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Issues:
1. Disallowance of part of the remuneration paid to the managing director under section 40(c) of the Income-tax Act, 1961. Detailed Analysis: The High Court of ALLAHABAD was presented with a question regarding the disallowance of a portion of the remuneration paid to the managing director of a private limited company. The dispute arose from the assessment year 1973-74, where the managing director was paid a salary of Rs. 1,000 per month, which was deemed excessive by the Assessing Officer. The Appellate Assistant Commissioner allowed a salary of Rs. 600 per month, considering the increase in the cost of living. The Tribunal affirmed this decision, stating that there was no evidence to justify the raise in salary and that the remuneration of Rs. 600 per month was fair. The court was tasked with determining if the disallowance was justified under section 40(c) of the Act, which pertains to excessive or unreasonable payments. The court examined the principles of reasonableness in business expenditures as established in various legal precedents. The counsel for the assessee argued that the salary should be deemed reasonable from the perspective of a prudent businessman, citing relevant case laws. Despite the absence of explicit mention of "legitimate business needs of the company" in the lower authorities' orders, the court emphasized that the omission of specific language did not negate the requirement under section 40(c). The Assessing Officer had already found that the remuneration paid was not wholly necessary for business purposes, while the Appellate Assistant Commissioner deemed the claimed amount as highly excessive. The Tribunal concurred that the raise in salary lacked justification based on services rendered. Consequently, the court concluded that the disallowance of part of the remuneration was warranted due to its excessiveness and lack of alignment with the legitimate business needs of the company. In light of the above analysis, the High Court upheld the Tribunal's decision to disallow a portion of the managing director's remuneration, answering the referred question in favor of the Revenue. The Commissioner was awarded costs for the reference from the assessee, solidifying the court's stance on the matter.
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