TMI Blog1959 (10) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ese managing directors was, however, not to be paid by Cement Agencies Ltd. but by the four principal shareholders. The assessee company appointed Mr.Captain as one of the managing directors on its behalf and the remuneration payable to Mr. Captain was recorded in a letter addressed by Mr.F.E.Dinshaw to him on 29th October, 1935. The remuneration was payable to him on a percentage basis relative to dividends declared by Cement Agencies Ltd. but the minimum remuneration was to be ₹ 60,000 per year. That arrangement continued till 30th September, 1951. On 30th September, 1951, the assessee company terminated the services of Mr. Captain. The arrangement between the four principal shareholders and the Cement Agencies Ltd. operative from 1st October, 1951, was that the salary of the four managing directors was to be paid thereafter not by the four principal shareholders but by the Cement Agencies Ltd. itself. The salary in case of Mr.Captain was to be ₹ 3,600 per month with certain allowances. under the agreement recorded in the letter of 29th October, 1935, Mr. Captain had in the meantime been getting remuneration varying between ₹ 86,000 and ₹ 1,25,000 every ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 33,600. The view he took of the matter was that in the absence of any specific period of service agreed to between the parties concerned, Mr.Captain was entitled to only a reasonable notice and the damages or compensation payable to him should be the salary that he would have earned during that period of notice. He took the view that three month's notice would be reasonable in the circumstances of the case and fixed the permissible deduction at ₹ 33,600. In appeal both the president and the Accountant member gave different reasons for the conclusion reached by the Tribunal. The President was of the opinion that Mr.Captain was entitled to a reasonable notice and held that the amount allowed by the Appellate Assistant Commissioner was reasonable compensation for terminating Mr.Captain's services. The Accountant Member on the other hand took a different view of the matter and in his opinion the claim for deduction relating to ₹ 1 lakh stood on the same footing as the claim relating to payment of ₹ 1,34,400 as remuneration to Mr. Captain. In his order, he referred to the letter of 27th December, 1951, addressed by Mr. Captain to the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any doubt or suspicion. The reasoning of the President proceeds on the footing that the letters recorded the true state of affairs, the only question decided being that the sum of a lakh of rupees was excessive compensation paid by the assessee and that compensation commensurate with three months' salary would have been adequate in the circumstances of the case. It is further argued that there is not a single factor in this case which may be said as suggesting or showing that the payment was not laid out wholly or exclusively for the purpose of the business of the assessee company. The argument ran that the assessee was bound to make a compensation for termination of Mr.Captain's services without giving a proper legal notice and if it made compensation to the discharged employee bona fide and solely as a matter of business expediency, there was no reason why the Department should not have accepted that payment as permissible revenue deduction. Now, the general principle underlying the subject of allowances or deduction permissible on the ground that the expenditure is laid out wholly or exclusively for the purpose of an assessee's business is firmly established. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business or our of generosity. The test, in fine, must be of commercial expediency. The indisputable starting point in matters of this kind should be an objective approach and there should be no setting up of any subjective standards. The foremost consideration, as we have mentioned, is the one laid down by the Legislature itself and it is that the expenditure must have been wholly and exclusively laid out for the purpose of the business. Mr. Kolah, learned counsel for the assessee, has relied on a decision of the Madras high Court in Newtone Studios Ltd. vs Commissioner of Income-tax, (1955) 28 ITR 378. That case related to payment of remuneration to a member of the staff of the assessee but the principle is the same Mr. Kolah has particularly relied on the following observations of the court at page 385: Under out taxing system, it is for the assessee to conduct his business, and in his wisdom or otherwise to fix the remuneration to his staff. The Income-tax Act does not clothe the taxing authority with any power or jurisdiction to determine the reasonableness of the amount so fixed and paid by the assessee. The only test for the deductibility of such remuneration is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these factors into consideration he comes to the conclusion that the payment was not made wholly and exclusively for the purpose of the business of the assessee, it would be open to him to either disallow the whole sum or a part of the sum aid. The question whether a particular sum was expended wholly and exclusively for the purposes of such business must essentially be a question of fact to be determined by the Income-tax officer. But it would be open to the assessee to counted, as it has been contended in this case, that the decision arrived at by the Income-tax Officer was based on no evidence at all. If the assessee satisfies the court that apart from the actual payment and existence of the agreement there were no other factors which were taken into consideration by the Income-tax Officer then perhaps the court would say that the Income-tax Officer was not justified in coming to the conclusion that he did. It was urged by Mr.Joshi that these observations do not wholly accord with what was laid down in the Madras decision. For our part we read these observations as affirming the identical principle and stating matters which would be of the nature of a corollary to the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type which from their very nature and from the nature of different employments must necessarily vary. it would not be proper in a case of this nature to expect the employer to settle the claim in a manner which would meet with the approval of the Department since from the nature of things it would be impossible for the employer to deal with the claim with plumb-line precision. Difficulty sometimes arises even when the court has to determine the period of reasonable notice. An instance in point which immediately strikes one is the well-known case of the insurance agent who had built up a business of an insurance company for many years. The decisions of the trial court in some cases where the employment is not of an ordinary nature but the court in some cases where the employment is not of an ordinary nature but involves complex facts. In case of an employee who does clerical work or of a stenographer, the position would not present any difficulty. But there are employment in which various considerations are bound to arise and do arise for the determination of the court and the present one certainly is one of those cases in which it would not be easy for the court to determine the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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