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Issues Involved:
1. Propriety of disallowance of Rs. 6,500 and Rs. 11,500 paid to the managing director and the directors respectively under Section 10(2)(xv) of the Income-tax Act. 2. Propriety of disallowance of Rs. 7,500 and Rs. 5,400 paid to the managing director and the director respectively under Section 10(2)(xv) of the Income-tax Act. Detailed Analysis: Issue 1: Propriety of Disallowance of Rs. 6,500 and Rs. 11,500 The primary issue concerns whether the sums of Rs. 6,500 and Rs. 11,500 paid to the managing director and the directors, respectively, can be disallowed under Section 10(2)(xv) of the Income-tax Act. The assessee argued that these payments were wholly and exclusively for the purpose of the business. The Tribunal disallowed these amounts, affirming the Income-tax Officer's decision. The court emphasized that the question of whether the expenditure was wholly and exclusively for business purposes should be judged from the perspective of a businessman, not the Income-tax Officer. The court referenced the case of Newtone Studios Ltd. v. Commissioner of Income-tax, which established that expenditure need not be a necessity but should be incurred voluntarily on grounds of commercial expediency. The court criticized the Tribunal for not considering the increased responsibilities and work of the directors due to the expansion of the business. The Tribunal failed to correlate the services rendered by the directors with the remuneration paid. The court concluded that the Tribunal did not view the matter correctly and answered the question in the negative, indicating that the disallowance was not justified. Issue 2: Propriety of Disallowance of Rs. 7,500 and Rs. 5,400 The second issue pertains to the disallowance of Rs. 7,500 and Rs. 5,400 paid to the managing director and the director, respectively. The assessee claimed these amounts as deductions under Section 10(2)(xv) of the Income-tax Act. The Income-tax Officer allowed only Rs. 25,000 and Rs. 26,000 for the respective years, disallowing the remaining amounts. The court reiterated that the test for allowable expenditure is whether it was incurred wholly and exclusively for the business. The Tribunal's approach of disallowing amounts based on their size rather than the business necessity was flawed. The court noted that the Tribunal did not consider the increased work and responsibilities of the directors due to the company's expansion. The court emphasized that the expenditure should be judged from the perspective of commercial expediency and not by the subjective opinion of the Income-tax Officer. The court concluded that the Tribunal did not properly correlate the services rendered with the remuneration paid and answered the question in the negative, indicating that the disallowance was not justified. Conclusion: The court found that the Tribunal and the Income-tax authorities did not correctly assess whether the disallowed amounts were wholly and exclusively for business purposes. The court answered both questions in the negative, indicating that the disallowances were not justified. The matter was remanded to the Tribunal for reconsideration in light of the court's observations. The assessee was entitled to costs, and the counsel's fee was set at Rs. 250.
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