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Kirloskar Oil Engines Ltd. Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
Judge
Reported in(1985)11ITD733(Pune.)
AppellantKirloskar Oil Engines Ltd.
Respondentinspecting Assistant
Excerpt:
though technically the entire assessment might be open before the appellate authority but as every point need not to be considered for disposing the appeal hence commissioner had right to revise those matters which were not considered and examined by the appellate authority.unless there is an overt allusion in the appellate order to a particular issue either raised in the grounds of appeal or taken up by the appellate authority, e.g., appellate assistant commissioner, commissioner(appeals) suo motu, an adjudication on such an issue or issues cannot be presumed although technically, the entire assessment may be open before the appellate authority. as a matter of fact, an appellate authority is not expected to and does not, in normal circumstances, travel beyond the aspects of a case,.....
Judgment:
Though technically the entire assessment might be open before the appellate authority but as every point need not to be considered for disposing the appeal hence Commissioner had right to revise those matters which were not considered and examined by the appellate authority.

Unless there is an overt allusion in the appellate order to a particular issue either raised in the grounds of appeal or taken up by the appellate authority, e.g., Appellate Assistant Commissioner, Commissioner(Appeals) suo motu, an adjudication on such an issue or issues cannot be presumed although technically, the entire assessment may be open before the appellate authority. As a matter of fact, an appellate authority is not expected to and does not, in normal circumstances, travel beyond the aspects of a case, which are necessary for the disposal of the appeal before it. Therefore, the proceedings under section 263 were validly initiated by the Commissioner.

1. This appeal filed by the assessee-company, Kirloskar Oil Engines Ltd., Pune, is directed against the order of the Commissioner passed by him under Section 263 of the Income-tax Act, 1961 ('the Act'), for the assessment year 1977-78, in the case of the assessee-company.

2. Although in the memorandum of grounds of appeal, the assessee-company has raised ten grounds, they boil down to the following effective grounds : 1. that the Commissioner erred in law in assuming jurisdiction under Section 263 in respect of the order of the IAC since the said order had already merged in the appellate order of the Commissioner (Appeals) ; 2. that, without prejudice to the aforesaid contention, it is submitted that the Commissioner erred in holding that the assessment order was erroneous insofar as it was prejudicial to the interests of the revenue ; 3. that the Commissioner erred in holding that the interest of Rs. 1,05,515 receivable by the assessee-company from the subsidiary company, but waived by the assessee, was not a permissible deduction ; 4. that the Commissioner erred in treating the sitting fees, which are more in the nature of reimbursement of expenses, as salary of director within the meaning of Section 40A(5) of the Act.

On examination of the assessment records of the assessee-company for the assessment year 1977-78, the Commissioner found that the assessment order for the assessment year 1977-78 passed by the IAC in the assessee's case was erroneous insofar as it was prejudicial to the interests of the revenue in several respects. He, therefore, initiated proceedings under Section 263 and as required under the law, gave the assessee-company an opportunity of being heard by his notice dated 13-1-1981.

4. Before the Commissioner, the preliminary objection to the proceedings under Section 263 was raised that the assessment order in question had already been the subject-matter of appeal before the Commissioner (Appeals), the latter had passed his appellate order thereon on 27-12-1980, that thus, the assessment order having already merged into the said appellate order, the former could not be revised under Section 263. For this proposition, reliance was placed on the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, and that of the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. v. 1TO [1982] 1 ITD 303 (Bom.). The Commissioner did not find the preliminary objection to be tenable in view of the judgment of the Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 where, the Commissioner pointed out, the High Court has held that whether an order of a subordinate authority has merged partially or wholly with the orders of a superior appellate or revisional authority will have to be decided with reference to the provisions dealing with the appellate jurisdiction or revisional jurisdiction of the superior authority under the relevant enactment. He added that the High Court had further held that only that part of the order of the ITO merges or stands superseded by the order of the AAC, in respect of which the AAC has exercised his appellate jurisdiction. Since none of the points to be dealt with in the proposed order under Section 263 was covered in the appellate order of the Commissioner (Appeals), the question of merger did not arise.

