Higher Remuneration paid to Director of Company can’t be disallowed as there is No requirement to get Approval from Govt: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai has held that the excess Remuneration paid to the Director of the Government cannot be disallowed since there is no requirement to get approval from the Central Government.

In the instant case, the assessee is unlisted closely held company and it was 99.99% subsidiary of M/s Beginninger AG a Swiss Company. The Managing director of the assessee is a professional director but does not hold any equity/share capital of the assessee. The assessee company claimed as deduction of remuneration paid to the Managing Director but the AO while framing the assessment disallowed part of the remuneration by invoking the provisions of Section 40A(2) of the Income Tax Act by stating that the payment made was excessive of the limits prescribed under companies Act 1956 and hence, it was in violation of Company Law as no permission was obtained from the Central Government.

Deleting the order, the Tribunal held that there is no tax evasion and there is reasonableness of managerial remuneration.

“Now no approval is required from the Central Government for making payment of higher remuneration even in case of loss in the case of unlisted public company. In view of these facts, we are of the view that this is allowable expenditure and we allow the same accordingly. Orders of the lower authorities are reversed and this issue of assessee’s appeal is allowed,” the Tribunal said.

To Read the full text of the Order CLICK HERE