TMI Blog1961 (3) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the assessment year in question amounting to ₹ 52,947. But the Income-tax Officer allowed only ₹ 42,000 and rejected the balance sum on the ground that it was not incurred wholly and necessarily for the purposes of the assessee's business. On appeal, the order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. Thereafter, the assessee appealed before the Appellate Tribunal but the said appeal was dismissed. On the above facts, the following question is referred to us: Whether, on the facts and in the circumstances of the case, the disallowance of a part of the expenses incurred by the assessee for payment of remuneration to its technical adviser is permissible under the provisions of section 10(2)(xv) of the Indian Income-tax Act? Mr. Sankar Das Banerjee, learned counsel for the assessee, has submitted before us that, on the facts of this case, the Income-tax Officer should have allowed the entire sum of ₹ 52,947 as an allowable expenditure under section 10(2)(xv) inasmuch as there are no valid or legal grounds on the basis of which the Tribunal could come to the conclusion that extra commercial considerations we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutive officers are allowable expenditure. The assessee has claimed the entire remuneration paid to Dr. Ganguli under section 10(2)(xv) on the ground that the said expenditure was incurred in the interests of its business. It is now settled law that though the question whether an item of expenditure is wholly or exclusively laid out for the purpose of the assessee's business must be decided on the facts of each case, the final conclusion is one of law: vide Commissioner of Income-tax v. Royal Calcutta Turf Club [1961] 41 ITR 414 (SC); Eastern Investments Co. v. Commissioner of Income-tax [1951] 20 ITR 1 (SC).. A mere ipse dixit on the part of the assessee to the effect that the employer alone is the sole judge to determine the reasonableness or fairness of its employee's remuneration cannot be good law. Similarly the revenue authorities cannot arbitrarily disallow the whole or part of an employee's salary or honorarium without cogent reasons. The reasonableness of an expenditure cannot be determined by a subjective test; if such a test is the correct yardstick, the assessee can escape tax liability and defeat the purpose of the Act by increasing the salary or remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax [1962] 46 ITR 400, the decision was in favour of the assessee because there were materials on record which could not justify the Tribunal's finding that the director's remunerations were increased on arbitrary basis. In that case it was not disputed that the company's profits had been steadily increasing with the acquisition of the new bus routes. It was evident there that since its inception, roads were acquired for plying buses and more buses were out on the road. There was also a finding that this inevitably involved greater work on the part of the managing director and also of the technically qualified director, the increase of whose remunerations were challenged. The managing director, Narayana Iyer, before he started working in the assessee-firm was having a business in running buses and lorries as a proprietary concern and the business's goodwill and assets till then belonging to Narayana Iyer were transferred to the assessee-company. His son, Kashi Raman, was a qualified automobile engineer and the company was making rapid strides in its progress. On these facts the Madras High Court rightly concluded that the Income-tax Officer's disallowance could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The circumstances under which Dr. Ganguli was selected from other candidates to the post were not very clear. It is further admitted that the appointment did not take place after necessary advertisements of the vacancy in the newspapers. The two other applicants to the said post happened to be foreigners but their qualifications or the terms or even their applications could not be placed. Prior to Dr. Ganguli's appointment he was a medical practitioner with an yearly income of about ₹ 20,000 and he had no special or technical or academic qualification or knowledge on enamel goods. Apart from the fact that Dr. Ganguli was an important shareholder and a director of the assessee-company, he happened to be also a nominee of the managing agents on the board of directors. It is also not denied that he drew a remuneration of ₹ 1,000 per month as secretary of the managing agents of the assessee-company. The Income-tax Officer, however, found Dr. Ganguli to be an excellent officer who had rendered valuable services to the company by his personality and efficiency and accordingly he considered a monthly sum of ₹ 3,500 besides his remuneration of ₹ 1,000 per mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect when he said that mere relationship of the employee concerned to the previous incumbent and the employee's special status among the shareholders should not be considered as a criterion for holding that the payment was made for extra-commercial considerations. It seems to us that, in deciding the issue, one should take an overall picture of all the facts and circumstances of the case and the cumulative effect of the surrounding circumstances should be given effect to. In the instant case, we find there are sufficient reasons for disallowing the balance remuneration of Dr. Ganguli. In addition to the finding of facts as stated above, we may also add that accounts of the assessee-company show a profit of ₹ 25,600 in the relevant accounting year. This profit was shown in the profit and loss by claiming a smaller amount of depreciation than it was really entitled to. The book profit of the company would be converted into a loss if the proper amount of depreciation was debited to the profit and loss account. In this connection it may be mentioned that the employee's remuneration was fixed at the rate of 15% on the annual gross profit of the company before allowing dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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