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Issues Involved:
1. Applicability of Section 40(c)(i) of the Income-tax Act, 1961. 2. Competence of the Tribunal to disallow remuneration under Section 37 of the Income-tax Act, 1961. 3. Justification for the disallowance of Rs. 60,000 under Section 37. 4. Validity of the Tribunal's inference that the remuneration was not wholly and exclusively for the purpose of the assessee's business. Issue-wise Detailed Analysis: 1. Applicability of Section 40(c)(i) of the Income-tax Act, 1961: The Tribunal examined whether Section 40(c)(i) was applicable to the remuneration paid to Balmer Lawrie & Co. Ltd. (B.L.), a corporate entity. The Tribunal concluded that Section 40(c)(i) could not apply to the allowance or remuneration paid to a corporate entity. The Tribunal's reasoning was that the section was intended for individuals, such as directors or shareholders, and not for corporate entities. Consequently, the Tribunal did not disallow the remuneration under this section. 2. Competence of the Tribunal to Disallow Remuneration under Section 37 of the Income-tax Act, 1961: The Tribunal found that the entirety of the remuneration paid to B.L. was not wholly and exclusively for the purpose of the assessee's business. The Tribunal disallowed a part of the remuneration under Section 37. The assessee contended that the Tribunal was not competent to disallow the remuneration under Section 37 since the Appellate Assistant Commissioner had only relied on Section 40(c)(i). However, the Tribunal held that it was within its jurisdiction to examine whether the remuneration was wholly and exclusively for business purposes under Section 37. The Tribunal's competence to disallow the remuneration under Section 37 was upheld by the court, citing the principle that the Tribunal can pass such orders as it thinks fit on the subject matter of the appeal. 3. Justification for the Disallowance of Rs. 60,000 under Section 37: The Tribunal disallowed Rs. 60,000, noting that the remuneration paid to B.L. was not wholly and exclusively for the purpose of the assessee's business. The Tribunal's findings included: - The payment was made to a company that was the assessee's holding company. - The services rendered were purely secretarial. - The services rendered had no direct and immediate impact on the company's trade or extent of business. - The managing agents were doing much heavier work but did not derive such a large remuneration. - There were no secretaries in the first two years of the company's working. - B.L. had been engaged as secretaries in the third year of the company's work while they were on the point of losing their managing agency. The Tribunal concluded that the entirety of the expenditure was not wholly and exclusively for the purpose of the assessee's business and disallowed Rs. 60,000. 4. Validity of the Tribunal's Inference that the Remuneration was not Wholly and Exclusively for the Purpose of the Assessee's Business: The court examined whether the Tribunal's inference was valid. The Tribunal had relied on several factors, including the nature of the services rendered and the relationship between the assessee and B.L. The court found that the Tribunal's inference was a possible one and that the primary facts found by the Tribunal were valid. The court held that the Tribunal's conclusion that the remuneration was not wholly and exclusively for the purpose of the assessee's business was not perverse or unreasonable. Conclusion: The court answered the questions as follows: 1. The Tribunal was competent to disallow a portion of the remuneration under Section 37. 2. The Tribunal was justified in holding that the entire remuneration was not laid out wholly and exclusively for the purpose of the assessee's business and in determining the allowable amount at Rs. 60,000. 3. The question regarding the applicability of Section 40(c) was not competent in the application by the assessee at the instance of the revenue, and the court declined to answer it. Each party was ordered to pay and bear its own costs.
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