9911796707
TMI Blog1967 (9) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... as carrying on business in rice and provisions on wholesale basis with head office at Changanacherry and branches at Kottayam and Cochin. The relevant assessment year is 1959-60 and the accounting period is the Malayalam year 1133 ending on August 16, 1958. In the Cochin branch the assessee's main business consisted of commission agency sales. The net profit of this branch as per the assessee's books was Rs. 1,16,265. In arriving at this amount, the assessee had claimed deduction of a sum of Rs. 19,377 stated to have been paid to one Mohammed Farooq by way of remuneration. The said Mohammed Farooq is the son of a sister-in-law of the assessee. He was employed by the assessee under an agreement dated August 17, 1957, executed between the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer the payment was motivated by considerations other than commercial expediency. The accounts disclosed that Mohammed Farooq had actually drawn only Rs. 1,716.89 during the accounting year in question. But, nevertheless, the Income-tax Officer allowed an amount of Rs. 2,400, being the minimum salary mentioned in the agreement as payable to Farooq and he added back the balance as payment made for consideration other than business. The assessee took up the matter in appeal to the Appellate Assistant Commissioner. It was contended before the appellate authority that, even though Mohammed Farooq had not qualified himself in accountancy and business management, he had read some books on these subjects and that he was also familiar with three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was not laid out or expended wholly and exclusively for the purpose of his business, but was on the other hand, motivated by considerations which were not relevant to the business. He, therefore, sustained the disallowance of Rs.16,977. The assessee appealed to the Income-tax Appellate Tribunal, but the Tribunal also held that the disallowance of Rs. 16,977 from out of the salary paid to Mohammed Farooq was fully justified on the facts and in the circumstances that obtained in the year under consideration. Section 10(2)(xv) of the Act under which the deduction is claimed by the assessee is in the following terms : "10. (2) Such profits or gains shall be computed after making the following allowances, namely :---. . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at such a conclusion." In the present case, the Income-tax Officer as well as the appellate authorities have concurrently come to the conclusion on a consideration of all the facts disclosed by the materials available on record that the payment of such a large amount to Farooq, who was only a young undergraduate studying for the B. Sc. Degree course on the date of the agreement evidenced by annexure " A " and who possessed no knowledge of commercial accountancy nor any experience in business administration, was motivated by considerations which were not relevant to the business. The learned counsel appearing for the assessee laid great stress on the circumstance that the truth of the payment is not disputed by the department and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide whether the payment was or was not grossly out of proportion to the work done by the employee. If after taking 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 either to disallow the whole sum or a part of the sum paid. 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 contend, 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 sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the person concerned is a relative of the assessee, the conclusion arrived at by the authorities below that the payment of the large amount in question by way of remuneration to Farooq was motivated not by considerations of commercial expediency but by considerations extraneous to the business, was fully warranted. It follows that the amount of which deduction is claimed was not laid out or expended wholly and exclusively for the purpose of the assessee's business, and the disallowance of the sum was quite justified and proper.
The question referred is, therefore, answered in the affirmative, that is against the assessee and in favour of the department. We make no order as to costs.
Question answered in the affirmative. X X X X Extracts X X X X X X X X Extracts X X X X
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