Law:

Section:

Section 40(c) of the Income-tax Act, 1961 - Business disallowance - Remuneration etc. paid in excess of prescribed limit in case of company etc. - Assessment year 1967-68 - Assessee entered into an agreement with 'RKD' who was trustee of a trust which was made for benefit of children of 'RKD' - By said agreement, trust was appointed as assessee's sole selling agents and worked in name of company 'RB' - In terms of agreement, 'RB' was to purchase all goods produced by assessee for three years as principal to principal and was to be paid an overall rebate of 15 per cent on such goods - ITO disallowed certain sum earned by 'RB' as profit on ground that agreement was dubious and was device by 'RKD' to appropriate assessee's income in favour of his relatives - Tribunal held that amount in question represented amount of excessive expenditure which had resulted in benefit to relations of person who had substantial interest in company and, therefore, was disallowable under section 40(c) - Whether since none of income-tax authorities had held that deed was sham transaction between parties and, fact that it is outlook of seller to dispose of its goods in any manner it likes at cheaper rates, it could not be said that rebate given by assessee to 'RB' was expenditure within meaning of section 40(c) - Held, yes - Whether, therefore, Tribunal had not taken relevant material into consideration in disallowing amount and as such its finding was not sustainable in law - Held, yes Section 254, read with section 40(c), of the Income-tax Act, 1961 - Appellate Tribunal - Appeals to - Assessment year 1967-68 - Whether appeals are in continuation of original proceedings and therefore, where lower authority while deciding case did not place reliance upon section 40(c), opinion could be formed under section 40(c) by authorities before whom matter came up in appeal - Held, yes Words and phrases : Word 'Income-tax officer' as occurring in section 40(c) of the Income-tax Act, 1961. FACTS The assessee-company derived income from the manufacture of biscuits, confectionary and bread. It entered into an agreement with 'RKD' who was a trustee of the trust which was made for the benefit of…

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