TMI Blog1956 (2) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted that the deduction claimed by the assessee comes within the admissible business expenditure as laid down in section 10(2)(ix) of the Income-tax Act, and also in view of the fact that the Appellate Tribunal has confirmed the said order of the Assistant Commissioner of Income-tax, we consider that the first question has not been accurately formulated, and we have accordingly recast the same as follows: (1) Whether in applying section 10(2)(ix) of the Burma Income-tax Act, after accepting that the expenditure has been incurred thereunder, is the Income-tax Department entitled to apply its mind to the question of reasonableness of the amount of expenditure claimed? Before setting out the facts of the case, we would like to point out that under section 66(1) of the Burma Income-tax Act before its amendment by Burma Income-tax Amendment Act, 1953, which created the Appellate Tribunal, when the Commissioner of Income-tax either on his own motion or on a reference from any Income-tax authority subordinate to him, refers to the High Court for decision of a case, he is required to draw up a statement of the case, and also give his opinion thereon. But now, after the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers to look after them, but this is only his personal matter. He may give his brothers a salary equivalent to a King's ransom if he so pleases and if he can so afford, but it does not mean that it would be a reasonable amount of expenditure for his business or that it constitutes an allowable sum for the purpose of income-tax assessment. The assessee appealed to the Assistant Commissioner of Income-tax, Eastern and Western Ranges, Rangoon, claiming, inter alia, the relief for setting aside the order of the Income-tax Officer totally refusing the deduction of K. 3,000 paid as messing allowance to his two brothers. The Additional Assistant Commissioner set aside the order of the Income-tax Officer, and allowed the deduction as being one admissible under section 10 (2)(ix); but at the same time he reduced the amount of permissible expenditure from K. 3,000 to K. 1,200, i.e., he allowed at the rate of K. 50 per month as messing fee for the two brothers instead of K. 125 per month as originally claimed. The relevant order of the Additional Assistant Commissioner reads: I have made enquiries in this matter in relation to the usual practice among similar traders. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure was a genuine one, it had to come to the conclusion that the assessee, incurred that expenditure not with the purpose of earning profit or gain, but must have been motivated by pure brotherly love and affection rather than for the purposes of his business efficiency having regard to the relationship existing between the assessee and the two persons. However, coming back to the facts of the case the assessee next moved the Tribunal to refer to the High Court four questions of law; but he finally conceded that only two questions as formulated above were really involved, and hence this reference. It is not in dispute that for assessment year 1952-53, the law applicable is the Burma Income-tax Act before its amendment in October, 1953, the relevant section of which reads: 10.(1) The tax shall be payable by an assessee under the head 'Business' in respect of the profits or gains of any business carried on by him. (2). Such profits or gains shall be computed after making the following allowances, namely:- (ix) Any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains: And, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure was wholly or exclusively laid out for the purpose of the business or not. To us, it is not clear that the Income-tax authority is fully competent to determine the bona fide nature of any item of expenditure by having regard, among other relevant considerations of facts, to the quantum or reasonableness of the expenditure in order to find out whether such expenditure was incurred wholly and exclusively for the business. We do not find anywhere, either in the decisions cited by the Appellate Tribunal, or in the notes of the learned author V.S. Sundaram, at the page above referred to, any authoritative statement that after having accepted that a particular expenditure was an expenditure wholly and exclusively incurred for the purpose of business , or incurred solely for the purpose of earning such profits or gains as provided in the Burma Income-tax Act, the Income-tax authority can again fix the quantum claimed, by adopting a subjective standard of reasonableness. Our attention has been drawn to a decision of the Madras High Court in Newtone Studios Ltd. v. Commissioner of Income-tax, Madras [1955] 28 I.T.R. 378, wherein the question as to whether the Income-tax author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction under section 10(2)(xv) of the Income-tax Act should be allowed or not, the Income-tax authority can consider whether the expenditure is justified on grounds of commercial expediency; but that it does not provide for any subjective standard of reasonableness to be adopted by the taxing authority; and at page 385, they observed: Under our 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 whether the expenditure has been incurred solely and exclusively for the purpose of the business. If the reality of the payment is challenged or is in dispute different considerations arise : so also in cases where the tax authorities are able to point to some consideration other than the purpose of the business as accounting for any portion of the payment made. In such cases, of course, such portion of the amount claimed, which is either not held to have been paid or is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no presumption as to a tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax. Applying this canon of construction to section 10(2)(ix), we must say that there is no specific provision therein, as in clause (viiia) of the said section, to justify the adoption of a subjective test of reasonableness by the taxing authorities, once they accepted that a particular business expenditure comes within its ambit of deductibility. No doubt, while the taxing authorities are considering whether a particular expenditure falls within the provisions of the said section, they are competent to examine whether that particular item was incurred bona fide or not, by having regard to the quantum or other surrounding circumstances, or to information which the taxing authorities could gather from sources connected with such business. But these considerations apply only before acceptance by the Income-tax authorities as permissible expenditure under section 10(2), clause (ix), of the Act. Once the Income-tax authorities have accepted that such an expenditure is permissible expenditure, within the ambit of the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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