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TMI Blog1976 (2) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... at different voltages and are utilised in large numbers for supplying electricity to the signals used by the railways. The reasons given by the authorities below for holding that the equipment manufactured by the assessee does not fall within item (7) of the fifth Schedule to the Income Tax Act are challenged as not representing the correct facts. All that the items therein require is an equipment or an apparatus which generates or transmits electricity and in the present case the products manufactured by the assessee satisfied those conditions. The machinery used for the manufacture of that equipment, therefore, is entitled to development rebate at the higher rate. 3. The learned counsel for the Department has pointed out that the items manufactured by the assessee cannot come under the head "equipment" under item (7) in the Fifth Schedule. What is entitled to the relief is the equipment which generates and transmits electricity. The learned counsel for the Department argued that in so far as the assessee does not produce any electricity which is absolutely necessary for bringing its case within item (7) of the Fifth Schedule, the claim should be rejected. The assessee is at bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity in a continuous and unending process they would not require total replacement after their short spans of life. I do not see why the large batteries attached to railway passenger coaches cannot also be similarly classified." None of these tests laid down by the Appellate Asstt. Commissioner would disentitle the assessee to the claim. The life of any equipment, hevy, light, small or big, depends on several factors. Its life by itself does not make the equipment for a particular purpose any the less for that purpose. What we have to see for the purpose of item (7) is whether the equipment is for the generation and transmission of electricity. The light signals of the railway system as per admission of both sides are run entirely with electricity generated from the Cells and transmitted to the signals through appropriate cables. As for electricity, there could be no difference between what is produced from an ordinary cell, a dynamo or stepped down from a powerful grid, nor can one say that a dynamo or a transformer or transmission tower referred to specifically in item (7) would have an eternal life. By its very nature, things manufactured by human ingenuity last for a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the assessment year 1974-75 the assessee claimed overall expenses of Rs. 1,12,000 under this head. The payments to the three above directors were Rs. 42,000, Rs. 35,000 and Rs. 35,000 respectively. The Income-tax Officer went to the details of the assessee's business, compared the quantity of items produced, the sale value, the sale price, expenses, peak profit etc., and came to the conclusion that the assessee's business had actually declined. There was no justification, having regard to the details, for increasing the remuneration of any of the directors over what they were paid in the earlier year. He held that the increased payment was not wholly and exclusively laid out for the purposes of the assessee's business or based on business considerations. Fixing the reasonable remuneration at Rs. 84,000 for the three directors he disallowed the excess remuneration of Rs. 24,000. On appeal this was upheld by the Appellate Assistant Commissioner. 7. The leorned counsel for the assessee has pointed out that the directors' remuneration was increased since they had to put in more effort and energy than in the earlier years. There was a decline in orders for the assessee's gods from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. On the contrary, if the business of the company were to retain the continuous downward trend as seen, even the present state of remuneration to the directors could not be sustained. Nothing has been brought before us to show that in similar conditions directors have been paid the same, if not more, remuneration than the assessee company pays to its directors. In fact, the other employees of the assessee are paid a far smaller figure of remuneration than the directors and the increment offered to them during the year is also negligible. Thus, while on the one hand the downward trend of the business did not warrant any increased remuneration but on the contrary justified even a lowering of the same, on the other hand, nothing has been produced to show that compared with the market trend of salaries, these directors were to be paid more or were entitled to as high a rate of increment as granted by the assessee. We are fully aware that what salary should be paid to an employee or director is concerned with the assessee and the Income Tax Officer is not a final arbitrator. In these matters the assessee knows best the needs of its business. But even so, the grant of an increase in s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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