Mettur Chemical and Industrial Corporation Ltd. vs Commissioner of Income Tax

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 and French (India) Ltd. and Others Vs. Commissioner of Income Tax, , wherein it was held that the surtax levied under

the 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.