COMMISSIONER OF INCOME Vs. SARABHAI SONS LTD.

JUDGEMENT

(1.) The income-tax Appellate Tribunal, Ahmedabad Bench 'A' has, at the instance of the Commissioner of Income-tax referred to us, for our opinion, following three questions under Section 256(1) o; the Income-tax Act, 1961 (hereinafter referred to as the "Act"):

(2.) The assessee is a private limited company and the assessment year involved in this reference is assessment year 1967-68, the year of account being financial year 1966-67 ending on March 31, 1967. It would be convenient to first deal with question Nos. 1 and 2, which arise out of the assessee Company's claim for deduction in respect of the remuneration paid to Mr Gautam Sarabhai, Chairman of the Board of Directors of the assessee Company. The facts in so far as they are relevant to the first two questions may be briefly stated as under.

(3.) Late Dr Vikram Sarabhai, who was the Chairman of the Board of Directors of the assessee Company resigned as Chairman with effect from June 30, 1966. Dr. Vikram Sarabhai was paid any remuneration for the services which he rendered to the assessee Company. He was paid entertainment allowance of Rs 400 per month. After his resignation, he was pai", even this entertainment allowance. Mr Gautam Sarabhai was appointed as Chairman of the Board of Directors in place of Dr Vikram Sarabhai,' and at the request of the Board of Directors, he looked after the management of-the assessee Company from April 1, 1966 to March 31, 1967. No remuneration was fixed for the services which Mr Gautam Sarabhai was to render to the assessee Company. It however, appears that provision of Rs 14,750/- was made in the Profit and Loss Account for the year in question for remuneration to Directors, subject to the approval of the Annual General Meeting of the assessee Company. Narration in the voucher which was prepared in respect of this provision was to the effect that Rs 14,750,1- were debited as remuneration to Directors' account. However, no remuneration was in fact determined till the Annual General Meeting of the assessee Company, which was held on September 29, 1967. By a notice dated December 25, 1967, an extraordinary general meeting of the shareholders of the assessee Company was called on January 22, 1968, and at this meeting, the shareholders pasted a resolution fixing Mr Gautam Sarabhai's remuneration at Rs 1,35,000/- and bonus at 20 thereof together with benefits of contributory provident fund and gratuity for the period from April 1, 1966 to March 31, 1967, which, as stated above is the previous year relevant to the assessment year 1967-68. Remuneration, bonus etc. which became payable to Mr Gautam Sarabhai for the year 1966-67 under the said resolution were as follows: <FRM>JUDGEMENT_37_LAWS(GJH)8_1982_1.html</FRM>