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TMI Blog1979 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 1971. In the accounting period ending 31st March, 1971, the assessee-company paid an amount of Rs. 38,400 to Dr. Jagmohan Garg, Rs. 10,200 to Sri N. L. Garg and Rs. 9,600 to Smt. Leelavati Garg. The remuneration paid to these directors totalled Rs. 58,200 while the sales were to the tune of Rs. 6,30,431. The assessee claimed deduction of these amounts in the computation of its income, but the ITO on the view that the remuneration paid was abnormally high, took recourse to the provisions of s. 40(c) of the I.T. Act, 1961, and disallowed an amount of Rs. 6,000 paid to Dr. Jagmohan Garg and Rs. 4,800 to Smt. Leelavati Garg. On an appeal filed by the assessee, the AAC disagreed with the ITO as regards disallowance of the remuneration pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of any company-- (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,........ if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it ........" Its precursor was s. 10(4A) of the Indian I.T. Act, 1922, which was introduced in s. 10 of that Act by s. 7 of the Finance Act of 1956 with effect from April 1, 1956. An assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case clearly fell within the purview of s. 40(c) and the disallowance was justified. The cases relied upon by the counsel afford little assistance to the argument raised, for they are distinguishable on facts and the majority of them relate to cases arising under s. 10(2)(xv) of the I.T. Act, 1922, for a period when s. 10(4A) was not on the statute took. The very first decision cited, viz., CIT v. Raman and Raman Ltd. [1969] 71 ITR 345 (Mad), is one which arises under s. 10(2)(xv) of the Act. Referring to s. 10(4A) it was held that this provision came into play also in cases where expenditure was wholly and exclusively laid out for the purposes of business. This case is thus an authority for a proposition which does not aid the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal could have reached the conclusion that the payment made to the lady was excessive. The decision of this court in Carlton Hotel (P.) Ltd. v. CIT [1974] 94 ITR 311 (All) is, on facts, clearly distinguishable. In that case the company had two directors. A third director was appointed on a salary of Rs. 200 per month from June, 1956. His salary was raised to Rs. 500 per month from November, 1959. The salary paid was disallowed by the ITO. The Tribunal found that in the circumstances it was legitimate for the company to have appointed another joint managing director and also that after the appointment of the third director the business of the company had improved. It further found that the salary of the joint managing director was rai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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