9911796707
|
Home
Issues:
1. Disallowance of payment of sales tax pertaining to earlier years. 2. Disallowance of commission paid to employees on the net profit under section 37 of the Act. Detailed Analysis: The judgment delivered by the High Court of ALLAHABAD addressed two key issues raised by the Tribunal. Firstly, regarding the disallowance of the payment of sales tax amounting to Rs. 14,036 from earlier years, the court referred to the decision in the case of Kedar Nath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The court emphasized that the liability to pay sales tax arises at the time of the transaction, even if the payment is made in subsequent years. As the assessee followed the mercantile system of accounting, the court ruled that the sales tax liability could not be claimed as a deduction for previous years during the relevant assessment year. Moving on to the second issue, which involved the disallowance of commission paid to employees based on the net profit of the firm under section 37 of the Act, the court highlighted the principle that remuneration or salary should align with the genuine business needs of the assessee. The court stated that excessive and inflated amounts of remuneration not commensurate with business needs can be rightfully disallowed by the assessing authority. In this case, the Tribunal found that the assessee had significantly increased the salaries of three employees by two hundred per cent during the relevant year, which was deemed unreasonable considering the business requirements. Therefore, the court upheld the Tribunal's decision to disallow the expenditure as it was not in line with the reasonable business activities of the assessee. In conclusion, the High Court answered both questions in favor of the department and against the assessee. The department was awarded costs amounting to Rs. 200, with the counsel's fee assessed at the same figure.
|
