Law:

Section:

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 year 1959-60 - Whether in order to get benefit of section 10(2)(xv) of the Act, 1922, it is not sufficient merely to establish truth of payment but it has to be further shown that amount so paid was laid out or expended wholly and exclusively for purpose of assessee's business - Held, yes - Assessee appointed one of his relative i.e., 'M' as secretary whose duties were to exercise administrative control over staffs and to initiate and carry out policies of business - In agreement between assessee and 'M', it was recited that letter had experience in commercial accountancy and business organization - However, it was found that 'M' had not taken any course in accountancy, nor studied in any school or institute of business organisation - Further, he had not any training for business and that there was no evidence to show that he was, in fact, exercising any supervision over staff - Whether, on facts, payment of large amount by way of remuneration to 'M' was motivated not by consideration of commercial expediency but by consideration extraneous to business - Held, yes - Whether, therefore, of disallowance of certain sum from salary of 'M' was quite justified and proper - Held, yes FACTS The assessee, was carrying on business in rice and provisions on wholesale basis. He had claimed deduction of certain sum stated to have been paid to one 'M' by way of remuneration. The said 'M' was the son of sister-in-law of the assessee. He was employed by the assessee as the secretary, and his duties were to exercise administrative control over the staff and to initiate and carry out the policies of the business, subject to overall control and directions of the assessee. The ITO was of opinion that, having regard to the fact that 'M' was only a student aged 20 years on the date of the agreement, and had no special training in commercial accountancy or business organisation, and considering the nature of the duties actually performed by him, where even the experienced accountants were being paid by the assessee…

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