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 1962-63 - Whether where salary paid by assessee to her husband to manage her business was equal to amount he was drawing when he was employed with another firm salary so paid should be allowed as business expenditure - Held, yes FACTS During the accounting year relevant to the assessment year 1962-63, the assessee paid certain amount to her husband by way of salary on the ground that the business of the assessee was being managed by G. The business consisted of dealing in cashewnuts, processing of the nuts for sale either by way of export or for internal consumption. The assessee owned 8 cashewnut factories. The revenue disallowed the deduction of aforesaid amount. On appeal the Tribunal found that the salary was in excess of what should reasonable by paid to a manager for managing such business. On reference : HELD Two factors had been relied on by the Tribunal. One of these was that in the two previous years the income-tax authorities decided to slash what had been paid to the said G by the assessee and that these decisions were not challenged. That had relevancy in deciding the question as to what could be reasonably claimed as an expenditure coming under section 10(2)(xv ) of the 1922 Act, for the particular year in question. The other circumstance relied on by the Tribunal was a comparison of the salaries paid by others engaged in similar business to their so-called managers. Comparisons in such circumstances are always dangerous and not at all clinching. What a particular employee should be paid will naturally depend upon what responsibility he has been asked to shoulder and what qualifications and experience the person who has been employed possessed at the time he was engaged. These are essentially matters for the businessman to decide and what the assessee considers a reasonable payment for the services of a particular individual must be a permissible item of expenditure unless on material it can be established that the payment was for reasons other than business considerations. In…

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