Law:

Section:

Section 10A of the Excess Profits Tax Act, 1940, read with section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Avoidance of liability to excess profits tax - Chargeable accounting period from 1-10-1941 to 30-9-1942 - Assessee, a private limited company, was formed by members of two closely related families - Members of same family were working as managing agents of assessee - Further, by way of a resolution, one member of each of two families was appointed as joint manager of assessee at certain remuneration, free of all taxes, to look after its management - Assessee claimed deduction of remuneration paid to joint managers as expenditure incurred for purpose of business - Said claim was allowed under section 10(2)(xv) in income tax assessment, but disallowed by Excess Profits Tax Officer in excess profits tax assessment under section 10A - Tribunal having found that joint general managers were required to do what their duty was as managing agents of assessee and further that there was a whole time manager of assessee who was paid high remuneration, held that main purpose of said appointment was avoidance or reduction of liability to pay excess profits tax - Thus, said disallowance was upheld by Tribunal - Whether on facts, section 10A was rightly applied - Held, yes FACTS The assessee was a private limited company which was formed by members of two closely related families. The managing agents of the assessee company were these two families and they were working on a remuneration of Rs. 1,500 per month, in addition to a commission on the profits of the company. The assessee by a resolution appointed one member each of the two families as its joint managers on a remuneration of certain amount. The ITO held said remuneration as an expenditure incurred for the purpose of business and allowed a deduction as business expenditure. The Excess Profits Tax Officer, however, held under section 10A that 'main purpose' behind the appointment of two joint general managers was to reduce the liability to pay excess profits tax. On appeal, the Tribunal upheld the order of the EPTO. On reference: HELD The facts and…

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