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 1971-72 - ITO disallowed increase in remuneration of directors of assessee company as unreasonable since there was nominal increase in turnover and profit was negligible - AAC allowed some relief - Before Tribunal, some new facts regarding opening of new branch in previous year, appointment of a new director and increase in receipts, were brought to its notice - However, Tribunal following its decision for previous year, held that though assessee had received higher reimbursement of expenses, but it did not result in corresponding increase in net income of assessee and, therefore, Tribunal upheld disallowance - Whether Tribunal did not consider new facts brought to its notice and also it did not apply correct legal principles in disallowing part of remuneration to one of directors, therefore, matter was to be remanded to Tribunal for proper consideration - Held, yes FACTS In the assessment year in question, the assessee company claimed deduction of Rs. 38,600 being remuneration paid to its directors. The ITO found that compared to the previous year, there was an increase in the turnover of the assessee by only Rs.10,000 against which the directors' remuneration had been correspondingly increased by Rs. 10,000. It was also found that the business showed a negligible profit of Rs. 81. The ITO held that such increase of the director's remuneration was unreasonable and disallowed the same to the extent of Rs. 6,600. On appeal, it was contended by the assessee that the ITO had ignored the contribution by the principal of the assessee, a foreign company, of Rs. 73,000 as against Rs. 30,000 received in the immediately preceding year. It was also pointed out that there had been an increase to the extent of Rs. 43,000 in the volume of business. The AAC directed the ITO to allow increment at the rate of Rs. 100 per month to one of the directors and Rs. 50 to another. On second appeal, the assessee, besides reiterating his submission as were raised before ITO and AAC, contended that due to the expansion of the…

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