1968 (2) TMI 35 - HC - Income Tax

Remuneration paid to the managing director and a director claim under section 10(2)(xv) held that assessee is entitled to the full allowance of the entire payment made as remuneration

Summary

Issues:
1. Allowance of remuneration paid to directors under section 10(2)(xv) for assessment years 1949-50 to 1953-54.
2. Admissibility of initial and extra depreciation under section 10(2)(via) for the year 1950-51.

Analysis:
1. The first issue pertains to the allowance of remuneration paid to directors under section 10(2)(xv) for the assessment years 1949-50 to 1953-54. The Tribunal initially disallowed a portion of the remuneration, but upon a reference, it was held that the assessee was entitled to the full allowance of remuneration paid to the directors. The main contention was whether the Tribunal's decision was based on any material. The court found that the remuneration was paid for services rendered and was wholly and exclusively laid out for the purpose of business. The court emphasized the nexus between the expenditure and the business purpose, stating that the revenue cannot question the reasonableness of the remuneration unless it is patently excessive. The court upheld the Tribunal's decision, ruling in favor of the assessee.

2. The second issue concerns the admissibility of initial and extra depreciation under section 10(2)(via) for the year 1950-51. The court swiftly disposed of this issue, citing previous decisions that favored the assessee. It was held that the allowance for diesel engines and bodies fitted to old chassis was admissible under section 10(2)(via) based on established precedents. The court ruled in favor of the assessee on this issue as well.

In conclusion, the court upheld the Tribunal's decision to allow the full remuneration paid to directors under section 10(2)(xv) for the relevant assessment years. Additionally, the court ruled in favor of the assessee regarding the admissibility of initial and extra depreciation under section 10(2)(via) for the year 1950-51, based on established legal precedents. The revenue's arguments regarding the reasonableness of the remuneration and the applicability of section 10(4A) were dismissed by the court, emphasizing that once an expenditure is shown to be wholly and exclusively for business purposes, the allowance must be granted without discretion.