the Board's order. The Tribunal considered if section 40(c) applies to determine excessive remuneration. The Tribunal found that any amount paid contrary to restrictions cannot be allowed as a deduction. The Company Law Board's order, though issued after the assessment year, was applicable, and the company recovered the excess amount from the directors. The Income-tax Officer was justified in limiting the deductible expenditure to Rs. 1,20,000.

Issue 2:
A fresh ground was raised before the Tribunal, questioning the applicability of section 40(c). The Tribunal, under the Income-tax (Appellate Tribunal) Rules, has the discretion to allow new grounds, ensuring the affected party is given an opportunity. Precedents like CIT v. Mahalakshmi Textiles Mills Ltd. and Deep Chand Kothari v. CIT support the consideration of alternative grounds. The Tribunal was justified in allowing the Department to raise questions regarding the applicability of section 40(c). The reference was answered in favor of the Revenue, confirming the Income-tax Officer's decision to allow deduction up to Rs. 1,20,000 and permitting the examination of section 40(c) applicability.