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TMI Blog1976 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... r observed, inter alia, as follows : " The joint managing directors were paid the remuneration at the same rate in the immediately preceding year. The payment of such remuneration was found excessive and disallowances were made from the remuneration of both the directors. The assessee-company had contended that the payments are justified in view of the duties performed by the directors and also in view of the increase in the business of the company. In the assessment year 1960-61, the directors had performed similar services. The increase in business is in no way abnormal in this year but rather it is following the normal trend of a going concern. Besides, there is nothing on record to indicate that the increase in business can be attributed to some special effort put in by the two directors. On the contrary the same set of facts obtained in the cases of the two directors. Srimati Saha did not, as before, have any special qualification in this line of business and Sri A. K. Das continued to be the director of another company. Hence, the remuneration paid to the directors is considered to be excessive and unreasonable having regard to the legitimate business needs of the company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namel Works Ltd. v. Commissioner of Income-tax [1966] 59 ITR 472 (Cal) and found that in the previous year it was directed that the remuneration of Rs. 1,250 per month should be allowed to the managing director, Srimati Saha. Thereafter, he observed, inter alia as follows : " It was stated that she was not even a matriculate. Nothing could be brought on record even at the appellate stage about her previous business experience although it was stated that she had acted as a director previously for some time during her husband's lifetime. It was argued that the sales position improved from year to year after her appointment as a joint managing director but the Tribunal has remarked in its decision referred to above that this was a normal increase in this type of business and may have been in part contributed by the efforts of the managing director. In the Calcutta High Court's decision referred to above it was held 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. At page 475 of the same case it was also stated by the High Court that it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he participation of the said two managing directors, after having come to the conclusion that the said expenditure had been incurred wholly and exclusively for the purposes of the business. From the aforesaid order of the Appellate Assistant Commissioner the assessee preferred an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, after discussing the rival contentions, observed as follows : " We have given our careful consideration to the arguments which have been addressed to us. The decisions on which the learned counsel has relied are not, in our opinion, applicable to the facts and circumstances of the present case. In both those decisions the question before their Lordships was whether the remuneration/commission paid to employees/agents qualified for deduction under section 10(2)(xv). The disallowance in the present case has been made under section 10(4A). Under section 10(2)(xv), the requirement is that the payments should have been incurred wholly and exclusively for the purposes of the business. The stipulation in section 10(4A) is that the allowances should not be excessive or unreasonable having regard to the legitimate business needs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggested four questions to be referred. The Tribunal reframed the questions suggested and formulated one question. Thereupon the draft statement was circulated. But before it could be finalised the assessee made an application for rectification of the order of the Tribunal and the impugned order which is the subject-matter of challenge in this application was thereafter passed by the Income-tax Appellate Tribunal whereby the Income-tax Appellate Tribunal observed as follows : " 5. Before us the learned counsel for the assessee-company submitted that the Appellate Assistant Commissioner applied the provisions of section 10(2)(xv) and not those of section 10(4A) to the facts and circumstances of the case. According to him, the issue relating to the application of section 10(4A) was brought in by the Income-tax Officer not by expressly mentioning the section but using the phraseology of the section. It was also claimed that from a reading of the relevant portion of the order it would appear that the Income-tax Officer relied upon the provisions of both the sections, that is, sections 10(2)(xv) and 10(4A). But the Appellate Assistant Commissioner in his order did not make any discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation was filed, was passed after considering the provisions of section 10(4A). Thus, according to him, all through the question rested on the applicability of section 10(4A) though cases referred to were related to section 10(2)(xv). 8. In reply the learned counsel for the assessee led us through paras. 2 and 3 of the order of the Tribunal in respect of the assessment year 1959-60 in order to lay stress upon his view-point that the said decision rested on the application of section 10(2)(xv). 9. We have given due consideration to the rival contentions after going through the relevant orders referred to before us and the decisions relied upon on behalf of the assessee. We are of the opinion that the contentions raised on behalf of the assessee have a reasonable bearing in the sense that there was a mistake apparent from the record which calls for a rectification of the impugned order. The Tribunal in para. 4 of the aforesaid order discussed the applicability of the provisions of section 10(4A) to the facts of the case to the exclusion of section 10(2)(xv). This is against the trend of the discussions made by the Appellate Assistant Commissioner in his order. It is an admitted fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples are well-settled. Reliance in this connection may be placed on the observations of the Supreme Court in the case of Income-tax Officer v. M. K. Mohammed Kunhi [1969] 71 ITR 815 (SC), Province of Bihar v. Jokhi Ram Ram Prasad [1948] 1 STC 202 (Pat), J. K. Iron & Steel Co. Ltd. v. Iron & Steel Mazdoor Union AIR 1956 SC 231. In the case of Mangat Ram Kuthiala v. Commissioner of Income-tax [1960] 38 ITR 1 (Punj), the Division Bench of the Punjab High Court observed that it was a settled rule that a judicial tribunal could recall and quash its own order in exceptional cases when it was shown that it was obtained by fraud or by palpable mistake or was made in utter ignorance of a statutory provision and the like, and for the application of that rule the class of the tribunal was not a material matter but what was of substance and material was the nature of proceedings before it. If the proceedings were in the nature of judicial proceedings, then irrespective of the class of the tribunal the rule applied. It was held that the Appellate Tribunal had inherent jurisdiction to entertain the application made before it in that case. As I have noticed before, the tribunal, like the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then this principle is not always easy of application as was emphasized by the Supreme Court in the case of K. M. Shanmugam v. S.R.V.S. (P.) Ltd. AIR 1963 SC 1626. At page 1630 of the report the Supreme Court observed that the concept comprised many imponderables and it was not capable of precise definition because no objective criterion could be laid down, the apparent nature of an error, to a large extent, being dependent upon the subjective element. It depended, however, on the facts and circumstances of each case. Bearing the aforesaid principles in mind it has to be considered whether the Income-tax Appellate Tribunal was right in holding that there was an error apparent on the face of the record. In the impugned order the Income-tax Appellate Tribunal has observed that there was discussion about the applicability of the provisions of section 10(4A) of the Indian Income-tax Act, 1922, to the facts of the case to the exclusion of section 10(2)(xv). This was against the trend of the discussion made by the Appellate Assistant Commissioner. The two sections operated in different fields. The Appellate Assistant Commissioner not having discussed, according to the Tribunal, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the said section spoke of allowance in respect of expenditure which resulted directly or indirectly in remuneration and was not applicable to the case of remuneration which was paid directly to the director. Such contention was not raised before the Tribunal in the instant case. Having regard to this nature of mistake, on which it appears to me, there can reasonably and conceivably be two views, the Tribunal was not justified in setting aside its previous orders on the ground that the mistake was apparent from the record. The Tribunal in its previous order had categorically proceeded under section 10(4A). The law justifies the consideration of expenditure under section 10(4A). In my opinion from reading the order as such it cannot be said that such assumption of jurisdiction by the Tribunal in its appellate order was on erroneous basis or on a basis which was palpably and manifestly erroneous. In the aforesaid view of the matter I am of the opinion that the Tribunal had no jurisdiction to pass the impugned order. On behalf of the revenue it was contended that the draft statement had been circulated and as such the Tribunal was not competent to recall its previous order. I am un ..... 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