TMI Blog2000 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in holding that the sum of Rs. 30,000 paid to the two directors, B. K. Khanna and K. N. Khanna, is not an allowable deduction ?" The factual position in a nutshell is as follows : The assessee is a private limited company. It is a closely held company and its four directors are close relatives. For the assessment year 1966-67 relevant to the previous year ending on August 31, 1965, a claim was made in respect of alleged payment of Rs. 30,000 to two of its directors, namely, K. N. Khanna and B. K. Khanna. The payment was purportedly made for agreeing not to carry on any further business of promotion of companies for a period of five years and to carry it on only in the name of the company for that period and for its benefit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was in the hands of these two directors. The other two directors in the board of directors of this company were ladies. In the circumstances, the interests of the company coalesced with those of the directors. Therefore, in promoting the new companies on their own, there would have been a conflict with the interests of the company. As already stated above, the directors were bound to disregard their own private interest where a regard of those interest came in conflict with the proper discharge of their duties towards the company. Apart from this there is no material on the record to test a finding that these two directors were as a matter of fact carrying on the business of floating new companies. On the other hand, the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession." Explanation.---For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." An analysis of section 37(1) shows that : (i) any expenditure ; (ii) not being expenditure of the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an that of a trader (see CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC)). It has to be examined whether the expense has been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration. If the expense is found to bear an element other than the trade or business interest of the assessee the expenditure is not allowable one. The Tribunal noted that the assessee-company is a closely held company and all the four directors are closely related. There were two working directors, i.e., male directors and other two were ladies. Payments were made on the basis of a letter dated July 7, 1960, to the two working directors in consideration of their agreeing n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
