Suhas Chandra Sen, J.
1. The assessee has sought for reference of as many as three questions but the Tribunal has referred only one question which was not exactly in terms of the language of the three questions raised by the assessee. The Tribunal has reframed the question and this question covers the entire controversy in this case. The question referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961, to this court is as follows :
'Whether, on the facts and in the circumstances of the case and on a correct interpretation of the provisions of Section 40(c)(i) of the Income-tax Act, 1961, the Appellate Tribunal was right in upholding the disallowance of Rs. 1,13,000 being the excess over the limit of Rs. 72,000 laid down in the aforesaid provisions of the Act ?'
2. The facts of the case as found by the Tribunal have been stated as under :
'The assessee is a company and the relevant assessment year is 1972-73. The corresponding accounting period ended on March 31, 1972. The assessee regularly maintained accounts on the mercantile system. In the course of the relevant assessment proceedings, the Income-tax Officer noticed that the assessee-company paid commission to Sri M. L. Jalan in accordance with the resolution of the board of directors dated July 13, 1970, by debiting miscellaneous expenses in respect of the cotton mill section by Rs. 70,000 and in respect of the jute mill section by Rs. 1,15,000. According to the resolution, Sri Jalan was paid guarantee commission with effect from April 1, 1969, at the rate of 1% in each financial year of the company upon the maximum amount so guaranteed by him. Shri M. L. Jalan is the father of Shri T. R. Jalan, director of the assessee-company. In view of the provisions of Section 40(c), the Income-tax Officer restricted the claim to Rs. 72,000 and disallowed the balance of Rs. 1,13,000 in the assessment.
Before the Appellate Assistant Commissioner, it was contended that Shri M. L. Jalan, who was one of the guarantors to the State Bank of India for cash credit facilities extended by the bank to the assessee-company, was not in any way remunerated by the assessee-company and, therefore, the claim did not fall for consideration under Section 40(c). This was rejected by the Appellate Assistant Commissioner who upheld the disallowance.'
3. When the case went to the Tribunal on appeal, the Tribunal held as follows :
'We have heard both sides. In fact, there are two guarantors, namely, Shri M. L. Jalan and Shri C. L. Bajoria. Shri Bajoria did not ask for any guarantee commission nor was he paid any. No doubt, the assessee incurred an expenditure because of payment of guarantee commission to Shri M. L. Jalan. It is not necessary that only remuneration would come for consideration under Section 40(c). As a matter of fact, any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to the concerned person would fall for consideration under Section 40(c). In this case, no doubt, Shri M. L. Jalan was benefited by the expenditure incurred by the assessee-company. Therefore, the limit of allowance of Rs. 72,000 would immediately be applicable and the authorities below were right in so applying it to the instant expenditure. In this context, we do not find any reason to interfere with the Appellate Assistant Commissioner's decision in the matter.'
4. The relevant portion of Section 40, Sub-clause (c), is as under :
'40(c) in the case of any company--
(i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be ; ...'
5. The section will be applicable in a case where the expenditure relates directly or indirectly in the provision of any remuneration or benefit or amenity to a person substantially interested in the company or to a relative of the director or such person, as the case may be. There is no dispute that the guarantee commission was given to the father of a director. Therefore, the only question is whether, this guarantee commission will come within the ambit of the expression 'remuneration or benefit or amenity' to a director. No case has been made out that any remuneration or amenity has been given to a director or his father. Thus, the only question is whether the father of the director has enjoyed any benefit of any expenditure incurred by the company.
6. That the guarantee has been given by the father of a director is not in dispute but the amount of guarantee commission has been paid in return for service rendered by M. L. Jalan, who stood guarantor for a loan obtained by the company. The liability of the guarantor is co-extensive with that of the debtor. If the debtor fails to pay the loan, the guarantor will be liable to pay the loan. If the guarantor fails to pay the loan, his personal assets and properties may be attached and sold in execution of any decree that may be passed in respect of that loan. Therefore, by giving the guarantee, M. L. Jalan has exposed himself to a liability. It is for his undertaking that liability that remuneration is being paid. This cannot be described as a benefit. If anything, he has taken upon himself the liability for which he is being remunerated.
7. In the case of Suessen Textile Bearings Ltd. v. Union of India [1984] 55 Comp Gas 492 (Delhi), the nature of guarantee commission paid to a director was examined by the Delhi High Court in the context of the provision of Section 309 of the Companies Act, 1956. There, it was observed that when a director of a company did not do anything namely, clerical, technical, supervisory or administrative work, but he got the commission, that amount would not be treated as remuneration for services rendered within the meaning of Section 309.
8. Having regard to the facts and circumstances of the case under which the commission was paid, in our opinion, this will not come within the ambit of the phrase 'remuneration or benefit or amenity.'
9. Mr. Bagchi, appearing for the Revenue, has contended that this language has not been used in the reference. I am unable to uphold this contention. The language of the three questions the assessee sought to refer was considered by the Tribunal and the Tribunal consolidated the same in one question and has referred the same.
10. The controversy is, if the guarantee commission is not included, then the disallowance of Rs. 1,13,000 in excess over the limit of Rs. 72,000 will not be made.
11. In the facts and circumstances of the case and in view of the aforesaid, the question is answered in the negative and in favour of the assessee.
12. There will be no order as to costs.
Bhagabati Prosad Banerjee, J.
13. I agree.