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TMI Blog1979 (9) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... eyyappan(Director) 9,900 37,165 47,065 3. M. Lakshmanan(Director) 9,900 37,165 47,065 The ITO requires the assessee to explain the justification for those payments with reference to the legitimate needs of the company's business. The assessee in its reply dt. 24th March, 1977 stated that the Chairman and the Directors had vast experience in the field in the selection of machinery, planning and production and keen interest in maintenance of the high efficiency in the conduct of the business. The ITO noted that the commission payment to the Chairman and the two Directors respectively at 4 per cent and 3 per cent of the Company's net profit was in terms of the special resolution passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 937 20,037 M. Lakshmanan, Director 11,100 8,937 20,037 Total 36,300 29,604 65,904 The AAC observed that though trading condition played a vital part in the profit making capacity of any industry business acumen and good management also would ensure both the quality of the product and the selling capacity of a company. The AAC held that there was no necessity to disallow any part of the commission. 3. The ld. Deptl. Rep. submitted before us that the assessee-company was a private limited company having of 61 shares holders holding 12,000 shares. Shri Meyyappan Chettiar was also Managing Director of Quality Spinning Mills, Pollachi. The Deptl. Rep. referred us to the resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the other benefits mentioned in (ii)(iii) (iv) above. The Deptl. Rep. further submitted that assessee's explanation in his letter dt. 24th March, 1977 for the payments in question the Chairman and the two Directors who were stated to manage the company (which has got no managing or whole time Directors) was under: Chairman Shri O.M.SP.L.M. Meyyappa Chettiar is aged about 63 years and he has got considerable experience in business particularly in the field of finance and textile mills. He is in charge of the overall administration of the company. The company is making steady progress under his able guidance and efficient administration. The remuneration sanctioned by the members of the company is only in the best interest of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same case of CIT vs. Edward Keventer Pvt. Ltd. (1972) 86 ITR 370 (Cal) and in the case of Calcutta Art Studio Pvt. Ltd. vs. CIT (1979) 118 ITR 752(Cal). 4. We have considered the rival submissions. Sec. 40(c) reads as under: "Notwithstanding anything to the contrary in ss. 30 to 39 the following amounts shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession. (c) in the case of any company (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to director or to a person who has a substantial interest in the company or to a relative of the director or of such person as the case may be (ii) any expenditure or all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on 24th June 1972 which was in the preceding accounting year the assessee did not claim commission payment for that year since the company had incurred only loss. The assessee's plea is that the payment of a fixed amount of remuneration or commission would not afford sufficient incentive and that it would induce its directors to make maximum effort for the earning profits if the commission is linked to the quantum of such profits. It appears to us that the basis of commission payment is reasonable as seen form the fact that for the succeeding year the profits declined and consequently the commission payments were also sliced down drastically. The details of qualification and experience of the Chairman and the two Directors given above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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