TMI Blog1979 (2) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,500 per month and commission at the rate of 1% on sales of the assessee-company amounting to Rs. 9,792. Originally Mr. Patel was paid a salary of Rs. 1,000 per month plus a commission of 1% on the sales of the company. Out of 1,100 shares of the company, Mr. Patel held 605 ordinary shares in his own name and some shares were owned by his wife and other relatives. In the assessment order for the assessment year 1961-62, the ITO disallowed the amount of Rs. 9,792 in the assessment of the company on the view that Mr. Patel was a managing agent within the meaning of s. 2(25) of the Companies Act. With regard to the increased remuneration, the increase being Rs. 500 per month, the ITO took the view that the increase was made solely out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AAC had reversed the decision of the ITO with regard to the amount of Rs. 9,792 and he had held that the commission paid to Mr. Patel was reasonable. The revenue was aggrieved by the decision of the AAC with regard to the amount of Rs. 9,792 and the revenue filed an independent appeal before the Appellate Tribunal. In that appeal, the Tribunal took the view that the payment on account of commission was made for commercial expediency in view of the large increase in the volume of turnover and gross profit. The assessee had also filed an appeal before the Appellate Tribunal. With regard to the disallowance of the increased amount of remuneration of the managing director, the Tribunal took the view that the facts of the case showed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced the amount, the AAC was fully justified in confirming the order of the ITO. The assessee having sought a reference in respect of the disallowance of a part of the increased remuneration of the managing director and the loan of Rs. 2,500, the following two questions have been referred to this court at his instance : " (1) Whether, on the facts and in the circumstances of the case, the disallowance out of the remuneration of the managing director of a sum of Rs. 3,000 (Rupees three thousand) is right in law ? (2) Whether there was any evidence at all to support the Tribunal's view that the sum of Rs. 2,500 (Rupees two thousand and five hundred) borrowed by the assessee-company from Mr. Newandram Motumal, which loan was admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the accounting year ending 31st December, 1959, were Rs. 1,14,376. These profits in the next year were Rs. 95,640 and it is possible that this fall in the profits is due to the increase in wages and remuneration as is sought to be explained because while in the earlier year there were only 23 workers, in the accounting year in question, the number of workers was 77. All these circumstances justified the view of the Tribunal that an increase in the remuneration was called for. But once that finding is reached, it is difficult to see how the Tribunal could adopt a subjective standard of reasonableness of the increase in the remuneration and disallow a part of the increase in the managing director's remuneration on the ground that it is unr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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