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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 ..... 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 passed at the extra-ordinary general meeting of the company on 24th March, 1977. The ITO, however, applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 resolution I of the assessee-company dt. 24th July 1972 reads which as under: (i) Resolved that the consent of the Company be and is hereby accorded to the payment of remuneration to Shri O.M.SP.L.M. Meyyappa Chettiar as Chairman of the Board of Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany (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 company based on the legitimate business needs of the company. Director Shri M.Meyyappan is a B.S.C., B.Sc., (Tech) and he has got vast experience in the field of textile technology. He is a technical person in charge of selection of machinery, planning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 allowance in respect of any assets of the company used by any person referred to in sub-cl.(i) either wholly or partly for his own purposes or benefit, If in the opinion of the ITO any such expenditure of allowance as is mentioned in sub cls.(i) and (ii) is excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 would also support the assessee case. The assessee's claim is that it is only a measure of payment to correlate it to be profits. On the facts before us the Department has not shown that such payment is excessive having regard to the legitimate business needs of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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