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TMI Blog1982 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... relief u/s. 84 at 6% of the capital employed (Rs. 5,51,365) though the Systronix division worked only for nine months in the accounting year ? The assessee is a private limited company and the assessment year involved in this reference is assessment year 1967-68, the year of account being financial year 1966-67 ending on March 31, 1967. It would be convenient to first deal with questions Nos. 1 and 2, which arise out of the assessee-company's claim for deduction in respect of the remuneration paid to Mr. Gautam Sarabhai, chairman of the board of directors of the assessee-company. The facts in so far as they are relevant to the first two questions may be briefly stated as under. Late Dr. Vikram Sarabhai, who was the chairman of the board of directors of the assessee-company, resigned as chairman with effect from June 30, 1966. Dr. Vikram Sarabhai was not paid any remuneration for the services which he rendered to the assessee-company. He was paid entertainment allowance of Rs. 400 per month. After his resignation, he was not paid even this entertainment allowance. Mr. Gautam Sarabhai was appointed as chairman of the board of directors in place of Dr. Vikram Sarabhai and at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; -------- 1,75,500 -------- In the accounts for the financial year 1967-68, corresponding to assessment year 1968-69, having regard to the provision of Rs. 14,750 already made in the financial year 1966-67, an amount of Rs. 1,60,750 was deducted from the profits. In the course of the assessment proceedings for the assessment year under reference, that is, assessment year 1967-68, the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(c) of the Act. It is in the background of the above facts that the first two questions are referred to us for our opinion. What is strenuously argued on behalf of the Revenue is that the assessee-company had failed to establish that the liability to pay remuneration to Mr. Gautam Sarabhai had accrued in the relevant year of account and, therefore, its claim for deduction of remuneration deserves to be rejected. It was urged that it was for the assessee-company to bring all relevant facts on record in support of its claim and unless such facts are brought on record, it would not be possible to come to any definite conclusion whether or not the liability to pay remuneration to Mr. Gautam Sarabhai had in fact accrued in the year of account. In this connection, our attention was drawn to s. 314 of the Companies Act, 1956, and it was urged that a director of a company cannot hold any office or place of profit, unless the procedure as laid down in s. 314 of the Companies Act was followed. The contention of the Revenue was that Mr. Gautam Sarabhai must be deemed to have held office or place of profit within the meaning of sub-s. (3) of s. 314 of the said Act. He could not have held of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act and, therefore, the liability to pay remuneration to Mr. Gautam Sarabhai had not accrued ; but even if we were to permit the Revenue to raise this contention, having regard to the facts on record, we do not find any merit in this contention. Section 314(1) of the Companies Act, on which Revenue relies, reads as under: " 314. (1) Except with the consent of the company accorded by special resolution, (a) no director of a company shall hold any office or place of profit, and (b) no partner or relative of such director, no firm in which such director or a relative of such director, is a partner, no private company of which such director is a director or member, and no director or manager of such a private company shall hold any office or place of profit carrying a total monthly remuneration of five hundred rupees or more, except that of managing director or manager, banker or trustee for the holders of debentures of the company (i) under the company; or (ii) under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company: Provided that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause (b) of sub s. (1) of s. 314, in our opinion, ends with the words " a total monthly remuneration of five hundred rupees or more " and the portion referred to above governs both the cls. (a) and (b). We have examined the history of the enactment of the above provision. In the Indian Companies Act of 1913, the corresponding provision was contained in s. 86E. There also, an exception was carved out in the case of managing director or manager or a legal or technical adviser or a banker, etc. In other words, in the case of an office or place of profit held by the managing director, etc., the consent of the company accorded by a special resolution was not required. Section 314 was on the same lines as s. 86E of the Indian Companies Act, 1913, when the Act of 1956 was enacted. Section 314 was amended in 1960 and two categories were specified in cls. (a) and (b) of sub-s. (1) of s. 314. However, the exception which was applicable before 1956 was kept untouched. The subsequent amendment also did not make any material change in so far as the