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TMI Blog1957 (3) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed rate of the profits earned by the assessee. The total sum thus paid in addition to the prescribed fee in the first chargeable accounting period in question was ₹ 18,61,800 whereas, in the second chargeable accounting period, it was ₹ 11,48,192. Part of this payment was accepted by the Department as being necessary payment to the directors and was allowed as deductible expenditure. In the first chargeable accounting period, the sum of ₹ 21,900 paid to each director and, in the second chargeable accounting period, the sum of ₹ 14,550 paid to each director were admitted by the assessee to have been paid without any reference to extra services rendered by the directors. These payments to the directors were, consequently, disallowed by the Department and the assessee did not seek any reference to this court in respect of this decision. The remaining sums paid to the directors in the two chargeable accounting periods amounted to ₹ 6,15,000 in the first chargeable accounting period and ₹ 3,87,400 in the second chargeable accounting period and these are the amounts in dispute in these references. It has been accepted by the Department that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Hindustan Construction Co. Ltd. [1944] 12 ITR 104 , and, following it held that it appeared to be both unnecessary and unreasonable to pay more than the agreed proportion of the profits after deduction of the excess profits tax. He went on to give the finding that though the increased expenditure under commission was of a nature which, under the provisions of section 10 of the Income-tax Act, was an allowable deduction, it was unreasonable and unnecessary having regard to the requirements of the business and the actual services rendered by the persons concerned. It was on this view that the Excess Profits Tax Officer disallowed these amounts and excluded them from the expenditure claimed by the assessee under rule 12 of Schedule I of the Excess Profits Tax Act. On appeal, the Income-tax Appellate Tribunal affirmed this decision of the Excess Profits Tax Officer. In the appellate order, the Tribunal mentioned the various contentions which were raised on behalf of the assessee and the Department including the fact that it had been pointed out on behalf of the Department that there was no evidence as to any extra services rendered by the directors and managers and if there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same ground which appears from the order of the Excess Profits Tax Officer to be that payments had not been made in accordance with the terms of the agreement between the assessee and the directors but they were payments beyond the terms of the agreement. The finding of the Excess Profits Tax Officer amounted to laying down that the previous practice and agreements gave no indication that the commission had to be paid without deducting the excess profits tax from the net profits, so that what was payable to the directors was the commission calculated on net profits after deducting the excess profits tax assessment. We infer this, particularly, from the fact that the Excess Profits Tax Officer relied upon the decision reported in Walchand Co. Ltd. s case (supra) The question that we have to examine is how far the Excess Profits Tax Officer was justified in the decision which was affirmed by the Income-tax Appellate Tribunal. It appears to us that the consideration which led the Excess Profits Tax Officer to disallow these amounts was not decisive of the question that arose for decision. It was held by the Full Bench of this court in Shyamlal Pragnarain v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration. Even if it is a point to be taken into consideration, it cannot be said to be a circumstance of any great importance, as the question of reasonableness under rule 12 of Schedule I to the Excess Profits Tax Act has to be decided in accordance with the provisions of that rule and the Excess Profits Tax Officer has to decide the question of reasonableness and the question whether the payment was necessary having regard to the requirements of the business and in accordance with the services rendered by the employees with reference to business principles and exigencies of the business. These views expressed by the Full Bench are fully applicable to the grounds on which the Excess Profits Tax Officer and the Income-tax Appellate Tribunal have disallowed these two disputed amounts in the present cases. The Excess Profits Tax Officer and the Tribunal held that, under the terms of agreement between the assessee and the directors the proper way of paying the commission was to calculate it after deducting the excess profits tax liability. That was the reason why these amounts, which were paid to the directors, were disallowed. As held by the Full Bench of this court, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Appellate Tribunal. The Tribunal did not give any findings of fact with regard to the necessity for payments, considering the exigencies of the business, nor did the Tribunal record any finding of fact with regard to the services rendered by the persons to whom the payments were made. The Tribunal chose to disallow these amounts only on one single basis which has been mentioned above. Our answer to the question referred to us has, therefore, to be confined to the point as to whether the reason, which led the Tribunal to disallow the amounts, was a sufficient reason. If the Tribunal had thought that other reasons existed, those reasons should have been made the basis of their order when disposing of the appeal. It is not now for us to record fresh findings of fact and then, on their basis, to answer the question referred to us. The basis, which was accepted by the Tribunal, not being proper and sufficient, the order disallowing these amounts cannot be upheld. The second point, which was urged by learned counsel for the Department, was that the case of Shyamlal Pragnarain v. Commissioner of Income-tax [1955] 27 ITR 404 is distinguishable from the case before us on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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