1993 (10) TMI 53 - HC - Income Tax

Summary

Issues:
1. Excess remuneration paid to a working director under section 40(c) of the Income-tax Act, 1961.
2. Allowability of expenses on maintenance of a guest house.

Analysis:
1. Excess Remuneration to Working Director:
The case involved the question of whether the remuneration paid in excess of 50% salary per month to a working director was excessive and unreasonable under section 40(c) of the Income-tax Act, 1961. The Tribunal found that the remuneration paid to the director was excessive and unreasonable considering the legitimate business needs of the company. The Tribunal considered factors such as the day-to-day business matters being attended to by another director stationed at Delhi and the lack of justification for the excess payment. It was held that the Income-tax Officer has the authority to judge the reasonableness of such expenditure based on commercial expediency. The Tribunal concluded that the remuneration paid in excess was not warranted by the legitimate business needs of the company, thus upholding the disallowance of the excess remuneration.

2. Expenses on Maintenance of Guest House:
Regarding the expenses incurred on the maintenance of a guest house, the Tribunal found that the guest house was being maintained by the assessee based on the contents of a letter dated February 27, 1978. The Tribunal noted that the assessee did not provide any evidence to rebut the existence of the guest house. However, the nature of the expenditure incurred, whether it was for rent or other expenses, was not clearly determined by the Tribunal. As a result, the matter was remanded back to the Tribunal for further examination to ascertain the nature of the expenditure and make a decision in accordance with the law. The question related to the guest house expenses was left unanswered pending further clarification.

In conclusion, the judgment favored the Revenue on the issue of excess remuneration paid to the working director, upholding the disallowance under section 40(c) of the Income-tax Act, 1961. The matter concerning the expenses on the maintenance of the guest house was remanded back to the Tribunal for a more detailed examination to determine the nature of the expenditure incurred by the assessee.