Law:

Section:

Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable expenses - Assessee-company paid certain sum consisting of salary and share of profit to one of its directors, M, who was son of late K who had been managing director of assessee - ITO disallowed a part of said amount holding that had M not been a son of K, he could not have got such a high remuneration - Tribunal, however, relying on its order for earlier years observed that no special post had been created for M and he had been appointed on retirement of one of the directors, that he was a highly qualified person and bad experience in business and management and that fact that his father was managing director of assessee did not affect assessee's case - Tribunal, accordingly, accepted assessee's claim and allowed said deduction - Whether Tribunal was justified - Held, on facts, yes Facts In the course of the assessment proceedings for the assessment year 1962-63 of the assessee-company, the ITO found that a certain sum consisting of salary and share of profit was paid to one M who was the son of late K who had been the managing director of the assessee. The ITO was of the opinion that taking all factors into consideration, it was clear that such a high remuneration as paid to M like other directors could not have been paid to him had he not been a son of late K. Accordingly, the ITO allowed the remuneration amount but disallowed the share of profit paid to M. In the preceding assessment year, namely, 1961-62, the Tribunal had observed in its order that M had been appointed on the retirement of one of the directors and no special post had been created for him, that he was a highly qualified person and had experience in business and management, that the fact that his father K was the managing director of the assessee did not affect the assessee's case, and that the legitimate business of the company and the question of benefit derived or accrued to it had to be judged from the point of view of a prudent businessman. The Tribunal eventually came to the conclusion that the payments made to M by way of remuneration and commission were reasonable and justified and no…

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