V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal referred the following two questions of law arising out of the order of the Tribunal under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1976-77 : "1. Whether the remuneration as was originally paid, Rs. 1,56,901, as per orders then existing is allowable or the remuneration which was restricted by a subsequent order dated October 29, 1976, to Rs. 1,20,000 is to be allowed as an expenditure for the assessment year 1976-77 ?
(2.) WHETHER, for the purpose of allowing a claim for remuneration to the managing director, it could be said that the limit prescribed under Section 40(c) of the maximum remuneration of Rs. 72,000 would apply only to cases where the pre-requisite condition that the remuneration paid was excessive in nature or not is complied with by the Department ?" 2. The brief facts of the case are that the company has made payment of Rs. 1,56,901 to its three directors. The Company Law Board, vide order dated October 29, 1976, revised its earlier order and fixed the maximum remuneration at a figure of Rs. 1,20,000. Consequently, the excess remuneration paid to the directors was recovered. The Income-tax Officer came to the conclusion that, since the remuneration paid was in excess of the permissible maximum limit, the same was disallowed and more so in accordance with the order of the Company Law Board, the deduction has to be made only to the extent of Rs. 1,20,000. At the stage of the Tribunal, a question was raised as to whether the provisions of Section 40(c) are applicable to examine as to whether the remuneration paid is excessive or not. The Income-tax Appellate Tribunal entertained this ground and remitted the matter to the Commissioner of Income-tax (Appeals). So far as the question of levy of entire remuneration originally paid is concerned, it has to be seen whether there is any restriction under any law, and if so, the company has to follow that restriction and any amount paid contrary to those restrictions cannot be allowed as deduction. Under Section 309(5A) of the Companies Act, if the remuneration is paid in excess, then the said director has to refund it and the amount, till it is refunded, has to be held in trust for the company. In the present case, though the order of the Company Law Board was dated October 29, 1976, which was after the end of the assessment year, it was made applicable for the assessment year in question and the company itself has recovered the said amount from the directors, which was in excess of the maximum remuneration permitted by the Company Law Board. In these circumstances, the Income-tax Officer was justified in restricting the deductible expenditure to the extent of Rs. 1,20,000. Regarding the fresh ground, which was taken for the first time before the Tribunal, we find that, in accordance with the Income-tax (Appellate Tribunal) Rules, 1963, Rule 11 provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule. From a perusal of the above rule, it is evident that it is in the discretion of the Tribunal to allow any fresh ground. The only exception is that an opportunity should be given to the other party which is affected. This matter has been considered by the Supreme Court in the case of CIT v. Mahalakshmi Textiles Mills Ltd. [1967] 66 ITR 710, wherein it has been held that the Departmental authorities would be under a duty to consider the claim even on alternative grounds. This court in Deep Chand Kothari v. CIT [1988] 171 ITR 381 and in CIT v. Delhi Sanitary Stores [1981] 127 ITR 822, have also taken the view that new questions can be raised before the Tribunal. In these circumstances, we are satisfied that the Tribunal was justified in allowing the questions with regard to the applicability of Section 40(c). Accordingly, the reference is answered in favour of the Revenue and against the assessee and it is held that the Income-tax Officer was justified in allowing deduction to the extent of Rs. 1,20,000 and that the Tribunal was further justified in allowing the Department to raise the questions regarding the applicability of Section 40(c) of the Income-tax Act, 1961.;