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Issues: Whether the disallowance of part of the remuneration paid to the managing director and technician employees was permissible under section 10(2)(xv) of the Income-tax Act, 1922 on the ground that the amount was excessive or unreasonable.
Analysis: The allowance of an expenditure under section 10(2)(xv) depends on whether it was laid out wholly and exclusively for the purposes of the business. The governing test is commercial expediency, and the reasonableness of the expenditure must be judged from the viewpoint of the businessman, not from the subjective opinion of the taxing authority. The genuineness of the payment was not in dispute, the remuneration had been authorised by the shareholders, and there was nothing to show that any part of the payment was made for a purpose other than business. The taxing authority had no jurisdiction to disallow the expenditure merely because it considered the remuneration to be too high.
Conclusion: The disallowance was not permissible. The entire remuneration was deductible, and the question was answered in favour of the assessee.
Ratio Decidendi: Where expenditure is genuine and is incurred on grounds of commercial expediency for the purposes of the business, it cannot be disallowed merely because the taxing authority considers it excessive or unreasonable on a subjective standard.
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