Law:

Section:

Section 40(c)(i ) of the income-tax act, 1961-Business disallowance-Salary, etc., paid to managing director-Whether commission on sales turnover paid to managing director, who was related to chairman and who contributed little-to business affairs of assessee-company, was rightly disallowed as deduction-Held, on facts, yes Facts The assessee-company obtained commission as selling agent of a foreign company, for importing goods and supplying them to various dealers, etc. The wife of the chairman was appointed as managing director on a fixed remuneration as well as on commission basis related to sales turnover for a period of five years. The assessee claimed deduction of the aforesaid payments. The ITO disallowed part of the remuneration and the entire commission by invoking the provision of section 40(c)( i). The Tribunal found that there was nothing on record to show that the managing director possessed experience or special qualifications or background to equip her for carrying on the business of the company. Consequently, the Tribunal concluded that she had contributed little to the assessee's business and upheld the disallowance of the commission, but found no justification for reducing the remuneration paid to her. On reference, the assessee challenged the disallowance of the commission: Held The enquiry directed by section 40(c)(i) is an enquiry involving an appreciation and evaluation of facts from a particular point of view, namely, the legitimate business needs of the assessee-company and the benefits said to be derived by the outlay of the expenditure in question. The exercise involved in the application of section 40(c)(i) is an exercise in fact-finding, in arriving at value s relating to excessiveness or unreasonableness of business expenditure from the standpoint of business needs of the company and the measure of benefit derived by the company from the expenditure in question. The Tribunal had looked into the entire material on record and was not wrong in its conclusions. TAX CASE NOS. 21 TO 24 OF 1977. P. Veeraraghavan for the Applicant. J. Jayaraman and Mrs. Nalini Chidambaram for the Respondent. JUDGMENT BALASUBRAHMANYAN, J.-There is pretty…

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