1978 (8) TMI 1 - SC - Income Tax

Company Director - Business Expenditure - whether the Tribunal was right in holding that the disallowance of the amounts out of the remuneration and commission paid to directors of the company by resort to section 10(4A) of the Indian Income-tax Act 1922 was unjustified - High Court has held that the payments to directors are not excessive

Summary

Issues:
Disallowance of remuneration and commission under section 10(4A) of the Indian Income-tax Act, 1922.

Analysis:
The Supreme Court judgment addressed the issue of disallowance of amounts paid as remuneration and commission to directors and an assistant under section 10(4A) of the Indian Income-tax Act, 1922. The Tribunal initially disallowed specific amounts paid to the individuals, which was upheld by the Appellate Assistant Commissioner. However, the Tribunal later disagreed with this decision, stating that the payments were not excessive or unreasonable considering the legitimate business needs and benefits to the company. The High Court also supported this view, emphasizing that the payments were justified and that section 10(4A) did not apply to one of the individuals. The Revenue appealed to the Supreme Court, challenging the disallowance.

The Supreme Court analyzed the facts and circumstances of the case, including the company's annual turnover, operating centers, and total expenditure. The Court noted that despite the significant turnover and multiple centers, the total monthly expenditure, including remuneration and commission to the directors and assistant, was around Rs. 5,000. This amount was deemed reasonable as it was necessary for the business operations. The Court highlighted that the total remuneration and commission paid to the individuals was approximately Rs. 4,500 per month, indicating that other office expenses were minimal. The Court concluded that the payments were justified as the individuals were actively involved in the business operations, supported by evidence presented during the proceedings.

Ultimately, the Supreme Court upheld the decisions of the Tribunal and High Court, dismissing the Revenue's appeal with costs. The Court agreed that the disallowance of amounts under section 10(4A) was unjustified, as the payments to the directors and assistant were deemed reasonable and necessary for the business, considering the company's operations and benefits derived from their services.