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TMI Blog1987 (1) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... aon. The factory itself is situated at Chalisgaon. The shareholders were directly involved in the activity of the company, as seen from the fact that the regular office establishment consists of only one manager and one messenger. The names of Directors along with the dates of appointments are as below: S. No. Name Date of appointment 1. Shri Mohanrao Abasaheb Gade (Kopargaon, Dist. Ahmednagar) 21-2-1977 2. Shri Fakirrao tanaji Deshmukh (Chalisgaon (Dist. Jalgaon.) 21-2-1977 3. Mrs. Sulochanabai Mohanrao Gade Kopargaon (Dist. Ahmednagar) 21-2-1977 4. Mrs. Sushilabai Fakirrao Deshmukh (Chalisgaon (Dist. Ahmednagar) 28-3-1977 5. Shri Pundlik Narayan Pai Kopargaon (Dist. Ahmednagar) 21-2-1977 6. Mrs. Bharati Pundlik Pai Kop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 31-3-83 1983-84 9,04,136 16,738 1,44,000 31-3-84 1984-85 9,14,371 21,433 1,44,000 31-3-85 1985-86 15,12,864 25,544 1,44,000 3. Coming to the order of the ITO, Shri Sathe explained how the ITO has proceeded on the wrong basis. Firstly, the ITO has gone on the basis of comparison with public limited company having substantial office managerial staff. Even in the case of public limited company, although the normal sitting fees would not exceed Rs. 500 per meeting, there is no ceiling even on public limited companies. As on illustration Shri Sathe invited our attention to a recent notice of a public limited company M/s Bajaj Tempo Ltd. Where the Directors' sitting fees increased from Rs. 250 per meeting to Rs. 750 per meeting. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the business needs. Apart from the minute books which recorded major decisions taken by the Directors and which were produced before the authorities below there is also further evidence to indicate that the Directors continued to take interest in the day to day affair and did not stop with merely looking into papers put before them on the date of the said meeting. 4. Shri Sathe then pointed out that the authorities below have laid undue stress on the alleged absence of qualification. This is also not correct. The qualifications of the Directors are as below: S. No. Name of the Directors Qualifications 1. Mr. M.A. Gade M.Sc. (Agrl) U.S.A. 2. Mr. F.T. Deshmukh. B.E. (Civil) 3. Mrs. S.M. Gade B.A. 4. Mrs. S.F. Deshmukh. Matr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention made before him that the office establishment consisted only of one manager and one person. The total office salary figures have already been mentioned in the table in para 2 above. Again the CIT(A) has found fault with the adequacy of the work done during the directors meeting by referring to one item where the Directors decided to purchase 6 Moulds and 40 Rings. The cost of these items was more than Rs. 1 lakhs and could not certainly have been looked into merely by the Office Manager. Shri Sathe further submitted that the CIT(A) has again not realised the extent of efforts put in by some of the Directors, like Mr. P.N. Pai for obtaining cement in those days of cement shortage. Lastly, the CIT(A) has again erred in comparing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ITO has not referred to s. 40A in express terms, the tenor of this order shows that he was applying the very tests which are mentioned in s. 40A being legitimate needs of the business and the ultimate benefit to the business. The departmental representative contended that as far as the company is concerned, if it could get the services of the Directors and shareholders during the initial years, without payment of any sitting fees, there is no reason why the same Directors should increase their own emoluments to an astronomical figure as Rs. 1,000 per Director per meeting. The assessee has not shown any justifications for such an escalation which is effect meant appropriation of all the profits. Since however, it is admitted that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n after applying the test mentioned in s. 40A(1) there is no basis for any disallowance. Firstly, as rightly pointed out by Shri Sathe the company has no regular office establishment which would enable the Directors to delegate the powers of management to the office establishment consisting of one manager and one peon-cum-messenger. The fact that the Directors have not taken regular remuneration for day to day work but have remunerated themselves for their efforts through Directors meeting fees cannot also be a ground for holding that the reasonableness of the sitting fees should be decided with reference only to the work reflected in the minutes of such meetings. The authorities below were not right in examining through a micro-scope as it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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