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TMI Blog1962 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. These three officers before their appointment in the assessee company had been sent for training to the several managed companies as apprentices. During the previous year relevant to the assessment year 1953-54, the assessee company passed resolutions increasing the remuneration of the directors and also the salaries of the three executive officers with effect from 1st April, 1952. In the next year also, i.e., in the assessment year 1954-551 the company passed similar resolutions increasing the remuneration of the directors and also the salaries of the three officers still further. In the course of the assessment proceedings for the assessment years 1953-54 and 1954-55, the Income-tax Officer called upon the assessee to satisfy him as to why the increase made in the remuneration of the directors and officers should be allowed as a deduction in the computation of the total income of the assessee. The assessee in reply thereto offered an explanation which was contained in the letter dated the 21st January, 1953, addressed by its solicitors to the Income-tax Officer, during the proceedings for the assessment year 1952-53. The explanation was not accepted by the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no material before the income-tax authorities or the Tribunal for disallowing any part of the increase in the salaries of these three executive officers. It was for the assessee company to decide what it should pay to its employees. It had accordingly on a proper appreciation of the services which were being rendered by these three executive officers decided to increase their salaries during the relevant assessment years. The bona fides of the payments made to these officers or the fact that actual payments were made to them is not in dispute. According to Mr. Palkhivala, it was for the employer as to what he should properly pay to the employees. He urges that unless there is material in the case from which it could be gathered that the increase in the salary is for considerations other than for the purposes of business, the income-tax authorities would not be justified in disallowing the payments. The circumstance that the officers are related to the directors of the assessee company is by itself not sufficient to show that the increase in their salaries is for considerations other than for the purposes of business. The circumstance that during the years during which increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely, that the officers were relations of the directors taken along with the circumstances that there was no evidence showing that not only the salaries of the three officers but the salaries of all the members of the staff were also increased, or that there was any demand on the part of these employees for a rise, or that their work had increased particularly during the assessment years, the Income-tax Officer and the Tribunal were justified in disallowing the rise in the salaries given to the officers. In our opinion, if the Income-tax Officer or the Tribunal, having properly applied their minds to the facts and circumstances of the case, and after having properly appreciated what they had to find upon, had come to a finding that, on the facts and circumstances of the case and on the material on record, the rise in the salaries granted to the three executive officers by the assessee company for the relevant assessment years was for considerations other than for the purposes of business, it would not have been possible for us either to find fault with that conclusion or to interfere with it, since it would have been a finding of fact arrived at on the material before the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary of every member of the staff or a payment of bonus to the entire staff is, in our opinion, not a relevant circumstance. The other circumstance relied on by the Income-tax Officer, that the profits of the assessee company have not further increased in the assessment years to justify the rise in the salary of the executive officers, is again an irrelevant circumstance, as pointed out by the Kerala High Court in S. Veeriah Reddiar v. Commissioner of Income-tax [1960] 38 ITR 152. We find from the letter of the assessee's solicitors dated 21st January, 1953, that the managed companies were all prospering and their work was increasing every year. One of the managed companies, namely, Hindustan Construction Company, had undertaken the contract of Vaitarna Dam, which involved a special type of work and was considered to be the biggest dam in India, and the activities of the assessee company, therefore, had been considerably enlarged and the work of the directors and the strain on them had also considerably increased. It was pointed out in the said letter that the profits of the several managed companies had considerably improved and the commission earned by the assessee company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wants to claim as a deduction by way of salaries. But if the Income-tax Officer or the Tribunal wants to do that, there must be material before them from which they could arrive at this conclusion that the increase in the salaries is for consideration other than for the purposes of business and therefore not allowable under section 10(2)(xv) . The two circumstances, which are disclosed in the short order of the Tribunal, namely, that the officers are relations of a director and their salaries by the rise given to them are doubled in a period of two years and the further circumstance pointed out by the Income-tax Officer that the rise granted in the assessment year 1953-54 is not reflected in the profits of the company cannot by themselves without anything more suffice to serve as proper or adequate material leading to the conclusion that the expenditure is for consideration other than for purposes of business: (see Newtone Studios Ltd. v. Commissioner of Income-tax [1955] 28 ITR 378 and S. Veeriah Reddiar v. Commissioner of Income-tax [1960] 38 ITR 152 ) . In the view that we are taking, our answer to the question is that the Tribunal has acted without evidence in disallowing a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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