S.H. Kapadia, J.
The following three questions have been referred to this court under section 256(1) of the Income Tax Act for our opinion.
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the liability for the payment of surtax is not an admissible deduction in the computation of the total income under the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances, of the case, the Tribunal was right in holding that the applicant was not a company in which the public are substantially interested within the meaning of the Finance Act, 1976 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that commission payments made to a director are to be treated as remuneration for the purposes of computing the disallowance under section 40(c) of the Income Tax Act, 1961 ?'
2. In view of the judgment of the Supreme Court in the case of Smith Kline & French (India) Ltd. & Ors. v. CIT : [1996]219ITR581(SC) , question No. 1 is answered in the affirmative i.e., in favour of revenue and against the assessee.
3. In view of the judgment of the Bombay High Court in the case of Petrosil Oil Co. Ltd. v. CIT : [1999]236ITR220(Bom) , question No. 2 is answered in the negative i.e., in favour of assessee and against the department.
4. As regards question No. 3 is concerned, the facts are as follows :
Facts :
5. The assessee paid an amount of Rs. 14,600 to each of its directors. The assessing officer disallowed the aforestated amount under section 40(c) of the Act on the ground that the two directors were in receipt of salary of Rs. 97,900 and in addition to the said salary each of the two directors received commission payment of Rs. 14,600. The assessing officer disallowed the aforestated amount in view of the decision of the Tribunal in the case of Sapt Textiles Products (India) Ltd. Being aggrieved, the assessee went in appeal. The Commissioner (Appeals) took the view that commission of Rs. 14,600 paid to the two directors was a part of remuneration. The Commissioner (Appeals) came to the conclusion that in view of the decision of the Tribunal in Navketan International Films (P) Ltd. and in view of the decision of the Tribunal in the case of Pai Paper and Allied Industries (P) Ltd., the commission of Rs. 14,600 paid to the directors constituted part of the remuneration and, accordingly, applied section 40(c) of the Act. Being aggrieved by the decision of the first appellate authority, the matter was carried in appeal to Tribunal which followed the decision in Pai Paper and Allied Industries (P) Ltd. v. CIT : [1994]207ITR410(Bom) and Navketan International Films (P) Ltd. v. CIT : [1994]209ITR976(Bom) . Accordingly, Tribunal dismissed the appeal preferred by the assessee. Being aggrieved, the matter has come to this court under section 256(1) of Income Tax Act for our opinion.
Findings on question No. 3
6. At the outset, it may be mentioned that the decision of the Tribunal in Pai Paper & Allied Industries (P) Ltd. (supra) and in Navketan International Films (P) Ltd. (supra) can to be reversed by judgments of the Bombay High Court in the case of Pai Paper & Allied Industries (P) Ltd. v. CIT : [1994]207ITR410(Bom) and in the case of Navketan International Films (P) Ltd (supra). In the aforestated two judgments, this court has ruled that section 40(c) of the Income Tax Act would be attracted only to those cases where the director of a company is paid remuneration or where an expenditure is incurred to provide benefits or amenities to him in his position as a director. In Navketan International Films (P) Ltd., the assessee carried on business of producing motion pictures- Mr. Dev Anand, the famous film actor, was a permanent director of a company. The assessee-company produced two motion pictures. In the said two pictures. Mr. Dev Anand was the writer, director and the leading man. He was paid remuneration of Rs. 50,000 which was payable in annuity instalments from 1974 upto 2003 for which the assessee-company undertook to purchase a single premium policy for Rs. 7.77 lakhs from LIC. Similarly, for the second picture, the assessee paid Rs. 6.33 lakhs for purchase of the policy from LIC. Thereafter, the assessee debited total amount of Rs. 14 lakhs against the cost of production of the above two pictures. The assessing officer did not accept the deduction in view of section 40(c). He, therefore, disallowed the deduction to the extent of Rs. 13 lakhs in the computation of the total income. It was held by the Bombay High Court that payments which have been made by the assessee-company for the purchase of annuities in favour of Dev Anand who was one of the directors of the company was not covered by section 40(c) because section 40(c) applies only to cases where the director is paid remuneration or where any expenditure is incurred to provide benefits to him in his position as a director. Since expenditure was incurred to provide him with benefits in his position as an actor and as a writer, section 40(c) was held to be not applicable. The ratio of the judgment of this court in Pai Paper & Allied Industries (P) Ltd. (supra) is also to the same effect. In view of the aforestated two judgments of the Bombay High Court in the case of Pai Paper & Allied Industries (P) Ltd. (supra), there is no dispute regarding the legal position. However, in the present case, it is not clear from the decision of the Tribunal as to on what account the commission was paid. It is not clear as to whether the commission was paid to the director as part of his remuneration or whether it was paid for some other service rendered by him. It is not clear whether the expenditure incurred by the assessee- company was to provide any benefit to the two directors as directors or whether the payment was made by the assessee-company for some other service rendered by the two directors. In this reference, we are concerned with assessment year 1976-77. In the circumstances, we answer the question No. 3 in the negative i.e., in favour of the assessee and against the department on the footing that the decisions of the Tribunal in Pai Paper & Allied Industries (P) Ltd. and Navketan International Films (P) Ltd. delivered earlier have been rightly overruled by the Bombay High Court in the a aforestated cases reported in : [1994]207ITR410(Bom) (supra) and : [1994]209ITR976(Bom) (Supra).
7. Accordingly, reference is disposed of.