Accordingly, the Commissioner rejected the preliminary objection and proceeded to deal with the merits of the proceedings under Section 263.

Among the points in the assessment order considered by the Commissioner, to have been erroneously decided upon by the assessing officer, only the following two points are now agitated before us in the present appeal : (i) allowance by the assessing officer of the claim for deduction of the interest receivable by the assessee-company from the subsidiary company but which was waived by the assessee-company ; (ii) failure of the assessing officer to take into account the sitting fees paid to directors in determining the disallowance under Section 40A(5).

The Commissioner found that in para 4 of the report of the assessee-company's auditors, it was, inter alia, stated that the assessee-company had waived the interest amounting to Rs. 1,05,515, which had accrued to it on the loan given to Kirloskar Kisan Equipment Co. Ltd., a wholly-owned subsidiary of the assessee-company. The assessee's explanation for this waiver was that the assessee had advanced an aggregate amount of Rs. 23.78 lakhs to the said subsidiary by way of loans, on which interest was payable by the subsidiary, that, however, finding the subsidiary to be in a critical financial condition due to tremendous slump in the demand for the products of the subsidiary, the assessee-company had decided to waive the interest previously charged to the said loan account. It was submitted that as the poor financial condition of the subsidiary would have adversely affected the parent company, the latter, in its own interest, had to keep the subsidiary as a viable unit, and since it would have been impossible for the subsidiary to discharge this liability towards interest, the assessee-company took the initiative for saving the subsidiary from financial disaster and, accordingly, waived the interest in question. In support of this submission and of the claim for allowance of the interest so waived, the following decisions of the Supreme Court were cited before the Commissioner, i.e., CIT v. Chandulal Keshavlal & Co.

[1960] 38 ITR 601 and CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144. The representative for the assessee also relied on a Circular of the CBDT on the subject of waiver of managing agency commission.

6. The Commissioner, however, found himself unable to agree with the aforesaid contentions and submissions. According to him, the decision of the Supreme Court cited on behalf of the assessee dealt with the commission paid to the managing agents, whereas in the case of the assessee, the question involved was of waiver of interest. He observed that in the present case, the assessee had itself taken up the extra liability for interest payable on its overdraft accounts. As to the Circular of the CBDT referred to by the assessee-company, the Commissioner again observed that the waiver of managing agency commission by managing agents stands on a different footing from that of waiver of interest by a holding company. In this view, the Commissioner directed the IAC to add the said amount of Rs. 1,05,515 to the assessee's income for the assessment year 1977-78.

7. Then turning to the question of disallowance of director's sitting fees, the Commissioner held that these have to be considered under Section 40A(5) which, according to him, applied to an employee being a director. He observed that director's sitting fees form a part of 'salary' under Explanation 2 to Section 40A(5), which assigns the same meaning to that term as in Section 17 of the Act with certain modifications. Accordingly, the Commissioner directed the assessing officer to work out the disallowance under Section 40A(5) by considering the director's sitting fees of Rs. 5,500 as part of his salary.

8. The assessee-company is now challenging before the Tribunal both the validity of the proceedings under Section 263 and the directions of the Commissioner for disallowing the aforesaid two items. Addressing us, first, on the question of the legal validity of the proceedings under Section 263, Shri S.N. Inamdar, the learned counsel for the assessee, placed strong reliance on the decision of the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. {supra). He also cited the decision of the Tribunal in the case of Malegaon Shahar Madhyawarti Sahakari Grahak Sangh Ltd. [IT Appeal No. 463 (Pune) of 1978-79]. He added that in the case of Dwarkadas & Co. (P.) Ltd. (supra), the Tribunal had considered all the relevant case laws including the Patna High Court decision in Pandit Lakshmi Kant Jha v.CIT [1980] 124 ITR 470 (Pat.) on the subject and had come to the conclusion that once the AAC appellate authority passed an appellate order, the Commissioner cannot have jurisdiction under Section 263 to revise the assessment order.

