Law:

Section:

Section 40(e) of Income-tax Act, 1961 (Corresponding to section 10(4A) of the Indian Income-tax Act, 1922) - Business disallowance - Remuneration, etc. paid in excess of prescribed limit in case of company, etc. - Assessment years 1956-57 to 1960-61 - Assessee-company paid remuneration and bonus to directors - ITO held that payment of remuneration was wholly and exclusively for purpose of company's business and payment of bonus satisfied prescribed conditions - He, however, disallowed a portion of these payments under section 10(4A) of 1922 Act being excessive and unreasonable - Tribunal after considering services rendered by these directors their business experience and resultant business held that by reason of increased remuneration and bonus paid, company was greatly benefited and it was also warranted by legitimate business needs of company - Whether on facts, no part of remuneration or bonus to directors could be added back looking to provisions of section 10(4A) of 1922 Act - Held, yes FACTS The ITO added a portion of the remuneration and bonus paid to three of the directors of the assessee-company under section 10(4A) of the 1922 Act. Though the ITO held that the payment of the remuneration could be supported as having been wholly and exclusively for the purpose of the business under section 10(2)(xv) of the 1922 Act and the payment of bonus satisfied the conditions prescribed under section 10(2)(xv) of the 1922 Act, he was the view that the payment was excessive and unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to the company. On further appeal, the AAC held that, having regard to the services rendered by these directors, the benefits derived by the company and the increase in the volume of its business, the remuneration and the bonus paid were reasonable and not excessive and that, therefore, there was no case for disallowance of any part thereof under section 10(4A) of the 1922 Act. On Revenue's further appeal, the Tribunal affirmed the finding of the AAC. On reference : HELD Section 10(4A) of the 1922 Act states that the excessiveness or the unreasonableness of the allowance has to…

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