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TMI Blog1991 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by any evidence ? 2. Whether the judgment of the Tribunal is vitiated by reason of its findings that the profits of the business in the assessment year 1981-82 was less than in the assessment year 1979-80, which finding is perverse being contrary to evidence ? 3. Whether the determination of the remuneration of the directors by the Tribunal was in accordance with law ? 4. Was the Tribunal justified in determining the total remuneration of the directors having proceeded only on the basis of the salaries?" Shortly stated, the facts of the case are that the assessee is a closely held company which was incorporated on April 6, 1979. The shareholders of the company are the four directors and their respective wives. Prior to the formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------- 1981-82 1-7-1979 to 34.23 2.59 2.41 30-6-1980 1982-83 1-7-1980 to 31.61 2.41 2.34 30-6-1981 ------------------------------------------------------------------------------------------------------------------------------------------------ The directors during these two years were paid the following salary: ------------------------------------------------------------------------------------------------------------------------------------------------ Names of the Qualification Monthly Monthly salary paid directors remuneration by the partnership firm as on 30-6-1979 -------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y them. The Tribunal noted that for similar type of work and with similar qualification every director drew much less salary in the erstwhile partnership firm. The Tribunal also found that although there had been an increase in the turnover of the business during the previous year relevant to the assessment years 1981-82 and 1982-83, the profits shown were less than the profits disclosed in the previous year relevant to the assessment year 1979-80. The Tribunal, therefore, held that the remuneration paid by the assessee-company to its directors was, excessive having regard to the business needs of the assessee-company. Taking an overall view of the matter the Tribunal considered it reasonable to allow directors' remuneration for the two yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration to arbitrary amounts at its pleasure and free will without any intelligible ratio. In one case, the remuneration is reduced by a mere Rs. 500 per month, in another by Rs. 1,000 per month and in yet another by Rs. 1,250 and in the fourth case by Rs. 1,500. Thus, the reduction has gone in an escalating order from Rs. 500 to Rs. 1,500 per month. The Tribunal has not given any inkling as to how its mind worked in administering such reductions substituting its judgment for the commercial judgment of the assessee. The Tribunal has admitted that the directors deserved more than what they had received as the partners of the erstwhile firm but at the same stroke has drawn margins of excessiveness. Nothing has been brought on record showing wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to disallow any part of the salary paid to the directors under section 40(c) of the Act. Of course, the business needs of the company and the benefit derived by or accruing to it and the reasonableness of the remuneration in that perspective are to be doubtless put to the test but in a manner totally objective and uninfluenced by any obsession for higher tax revenue. Yet the burden lies on the assessee to prove that a particular allowance is justifiable. The company has to establish that the amount was for purposes of business and was authorised by section 40(c). The question that we have to address ourselves to is whether that burden has been discharged by the assessee-company. The manner in which the assessee discharged that burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars repetition to say that, it has been found as a matter of fact by the Tribunal as well as by the lower authorities that each of the four directors had long experience. They were also employed in Flakt India Ltd. Since January, 1971, they were the partners of the firm styled "Sonar Airotech Co.", whose business was ultimately taken over as a going concern by the assessee-company in terms of the agreement dated August 8, 1979. It was nobody's case that the services of these four directors were not required by the assessee-company. The legitimate business needs of the company must be considered not as a tax collector but as a prudent businessman before disallowing any part of the remuneration paid to them. The finding of the Tribunal was th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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