TMI Blog1981 (9) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... o the ceiling of Rs. 5,000 and rent-free residential accommodation in terms of special resolution passed by the company at its extraordinary general meeting held on 18-2-1970 and the approval by the Company Law Board vide order dated 18-4-1970 as amended by its letter dated 17-8-1970. The break-up of the remuneration to Shri Ramani for the year is : Rs. Salary 60,000 Commission 30,000 House rent allowance 9,000 Personal accident premium 500 Medical reimbursement 3,990 Provident fund 4,800 2. The ITO has considered that out of the aforesaid amount of Rs. 1,08,290 the contribution by the assessee-company of Rs. 4,800 towards provident fund required to be excluded. Out of the remaining amount of Rs. 1,03,490, he has disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure did not intend to consider commission as a part of the remuneration for the purpose of computing the disallowance under section 40(c). The departmental representative has, on the other hand, submitted that the purpose and scope of clauses (b) and (c) of section 40 are different. They deal with different situations. Remuneration always includes anything that is paid as a recompense for services, and, in any event, in this the company's Special Resolution clearly shows it. He also contended that such a ground did not arise out of the order of the AAC. 5. We have considered the rival contentions. It is found that the assessee has challenged the disallowance of Rs. 31,490 before the AAC who has dealt with the ground in para 5 of his order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain types by the firm to its partners, clause (c) contemplates disallowances out of expenses incurred by the company if the expenditure has resulted directly or indirectly in the provision of any remuneration, or benefit or amenity to the director or to a person, etc. It is pertinent that a person becomes a partner in a firm essentially for sharing the profits of the firm and interest, salary, bonus, commission, etc., are towards his share of profit. On the other hand, a director or an employee in a limited company gets nothing but remuneration as a recompense for the services rendered by him to the company as a director or an employee, except that in some cases he may be entitled to some other benefits or amenities also in that capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from the manner in which the resolution was passed authorising such payment of remuneration. The resolution reads as under : ". . . He shall be paid a remuneration as under : (1) Salary : Salary of Rs. 5,000 per mensem, plus (2) Commission : A commission of 1 per cent of the net profit of the company computed as per section 309(5) of the Companies Act, subject to a ceiling of Rs. 30,000 per annum, plus (3) Perquisites : (a) Company's contribution to Provident Fund at rates as per the company's Provident Fund Rules calculated on the basis of the above salary. (b) Actual medical expenses incurred by him for himself, his wife and minor children subject to a ceiling of Rs. 5,000 per annum. (c) Provision of rent-free furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naging director, if not, remuneration. Once both the conditions are satisfied, we have no hesitation to hold that the provisions of section 40(c) are attracted in this case and that there being no other argument advanced, the disallowance maintained by the AAC at Rs. 31,490 is justified. 9. It may be observed that a similar issue had indirectly come up for consideration before a Special Bench of the Tribunal at Bombay in the case of ITO v. Sapt Textile Products India Ltd. [1981] 7 Taxman 40. The question involved was whether the gratuity paid to an employee-director was to be taken into account for the purpose of computing disallowance under section 40(c). By its order dated 20-4-1981, the Special Bench held that all payments made by a co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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