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TMI Blog1992 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under the Act for the assessment years 1976-77, 1977-78, 1978-79 and 1979-80. In making the returns, the assessee had claimed an amount of Rs. 3,000, namely, the remuneration paid to its managing director as an item of allowable expenditure. The assessing authority completed the assessments for the four years in which, while entertaining the claim for deduction of the remuneration paid to the managing director, he limited the allowance to 50 per cent. of the amount, treating the balance 50 per cent. as referable to the other business activities of the assessee. Accordingly, only an amount of Rs. 1,500 was allowed in each year out of the remuneration paid to the managing director. The assessee took up the matter in appeal before the Appellate Assistant Commissioner who disposed of the appeals for the assessment years 1976-77 and 1977-78 by a common order, and the other two, by two separate orders. So far as the first two appeals are concerned, he was of the view that the remuneration paid to the managing director was not an allowable deduction "as it was only an appropriation of income". He held, therefore, that even the allowance of 50 per cent. made by the assessing authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the payment to the managing director was an appropriation of income, in support of which it sought to rely on the decisions of the Supreme Court in CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292 and of this court in C. V. Mulk v. Commr. of Agrl. I. T. [1979] 120 ITR 670. There is no dispute at this juncture and there is no question raised about the excessive nature, if any, of the remuneration paid to the managing director. The only question is whether the remuneration paid to the managing director is merely an appropriation of income as in the case of the partnership. The two decisions relied on by the Appellate Tribunal are both cases relating to assessment of firms. In Chidambaram Pillai's case [1977] 106 ITR 292 (SC), the Supreme Court was concerned with the amounts drawn as salaries by partners of a firm which owned tea estates. The question was whether the whole of this salary could be assessed to income-tax under the Income-tax Act, 1961, or only 40 per cent. which fell within the non-agricultural sector. The Supreme Court, speaking through Krishna lyer J., held that the salary of a partner was but an alias for the return, by way of profits, for the human capital- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction was not noted is obvious from the way in which the Appellate Assistant Commissioner has referred to the payment made to the managing director of a company as remuneration paid to a partner. It cannot be disputed that the managing director of the company is in overall charge of the affairs of the company. It is part of his functions to oversee and supervise the functioning of the company. Such supervision is essential for the proper functioning of the company for carrying on the agricultural operations to the ultimate benefit of the company and for deriving the agricultural income. The remuneration paid to the managing director is an item of expense which falls under section 5(j) of the Agricultural Income-tax Act, 1950. This section provides for deductions of any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of deriving the agricultural income in the computation of the taxable agricultural income of any person. The expenditure deductible under the section is not confined to the actual agricultural operations like ploughing the land, sowing the seed or harvesting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which has become mechanised involves a high degree of organisation, technical skill, etc., in the same way as a well-run industry. If agricultural production has to be obtained with optimum results, it is necessary that there should be proper supervisory and other staff as also employment of such means as would be conducive to maximum production and proper marketing of the produce. It is axiomatic that the staff would require residential accommodation which will have to be kept in a proper state of repair. The staff will also need medical attention and other amenities which are normally afforded to employees nowadays. The benefit of provident fund can hardly be denied to them when it has become the accepted and normal feature in all forms of employment in modern times. If any motor vehicle is being maintained for enabling the supervisory or other staff to look after the farm, the expenses incurred thereon cannot be regarded as foreign to farming operations. The expenditure incurred on postage, telegrams, printing and stationery for the purpose of and in connection with farming would also be allowable. If certain periodicals are being subscribed to for obtaining technical knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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