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August 2015

Business expenditure – Disallowance of payment to directors – Section 40(c) – A. Y. 1981-82 – Film production – Amounts paid as professional charges to directors for directing and producing film – Amounts not paid in their capacity as members of Board of Directors – No disallowance can be made u/s. 40(c)

By K. B. Bhujle Advocate
Reading Time 1 mins
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CIT vs. Rupam Pictures Pvt. Ltd.; 374 ITR 450 (Bom)

The assessee was in the business of production of films. In the A. Y. 1981-82, two directors of the assessee company were paid Rs. 3 lakh and Rs. 1.5 lakh, respectively for directing and producing a film. The Assessing Officer applied section 40(c) of the Income-tax Act, 1961 and disallowed the payment in excess of Rs. 72,000/- in respect of each of them. The Tribunal deleted the addition.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The disallowance made by the Income-tax Officer u/s. 40(c) was not justified. The amounts paid to the two individuals were not paid in their capacity as members of the Board of Directors but as professional charges for directing and producing a film.

ii) The Revenue was, therefore, not justified in disallowing the claim, the character of remuneration mode being different.”

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