METTUR CHEMICAL AND INDUSTRIAL CORPORATION LTD. VS COMMISSIONER OF INCOME-TAX
2002 P T D 1708
[242 I T R 424]
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ
METTUR CHEMICAL AND INDUSTRIAL CORPORATION LTD.
versus
COMMISSIONER OF INCOME-TAX
Tax Case No., 1893 of 1984 (Reference No. 1376 of 1984), decided on 03/08/1998.
(a) Income-tax---
----Business expenditure---Ceiling on expenditure---Commission paid to Managing Director---Has also to be taken into account in considering limit of expenditure allowable under S.40(c)---Indian Income Tax Act, 1961, S. 40(c).
(b) Income-tax---
----Business expenditure---Company---Surtax liability---Not entitled to deduction in computing business income---Indian Income Tax Act, 1961, S.37---Indian Companies (Profits) Surtax Act, 1964.
Held, (i) that the Tribunal was right in holding that the maximum permissible limit of expenditure on remuneration and perquisites to the Managing Director in this case could not exceed the limit of Rs.72,000 even without a finding whether the remuneration was excessive or unreasonable having regard to the business needs of the company.
(ii) That section 40(c) of the Income Tax Act, 1961, prescribes the limit on the remuneration and perquisites allowable to the Managing Director and the amount of commission could not be excluded from the computation under section 40(c).
Held also, that the surtax levied under the Companies (Profits) Surtax Act, 1964, could not be allowed as a deduction, while computing the business income.
Smith Kline & French (L) Ltd. v. CIT (1996) 219 ITR 581 (SC) fol.
P.P.S. Janarthana Raja for the Assessee.
Mrs. Chitra Venkataraman for the Commissioner.
JUDGMENT
R. JAYASIMHA BABU, J.---Three questions have been referred to us at the instance of the assessee. The assessment year with which we are concerned is 1979-80.
During the relevant previous year, the assessee had paid to its Managing Director a total sum of Rs.1,07,760 out of which Rs.60,000 was paid towards the fixed remuneration, Rs.30,000 was paid towards the commission at one per cent. of the net profit and the balance amounts were paid towards the provident fund, insurance, house rent allowance and medical reimbursement. The amount in excess of Rs.72,000 was disallowed by the Assessing Officer. That disallowance was upheld by the Commissioner (Appeals). On further appeal to the Tribunal, the assessee contended that the commission paid to the Managing Director should not be included in the calculation of that remuneration. That contention was negatived, and in our opinion rightly. Section 40(c) of the Act prescribes the limit on the remuneration and perquisites allowable and the amount of commission cannot be excluded from the computation for section 40(c).
The first question: referred to us, viz., whether the Tribunal was right in holding that the maximum permissible limit of expenditure on remuneration and perquisites to the Managing Director in this case cannot exceed the limit of Rs.72,000 even without a finding whether the remuneration was excessive or unreasonable having regard to the business needs of the company is, therefore, to be answered against the assessee and in favour of the Revenue.
The second question is related to the first question. That question is as to whether the commission is includible in the taxation limit as laid down in section 40(c) of the Act. That question is also to be answered against the assessee and in favour of the Revenue.
The last question is whether the assessee is entitled to the deduction of the surtax liability of the year in computing the total income of the assessee. That question is also to be answered against the assessee and in favour of the Revenue, in the light of the decision of the Supreme Court .in the case of Smith Kline & French (L) Ltd. v. CIT (1996) 219 ITR 581, wherein it was held that the surtax levied under Companies (Profits) Surtax Act, 1964, cannot be allowed as a deduction, while computing the business income.
All the questions referred to us have, therefore, to be and are answered against the assessee and in favour of the Revenue. No costs.
M.B.A./705/FC ????????????????????????????????????????????????????????????????????????????????? Reference answered.