Kerala H.C : Whether the Tribunal was right in law in confirming the disallowance of a part of the remuneration paid to the managing director ?

Counsel Appeared

K.A. Nayar, for the Petitioner : P.K. Ravindranatha Menon & N.R.K. Nair, for the Respondent

K.S. PARIPOORNAN, J.:

The petitioner is a public limited company. It is can assessee to income-tax. The respondent is the Revenue. The matter relates to the asst. yr. 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 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 ? “

2. For the asst. yr. 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 ITO, by applying the provisions of s. 40A(5) of the IT 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 per cent of the total sulphur handled. The full loss claimed was not allowed. This Was sustained by the Tribunal. The assessee filed an application under s. 256(1) of the IT 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 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 under 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 s. 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. CIT (1986) 52 CTR (Cal) 316 : (1986) 162 ITR 732 (Ker). A Bench of this Court held that the expenditure regarding the remuneration of the managing director can be allowed only with reference to s. 40A(5) and s. 40(c) of the IT 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 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 per cent of the total sulphur handled. The finding of the 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.

[Citation : 172 ITR 350]