Marketing Services Agency (P.) Ltd. vs Commissioner of Income Tax

B.P. Jeevan Reddy, CJ.

u/s 256(1) of the income tax Act, 1961 (''the Act'') the Tribunal has stated the following two questions :

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs. 3,465 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction u/s 40(c) of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses of Rs. 1,043 incurred by the assessee on giving tea, pan, etc., to its customers were entertainment expenses within the meaning of section 37(2) /(2B) of the income tax Act, 1961?

So far as question No. 2 is concerned, it is concluded against the assessee and in favour of the revenue by the decision of the Full Bench of this Court in Phool Chand Gajanand Vs. The Commissioner of Income Tax, . Accordingly, question No. 2 is answered in affirmative, that is, in favour of the revenue and against the assessee.

So far as question No. 1 is concerned, it is found by the Tribunal as a fact that no service as such was rendered by the directors. It also appears from the order of the Tribunal that the payment of 2 per cent of the net profits every year was directed to be paid to all directors of the company. The payment was to be made out of the net profit. In the circumstances it must be held that the Tribunal was right in holding that the said payment cannot be deducted in the light of the provision contained in clause (c) of section 40 of the Act. Accordingly, question No. 1 is also answered in affirmative, that is, in favour of the revenue and against the assessee.

No order as to costs.