1993 (6) TMI 114 - AT - Income Tax

Summary

Issues:
1. Interpretation of the maximum marginal rate of tax for the assessment year 1985-86.
2. Allowance of entire salary paid to three employees of the assessee.

Interpretation of the maximum marginal rate of tax for the assessment year 1985-86:
The case involved an appeal by the Revenue related to the assessment year 1985-86 regarding the application of the maximum marginal rate of tax. The Revenue contended that the highest rate of tax, i.e., 55%, should be applied as it exceeded Rs. 1 lakh. However, the CIT(A) interpreted the maximum rate of tax to be "Rs. 35,250 plus 55% of the amount by which the total income exceeds Rs. 1,00,000" plus a surcharge of 12.5%. The Tribunal upheld the CIT(A)'s decision, stating that the maximum marginal rate should consider the surcharge on income-tax applicable to the highest slab of income. The Tribunal explained that the maximum marginal rate is not the same as the highest rate of income-tax but includes the surcharge in relation to the income slab. The computation of tax at the maximum marginal rate was illustrated for better understanding. The Tribunal dismissed the Revenue's appeal based on this interpretation.

Allowance of entire salary paid to three employees of the assessee:
The second issue revolved around the allowance of the entire salary paid to three employees of the assessee. The assessee had claimed the full salary paid to the employees, but the Income Tax Officer (ITO) disallowed a portion of it. In appeal, the CIT(A) allowed the entire claim of the assessee. The Revenue challenged this decision in a second appeal. The Tribunal referred to a previous order in favor of the assessee for the assessment year 1984-85, where it was established that the salary payments were legitimate and reasonable based on the business turnover and profitability. Since no new evidence was presented to warrant a different decision, the Tribunal upheld the CIT(A)'s findings and dismissed the Revenue's appeal regarding the allowance of the entire salary paid to the employees.

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