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TMI Blog1971 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of yarn and having its registered office at Alagappanagar, Kerala State. The assessee entered into an agreement dated November 10, 1955, with Kamala Mills Ltd., Coimbatore, for financing and managing the assessee's mill at Alagappanagar for a period of five years. A copy of the agreement is annexure " A ". Kamala Mills Ltd. was paid Rs. 1,03,547 and Rs. 18,294 towards their remuneration for the calendar years 1957 and 1958 by the assessee. The claim of the assessee for deduction of these amounts under section 10(2)(xv) of the Indian Income-tax Act, 1922, was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal on the ground that Kamala Mills Ltd. was the manager of the assessee as defined in the Companies Act, 1956, and the payments were illegal being in violation of section 384 of the Companies Act, 1956. The Companies Act, 1956 (1 of 1956), came into force on April 1, 1956. Section 384 thereof provides that no public company, and no private company which is a subsidiary of a public company, shall, after the commencement of the Act, appoint or employ ; or after the expiry of six months from such commencement, continue the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having been made to the financiers. We feel that this is a new canse put forward by the assessee and be permitted." In spite of the above statement it is seen from annexure " F " that the Tribunal discussed the several clauses of the agreement and found as follows : " It is not possible to construe the terms of the agreement as conferring on Kamala Mills Ltd. any power other than as managers and, in our opinion, there is no warrant for taking that they were functioning separately as financiers . It is no doubt true that Kamala Mills Ltd., was appointed as managers so that they may provide financial aid for the running of the mills but for the purpose of affording financial assistance no separate remuneration or commission was agreed to be paid. The appointment of managers was itself made so that the necessary financial assistance would be available and the consideration for the financial assistance was the appointment of Kamala Mills Ltd. as managers on the stipulated remuneration." Counsel for the assessee on the above finding submitted that his first contention out of the order of the Tribunal and it is, therefore, necessary that this court should decide the same. Section 66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement the manager of the assessee under the Companies Act, 1956, during the relevant years. The agreement between Kamala Mills Ltd. and the assessee was executed when the Companies Act of 1913 was in force. The definition of " manager ", according to section 2(9) of the said Act, is as follows : " ' Manager ' means a person who, subject to the control and direction of the directors has the management of the whole affairs of a company, and includes a director or any other person occupying the position of a manager by whatever name called and whether under a contract of service or not." Clause (14) of the agreement dated November 10, 1955 (annexure "A"), reads : " The managers' powers are limited in the manner aforesaid and they (managers) are not and shall not be deemed to be managers in-charge of the whole affairs of the company within the meaning of section 2 of the Indian Companies Act." In view of the above clause, it may be possible for the assessee to contend that Kamala Mills Ltd. was not the manager of the assessee within the meaning of section 2(9) of the Indian Companies Act, 1913. The above provision was introduced by the amending Act of 1936 and the definition cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 1956. To this extent section 2(24) should govern in the interpretation of the term " manager " in section 384 of the Companies Act, 1956. When section 384 imposes a disqualification on a firm, body corporate or association to be appointed or continued as manager the said word has only to be understood in the light of the definition clause. There was considerable debate at the bar as to whether on the basis of the several clauses in " A ", Kamala Mills Ltd. can be considered to have been in management of substantially the whole of the affairs of the assesses. In our view, it is not necessary to express a final opinion on the matter in view of our further discussion. Clause (13) of annexure " A " reads : " The company either represented by its managing agents or board of directors shall not exercise the powers delegated to the managers under the foregoing clauses except by way of general supervision and advice nor interfere with the discretion of the managers in the exercise of their functions and powers vested in them by virtue of this agreement." The above clause precludes the assessee from exercising any of the powers in clauses (1) to (I 2) of annexure " A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inconsistent with the position of Kamala Mills Ltd. being a manager of the assessee as defined in the Companies Act, 1956. The fact that Kamala Mills Ltd. was referred to as manager in annexure " A " does not lead to the conclusion that they are the managers under the Companies Act, 1956. We, therefore, hold that Kamala Mills Ltd. is not the manager of the assessee within the meaning of section 384 read with section 2(24) of the Companies Act, 1956. In view of our finding that Kamala Mills Ltd. is not the manager of the assessee under the Companies Act, 1956, it is not necessary to examine the second submission on behalf of the assessee that even if there was a violation of section 384 of the Companies Act, 1956, the assessee is entitled to the exemption under section 10(2)(xv) of the Indian Income-tax Act, 1922. Counsel for the revenue then contended that in view of the institution of O.S. No. 21 of 1961 by the assessee against Kamala Mills Ltd. for the return of the remuneration, the liability in question has been disputed by the assessee and, therefore, the exemption cannot be claimed. The remuneration paid has been included in the returns filed by the assessee and they have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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