Commercial expediency test sustained director remuneration and funeral transport expenses as deductible business outgoings.

Remuneration and profit commission paid to a director were held not to be excessive or unreasonable where the payment was commercially justified by the director's qualifications, experience, business needs, and the work done, and could not be disallowed merely because of a family relationship with the managing director. Expenditure on air transport of a deceased chairman's body from Delhi to Calcutta was treated as business expenditure because the travel had been undertaken for business purposes and the obligation to arrange return was incidental to that business connection. The governing tests applied were prudent businessman judgment and commercial expediency, with the outgoings required to be wholly and exclusively for business purposes.

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Issues: (i) Whether remuneration and profit commission paid to a director were excessive or unreasonable so as to warrant disallowance under the relevant income-tax provision. (ii) Whether expenditure incurred for bringing by air the dead body of the chairman from Delhi to Calcutta was allowable as business expenditure.

Issue (i): Whether remuneration and profit commission paid to a director were excessive or unreasonable so as to warrant disallowance under the relevant income-tax provision.

Analysis: The payment was examined in the context of the director's qualifications, experience, appointment on a vacancy arising in the board, the absence of any specially created post, and the legitimate business needs of the company. The governing test was whether the allowance should be judged from the standpoint of a prudent businessman, having regard to the nature of the business, the work done, the income earned, and the necessity of the payment. On that approach, the payment could not be treated as excessive or unreasonable merely because the director was related to the managing director.

Conclusion: The disallowance was not justified and the issue was answered in favour of the assessee.

Issue (ii): Whether expenditure incurred for bringing by air the dead body of the chairman from Delhi to Calcutta was allowable as business expenditure.

Analysis: The expenditure was held to be incidental to the business because the chairman had travelled to Delhi in connection with the assessee's business, and the duty to arrange his return would have existed had he remained alive. The fact of death did not alter the character of the outgoing where the expenditure was incurred in discharge of an obligation connected with the business. The test applied was commercial expediency and whether the amount was laid out wholly and exclusively for business purposes.

Conclusion: The expenditure was allowable as business expenditure and the issue was answered in favour of the assessee.

Final Conclusion: Both referred questions were resolved in favour of the assessee, with the disallowances set aside on the merits of the tax treatment of remuneration and funeral transportation expenditure.

Ratio Decidendi: Remuneration is not disallowable if, viewed as a prudent businessman would view it, it is commercially justified by the services rendered and the needs of the business; similarly, expenditure incurred in direct connection with a business journey remains deductible if it is incidental to the business and laid out wholly and exclusively for that purpose.

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