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TMI Blog1998 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1967-68 the tenability of the reopening of the assessment under section 154 of the Income-tax Act is an additional question which also requires our answer. The facts are not in dispute. The assessee is a public limited company which during the relevant assessment years was managed by a managing agent. Remuneration payable to the managing agent was a percentage of the net profits of the company such net profits being computed in accordance with the provisions of the Companies Act. The manner of computing the net profits is laid down in section 349 of the Companies Act. Interest on debentures issued by the company interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets interest on unsecured loans and advances are required to be deducted under clauses (f) (g) and (h) of section 349(4) of the Companies Act while determining the net profits of the company. The remuneration payable to the managing agent is subject to a ceiling of 10 per cent. of the net profits of the company for that financial year as provided by section 348 of the Companies Act. That section provides that the company shall not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 348 of the Companies Act. Counsel for the assessee placed strong reliance on these judgments of this court to sustain the order of the Tribunal. The aforementioned decisions can no longer be regarded as good law in the light of the decision of the Supreme Court in the case of Maddi Venkataraman and Co. (P.) Ltd. vs Commissioner of Income-tax [1998] 229 ITR 534. We may notice here that this decision of the apex court was rendered in an appeal from the decision of the Andhra Pradesh High Court in the case of Commissioner of Income-tax vs Maddi Venkataratnam and Co. (P.) Ltd. [1983] 144 ITR 373. Jeevan Reddy J (as he then was) speaking for the Bench of the Andhra Pradesh High Court referred to the decision of this court in the case of Ramakrishna Mills (Coimbatore) Ltd. [1974] 93 ITR 49 and expressly dissented from the view taken in the decision of this court viz. that in considering the allowability of the expenditure one cannot travel outside the provisions of the Income-tax Act and deny the benefit of deduction under that section on the ground that the payment is unauthorised or has been prohibited by some other statute. The apex court in the case of Maddi Venkataraman [1998] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the infraction of the law is to be wholly ignored and the profit as determined by the assessee in its balance-sheet or profit and loss account adopted without further question as the proper basis on which the income-tax assessment should be made. As observed by the apex court it would be "against public policy" to allow under one statute the benefit of deduction of expenditure incurred in violation of the provisions of another statute. Learned counsel for the assessee contended that the payments having been made though admittedly in excess of what is properly payable under section 348 of the Companies Act and though admittedly in violation of section 349 of the Act the assessee-company has suffered an outgoing and therefore it is an item of expenditure from the point of view of the assessee and is required to be allowed under section 37 of the Act. It was further submitted that the expenditure so incurred and the payments so made were bona fide. It was also submitted that violation of section 348 of the Companies Act and the payments made in excess thereof cannot be characterised as unauthorised or prohibited. None of the submissions so made for the assessee can be accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions taken thereunder in disregard of the surrounding environment of other current legislation is not an approach which is required to be made under any of the provisions of the Income-tax Act. The Tribunal therefore was clearly in error in holding that the assessee is entitled to deduction of the entire amount paid as remuneration to the managing agent to the extent the remuneration so paid was in excess of what was permissible under section 348 read with section 349 of the Companies Act. Such excess amount having been paid in contravention of the provisions of section 348 of the Act the Income-tax Officer was fully justified in disallowing such excess payment. So far as the assessment year 1967-68 is concerned the Assessing Officer had initially allowed the entire amount claimed as remuneration paid to the managing agent. Without any new facts having been brought to his notice he merely by a change of his own opinion initiated proceedings under section 154 of the Act and held that part of the amount paid as remuneration was in excess. At the time the order on the proceedings initiated under section 154 of the Act was made the decision of this court in the case of Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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