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TMI Blog1981 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar item in Income-tax Reference No. 115 of 1972 (CIT v. Govindram Bros. P. Ltd.), which was for an earlier assessment year , and we do not, therefore, propose to enter into any elaborate discussion of facts in the present reference. The circumstances under which the amount was payable are identical. Our answer to the said question shall be identical to the answer we have given to question No. 2 in the aforesaid reference, and that answer will be in favour of the assessee. We will now set out a few facts pertaining to questions Nos. 2 and 3. The assessee is Govindram Brothers Pvt. Ltd., who, at the relevant time, carried on diverse business activities. One of the departments of the assessee during the accounting year relevant to the assessment year under consideration, which is 1957-58, was Famous Cine Laboratory department. The case had proceeded before the tax authorities on the basis that this department has shown for the accounting year, relevant to the assessment year under consideration, a net loss of Rs. 4,72,754 which was transferred to the head office account. There were four departments shown in the Famous Cine Laboratory department account, namely, (1 Famous Cine Labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad debt in the course of money-lending business during the year in question and rightly claimed as deduction under the Income-tax Act. The three partners in the firm of M/s. Hindustan Film Syndicate were : (1) Gajadhar Chandiprasad (brother-in-law of Prahladrai, a director of the assessee-company), (2) D. K. Parkar, and (3) Baburao Pai. The first one had an eight annas share, while the remaining two had a four annas share each. The cash credits appearing in the name of Gajadhar Chandiprasad of Rs. 1,00,000 on 17th August, 1949, in the books of Prahladrai Seksaria had been assessed as Prahladrai's undisclosed income for the assessment year 1950-51. The firm had come into existence in 1945-46 and had closed its affairs by the year ending 31st August, 1948. In November, 1945, it had entered into a joint venture with Famous Pictures Ltd. for producing films and building studios. A sum of Rs. 4,55,000 was advanced by the firm in this joint venture. The agreement of joint production was cancelled in November, 1946. The ITO took into consideration the above facts and came to the conclusion that the origin of the debit balance of Famous Pictures Ltd. in the books of Hindustan Film ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew taken by the Tribunal is perverse. This brings us to question No. 3. It would appear that in the assessment year under consideration as well as in the earlier assessment years the assessee-company was paying tax-free salary at the rate of Rs. 2,500 per month to one Shyamsunder Seksaria . It would appear that Shyamsunder Seksaria is the son of Prahladrai Seksaria, a director of the assessee-company. However, subsequently he seems to have been given in adoption to Badridas Seksaria. During 1957, salary payment at the rate of Rs. 2,500 per month free of tax to Shyamsunder was shown by the assessee-company, which came to Rs. 41,928 after taking into account the tax paid. The ITO in this assessment year asked the assessee-company to furnish details of specific nature of the work done by Shyamsunder and other particulars such as his age, qualifications and past experience in this line of work and other details. The ITO also examined Shyamsunder Seksaria on 8th March, 1963. The ITO has observed that Shyamsunder Seksaria was drawing this remuneration from September, 1954, to August, 1958, that is, for nearly four years. He was 19 to 23 years old during this period. His deposition bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the activities of the company. The reasons for his removal is given as the financial stringency of the company. It will, however, be seen that during this entire four years' period of his service in the Famous Cine Lab or in the Raw Stock Dept. where he was the general manager, Govindram Bros. P. Ltd. had not made any profit as will be evident from the following figures: ----------------------------------------------------------------- C.Y. A.Y Raw Stock All the Dept. Govindram Dept. Famous Cine Bros. P. Ltd. Laboratory. ------------------------------------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 10(2)(xv) and/or u/s. 10(4A)." In appeal, the AAC concurred with the ITO. This is found in para. 9 of the appellate order. The AAC concluded that the amount was not paid for business considerations and the payment was apparently made because he was the son of one of the directors. The AAC thus justified the disallowance made by the ITO. When the matter was carried to the Income-tax Appellate Tribunal, the Tribunal upheld the contentions of the assessee in the following terms: " The next contention relates to disallowance of Rs. 41,928 paid as salary to Shri Shyamsunder Badridas on the ground that the employee did not render any services to the company and the amount in question was paid for extra-commercial considerations. At the relevant time the employee was about 19 years old and the Appellate Assistant Commissioner held that it is incredible that a lad of 19 years would be able to enter into service. This very point came up before the Commissioner of Incometax in respect of assessment year 1956-57 for consideration and the Commissioner of Income-tax was satisfied that the employee rendered service and allowed the amount in toto. The Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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