H.N. Seth, J. - (1.) THESE four references, made under Section 256(2) of the I.T. Act, 1961, can be conveniently disposed of by a common judgment.
(2.) THE assessee in I.T.R. No. 865 of 1977 and I.T.R. No. 88 of 1978, M/s. Shervani Sugar Syndicate (P.) Ltd., Allahabad, is a company registered under the Indian Companies Act. Daring the previous years, relevant to assessment years 1970-71 and 1973-74, the company paid the following amounts as annual remuneration to its directors, other than the managing directors: 1. Rs. 6,000 for the assessment year 1970-71. 2. Rs. 13,500, for the assessment year 1973-74. The assessee in I.T.R. No. 86 of 1978 and 87 of 1978 is M/s. Marketing Services Agency (P.) Ltd., which too is a company registered under the Indian Companies Act. During the previous years relevant to the assessment years 1971-72, 1972-73 and 1973-74, this assessee also paid a sum of Rs, 3,069, Rs, 6,684 and Rs. 6,257, as annual remuneration to its directors. Both the assessees claimed that the amount of annual remuneration paid by them to their directors should be deducted while computing their income under the head, "Profits and gains of business or profession". The ITO disallowed the claim of the assessees on the finding that payment of the remuneration in each of three cases was not justified and they appeared to have been paid for consideration other than that of business of the company. The assessees took the matter up before the AAC and the Income-tax Appellate Tribunal. Both the authorities upheld the disallowance of the annual remuneration paid to the directors in each of the three cases.
(3.) EVENTUALLY, at the instance of the assessees this court required the Appellate Tribunal to state the case in respect of the following questions of law for the opinion of the court : For the year 1970-71 (Reference No. 865 of 1977): " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs. 6,000 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction from the income of the assessee ? " For the assessment years 1971-72 and 1972-73 (Reference No. 86 of 1978): "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the sum of Rs. 3,069 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction under Section 40(c) of the Income-tax Act, 1961 ? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the sum of Rs. 6,684 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction under Section 40(c) of the Income-tax Act, 1961?" For the year 1973-74 (Reference No. 87 of 1978): "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs. 6,257 paid by the assessee as annual remuneration to the directors of the company was not eligible for deduction from the income of the assessee ? " For the year 1973-74 (Reference No. 88 of 1978) : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs. 13,500 paid by the assessee as annual remuneration to the directors of the company was not eligible in whole or in part for deduction from the income of the assessee ? " Parties are agreed that the aforementioned question in the case of M/s. Marketing Services Agency (P). Ltd. (References Nos. 86 and 87 of 1978) has arisen in exactly the same circumstances in which the aforementioned questions have arisen in the case of M/s. Shervani Sugar Syndicate (P.) Ltd. (References Nos. 865 of 1977 and 88 of 1978) and that the answer in the two cases of M/s. Shervani Sugar Syndicate (P.) Ltd. would govern the I.T.R. Nos. 86 and 87 of 1978 as well. Accordingly, we proceed to state the facts of the two cases of M/s. Shervani Syndicate only.;