9. Countering these arguments, Shri K,A. Sathe, the learned departmental representative, made the following points : That the Special Bench of the Bombay Tribunal, while dealing with the case of Dwarkadas & Co. (P.) Ltd. (supra), did not have the benefit of the decision of the Full Bench of the Madhya Pradesh High Court in the case of CIT v. R.S. Banwarilal [1983] 140 ITR 3, wherein the Court has pointed out that in view of the Supreme Court decision in the case of CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130, it is obvious that the Bombay view expressed as obiter dicta in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 (Bom.) and followed in Amritlal Bhogilal & Co.'s case (supra), is no longer good law. Shri Sathe added that the Special Bench of the Tribunal was not right in distinguishing the decision of the Bombay High Court in Sakseria Cotton Mills Ltd.'s case (supra). Shri Sathe further submitted that the Tribunal, Pune Bench, whose decision in the case of Malegaon Shahar Madhyawarti Sahakari Grahak Sangh Ltd. (supra) was cited on behalf of the assessee-company also, had not considered the decision of the Madhya Pradesh High Court in R.S. Banwarilal's case (supra). In this regard, he submitted that the principle governing the merger of an order under Section 154 of the Act was not different from that applicable to other orders. He pointed out that the Bombay High Court, in arriving at its decision in Sakseria Cotton Mills Ltd.'s case (supra), has quoted with approval, the test laid down by the Gujarat High Court in the case of Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255 and has dissented from the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. (supra), which was followed by the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. (supra). Shri Sathe urged that the Bombay High Court decision should have a more persuasive effect than the decision of the Special Bench of the Tribunal and that the said decision of the Bombay High Court coupled with that of the Full Bench of the Madhya Pradesh High Court in the case of R.S. Banwarilal (supra), provided an effective answer to the preliminary objection of the assessee-company to the validity of Section 263 proceedings in question.

10. In his rejoinder, Shri Inamdar submitted that, as explained by the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. (supra), the decision of the Bombay High Court in the case of Tejaji Farasram Kharawala (supra) cannot be held to have been overruled directly or by implication by the Bombay High Court in the case of Sakseria Cotton Mills Ltd. (supra). Shri Inamdar added that even if the observations of the Bombay High Court in the case of Tejaji Farasram Kharawala (supra) are taken to be obiter dicta, these, being of the Bombay High Court, are binding on the Tribunal, which is under the jurisdiction of the said Court. He further argued that the fact that provisions like Section 154(1 A) have not been enacted in the context of Section 263, shows that the Legislature has accepted the proposition of 'merger'.

11. We have given careful thought to the arguments and counter-arguments on the preliminary objection in this appeal as to the validity of the proceedings under Section 263 vis-a-vis the facts and circumstances of the case and in the light of the relevant case law. In our view, the decision of the Bombay High Court in the case of Sakseria Cotton Mills Ltd. (supra), as explained by the Full Bench of the Madhya Pradesh High Court in the case of R.S. Banwarilal (supra), does effectively meet the preliminary objection on behalf of the assessee-company. To arrive at the decision in the aforesaid case, the Bombay High Court has relied on the observations of the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. AIR 1967 SC 681 on the doctrine of merger and the scope of its applicability. The observations are as follows : . . . But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction . . .

.

That the decision in the case of Sakseria Cotton Mills Ltd. (supra) was given in the context of a rectification order under Section 154, does not make any difference since, as held by the Madhya Pradesh High Court in the case of R.S. Banwarilal (supra), the principle involved is the same, viz., application of the doctrine of merger. We may mention here that the existence of the power of the AAC to examine and pass an appropriate order in an appeal from the assessment order of the ITO, including the power to enhance the assessment on any point, has apparently prompted the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. (supra) to opt for the theory of complete merger of the assessment order with the appellate order. For this proposition, the Tribunal has obviously presumed that even in the case where the AAC could examine certain issues and pass an appropriate order thereon, but had not actually done so, he should be deemed to have examined those issues and agreed with the ITO and, thus, even that portion of the assessment order would merge in the order of the AAC.For this presumption, one does not find support in the decisions of the Bombay High Court and the Madhya Pradesh High Court cited above. In our view, unless there is an overt allusion in the appellate order to a particular issue either raised in the grounds of appeal or taken up by the appellate authority, e.g., AAC/ Commissioner (Appeals) suo moto, an adjudication on such an issue or issues cannot be presumed although technically, the entire assessment may be open before the appellate authority. As a matter of fact, an appellate authority is not expected to and does not, in normal circumstances, travel beyond the aspects of a case, which are necessary for the disposal of the appeal before it.

