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TMI Blog1988 (8) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,500 . . Rs. 83,500 The agreement in terms of which the aforesaid payments were made to Shri Dudeja is dt. 17th Sept., 1979 and it, inter alia, stipulated that Shri Dudeja would be appointed as Senior Executive at Calcutta office on the following terms and conditions as from 20th Sept., 1979: "(i) Basic Salary: Rs. 5000 per month. (ii) Servant allowance: Rs. 500 per month. In addition to the above, you will be entitled to: (1) Suitable accommodation inCalcutta, furnished/unfurnished; (2) Four weeks' leave per annum; (3) Leave travel facility for self and family. (4) Free medical facility for self and family and (5) Retirement or terminal gratuity as applicable to the senior staff of the company in accordance with rules and regulations in that behalf in force from time to time at rate not exceeding one-half month's salary for each completed year of service subject to a maximum of Rs. 30,000." As noted earlier, Shri Dudeja became the Managing Director of the company during this previous year and acted in that capacity for the first 11 months of the previous year. Apart from being Managing Director, he held 141 shares of the company out of total 502 shares of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs. 53,476 and other receipts. Keeping in view the turnover and profits of the company, it is considered that total remuneration (salary, allowances and other perquisites) at Rs. 4000 per month is much more reasonable keeping in view all the need of the company and balance amount of Rs. 35,500 is disallowed under s. 40(C) r/w s. 40A(5) as it is considered that sum of Rs. 35,500 is excessive payment which is not justified." 3. The ITO also pointed out that the facts of the present case have no similarity with those of CIT vs. Edward Kaventer Pvt. Ltd. (1978) CTR (SC) 164 : (1978) 115 ITR 149 (SC) on which the assessee had placed reliance. He further pointed out that there is no evidence regarding the duties and functions performed by Mr. Dudeja in the matter and how the profits of the company have been enhanced by the Special aptitude and qualification of Mr. Dudeja. He has been paid excessive salary only as he has 141 shares out of 502 shares and has substantial interest in the company. 4. In addition to the above disallowance, the ITO also disallowed Rs. 8736 on account of "excessive medical expenses incurred by Mr. Dudeja." The above expenses had been paid for by M/s Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Both the assessee and the Revenue are aggrieved of the aforesaid order of the learned CIT(A). The assessee's contention is that so far as remuneration paid to Shr Dudeja is concerned, it is wholly justified taking into account his credentials and market price. According to the learned counsel, it was because of his services that the company was able to expand considerably its business. In his opinion, the disallowance in this case could not be questioned in terms of s. 40(C) of the IT Act, 1961 and that it was s. 40A(5) which alone should be applied in his case and under that section, payments to the extent of Rs. 72,000 could not be touched. It is only beyond that amount that the disallowance could be made. In support of the above proposition, reliance is placed by the learned counsel for the assessee on the judgment of the Hon'ble P&H High Court in CIT vs. Avon Cycle Pvt. Ltd. (1980) 18 CTR (P&H) 231 : (1980) 126 ITR 448 (P&H) at 458. Reference is also made to the judgment of CIT vs. Patialal Flour Mills Co. Pvt. Ltd. (1980) 14 CTR (P&H) 102 : (1980) 123 ITR 7 (P&H). The learned counsel also observed that smallness of profit of the assessee company could not be a consideration f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Dudeja. The other expenses are not relatable to leave travel facility provided to Shri Dudeja. As such it is not possible to allow the same. 14. As regard the salary payable to Shri Dudeja, there is no merit whatsoever for the contention of the assessee that it is the provisions of s. 40A(5) which apply to the present case and not the provisions of s. 40(C). Clearly, Shri Dudeja being the Managing Director of the company as also the substantial share holder of the company is covered by the provisions of s. 40(C). Sec. 40A(5) would not come into play with regard to his salary. The decision of the P&H High Court in CIT vs. Avon Cylce Pvt. Ltd. does not at all support the assessee's case as the learned counsel had tried to make it out. On the contrary, it is noticed that what the Lordships had stated was that "in case the provisions of s. 40(C) are applicable, the provisions of s. 40A will not apply." It is the reverse what the learned counsel was trying to impress upon us. The argument of the learned counsel, therefore, deserves to be rejected, out right as of no merit. We have also gone through the judgment of the Hon'ble P&H High Court in the case of Patiala Flour Mill Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e employment of the Director in question and the same has to be contrasted with the position with the state of the business as it developed after his employment. The orders of the authorities below do not appear to have undertaken the above exercise and comparative data for earlier years and the later years has not been placed on record before us. We are, therefore, unable to resolve this controversy due to the paucity of the relevant data. For this purpose, it would, in our opinion, be fair and just if the orders of the authorities below are set aside and the order is restored to the ITO with a view to examine this question afresh bearing in mind the twin principles laid down in s. 40(c). It takes care of ground No. 1 in Revenue's appeal. 16. Rs. 8736 represented medical expenses incurred by the assessee company on the treatment of Mr. Dudeja. The reason given by the ITO to reject the said claim has no validity for the doubts expressed by him as to the genuineness of the expenditure in question cannot be countenanced on the face of the evidence placed on record, namely the bill of Contemporary Tea Ltd. The expenses inCalcuttawere being incurred by the assessee through Contemporar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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