TMI Blog1987 (1) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the Company Law Board was received ? " The assessee-company claimed deduction of an amount of Rs. 98,673 under the head " Expenditure not relating to the year " as the amount represented the remuneration and sitting fee payable to three of its directors in the accounting period relevant to the assessment year 1971-72. Though the amount was paid to the directors during the accounting year relevant to the assessment year 1971-72 as advances, the final adjustment could not be made in the absence of sanction from the Company Law Board for such payment to the directors. The sanction order of the Company Law Board was given on April 23, 1971, in the accounting period relevant to the assessment year 1972-73. Apart from the amount relata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue contends that the liability to pay the amount accrued on the day when the Company Law Board has given the sanction during the accounting year relevant to the assessment year 1972-73 and as such the ceiling limit under section 40(c) is attracted. Section 40(c)(i)(A) of the Income-tax Act postulates a ceiling of Rs. 72,000 regarding remuneration payable to the directors. It cannot be gainsaid that if the entirety of the amount is considered as relatable to the assessment year 1972-73, the ceiling limit envisaged under the amended provision, 40(c)(i)(A), is attracted. But, however, the complexity is beset in view of the clearance given by the Company Law Board for the payment of the amount in question at a later point of tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um refundable to it under sub-section (5A) unless permitted by the Central Government." It may be recalled that the amounts which have been paid to the directors have been put in suspense account and they have been finally adjusted during the accounting year for present assessment year. Therefore, as and when the amounts were paid, they were held in trust. Sub-section (5A) envisages statutory trust whereby any amount that has been paid in excess of the limits prescribed by the section without prior sanction of the Central Government shall be refunded by the director and until they are refunded, the concerned director holds it in trust for the Company. The question of waiver of the recovery of the said amount is precluded by sub-section (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e past two years. Though this sum did not pertain to the previous year relevant to the assessment year 1959-60, the company claimed it as deductible expenditure on the ground that the sum became payable only during that year when the Government accorded approval. In the context of considering whether such deduction is allowable for the assessment year 1959-60, the Supreme Court held as follows (p. 193): "Section 326 prohibits the appointment or reappointment of a managing agent unless the Central Government approved such appointment or reappointment. The Central Government would not accord its approval unless the requirements specified in clauses (a), (b) and (c) of sub-section (2) of the section have been fulfilled. Therefore, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not arise on any date prior to the date of approval, i.e., September 2, 1957. This decision squarely applies to the facts of this case. The remuneration paid during the assessment year 1971-72 did not become effective and, therefore, the payments were labelled as advance payments in anticipation of the clearance of the Company Law Board. Further, the payment of these amounts should be considered as having been held in trust by the directors and there is an embargo on waiver of repayment of such amounts as provided under section 309 of the Companies Act. The bar to the payment is lifted by the Company Law Board with retroactivity and consequently the suspense and trust abated and the liability to payment accrued on and from the date of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to endorse the conclusion and reasoning of the Appellate Tribunal and we agree with the conclusion of the Appellate Assistant Commissioner. Learned counsel for the assessee seeking to sustain the order of the first appellate authority by a different approach contended that the ceiling limit is applicable to the expenditure during the period exceeding eleven months comprised in a previous year only but should not be extended to expenditure covering past years. The contention is untenable. The unit taken for the purpose of applicability of ceiling limit in a particular year is sought to be nullified in the event of expenditure spreading over years. This approach is obviously not in accord with the purport of the provision. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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