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TMI Blog1966 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to claim deduction of this expenditure under section 10(2)(xv) of the Income-tax Act. Appeal dismissed. - - - - - Dated:- 20-9-1966 - Judge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA JUDGMENT The judgment of the court was delivered by RAMASWAMI J.--The appellant-company is a public limited company which is managed by a firm of managing agents known as Jaipuria Brothers Ltd., another public limited company. Under article 135 of the articles of association of the appellant-company the managing agents were entrusted with the general management of the affairs of the company. The remuneration for such management was an office allowance at Rs. 5,000 per month plus a commission at 10 per cent. of the net profits of the company. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors. By reason of the amendment of the article the directors became entitled to and were paid an additional remuneration amounting to Rs. 1,11,000 for the accounting year ending December 31, 1948. Out of this amount each of the directors became entitled to a sum of Rs. 22,218. Before the Income-tax Officer the appellant-company claimed the said remuneration of Rs. 1,11,000 paid to the directors as a deduction under section 10(2)(xv) of the Income-tax Act on the ground that the said sum had been laid out or expended wholly and exclusively for the purposes of the company's business. The Income-tax Officer disallowed the claim of the appellant-company on the ground that the directors had not rendered any extra service so as to entitle th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with law and the payment cannot be called in question in income-tax proceedings. In our opinion, there is no substance in this argument. It is true that as between the directors and the company the resolution had a binding effect and the payment had to be legally made. But it is for the Income-tax Officer to decide whether the amount so paid to the directors was wholly and exclusively spent for the purpose of the business within the meaning of section 10(2)(xv) of the Income-tax Act. It is an erroneous proposition to contend that as soon as an assessee has established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. It is manifest that the Income-tax Officer is entitled to examine the circumstances of each case to determine for himself whether the remuneration paid to the employee or any portion thereof was properly deducted under section 10(2)(xv) of the Income-tax Act. The view that we have expressed is borne out by the decision of the Judicial Committee in Aspro Limited v. Commissioner of Taxes. In that case, there were two shareholders of a company and they were also the sole directors of the company. At the end of each trading year the company fixed at a general meeting about two-thirds of the profits as directors' fees, and in the year 1931, as large a sum as pound 10,000 was debited in the accounts as directors' fees. The Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directors. It was also observed by the Tribunal that in the past the directors were paid only the directors' fee at the rate of Rs. 100 per month and this was not considered by the directors to be inadequate for discharging their responsibility. It is true that in the accounting year the gross profits of the company had increased by about 30 lakhs rupees, but the Appellate Tribunal found that the increase was due to the control of cloth having been lifted on January 23, 1948, in the first month of the commencement of the accounting period, and due to cloth remaining uncontrolled till August 2, 1948, the company made abnormal profits. Thus the increase in profits was not due to any special exertion of the directors which alone could jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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