Travancore Rayons Limited vs Commissioner of Income Tax

K.S. Paripoornan, J.—The petitioner is a public limited company. It is an assessee to Income Tax. The respondent is the Revenue. The matter relates to the assessment year 1975-76. The petitioner prays that the following two questions of law formulated in para. 8 of the original petition may be directed to be referred to this court for decision by the Appellate Tribunal :

"(i) Whether the Tribunal was right in law in confirming the disallowance of a part of the remuneration paid to the managing director ?

(ii) Whether the Tribunal was right in law in confirming the disallowance of the sum of Rs. 2,01,788 being the loss on shortage of sulphur ? "

For the assessment year 1975-76, the petitioner/assessee claimed deduction of Rs. 1,38,750 towards remuneration paid to the managing director. It also claimed Rs. 2,01,788 by way of deduction, being loss on shortage of sulphur. The Income Tax Officer, by applying the provisions of Section 40A(5) of the Income Tax Act, allowed the remuneration of the managing director to the extent of Rs. 60,000. The deduction on account of the loss of sulphur was limited to 2.5% of the total sulphur handled. The full loss claimed was not allowed. This was sustained by the Appellate Tribunal. The assessee filed an application u/s 256(1) of the Income Tax Act praying that the two questions of law formulated in para. 8 of the original petition may be referred to this court for decision. Two other questions were also formulated for reference. The Appellate Tribunal referred questions Nos. 3 and 4 but refused to refer questions Nos. 1 and 2 which are formulated in para. 8 of the original petition. Thereafter, the petitioner/assessee has filed this original petition u/s 256(2) of the Act.

We heard counsel for the petitioner as also counsel for the respondent. As to whether the disallowance of the remuneration paid to the managing director is justified and whether Section 40A(5) of the Act can be invoked, has been decided in the case of the very same assessee, for the earlier years, in the affirmative, i.e., in favour of the Revenue and against the assessee/petitioner, in the decision in Travancore Rayons Ltd. Vs. Commissioner of Income Tax, . A Bench of this court held that the expenditure regarding the remuneration of the managing director can be allowed only with reference to Section 40A(5) and Section 40(c) of the Income Tax Act has no application.

In the light of the above Division Bench decision of this court, we are of the view that question No. 1, formulated hereinabove, is not a referable question of law.

The second question is regarding the disallowance of a sum of Rs. 2,01,788 being the loss on shortage of sulphur. The Appellate Tribunal, on the basis of materials on record, came to the conclusion that the claim of loss on shortage of sulphur should be restricted to 2.5% of the total sulphur handled. The finding of the Appellate Tribunal, on this aspect of the matter, is a pure finding of fact. No referable question of law arises as formulated as question No. 2.

The original petition is without merit. It is dismissed.