We, therefore, following the ratio decidendi of the Bombay High Court in the case of Sakseria Cotton Mills Ltd. (supra) and that of the Full Bench of the Madhya Pradesh High Court in the case of R.S. Banwarilal (supra), hold that the proceedings under Section 263 were validly initiated in the present case by the Commissioner.

12. Before parting with this aspect of the case, we would like to mention here that we are aware that there is a Full Bench decision of the Madhya Pradesh High Court in the case of CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677 on the point at issue, which is apparently in conflict with the decision of the same Court in the case of R.S. Banwarilal (supra). It must, however, be noted that the decision in the case of R.S. Banwarilal (supra) is later (8-3-1982) than that in the case of Mandsaur Electric Supply Co. Ltd. (supra) (25-2-1982). Besides, in the case of Mandsaur Electric Supply Co. Ltd. (supra), the entire order of the assessment was set aside under Section 263, whereas, in the present case, directions have been issued by the Commissioner only on specific points. It is common ground that none of the points dealt with in the appellate order of the Commissioner (Appeals), in the case of the assessee-company, Kirloskar Oil Engines Ltd., is touched by the impugned order passed by the Commissioner under Section 263. The preliminary objection is overruled.

13. As for the second and the alternative preliminary ground, suffice it to say that the Commissioner had come across the fact that certain claims on account of expenses, which were made by the assessee, were allowed by the ITO, but which, in the view of the Commissioner, were not admissible on facts and in law. The allowance of such claims, thus, would obviously cause prejudice to the interests of the revenue. There was, thus, prima facie, good reason for the Commissioner to initiate proceedings under Section 263. The second contention of the assessee-company is also, therefore, accordingly, rejected.

14.1 On the question of waiver of interest due from the subsidiary Kirloskar Kisan Equipments Ltd., Shri Inamdar, the learned counsel, submitted that the said subsidiary has been making losses in successive years right from its inception and, therefore, the board of directors of the assessee-company took the decision to waive the interest due from the said subsidiary on the short-term loans advanced by the assessee-company to the subsidiary from time to time. Shri Inamdar read out the following relevant part of the resolution of the board of directors of the assessee-company passed at the meeting of the board held on 8-11-1975 : In view of the present critical financial position of the said subsidiary, all interest accrued on this aggregate amount of loan to this date and which may accrue thereon hereafter, until the amount of loan is completely repaid by that subsidiary, be and is hereby waived." Shri Inamdar argued that the decision taken by the board of directors of the assessee, a public limited company, had been duly endorsed by its shareholders and, therefore, its bona fides should not have been doubted as is done by the Commissioner, who has alleged that the waiver represents 'gratuitous sacrifice' on the part of the assessee-company. He added that the Commissioner has overlooked the fact that whereas the assessee-company had taken the decision to waive the interest purely on the grounds of commercial expediency, the interest so remitted/waived was taxed in the hands of the subsidiary under Section 41(1) of the Act. In support of his arguments, Shri Inamdar cited the decisions of the Supreme Court in the cases of Chandulal Keshavlal & Co. {supra) and CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266. He made a special reference to the decision of the Madras High Court in the case of CIT v. Amalgamations (P.) Ltd. [1977] 108 ITR 895 as well as to the decision of the same Court in the case of Devi Films (P.) Ltd. v. CIT [1970] 75 ITR 301. In the former case, the assessee's claim of loss incurred in honoring the commitment to guarantee the debts borrowed by its subsidiary company, was held to be admissible as a business loss. In the latter case, the voluntary waiver of a substantial portion of a loan on finding that the debtor was not in a position to repay the outstanding dues was held to be a trading loss, on the reasoning that the assessee, in the course of its business, had thought it necessary to waive a portion of the outstanding dues.

