Mrs. Sujata V. Manohar, J. - (1.) The appeals pertain to assessment year 1983-84. The following question of law was referred to the High Court for determination at the instance of the Revenue:"Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that having regard to the provisions of Sections 40(c) and 40A (5) (b) of the Income-tax Act, the remuneration paid to the Directors in respect of their employment outside India has to be excluded from the limit of Rs. 72,000/- laid down in the first proviso to Section 40A(5)(a) as well as Section 40(c) of the Income-tax Act, 1961 - Facts: The respondent-assessee is a civil construction company which has executed a large number of projects outside India. Its overseas projects include Irrigation and Hydle Projects in Libya, a Fibre Board Factory at Abu-Sukhair in Iraq and the Karkh Water Supply Project, Baghdad which had a total value of 534 million dollars.
(2.) For the assessment year 1983-84, the assessee had paid a sum of Rs. 14,0074,570/- to its Directors as remuneration and commission. The Income-tax Officer disallowed a sum of Rs. 13,94,98,570/- being excess amount over the limit of Rs. 72,000/- per Director prescribed under Section 40(c) and Section 40A(5)(a) of the Income-tax Act, 1961. The respondent did not dispute the disallowance of Rs. 7,61,05,230/- payable to the two India based Directors subject to the allowance of Rs. 72,000/- each as laid down in Sections 40(c) and 40A(5)(a). The dispute related to the remuneration paid to the Directors who were stationed outside India in connection with the work of the respondent-assessee. According to the assessee the amount paid to its employee-Directors in respect of their employment outside India was not to be taken into account while calculating the ceiling under Section 40A(5) or Section 40(c).
(3.) The assessee filed an appeal before the Commissioner of Income-tax who modified the order of the Income-tax Officer and held that any remuneration paid to employee-Directors in respect of any period of their employment outside India should not be taken into account while calculating the expenditure subject to the ceiling limit of Rs. 72,000/- under Section 40(c) and 40A(5)(a). The department preferred an appeal before the Tribunal from the order of the Commissioner of Income-tax. The Tribunal dismissed the appeal.;