Law:

Section:

Section 40(c), read with section 256, of the Income-tax Act, 1961 - Business disallowance - Payments to relatives of directors in case of companies Assessee-company, in accounting year relevant to assessment year 1970-71, had paid Rs. 12,000 and Rs. 13,200 as salary to two persons who were sons of a director of assessee, and claimed deduction of same - Tribunal, however, after appreciation of all materials on record allowed only Rs. 750 per month in case of each of said two persons and disallowed balance under section 40(c) - Whether finding of Tribunal was a finding of fact and, therefore, could not be interfered with - Held, yes Facts The assessee-company claimed that in the accounting period relevant to the assessment year 1970-71 it had paid Rs. 12,000 as salary to one J and Rs. 13,200 to M, who were sons of a director of the assessee. The ITO found: (i) that these two persons had little experience in the line of business, (ii) that they were less than 26 years of age, (iii) that their salaries in the earlier years were allowed at the rate of Rs. 400 per month, (iv) that the nature of work entrusted to them was not commensurate to the salary claimed, and (v) that employees much senior to them were paid lesser salary. Therefore, invoking the provisions of section 40(c), the ITO held that the salary paid to them was excessive and unreasonable and having regard to the legitimate business needs of the assessee, he concluded that only Rs. 500 per month for each of the two persons was to be allowed as reasonable salary. On appeal, the Tribunal, after upholding all the findings recorded by the ITO, concluded that salary at the rate of Rs. 750 per month to each of the two persons was quite reasonable. On reference: Held The findings of fact recorded by the Tribunal, on appreciation of evidence, was that the remuneration paid to the said two sons of the director of the assessee was excessive and unreasonable. In arriving at this conclusion numerous factors were kept in mind. It has been held in Auto Piston Mfg. Co. (P.) Ltd. v. CIT [1981] 132 ITR 12 (Punj. & Har.) that these are pure questions of fact and once that is so, on the facts found, in the instant case,…

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