TMI Blog1985 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ttended 15 out of 26 directors' meetings. The assessee further submitted before the Income-tax Officer that the share of profit allowed during the accounting year amounted to Rs. 37,308 as against Rs. 64,777 paid in the last year. The Income-tax Officer was of the opinion that taking all factors into consideration, it was clear that such high remuneration like other directors could not have been paid to Sri Thapar had he not been the son of late Sri K. C. Thapar who was the managing director of the assessee-company. According to the Income-tax Officer, in any case, within the short period of his assuming service with the company, such high remuneration could not be regarded to have been made out of business consideration only. In the circumstances, remuneration of Rs. 36,000 was allowed but the balance of Rs. 37,308 was disallowed. Against the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner who found that Sri Thapar was first appointed a director of the assessee-company during the accounting )car relevant to the assessment year 1961-62 and upheld the disallowance in accordance with the provisions of section 40(c) of the Act. Agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was challenged by the assessee in an appeal before the Appellate Tribunal. Before the Tribunal on behalf of the assessee, reference was made to the educational qualifications and experience of Sri Thapar, viz., he had obtained his B.Sc. degree in Textile from Philadelphia Textile Institute, U.S.A. and had also been there for about four years and after his return he joined Jagatjit Cotton Textile Mills and gained experience of the actual working. It was submitted that there were five directors of the assessee-company besides the managing director. One of them was Lala Shamlal who retired in 1954 and in his place Sri L. M. Thapar was appointed. Another director, Sri V. Mehta, retired in 1958 and Sri M. M. Thapar was appointed and the vacancy of Sri L. M. Khemka was not filled in. Sri Shamlal and Sri Mehta had no technical experience but remuneration and profits were being paid to them in the same proportion as to all other directors which were not challenged by the Revenue. It was also submitted that for the appointment of Sri Thapar, no new post was created and at that time two mills were in a stage of expansion and after the appointment of Sri Thapar, vast expansion took place in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retired with effect from April 1, 1960, and was re-employed for a period of one year. Relying on the decision in the case of CIT v. Edward Keventer (P) Ltd. [1972] 86 ITR 370 (Cal), the Tribunal held that the legitimate business needs of the company and the question of benefit derived or accrued to it had to be judged from the point of view of a prudent businessman. The Income-tax Officer had to apply his mind to the nature of the business of the company, the actual work done by the directors, the quantum of income earned by the company, the necessity to pay remuneration to the director and other allied considerations to form an opinion whether or not the payment was reasonable or excessive. According to the Tribunal, the Income-tax Officer and the Appellate Assistant Commissioner did not examine the case on the above lines. The Tribunal came to the conclusion that the payments made to Sri Thapar by way of remuneration and commission were reasonable and justified and no disallowance was called for. On the aforesaid facts, the following question of law has been referred to the High Court for its opinion : " Whether, on the facts and in the circumstances of the case and on a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 16,737 was an allowable business expenditure ?" Regarding the question of disallowance of remuneration paid to Sri M. M. Thapar for the year under consideration, i.e., assessment year 1962-63, the Tribunal, following its order in I. T. A. No. 1767 of 1968-69 for the assessment year 1961-62, allowed the entire claim of remuneration and deleted the addition of Rs. 37,308. From the said order of the Tribunal for the assessment year 1961-62, at the instance of the Commissioner of Income-tax, West Bengal-IV, the following question of law was referred to the High Court for its opinion: " Whether, on the facts and in the circumstances of the case and on a proper construction of section 10(4A) of the Indian Income-tax Act, 1922, the payment of Rs. 1,00,777 to Shri M. Al. Thapar by way of salary and profit commission was excessive or unreasonable so as to justify the disallowance of a portion thereof ? " The High Court accepting the contentions of the assessee answered the said question in the negative and in favour of the assessee. As a similar question is under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is death at Delhi did not make any difference. It was the duty of the assessee-company to see that he returned to Calcutta from Delhi. As Mr. Thapar went to Delhi in connection with the business of the assessee-company, it was the duty of the assessee to arrange for his return to Calcutta and the expenditure incurred for the same cannot but be said to have been incurred for the purpose of the business of the assessee-company. The death of Mr. Thapar at Delhi did not make any difference. As it was the duty of the assessee-company to make arrangement for his return to Calcutta from Delhi and to incur expenses for the same, such expenses would be said to have been incurred for the purpose of the business of the company. Hence, the amount incurred by the assessee-company for bringing the dead body of Mr. Thapar would be an expenditure incurred for the business of the assessee-company. Reliance was placed on the case of CIT v. Supreme Motors (P.) Ltd. [1972] 84 ITR 1 (Delhi). In the case of Atlas Cycle Industries Ltd. v. CIT [1981] 128 ITR 60 (P H), the facts were that the assessee-company organised an eye-camp for its workers free of charge on which it incurred an expenditure of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect concern and direct purpose for which the money is laid out. Expenditure incurred by the assessee in the instant case was incidental to the business carried on by the assessee. The test of commercial expediency for determining whether an expenditure was wholly or exclusively laid out for the purpose of business and reasonableness of the expenditure should; be judged from the point of view of the businessman and not of the Revenue. Late K.C. Thapar, the then chairman of the assessee-company, went to Delhi in connection with and for the purpose of business of the assessee-company. If he was alive, it was the duty of the assessee-company to bear all expenses for his return and such expenditure would have been for the purpose of business of the company. The death of K. C. Thapar at Delhi did not make any difference. It was the duty of the assessee-company to make arrangements for bringing his dead body to Calcutta and to bear the expenses incurred for that purpose. Expenses incurred by the assessee-company for carrying the dead body of late K. C. Thapar was the liability of the assessee-company and as such was incidental to the business carried on by the assessee-company and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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