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 1969-70 - Whether profit and loss is not at all relevant consideration under section 40(c)(i), and therefore no part of remuneration or salary could be disallowed merely on ground that company had suffered a huge loss in relevant accounting year - Held, yes - Assessee-company took over business of lithographic printing from a firm - Experts in off-set printing and qualified artist of said firm were appointed as directors of assessee-company - Appellate authorities disallowed part of salary paid to those directors in view of negligible amounts of profits in earlier years and loss in relevant year - However, there were no findings that services of those directors as artist and as expert in off set printing were not legitimate business needs of assessee and that vast increase in sale was not due to services rendered by them - Whether, on facts, appellate authorities fell into error in disallowing part of salary of those directors on basis of negligible profits of earlier years and loss in relevant assessment year - Held, yes FACTS The assessee company was carrying on the business of lithographic printing which it took over in the assessment year 1967-68, from a firm. The senior partner of the said firm was a qualified artist and an expert in litho-printing. He became the managing director of the assessee on a monthly salary of Rs. 1,500. Another director 'B' who was also an expert in off set printing and had vast experience in it was appointed as the other director by the assessee on a monthly salary of Rs. 1000/-. The ITO had disallowed part of the total salary paid to the managing director and the director under section 40(c)( i). On appeal, the AAC granted partial relief holding that in the first two years, the assessee had shown negligible amounts of profit and in the third years, it had shown a huge amount of loss which meant that the assessee company had not been benefited to any marked extent as a result of the services of the managing director and the director. On second appeal, the Tribunal…

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