Refunded excess amount of Remuneration as per provisions of Companies Act, 1956, can’t be held as Income of Assessee: ITAT [Read Order]

excess amount of remuneration - provisions of Companies Act - income of assessee - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench held that refunded excess amount of remuneration as per provisions of Companies Act, 1956, could not be held as income of the assessee.

The assessee, Rajamannar Thennati was employed with Sun Pharma Advance Research Co. Ltd. as whole time director of the company with a maximum salary of Rs. 3.5 crores as per the resolution passed in the annual general meeting of the company.

Since there was a limit for payment of remuneration to the whole time director as per the Company Act, 1956, therefore, the company has made an application to the Ministry of Corporate Affairs, Govt. of India for approving the salary of the whole time director as per the resolution passed in the annual general meeting dated 31st July 2012. However, the Central Government has approved the salary of the whole time director at a lesser amount.

The company had made a second application to the Central Government to approve the excess salary, however, no response was received from the Central Government.

Consequently, the assessee was asked to refund the excess salary of Rs. 2.14 crores out of Rs. 1.99 crores pertained to the year under consideration. The assessee has refunded the excess amount of salary to the company and filed a revised return of income showing the actual amount of salary received as approved by the Ministry of Corporate Affairs, Govt. of India.

However, the Assessing Officer has taxed the excess amount as salary income on the ground that the amount was received by the assessee.

The CIT(A) has deleted the addition holding that refund of salary by the assessee was not voluntary but was to comply with the legal requirements of the law, therefore, the same cannot be considered as income accessible to tax.

The Coram consisting of Mahavir Prasad and Amarjit Singh in the light of the decision of the Delhi High Court considered that the refund was made merely with a view to complying with the provisions of Companies Act, 1956.

Therefore, the ITAT while upholding that order of CIT(A) held since the assessee has refunded the excess amount of remuneration in view of the legal requirement contained in the provisions of Companies Act, 1956, the same could not be held as income of the assessee.

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