1976 (3) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Excessive or unreasonable remuneration under section 10(4A) of the Indian Income-tax Act, 1922.
2. Applicability of section 10(2)(xv) vs. section 10(4A).
3. Jurisdiction of the Income-tax Appellate Tribunal to rectify its own orders.

Issue-wise Detailed Analysis:

1. Excessive or unreasonable remuneration under section 10(4A) of the Indian Income-tax Act, 1922:
The Income-tax Officer (ITO) disallowed part of the remuneration and commission paid to two joint managing directors, Shri A. K. Das and Shrimati Sujata Saha, on the grounds that it was excessive and unreasonable. The ITO allowed only Rs. 750 per month as salary for Shrimati Sujata Saha and Rs. 750 per month plus 1% commission on sales for Shri A. K. Das, resulting in a total disallowance of Rs. 56,887. The ITO based this decision on section 10(4A), which allows disallowance of expenditure if it is excessive or unreasonable having regard to the legitimate business needs and the benefit derived by the company.

2. Applicability of section 10(2)(xv) vs. section 10(4A):
The Appellate Assistant Commissioner (AAC) modified the ITO's order, allowing Rs. 1,000 per month for Shri A. K. Das and maintaining Rs. 750 per month for Shrimati Sujata Saha. The AAC considered both sections 10(2)(xv) and 10(4A) but did not explicitly state which section was applied. The Income-tax Appellate Tribunal (ITAT) initially upheld the AAC's decision, stating that the disallowance was correctly made under section 10(4A), which specifically addresses excessive or unreasonable allowances. The ITAT noted that the decisions under section 10(2)(xv) were not applicable to cases falling under section 10(4A).

3. Jurisdiction of the Income-tax Appellate Tribunal to rectify its own orders:
The ITAT later entertained a rectification application from the assessee, arguing that the AAC had not explicitly applied section 10(4A) and that the ITAT had erred in its initial order by focusing solely on section 10(4A). The ITAT quashed its previous order and directed a rehearing, citing a mistake apparent from the record. The High Court, however, held that the ITAT had no jurisdiction to pass the impugned order of rectification, as the mistake was not apparent from the record and was subject to two reasonable views. The High Court emphasized that the ITAT's initial order was justified under section 10(4A) and that the AAC's order had implicitly considered both sections.

Conclusion:
The High Court quashed the ITAT's rectification order and directed the ITAT to proceed in accordance with the law, reaffirming the applicability of section 10(4A) in assessing the reasonableness of the remuneration and commission paid to the joint managing directors. The rule was made absolute, and no costs were awarded. The High Court also rejected the argument that the ITAT could not recall its previous order after circulating the draft statement, stating that earlier steps are tentative until a reference is actually made.