1972 (5) TMI 23 - HC - Income Tax

1. Whether, on the facts and in the circumstances of this case any part of the sum of Rs. 2,000 paid remuneration to Sri Satyandrajit Singh was liable to be disallowed under section 10(4A) of the Act? 2. Whether, on the facts and in the circumstances of the case, a part of the expenditure of Rs. 11,700 incurred on the purchase of crockery and linen was liable to be disallowed as capital expenditure ? 3. Whether, on the facts and in the of the case, the deduction claimed by the assessee-company of the sum of Rs. 1,500 on account of the medical expenses incurred on the treatment of its chairman was allowable ? Question No. 1, in the negative. Question No. 2, in the negative. Question No. 3, in the affirmative

Summary

Issues:
1. Disallowance of part of the remuneration paid to a director under section 10(4A) of the Income-tax Act.
2. Disallowance of part of the expenditure incurred on the purchase of crockery and linen as capital expenditure.
3. Allowability of deduction claimed for medical expenses incurred on the treatment of the company's chairman.

Analysis:

Issue 1: Disallowance of Director's Remuneration
The case involved the disallowance of a portion of the remuneration paid to a director under section 10(4A) of the Income-tax Act. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the entire salary, but the Income-tax Appellate Tribunal found the appointment justified as it improved the company's business. The Tribunal held that the salary paid was not excessive compared to other directors. The court agreed, stating that if the remuneration was for legitimate business needs and on par with other directors, disallowance was unwarranted. Thus, the court answered question 1 in the negative, favoring the assessee.

Issue 2: Disallowance of Expenditure on Crockery and Linen
The dispute centered on the disallowance of part of the expenditure on crockery and linen as capital expenditure. The Tribunal disallowed a portion of the claim, citing a mistake in calculation. However, the court disagreed with the department's approach, stating that replacement of such items is a deductible expense in a hotel business. The court emphasized that the claim was not excessive, considering the nature of the business and past allowances by the Tribunal. Consequently, the court answered question 2 in the negative, in favor of the assessee.

Issue 3: Deduction for Medical Expenses
Regarding the deduction claimed for medical expenses incurred on the treatment of the company's chairman, the Tribunal disallowed the claim due to lack of specific rules. However, the court found the resolution authorizing the expenditure to be bona fide, especially given the chairman's lower honorarium compared to other directors. The court held that the absence of explicit rules did not invalidate the claim, as the management's discretion aimed to ensure genuine claims. Therefore, the court answered question 3 in the affirmative, favoring the assessee.

Costs and Conclusion
Since all questions were decided in favor of the assessee, they were awarded costs. The court assessed the costs at Rs. 200 for each reference. In a related case with similar issues, the court provided identical answers, granting costs to the assessee as well.