Directors' fees and board meetings' fees paid to directors are included in the ceiling of Rs. 72,000 prescribed under section 40(c)(i)(A) of the Income Tax Act, 1961.

JUDGMENT :

R.K. Abichandani, J.

1. The assessee, a public limited company, in its returns for the assessment years 1972-73 and 1973-74, claimed deduction of remuneration paid to the directors, besides directors' fees and committee board's meetings fees. The Income-tax Officer held that the ceiling of Rs. 72,000 prescribed under the provisions of section 40(c)(i)(A) of the Income Tax Act, 1961 (hereinafter referred to as "the said Act"), applied with reference to the remuneration as well as fees of the directors' and committee meetings paid by the company to the directors. He, therefore, disallowed a sum of Rs. 31,500 in all for the assessment year 1972-73 and a sum of Rs. 28,000 for the assessment year 1973-74. In the appeals filed before the Appellate Assistant Commissioner, he took the view that the directors fees and committee meeting fees were not covered by the expression "remuneration or a benefit or an amenity" within the meaning of section 40(c)(i)(A) of the said Act. He, therefore, restricted the disallowance to Rs. 16,000 for the assessment year 1972-73 and to Rs. 16,000 for the assessment year 1973-74 being the excess amount of remuneration paid to each of the directors over the prescribed ceiling of Rs. 72,000.

2. The Revenue challenged the orders of the Appellate Assistant Commissioner before the Tribunal and the Tribunal found that the Income- tax Officer was justified in coming to the conclusion that the ceiling prescribed under the said provision was to be applied by working out the total payment made by the company to the directors by way of remuneration as well as fees paid for attending company and board's meetings. The Tribunal, therefore, reversed the decision of the Appellate Assistant Commissioner and partly allowed both the appeals.

3. In the above background, the Tribunal has referred for the opinion of this court under section 256(1) of the said Act the following question in the two reference applications, namely, Reference Applications Nos. 70 and 72/(Ahd.) of 1979 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ceiling of Rs. 72,000 prescribed under section 40(c)(i)(A) of the Income-tax Act applied to directors' meeting fees and directors' fees for considering the disallowable excess ?"

4. Section 40(c)(i)(A), as it was operative during the relevant period, read as under :

"Section 40. - Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession', ....

(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, ....

if, in the opinion of the Income-tax Officer, any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it there from, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed

(A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees : "

5. There is no dispute about the fact that the amount which was paid as board of directors meetings' fees or board meetings fees to the directors of the assessee-company was for the services which were rendered by them as such directors. It will be noticed from the provisions of section 309(2) of the Companies Act, 1956, dealing with the topic of remuneration of directors, that a director may receive remuneration by way of a fee for each meeting of the board, or a committ