1962 (9) TMI 98 - HC - Income Tax

Tribunal lacked evidence to disallow increased salaries as business expenses.

Walchand And Co. Private Ltd. Versus Commissioner of Income-tax

Walchand And Co. Private Ltd. Versus Commissioner of Income-tax - [1963] 48 ITR 638 (Bom.) Issues Involved:1. Disallowance of increased salaries of three executive officers by the Income-tax Officer.2. Justification for the increase in remuneration of directors and executive officers.3. Burden of proof on the assessee to justify the increased salaries as business expenses under section 10(2)(xv).4. Tribunal's decision to partially allow the increase in salaries.5. Adequacy of evidence and material considered by the Tribunal in disallowing part of the salary increase.Issue-wise Detailed Analysis:1. Disallowance of Increased Salaries of Three Executive Officers by the Income-tax Officer:The assessee, a private limited company managing nine companies of the Walchand group, increased the salaries of three executive officers who were related to one of the directors. The Income-tax Officer disallowed the increased salaries for the assessment years 1953-54 and 1954-55, questioning the justification for the increase.2. Justification for the Increase in Remuneration of Directors and Executive Officers:The assessee argued that the increased salaries were justified due to the expanded work and responsibilities resulting from the prosperity of the managed companies. The Tribunal allowed the full increase in the directors' remuneration but restricted the increase for the executive officers to Rs. 3,000 per year, deeming the rest as unjustified.3. Burden of Proof on the Assessee to Justify the Increased Salaries as Business Expenses under Section 10(2)(xv):The revenue contended that the burden of proof lay on the assessee to demonstrate that the increased salaries were wholly and exclusively for business purposes. The assessee's explanation was deemed insufficient by the Income-tax Officer and the Tribunal, who required more concrete evidence that the increases were justified by business needs.4. Tribunal's Decision to Partially Allow the Increase in Salaries:The Tribunal allowed only Rs. 3,000 per annum of the salary increase, arguing that the doubling of salaries within two years was unreasonable. However, the Tribunal did not provide specific reasons or evidence for allowing only this partial increase.5. Adequacy of Evidence and Material Considered by the Tribunal in Disallowing Part of the Salary Increase:The court found that the Tribunal acted without sufficient evidence in disallowing part of the salary increase. The Tribunal's decision was based on the relationship of the officers to a director and the doubling of their salaries, which were not adequate grounds to conclude that the increases were not for business purposes. The court emphasized that there must be material evidence to support such a conclusion.Conclusion:The court concluded that the Tribunal acted without evidence in disallowing a part of the increase in remuneration for the three executive officers during the assessment years 1953-54 and 1954-55. The assessee was entitled to the full deduction of the increased salaries as business expenses under section 10(2)(xv). The assessee was awarded costs from the Commissioner.