TMI Blog1975 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany was floated on June 27, 1960. One Sri Baldev Raj was appointed by the managed company as an employee on a salary of Rs. 2,000 per month with effect from 1st July, 1960. The said Baldev Raj was a relation of the two directors of the assessee-company. Hence, when the assessee-company took over the managing agency of the managed company, the said Baldev Raj became an associate within the meaning of that expression used in section 360 of the Companies Act. The managed company, however, obtained permission from the Central Government for payment of remuneration of Baldev Raj for the years 1961 and 1962. The managed company, however, failed to secure the sanction of the Central Government for the continuation of the employment of Baldev Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso an illegal payment. The first appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner on the ground that the employment of Baldev Raj required the prior approval of the Government of India under the Companies Act, and since such sanction was not granted his continuance in the service of the managed company was illegal and that the assessee-company being a party to the infraction of law was not entitled to this deduction. The second appeal filed by the assessee-company has, however, been allowed by the Appellate Tribunal in whose opinion the managed company has committed no illegality and, in any event, the assessee-company was not a party to any such illegality. It has also been held by the Tribunal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontravention of a statutory provision is not an illegality. It is also his submission that the assessee has not contravened section 314 and section 360 of the Companies Act, and, therefore, the question of illegality in the instant case can never arise. Now, when the managed company appointed Baldev Raj, the assessee-company did not even come into existence. Therefore, the initial appointment of Baldev Raj is not hit by section 360 of the Companies Act. But, when the assessee-company took over the management of the managed company, Baldev Raj became "an associate" and the sanction of the Central Government became essential under section 360(1)( a )( ii ) of the Companies Act, 1956, and such sanction was granted for two years and, thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion so far as Baldev Raj and the assessee-company are concerned and, therefore, payment made by the assessee-company to the managed company cannot be an illegal payment as rightly held by the Tribunal. That apart, section 360 of the Companies Act has not abrogated or in any way affected section 62 of the Indian Contract Act, and its illustration ( a ) is a complete answer to the contentions of Mr. B.L. Pal. Reliance on Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax [1961] 41 ITR 350 (SC) was misplaced, for in that case the expenditure incurred by the assessee was not necessary for the purpose of carrying on of its business. Now, in Commissioner of Income-tax v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment, but it does not apply to the assessee-company before us, for it has been found by the Tribunal that these two sums have been spent by the assessee-company for the purpose of its business. This finding has not been challenged by the revenue and it is not even contended before us that the conditions laid down by the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd. [1964] 53 ITR 140 have not been fulfilled by the assessee-company. Moreover, the contention raised by Mr. B.L. Pal as to agency does not arise out of the order of the Tribunal and he is not entitled to make out a new case for the revenue before us. The Tribunal, after considering all the relevant facts and the circumstances of the case and by a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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