1977 (2) TMI 51

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..... that for the assessment years 1972-73 and 1973-74, the said Shri. S. Vaideeswaran had been paid a sum of Rs. 25,942 and Rs. 26,728 respectively. The ITO was of the opinion that the commission paid was highly excessive, as it worked out to 25% of the gross profit and 45% of the net profit and was even greater than the share of any of the partners of the firm. He also found that Shri Vaideeswaran was the brother-in-law of one of the partners Shri R.K. Swami. He, therefore, invoked the provisions of s. 40A(2) of the Act and thought it fit to allow only a sum of Rs. 2,400 per year as the adequate remuneration for the employee and added back a sum of Rs. 19,642 for the assessment year 1972-73 and Rs. 20,428 for the assessment year 1973-74 in de .....

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..... even though the assessee has been paying the amounts for several years, the fact that the person concerned was related to one of the partners and the fact that the services rendered by him could not merit such high remuneration should lead us to infer that the payment was for extra commercial consideration. The assessee opposed this contention by pointing out that the remuneration paid has been progressively increasing only because of the fixed rate linked to the turnover and that if the turnover should fall, the remuneration would also fall. It was thus submitted that the remuneration paid cannot be considered to be excessive merely because it fluctuated according to the prospects of the business which itself indicated that the person con .....

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..... employee. On the other hand, this fact supports the case of the assessee for the partners, other than the one related to the employee, could not be expected to agree for payment of such remuneration resulting in reduction of the share of their profits unless the employee concerned was rendering services commensurate with the payment made to him. In the circumstances of the case, it must be held that the Revenue has not made out any case of extra commercial consideration in the payment of remuneration to the employee and we see no reason for restoring the disallowance made by the ITO. We have, therefore, no hesitation in confirming the common order of the AAC. 6. In the result, the appeals are dismissed.
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