Law:

Section:

Section 40(c) of the Income-tax Act, 1961 [Corresponding to section 10(4A) of 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 1959-60 – Assessee company had annual turnover between 23,66,000 and Rs. 30,86,000 – It had incurred total expenditure of about Rs. 5000 per month at head office, which included remuneration and commission paid to its four directors and a personal assistant to one of directors in consideration of their attending to work of assessee – Whether on facts, payment of remuneration and commission in question could not be regarded as excessive or unreasonable so as to warrant disallowance of any amount out of it by ITO under section 10(4A) of 1922 Act - Held, yes FACTS The assessee paid to its four directors and one personal assistant to one of the directors of the assessee, certain remuneration and commission in consideration of their attending to the work of the assessee. The ITO was of the view that the amounts paid to these persons by way of remuneration and commission were unreasonable and excessive having regard to the legitimate business needs of the assessee and the benefit derived by or accruing to it therefrom and, he therefore, disallowed part of such remuneration and commission under section 10(4A) of the 1922 Act. The AAC confirmed the disallowance. On further appeal, the Tribunal held that no part of the remuneration or commission paid to the directors and the personal assistant could be regarded as excessive or unreasonable, if the legitimate business needs of the assessee and the benefit derived by or accruing to the assessee therefrom were taken into account from the point of view of a businessman. On reference, the High Court affirmed the view taken by the Tribunal. On appeal to the Supreme Court : HELD The annual turnover of the assessee during the assessment years in question ranged between Rs. 23,66,000 to Rs. 30,86,000 and the assessee had two producing centers, and also several other distributing centers. And despite this huge annual turnover and larger number of centers to look after and supervise, the…

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