COMMISSIONER OF INCOME TAX Vs. SARABHAI SONS LIMITED

JUDGEMENT

(1.) THE Tribunal, Ahmedabad Bench "A", has, at the instance of the CIT referred to us for our opinion the following three questions under s. 256(1) of the IT 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 asst. yr. 1967-68, the year of account being financial year 1966-67 ending on March 31, 1967. It would be convenient to first deal with questions 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.) THE AAC, before whom the assessee-company carried the matter in appeal, having agreed with the view taken by the ITO, the assessee-company preferred a further appeal to the Tribunal (hereinafter referred to as "the Tribunal"). THE Tribunal took the view to the effect that since Mr. Gautam Sarabhai had rendered his services in the management of the affairs of the assessee- company, liability to pay remuneration for such services accrued during the year of account relevant to the assessment year under reference. According to the Tribunal, the mere fact that liability was quantified after the close of the accounting year would not be adequate reason to disallow the assessee- company's claim for deduction of the expenditure incurred by it in paying remuneration to Mr. Gautam Sarabhai. However, since the ITO had not examined the assessee- company's claim in the light of the provisions of s. 40(c) of the Act, the Tribunal remanded the question of admissibility of the above deduction for fresh examination to the ITO in the light of the provisions of s. 40(c) of the Act. It is in the background of the above facts that the first two questions are referred to us for our opinion.