Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment years 1953-54 and 1954-55 - Assessee-company, which carried on managing agency of number of companies, increased remuneration of its directors and executive officers justifying it on ground that its activities had considerably enlarged and work of directors and executors had increased with increase in its earning by way of commission - ITO disallowed entire sum - Tribunal allowed increase in remuneration of directors in full but disallowed part of remuneration paid to executive officers on ground that they were relations of directors and that their salaries had been doubled in two years - Whether circumstances that there had not been an all round rise in salary of every member of staff and that profits of assessee had not further increased in relevant years to justifying rise in salary of executive officers were not relevant for making any disallowance - Held, yes - Whether, on facts, since there was no material on record for disallowance of part of increase in salaries of executive officers, circumstances mentioned by Tribunal that rise granted was not reflected in profits of assessee-company, could not by themselves lead to conclusion that expenditure was for consideration other than for purpose of business - Held, yes - Whether, therefore, Tribunal acted without evidence in disallowing part of increase in salary of executive officers - Held, yes FACTS The assessee-company was carrying on the work of managing agents of nine companies. It employed three executive officers, one of which was the cousion and the other two were sons of one of the directors of the assessee-company. Before their appointment in the assessee-company they had been sent for training to the several managed companies as apprentices. During the previous year relevant to the assessment year 1953-54, the assessee passed resolution increasing the remuneration of the directors and the three executive officers 1-4-1952. In the next year also, i.e., in the assessment year 1954-55, the company similarly increased the remuneration…

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