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TMI Blog1981 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors, the ITO, held that the allowable remuneration should be Rs. 750 per month for each of the said two managing directors. As regards commission, he held that 1% paid to Shri A. Das was reasonable, but there was no justification for the payment of commission to Smt. Sujata Saha. Accordingly, he completed the assessment for the assessment year 1961-62, under s. 23(3) of the Indian I.T. Act, 1922, hereinafter referred to as the Act. The appellant preferred an appeal to the AAC against the order of assessment of the ITO. The AAC raised the allowable remuneration in the case of Shri A. Das from Rs. 750 to Rs. 1,000 per month. As regards Smt. Saha, he agreed with the ITO that Rs. 750 per month would represent a reasonable remuneration in her case. However, he allowed for her a commission of 1/2% on the sales, whereas the ITO had allowed nothing in that regard. Being aggrieved by the said order of the AAC, the appellant preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal by its order dated February 24, 1971, inter alia, held as follows: " It, therefore, appears to us that the remuneration of Rs. 1,500 per month which has been claimed in respect of Shri A. Das ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1961-62, the ITO had disallowed a part of the remuneration paid to the directors. On appeal, the AAC noticed that the point had come up in appeal before the Tribunal on a previous occasion in respect of the assessment year 1959-60, and that in deciding the question the Tribunal had relied on the said two decisions on s. 10(2)(xv) of the Act. The AAC also relied on the said decisions and partially maintained the disallowance made by the ITO. It was pointed out that in the appeal before the Tribunal, the appellant had placed reliance on two decisions, one of the Supreme Court and the other of the Madras High Court, both on s. 10(2)(xv) of the Act. The Tribunal, however, proceeded on the basis that for the assessment year 1959-60, it had considered the matter from the standpoint of s. 10(4A) and disposed of the appeal on the basis of s. 10(4A) and not s. 10(2)(xv). Accordingly, it was submitted that the Tribunal had committed a palpable mistake in deciding the appeal preferred by the appellant. The Tribunal, after hearing the parties, took the view that there was a mistake apparent from the record. In that view of the matter, the Tribunal by its order dated October 27, 1971, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with law. A rule nisi, out of which this appeal arises, was issued on the said application under art. 226 of the Constitution. At the hearing of the rule nisi, it was, inter alia, contended on behalf of the Revenue that the Tribunal had no jurisdiction to set aside its own order dated February 24, 1971. It was submitted that there was no mistake apparent from the record which could justify the Tribunal in recalling its order. On the other hand, it was contended on behalf of the appellant that as there was an error apparent from the record, the Tribunal was perfectly justified in the exercise of its inherent power in setting aside its previous order dated February 24, 1971, and in directing the hearing of the appeal afresh. On the question whether the Tribunal has inherent power or not, it has been observed by the learned judge that a Tribunal, like the Incometax Appellate Tribunal, cannot be said to have inherent jurisdiction like civil court. Such Tribunals have ancillary and implied powers to exercise the jurisdiction vested in them and, as part of that ancillary and incidental powers, certain amount of authority may be considered to be inherent in the implied and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10(4A) of the Act. It is, however, contended that the AAC, in the appeal preferred by the appellant against the order of the ITO, considered the question of allowable remuneration of the joint managing directors from the point of view of s. 10(2)(xv) of the Act. It is submitted that the Tribunal committed an error apparent from the record in applying the provision of s. 10(4A) to the facts of the case on the erroneous assumption that the AAC bad disposed of the appeal from the standpoint of s. 10(4A) and not s. 10(2)(xv). On the other hand, Mr. Pal, learned counsel appearing on behalf of the Revenue, has strenuously urged that the AAC did not dispose of the appeal preferred by the appellant on the basis of s. 10(2)(xv) alone, but also on a consideration of the provision of s. 10(4A). It has been observed by the learned judge that it is not manifest that the AAC had proceeded only on the basis of s. 10(2)(xv). The question naturally arises whether the AAC has really disposed of the appeal solely on the basis of s. 10(2)(xv). In considering the said question, the learned judge quoted in extenso the order of the AAC. We may, however, refer to some relevant observations of the AAC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the basis of s. 10(4A), and that it was a mistake apparent from the record. We may proceed on the assumption that the AAC had only applied the provision of s. 10(2)(xv) to the facts of the case and not s. 10(4A). On such assumption, let us consider whether the Tribunal committed a palpable mistake in proceeding on the basis of s. 10(4A). Under s. 10(1) of the Act, the tax shall be payable by an assessee under the head " Profits and gains of business, profession or vocation carried on by him. The provisions of s. 10(2)(xv) and s. 10(4A) are as follows " 10. (2) Such profits or gains shall be computed after making the following allowances, namely: . ......... (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and 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 such business, profession or vocation." 