14.2 Summing up his arguments, Shri Inamdar submitted that the Commissioner has erred in overlooking all these legal aspects and has equally erred in law in substituting his own judgment in place of that of the board of directors, who had considered it commercially expedient to waive the accrued interest in question. He urged that in these circumstances, the decision of the Commissioner deserves to be reversed.

14.3 Shri Sathe, the learned departmental representative, on his part argued that in order to judge the admissibility of the claim of waiver of interest, the correct financial position of the subsidiary company was relevant. According to him, the financial condition of the subsidiary was not critical as made out, but there may have been a temporary set back. In this regard, Shri Sathe drew our attention to the observations in the report of the board of directors of the assessee-company for the year ended on 30-6-1976 (the assessment year 1977-78) concerning the subsidiary, Kirloskar Kisan Equipments Ltd. In the said report at page 7, the chairman of the assessee-company on behalf of the board of directors has only pointed out that Kirloskar Kisan Equipments Ltd. had to curtail its production due to fall in demand for agricultural sprayers, that there is no whisper in the said report about the alleged desperate financial condition of the subsidiary company. Shri Sathe also referred to the report of the directors of the subsidiary company (page 58 of the printed annual report of the company and its subsidiaries) for the year ending on 31-12-1975, where the directors have referred to the development of petrol engines for cycles and cycle rickshaws and to the prospects of improvement in the demand for these engines. The directors have also mentioned that the company has received indication of good export business and initial orders for exports have also been executed. Shri Sathe added that even the balance sheet of the subsidiary company did not present a dismal financial picture. Shri Sathe submitted that in these circumstances, it was not correct for the counsel for the assessee to say that the Commissioner had substituted his own judgment in place of that of the directors and that, on the other hand, the Commissioner has objectively viewed the issue, i.e., whether any prudent businessman would find justification to waive the interest in question.

14.4 Then adverting to the case law stated on behalf of the assessee-company, Shri Sathe submitted that most of the cases relied upon were of managing agencies, where the managing agency commission, waived by the assessee-company's concern, constituted business income of the said company, which was not the case with the present assessee-company, who was a 'holding company' and as such, was entitled only to a dividend from the subsidiary company and such income was chargeable under Section 56 of the Act under the head 'Income from other sources'. Shri Sathe pointed out that even the circular of the Board, cited on behalf of the assessee-company, was issued in the context of managing agency business. He argued that even if the assessee were to claim that the waiver of the interest was in order to preserve the assessee-company's investment, the onus to prove this was on the assessee for an extraneous motive and the purpose could not be relevant, but it should only be 'for earning the income' that is relevant. Proceeding further, Shri Sathe submitted that the Supreme Court decisions in Chandulal Keshavlal & Co.'s case (supra) and Birla Gwalior (P.) Ltd.'s case (supra) were distinguishable on facts from the assessee's case for the interest in question accrued to the assessee-company from day to day, whereas the managing agency commission dealt with in the Supreme Court cases, arose only on the settling of accounts for the relevant previous year and it was waived before its accrual. That similarly, the Madras High Court decision in Amalgamations (P.) Ltd.'s case (supra) was also distinguishable being in the case of an investment company, which the present assessee-company is not. Shri Sathe urged that the disallowance of the interest in question was, thus, in order both on facts and in law.

15. In his rejoinder, Shri Inamdar submitted that it was an incontrovertible fact that the subsidiary company had been making losses for consecutive years since it commenced business, that, however, the directors did not, for obvious reasons, consider it proper to convey the sense of the alarming situation to the shareholders. He argued that this was a commercially expedient policy. Then, strictly confining himself to the balance sheet of the assessee-company, Shri Inamdar pointed out that the subsidiary company had not charged depreciation on its assets for the calendar years 1971 to 1975, as would be evident from the schedule of fixed assets at page 66 of the printed accounts. He submitted that the figures do not lie and they are there for everyone to see. On the legal aspects of the claim, Shri Inamdar contended that forming of a subsidiary was not a mere investment so far as the assessee-company was concerned, but it was a part of the diversification of the assessee-company's business activities inasmuch as the assessee-company was a major manufacturer of oil engines used by agriculturists, the subsidiary company manufactured sprayers and other machinery used in agro industries. Thus, he submitted, here was a case of the business interest of the holding company and those of the subsidiary company being inter-linked and, therefore, had to be safeguarded even at the cost of sacrifice by way of waiver of interest.

