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TMI Blog1962 (12) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany incorporated under the Indian Companies Act on January 6, 1945. It acquired a rice mill on February 5, 1945. Up to December 31, 1955, the only business of the company was the working of the mill. In the accounting year relevant to the assessment year 1949-50, the income earned by the company was about ₹ 5,796. Natesan, the major shareholder of the company, was carrying on several businesses of his own in his individual capacity. He had a wholesale business in tea, a few oil filling stations and a retail business in cement. He also held contracts of agency for forwarding and handling goods with Bombay Burma Trading Co. and Ropeways Ltd. His business activities were therefore many and varied. With effect from January 1, 1956, Nate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calendar year 1957, the assessee claimed the remuneration paid to Natesan and Sankaran totalling ₹ 30,000 as deduction in the computation of the profits of the company. The departmental officers took the view that the proper remuneration would be only ₹ 1,000 per month for the managing director and ₹ 750 for the other director and anything in excess thereof would be unreasonable. Therefore, the deduction of a sum of ₹ 9,000 in all was disallowed. This course was adopted by the officers presumably by the application of section 10(4A) of the Act. The assessee preferred an appeal to the Income-tax Appellate Tribunal and contended that there was nothing unreasonable or excessive in the remuneration paid to the managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year 1957-58. He accordingly disallowed ₹ 9,000. The assessee preferred an appeal to the Appellate Assistant Commissioner, who, however, agreed with the decision of the Income-tax Officer. This order is dated April 18, 1959, which is prior to the order of the Tribunal. The assessee preferred a further appeal to the Income-tax Appellate Tribunal. The Members who constituted the Tribunal this time were not the same Members who rendered the decision dated June 5, 1959, relating to the assessment year 1957-58. The Tribunal expressed the view that it was unable to agree with the previous decision. The result was that the decision of the department disallowing ₹ 9,000 in all was affirmed. It is against this decision that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d until their decisions are set aside by the appellate authority they could follow their own opinion which they formed previously. There is nothing improper on the part of the officers in having taken up that attitude. But the fact is that they never adverted their minds to the real question arising in the case, namely, whether the claim for deduction can be properly allowed in full. The Tribunal expressed its inability to agree with its previous decision dated June 5, 1959, but in reaching the conclusion agreeing with the department, it was swayed by considerations which are not relevant or germane to the matter in issue. The reasons given by the Tribunal are as follows: (1) The assets vested in Natesan and were not transferred to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a due sense of commercial propriety or without balancing it with the adequacy of the benefit obtained by their services. Prior to 1956, before the amendment, an assessee company could claim deduction of allowance to directors under section 10(2)(xv). But the department was forbidden to sit in the arm-chair of the management of the company and decide what would be the proper remuneration (see Newtone Studios v. Commissioner of Income-tax [1955] 28 I.T.R. 378; N.M. Rayaloo Iyer v. Commissioner of Income-tax [1954] 26 I.T.R. 265. The company was therefore free to be lavish in the matter of payment of such remuneration, though the department was always inclined to frown upon even a little liberality. Now the question is what is the scope of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidence on the question whether the allowance in full of the remuneration paid would be unreasonable or excessive. It may not operate as res judicata but it cannot certainly be ignored. The Tribunal which reached a contrary conclusion in its order dated September 14, 1959, has completely overlooked the statutory requirements and has confirmed the decision of the department on grounds which cannot stand a moment's scrutiny. In considering the question whether the department was right in disallowing the sum of ₹ 9,000, the questions, whether assets were transferred by Natesan to the company or not, whether there was an agreement to pay remuneration de hors the resolution, whether there was in fact an appointment of Sankaran by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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