10. (4A) Nothing in sub-section (2) shall, in the computation of the profits and gains of a company be deemed to authorise the making of (a) any allowance in respect of any expenditure which results direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o examine the propriety of the order of the AAC from the point of view of s. 10(2)(xv). It is submitted that the Tribunal committed an error apparent from the record in proceeding on the footing that the AAC in the instant case and, in the previous proceeding relating to the assessment year 1959-60, the Tribunal also considered the claim of the appellant with reference to s. 10(4A). In proceeding on that erroneous assumption, the Tribunal decided the appeal of the appellant from the point of view of s. 10(4A) which, it is 'contended, is a mistake apparent from the record within the meaning of s. 35 of the Act. As discussed above, where s. 10(4A) is applicable, both s. 10(2)(xv) and s. 10(4A) have to be considered for the purpose of considering the claim of a company to the allowance of an expenditure. We have assumed that the AAC has only considered the question of allowable remuneration of the managing directors applying only the provision of s. 10(2)(xv). On appeal, the Tribunal has applied only s. 10(4A). The combined effect of the decisions of AAC and of the Tribunal on appeal is that the requirement of law has been complied with. It is, however, argued that the Tribunal had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer under s. 10(4A) of the Act, to disallow such portion of the remuneration paid to a director as he considers excessive or unreasonable, the ITO must apply his mind to the nature of the business of the company, the actual work done by the directors, the quantum of income earned by the company, the necessity to pay the remuneration to the director and other allied considerations, to form an opinion whether or not the payment is unreasonable or excessive. Further, it has been observed that the mere ipsi dixit of the officer unrelated to the criteria laid down in the statute would not be a considered opinion, but a dogmatic assertion, and the statute does not permit the department to adopt such a course. There can be no doubt that materials are required to be considered for the purpose of forming an opinion by the ITO as to the reasonableness of the allowance under s. 10(4A) as laid down in the case of Natesan and Co. (P.) Ltd. [1964] 51 ITR 386 (Mad). We are not called upon to consider in this appeal whether there were sufficient materials on record for the purpose of forming an opinion under s. 10(4A); but we are unable to hold that there was absence of any material for the obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is excessive or unreasonable having regard to the legitimate business needs of the assessee before the power under s. 10(4A) may be exercised. So, in view of the above decisions of the Supreme Court, if there is no material before the Tribunal as contended on behalf of the appellant, the appellant has only to blame itself. As stated already, it is not correct to say that there was absence of any material before the Tribunal for the purpose of a decision under s.10(4A). Thus, it appears that even assuming that the AAC had confined its decision only to the consideration of the provision of s.10(2)(xv), the Tribunal cannot be held to have committed an error, far less an error apparent from the record, in deciding the appeal on the basis of the provision of s. 10(4A). The learned judge, in our opinion, has rightly observed that the subject-matter of the appeal was not whether s. 10(4A) or s. 10(2)(xv) should be applied. The subject-matter was whether the company was entitled to an exemption from tax to the extent of the remuneration paid by it to the two managing directors. This claim of the company was to be decided in accordance with law, that is, in accordance with the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but suffice it to say that if there be two views, and the mistake is required to be substantiated by lengthy arguments and by placing reliance on decisions, it will not be an error or mistake that can be said to be either " apparent on the face of the record " or " apparent from the record Moreover, we have held that the Tribunal has not committed any mistake in proceeding on the basis of s. 10(4A). The contention of the appellant is, therefore, without any substance and is overruled. Lastly, it has been urged on behalf of the appellant that as the Tribunal has itself come to the finding that it had committed a mistake apparent from the record, this court should not, in the exercise of its jurisdiction under art. 226 of the Constitution, interfere with the said finding of the Tribunal, even assuming that the said finding of the Tribunal is wrong. We are unable to accept the contention. The jurisdiction of the Tribunal to rectify depends on whether or not there is a mistake apparent from the record. If there be no mistake apparent from the record, the exercise of the jurisdiction by the Tribunal under s. 35 of the Act will be illegal and improper. Therefore, there is a question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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