16. We have carefully considered the submissions made and the arguments advanced from both the sides vis-a-vis the facts and the circumstances of the case on record and in the light of the relevant case law. It is evident from the balance sheet of the subsidiary company, Kirloskar Kisan Equipments Ltd., as on 31-12-1975 that it was not a financially sound concern for its accumulated losses, as on the aforesaid date, amounted to Rs. 9,75,654 as against its reserves and surplus, which amounted to Rs. 9,26,000 only. As a matter of fact, the reserves comprised only the net development rebate reserves. It is also noteworthy that depreciation aggregating Rs. 16,69,313 was not charged for the years 1971 to 1975, as already pointed out by the counsel for the assessee-company. It is also observed that both the board of directors of the assessee-company as well as that of the subsidiary company have made it quite clear that the operational results for the year ending on 31-12-1975 of the subsidiary company were seriously affected by many adverse market conditions. In view of these circumstances, we see no reason to doubt the bona fides of the assessee-company in trying to save the subsidiary company from further financial decline by waiving the interest which, in accordance with the mercantile system of accounting regularly followed by the assessee, had technically accrued to it. Viewed in this perspective, we find that the ratio decidendi in the cases of Chandulal Keshavlal & Co. (supra) and Shoorji Vallabhdas & Co. (supra) is applicable to the present case. We may mention here that, in similar circumstances, the Madras High Court has, in the following cases, held that the commercial and business realities of the situation have to be taken into account rather than the technical aspects such as the accounting principlesCIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572 (Mad.) and CIT v. Devi Films (P.) Ltd. [1983] 143 ITR 386 (Mad.).

17. We also find that in similar circumstances, the Punjab and Haryana High Court has in two cases, viz., Shiv Parkash Janakraj & Co. (P.) Ltd. v. CIT [1978] 112 ITR 872 and CIT v. Ferozepur Finance (P.) Ltd. [1980] 124 ITR 619, held that the assessee was justified in not making any debit entries in the account of the debtor on account of interest and corresponding credit in its interest account in view of the weak financial position of the debtor and that in these circumstances, it could not be said even in the context of mercantile system of accounting that income had actually accrued to the assessee and, therefore, ought to be included in the assessee's total income. We hold likewise in the present case and reverse the decision of the Commissioner on the point.

18. This brings us to the fourth and last ground of appeal. In this regard, Shri Inamdar reiterated the assessee-company's argument that the director's sitting fees represented only reimbursement of the expenses incurred by the director for the purpose of attending the Board meetings. We find ourselves unable to agree with this proposition. It is a matter of common knowledge that apart from reimbursing the director's travelling and other incidental expenses, incurred for the purpose of attending the meetings of board of directors, the directors are paid sitting fees for attending the meetings and for contributing to the deliberations. In other words, the fees paid are for the services rendered qua director and stand to be included in the salary/remuneration. However, so far as the application of Section 40A(5) in the context of the aforesaid remuneration is concerned, we hold that the said section has been erroneously invoked by the Commissioner. As held by the Special Bench of the Tribunal in Geoffrey Manners & Co. Ltd. v. ITO [1983] 3 SOT 40 (Bom.), the remuneration paid to a director, whether as an employee or otherwise, would fall only under Section 40(c)(/) and (;7) and not under Section 40A(5)(a)(ii) and (ii). Shri Sathe, the learned departmental representative, without giving up the department's case, stated that he was aware of the aforesaid decision of the Special Bench of the Tribunal, which is being consistently followed by the Tribunal.

19. We too follow the said decision and hold that the sitting fees paid to director, Shri S.L. Kirloskar, in the case of the assessee-company, be examined with reference to the parameters laid down in Section 40(c) and disallowance, if any, be made, accordingly.


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