1968 (6) TMI 2 - HC - Income Tax

Salary - deductibility - There was no material before the Tribunal which would justify a reasonable conclusion that extraneous considerations weighed with the assessee in fixing up the salary of her husband who was appointed as manager - claim towards salary is allowed

Summary

Issues:
1. Disallowance of salary and bonus.
2. Addition on the ground of purchase inflation.

Analysis:
- The case involved two main issues: the disallowance of salary and bonus paid to the husband of the assessee and the addition on the ground of purchase inflation. The Tribunal questioned the reasonableness of the salary paid to the husband, considering it excessive compared to industry standards.
- The Tribunal compared the salary paid to the husband with that of other managers in similar businesses and found a significant disparity, suggesting non-business considerations in fixing the salary. The Tribunal also noted previous years' decisions to slash the husband's salary, which the assessee did not challenge.
- The High Court referred to the Supreme Court's decision in Commissioner of Income-tax v. Walchand and Co. Private Ltd., emphasizing that the Tribunal should not substitute its judgment for that of the businessman unless specific material shows payment for extraneous reasons.
- The High Court found that the husband's salary was reasonable considering his responsibilities in managing the extensive cashew business, which involved policy decisions affecting profitability. The Court rejected the Tribunal's reasoning and allowed the entire salary claim.
- Regarding the bonus disallowance, the High Court noted that no specific reference was made in the Tribunal's order, leading to a decision in favor of the department on this issue.
- The High Court upheld the Tribunal's decision on the addition for purchase inflation, considering it a question of fact not vitiated by any grounds for a different conclusion. The Court ruled in favor of the department on this issue.

In conclusion, the High Court ruled in favor of the assessee on the disallowance of salary, in favor of the department on the bonus disallowance, and in favor of the department on the addition for purchase inflation. The reference was answered accordingly, with each party bearing its respective costs.