By reason of the amendment of article the directors became entitled to and were paid an additional remuneration amounting to Rs.
of the net profits of the companypany after providing for necessary expenses and charges, but before deducting the amount of companymission itself in addition to their fees at the rate of Rs.
The Income tax Officer disallowed the claim of the appellant company on the ground that the directors had number rendered any extra service so as to entitled them to the additional remuneration.
This appeal is brought, by special leave, against the order of the High Court dated April 23, 1962, in the income tax reference.
Under section 66 2 of the Income tax Act the Appellate Tribunal referred the following question of law for the opinion of the High Court Whether the sum of Rs.
100 per month to each director besides traveling expenses for attending the meetings.
A similar view was expressed by the Bombay High Court in Jethabhai Hirji and Co. v. Commissioner of Income tax and it was held in that case that the Income tax Tribunal was right in disallowing under section 10 2 xv the sum of Rs.
The appellant company preferred an appeal to the Appellate Assistant Commissioner but the appeal was dismissed.
In the second place, the tribunal has pointed out that the work the appellant company was done substantially by the firm of managing agents known as Jaipuria Brothers Ltd. and very little work was done by the directors.
12,000 paid by the assessee to his employees as companymission.
The remuneration for such management was an office allowances at Rs.
Under article 135 of the articles of association of the appellant company the managing agents were entrusted with general management of the affairs of the companypany.
100 per month and this was number companysidered by the directors to be inadequate for discharging their responsibility.
Under article 118 of the articles of association of the appellant company, the five directors were entitled during the accounting year to directors fees at the rate of Rs.
Out of this amount each of the directors became entitled to a sum of Rs.
11,70,899.
1,11,000 for the accounting year ending December 31, 1948.
1,11,000 paid to the directors as a deduction under section 10 2 xv of the Income tax Act on the ground that the said sum had been laid out or expended wholly and exclusively for the purposes of the companypanys business.
On July 26, 1948, the directors of the appellant company passed a resolution recommending to the shareholders of the companypany to amend article 118 by providing that the directors should be paid a companymission at the rate of 1 per cent.
For the accounting period a sum of Rs.
6,900 was paid on account of such directors fees to the five directors.
In the present case the finding of the Appellate Tribunal in that the payment of the companymission was made to the directors for extra companymercial business.
In support of this finding the Tribunal has pointed out, in the first place, that the directors did number render any special service in the accounting year which justified the payment of additional remuneration to them.
of the net profits of the companypany.
100 per month for each one of the directors.
5,000 per month plus a companymission of 10 per cent.
The appellant company took the matter in further appeal to the Appellate Tribunal which affirmed the view of the income tax authorities that the amount was number admissible as a deduction under section 10 2 xv of the Income tax Act.
22,218.
These two directors were the numberinees of the managing agents and were also the directors of Jaipuria Brothers Ltd., the managing agents.
Two of these directors were Sri Gajadhar Jaipuria and Sri Mungturam Jaipuria.
11,000 out of the sum of Rs.
For the relevant accounting year there were five directors of the appellant companypany.
Before the Income tax Officer the appellant company claimed the said remuneration of Rs.
This recommendation was adopted at an extraordinary general meeting of the shareholders of the companypany held on August 26, 1948, by a special resolution by which article 118 was amended to make provision for payment of companymission also in addition to fees to the directors.
The total remuneration for the managing agents for the relevant accounting year was companyputed at Rs.
Ramaswami, J. The appellant company is a public limited companypany which is managed by a firm of managing agents known as Jaipuria Brothers Ltd., another public limited companypany.
11,000 out of the sum of Rs.
