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Issues Involved:
1. Justifiability of bonus payable to directors. 2. Justifiability of membership fees paid to a club for a director. 3. Deletion of addition made by the ITO on account of excess remuneration paid to the directors. Detailed Analysis: 1. Justifiability of Bonus Payable to Directors: The assessee-company paid a bonus of Rs. 7,000 to two directors, which was disallowed by the ITO under section 36(1) of the Income-tax Act, 1961. The Commissioner (Appeals) confirmed this disallowance. The assessee argued that the directors had resigned from their previous employment and devoted extra time to the company, resulting in increased turnover and profits. The Tribunal considered the rival submissions and the relevant legal provisions, particularly section 36(1)(ii), which allows for deductions of bonuses if they are reasonable with reference to the pay, profits, and general practice in similar businesses. Citing the Supreme Court's judgment in Shahzada Nand & Sons v. CIT, the Tribunal noted that the reasonableness of the bonus should be judged from the point of view of a prudent businessman and commercial expediency. Given the significant increase in turnover and profits, the Tribunal found the bonus justifiable and allowed the deduction, setting aside the Commissioner (Appeals)'s order. 2. Justifiability of Membership Fees Paid to a Club for a Director: The assessee claimed a deduction for Rs. 4,150 paid as membership fees for a director to the Golf Club, Chembur. The Tribunal examined the arguments and noted that for such expenses to be deductible, they must be necessarily incurred for the performance of duties and beneficial to the company. The Tribunal referred to the definition of 'perquisite' and relevant case law, including Brown v. Bullock and Lomax v. Newton, which established that club membership fees are generally for personal enjoyment and not exclusively for business purposes unless proven otherwise. The Tribunal found no evidence that the director's club membership was beneficial to the company's business and upheld the Commissioner (Appeals)'s disallowance of the claim. 3. Deletion of Addition Made by the ITO on Account of Excess Remuneration Paid to the Directors: The revenue's appeal contested the deletion of an addition made by the ITO for excess remuneration paid to the directors. The Commissioner (Appeals) had justified the remuneration based on the directors' qualifications, their resignation from previous employment, and their contribution to increased profits. The Tribunal agreed with the Commissioner (Appeals)'s reasoning, noting that the directors' additional efforts and the resultant business growth justified the increased remuneration. Consequently, the Tribunal dismissed the revenue's appeal. Conclusion: The Tribunal partly allowed the assessee's appeal by permitting the deduction of the bonus paid to the directors but upheld the disallowance of the club membership fees. The revenue's appeal was dismissed, affirming the justification for the directors' increased remuneration.
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