exception is concerned, in the sense that it continued to govern both cls. (a) and (b) though some of the offices, which were earlier included, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year from 1st April, 1966, to 31st March, 1967, his time and attention to the services of the company in the management of its business be and is hereby fixed at Rs. 1,35,000 in addition to the sitting fees paid to him for attending the board meetings of the company. FURTHER RESOLVED that in addition to the fixed remuneration, Mr. Gautam Sarabhai be paid bonus at 20% of the fixed remuneration for the period from 1st April, 1966 to 31st March, 1967, and be given other benefits with effect from 1st April, 1966, as under : (a) Participation in the provident fund rules of the company to be approved by the board of directors. (b) Participation in the company's annuity-cum-gratuity schemes according to the rules of the company to be approved by the board of directors." This resolution clearly shows that Mr. Gautam Sarabhai who was appointed as chairman of the board of directors was entrusted with the management of the assessee-company's business. In other words, Mr. Gautam Sarabhai rendered his services to the assessee-company in managing its business. This, in our opinion, is sufficient to establish that Mr. Gautam Sarabhai was the managing director of the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in remanding the matter to the ITO for examining it in the light of the provisions of s. 40(c) of the Act. In the view which we are taking, we answer the first two questions referred to us in the affirmative and against the Revenue. This brings us to the third question relating to the assessee's claim for relief under s. 84 of the Act. The assessee-company started a new industrial undertaking, named, " Syntronix " in the year of account relevant to the assessment year 1967-68. The assessee-company claimed that it had employed a capital of Rs. 5,51,365 in this new industrial undertaking and, therefore, it was entitled to a rebate of Rs. 33,081 which is equivalent to 6 per cent. per annum on the capital employed as provided in s. 84 of the Act. It was not in dispute that the new industrial undertaking had worked only for a period of nine months from July to March in the relevant year of account. The ITO was of the view that since the new industrial undertaking had worked only for nine months the assessee-company was entitled to only proportionate rebate or relief at the rate of 6 per cent. per annum on the capital employed under s. 84 of the Act. The ITO accepted the working of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to only proportionate relief at the rate of 6 per cent. per annum. It was contended on behalf of the Revenue that the words " per annum " used by the Legislature are not meaningless, and if these words are given their plain meaning, the assessee-company would be entitled to only proportionate relief at the rate of 6 per cent. per annum for the period during which the new undertaking has worked during the year. We find considerable force in the arguments advanced on behalf of the Revenue. Profits and gains of new industrial undertakings, ships and hotels which fulfil the conditions prescribed by s. 84 are entitled to relief from income-tax to the extent of 6 per cent. per annum on the capital employed. The section was obviously intended to encourage setting up of new industrial enterprises and, therefore, undoubtedly it must be construed liberally from a common sense point, of view. The interpretation canvassed on behalf of the Revenue turns on the meaning to be assigned to the words " per annum ". Are these words meaningless or, in other words, surplusage ? Presumption is always against superfluity in a statute. An Act should be so construed as to avoid redundancy or surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng which the relief under s. 84 is available. Years or period for which relief is available is prescribed by sub-s. (7) of s. 84. Whatever relief which is available under sub-s. (1) is available for the assessment years as prescribed by sub-s. (7). Under the circumstances, it would appear, it was not necessary to use the words " per annum " only to ensure that the assessee gets relief for each of the said years. As already observed above, prima facie, it would appear that the words " per annum " clearly indicate that relief was to be given to the assessee at the rate of 6 per cent. per annum and, therefore, if a new industrial undertaking in respect of which relief is claimed had not worked for the whole year, the assessee would be entitled to only proportionate relief at the rate of 6 per cent. per annum. In CIT v. Sanghi Beverages (Pvt.) Ltd. [1982] 134 ITR 62.3 (MP), an identical question had come up for consideration before the Madhya Pradesh High Court with reference to the provisions of s. 80J. The Division Bench of the Madhya Pradesh High Court held that even if a new undertaking has functioned in only a part of the accounting year, deduction has to be allowed to the full e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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