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Determination of deduction under section 10(2)(xv) of the Income-tax Act for remuneration paid to managing director and technician directors. Analysis: The case involved a private limited company engaged in motion picture production, with the managing director and three technicians receiving remuneration in the form of honoraria, salaries, commission, and bonuses. The company claimed a deduction of &8377; 59,100 under section 10(2)(xv) of the Income-tax Act for the year 1946. The Income-tax Officer disallowed a portion of this claim, amounting to &8377; 23,100, which was upheld by the Appellate Assistant Commissioner and the Appellate Tribunal. The main question referred to the court was whether the disallowance of &8377; 23,100 was permissible under section 10(2)(xv). The court emphasized that the test for deduction under this section is whether the expenditure was laid out wholly and exclusively for the purpose of the business, based on principles of commercial expediency. The court cited precedents such as Eastern Investments Ltd. v. Commissioner of Income-tax and Rayaloo Iyer and Sons v. Commissioner of Income-tax to establish the legal framework for determining such deductions. The court criticized the subjective standard applied by the taxing authorities in disallowing the claim, highlighting that the increase in salaries was authorized in good faith by the shareholders before substantial profit increases were known. The court emphasized that the taxing authority has no jurisdiction to determine the reasonableness of remuneration fixed by the assessee, as long as it is incurred solely for business purposes. The court clarified that the disallowance should only occur if the reality of the payment is challenged or if there are other reasons beyond business purpose for the payment. Ultimately, the court ruled in favor of the assessee, stating that the expenditure on salaries was incurred voluntarily and on grounds of commercial expediency, meeting the criteria for deduction under section 10(2)(xv). The court answered the referred question in the negative, allowing the assessee to claim the full deduction of &8377; 59,100 and awarded costs to the assessee. In conclusion, the judgment clarified the legal principles governing the deduction of expenses under section 10(2)(xv) of the Income-tax Act, emphasizing the importance of commercial expediency and business purpose in determining the allowability of such deductions.
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