TMI Blog2003 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been partly disallowed - - - - - Dated:- 2-9-2003 - Judge(s) : M. KATJU., UMESHWAR PANDEY. JUDGMENT This is an income-tax reference under section 256(1) of the Income-tax Act, 1961, in which the following question has been referred to us for our opinion: "Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was legally justified to disallow Rs. 19,000 out of remuneration payable to Abdul Qayum Ansari and Abdul Quddus Ansari?" We have heard learned counsel for the parties. The assessee is a company registered under the Indian Companies Act which is engaged in the manufacture and export of carpets. The relevant assessment year is 1978-79. The dispute in this case is about the increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) read with section 40A(2). Under section 40(c)(i), the Assessing Officer could disallow any payment to a director which in his opinion is "excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom". A similar provision exists in section 40A(2) of the 1961 Act. The point which needs to be considered is : who is to decide the legitimate business needs of the company, the company itself or the Income-tax Officer? The Calcutta High Court in CIT v. Edward Keventer (Pvt.) Ltd. [1972] 86 ITR 370 has observed in the aforesaid decision that: "The legitimate business needs of the company must be judged from the view point of the company itself, and must be viewe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness expenditure, the approach of the Income-tax Officer (or other Income-tax authority) has to be that he has to look at the matter from the view point of a prudent businessman, and not from his own view point, and then ascertain whether the said expenditure has been incurred for the purpose of commercial expediency or not. In other words, the Income-tax Officer must try to put himself in the shoes of a prudent businessman and try to look at the matter from that point of view. A businessman may make an expenditure, which he is under no legal obligation to make, but if he does so as a measure of commercial expediency, it must be allowed under section 37 of the Income-tax Act as a legitimate business expenditure. For instance, if a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Ltd. [1954] 26 ITR 195, should be accorded to the word "indirectly" in this enunciation. This view has been followed by our Supreme Court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 and in CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601 (SC). Similarly, when a company pay a higher salary to the directors or the managers or other officers or employees as a matter of commercial expediency, it is not for the Income-tax Officer to say that in his opinion the said salary should not have been paid. A company may decide to pay a higher remuneration to its directors, officers or employees so as to encourage them to work hard, expand the business, or for a host of other commercial considerations and the matter has to be looked at fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restore the order of the Commissioner of Income-tax (Appeals). Before parting with this case we would like to add that in the present environment when the Indian economy has opened up and large salaries are being given to bright and highly qualified young recruits in business firms (sometimes as much as Rs, 50,000 to Rs. 1,00,000 per month as starting salary), it is not for the income-tax authorities to say that such salaries are excessive or unreasonable. It is only if there is something absolutely fantastic or absurd that the income-tax authorities can intervene in such matters. If we do not take such a view, then the best young talent in India, e.g., the best graduates from IIT/IIM, etc., will leave the country and not stay in India and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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