1978 (7) TMI 122 - AT - Income Tax

Summary

Issues:
1. Whether the respondent company was entitled to a deduction of managerial remuneration under section 40A(5) of the Income Tax Act.
2. Whether the relief granted under section 80-J of the Act for the assessment year 1973-74 was justified.

Analysis:

Issue 1:
The three Revenue appeals challenged orders by the AAC regarding the allowance of managerial remuneration to Harmukh Rai Modi for the assessment years 1972-73, 1973-74, and 1974-75. The remuneration included salary and commission, with a dispute arising over the permissible deduction under section 40A(5) of the IT Act. The respondent company claimed a deduction of Rs. 72,000 per annum, while the ITO contended that the maximum permissible salary was Rs. 5,000 per month. Both the ITO and the AAC questioned Harmukh Rai Modi's employment status, although the respondent had accepted him as an employee. The Tribunal held that as the company was entitled to a deduction of Rs. 72,000 under section 40A(5), the relief granted by the AAC was justified. The judgment clarified that the company being a corporate entity and Harmukh Rai Modi serving as its Managing Director supported the allowance of the claimed deduction.

Issue 2:
Regarding the relief under section 80-J of the Act for the assessment year 1973-74, the parties accepted that a High Court judgment favored the assessee. Despite the Revenue's intention to appeal, the Tribunal followed the precedent and dismissed the Revenue appeals concerning the direction given by the AAC to grant necessary relief under section 80-J. The judgment upheld the AAC's decision based on the applicable legal precedent and rejected the Revenue's challenge.

In conclusion, the Tribunal dismissed the Revenue appeals for all three years, affirming the allowance of managerial remuneration deduction under section 40A(5) and upholding the relief granted under section 80-J for the assessment year 1973-74 based on established legal principles and precedents.