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TMI Blog1972 (2) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, and the Tribunal held that the claim of deduction for Rs. 39,541 which is equivalent to about 13 months' salary was excessive and that the bonus could be allowed at 10 months' salary. At the instance of the assessee the Tribunal has referred the following question for our decision : " Whether, on the facts and in the circumstances of the case, the dis- allowance of the claim for deduction of bonus paid to the employees to the extent of three months' salary is lawful ? " In the preceding two years and the assessment year in question, the profits as well as the salaries and bonus paid by the asses see to the employees were as under : -------------------------------------------------------------------------------------------------------------------------------------------------- Assessment year Profits as Salary paid Bonus paid assessed -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1958-59 2,03,660 35,358 32,587 1959-60 2,99,513 41,544 38,678 1960-61 1,06,719 46,368 39,541 -------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcessive and we would allow ten months. " The fact that the assessee paid a bonus of 12 months' salary to his employees for a long time and successfully claimed it as allowance under section 10(2)(x) is not disputed. We are, therefore, at a loss to know how the Income-tax Officer fixed six months' salary as the proper bonus for the assess- see's employees. We are equally at a loss to know how the Tribunal came to the conclusion that a bonus equivalent to 10 months' salary is allowable. The Tribunal has not set out the " standards laid down in the law obtaining in the business and in the locality " on the basis of which it has purported to fix the bonus of 10 months' salary as allowable. Presumably, the Tribunal was of the view that as the profits during the assessment year were low compared to the previous years, when he paid bonus equivalent to 12 months' salary, the assessee would be justified in paying bonus equivalent to not more than 10 months' salary. The question is whether the Tribunal is right in comparing the profits earned in the assessment year with those of the prior years and reducing the bonus allowable under section 10(2)(x) to 10 months' salary on such comparison. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission is voluntary or contractual, if an employee is remunerated in the manner laid down in section 10(2)(x) then such an emolument is a permissible deduction only if the emolument is of a reasonable amount, that in determining the reasonableness of the bonus or commission all the three factors mentioned in clauses (a), (b) and (c) of the proviso to section 10(2)(x) should, at the same time, be taken into consideration and that it is not sufficient to take one or two of these factors alone into consideration. In Mysore Fertiliser Co. v. Commissioner of Income-tax 2 this court had expressed the view that it is settled law that the reasonableness of the payment has to be judged not on the subjective standard of the assessing authorities but from the point of view of commercial expediency, and that in deciding whether remuneration paid to an employee by way of commission constitutes a reasonable expenditure, all the circumstances specifically referred to in the proviso to section 10(2)(x), judged from the view of a normal prudent businessman, must be taken into account. In Madura Knitting Comany v. Commissioner of Income-tax, this court again reiterated that under section 10(2)(x) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee. An employer in fixing the remuneration of his employees is entitled to consider the extent of his business, the nature of the duties to be performed, and the special aptitude of the employee, future prospects of extension by the business and a host of other related circumstances. It is erroneous to think that increased remuneration can only be justified if there is a corresponding increase in the profits of the employer. " In Commissioner of Income-tax v. Raman and Raman Ltd., this court, while dealing with the scope of section 10(2)(x), laid down the principle that for eligibility of an allowance under that section there should be a nexus between the expenditure and the purpose of the business, and the expenditure should have been wholly and exclusively laid out for that purpose, that once it is established factually that the expenditure has been incurred for the purpose of the business, the revenue or the court cannot justifiably claim to put itself in the arm-chair of a businessman and assume the role of ascertaining how much is a reasonable remuneration having reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(2)(x) of the Income-tax Act and clause 12 of Schedule I of the Excess Profits Tax Act was proper, the primary duty was vested by the legislature in the Excess Profits Tax Officer and it was for him, subject to review by the Tribunal, to decide whether the deduction was reasonable and necessary having regard to the requirements of the business, that the jurisdiction which the High Court exercised on questions referred to it under the Excess Profits Tax Act was merely advisory, and that if the taxing authorities, having regard to the circumstances, had come to a conclusion that expenditure claimed as a deduction was not reasonable and necessary, it was not open to the High Court to substitute its own view as to what might be regarded as reasonable and necessary. It is said that even if the High Court was of the view that the taxing authorities had committed an error in law by misconceiving the evidence, or by applying erroneous tests, or otherwise by acting perversely, it might, in answering the questions submitted, lay down the true principles applicable to the ascertainment of the permissible deductions but should leave it to the taxing authorities to adjudicate upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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