Commercially warranted managerial remuneration must be judged from a prudent businessman's perspective, not a subjective standard of moderation.

Where a company's business has expanded and the managing director's workload has increased, enhanced managerial remuneration should be tested from the standpoint of a prudent businessman rather than by a subjective standard of moderation. If the increase is commercially warranted, the allowance should not be curtailed merely because a court or tribunal considers the rise excessive on an abstract view. On that approach, partial disallowance of the increased remuneration was not sustainable.

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Issues: Whether the Tribunal was right in disallowing part of the increased remuneration paid to the managing director on the ground that the increase was unreasonable.

Analysis: The assessee's business had substantially expanded and the work burden on the managing director had correspondingly increased. Once the Tribunal accepted that an increase in remuneration was called for, the allowance could not be restricted by applying a subjective view of what would be a proper increase. The reasonableness of managerial remuneration had to be judged from the standpoint of a prudent businessman and not by an abstract standard of moderation. On that approach, the Tribunal's partial disallowance of the increased remuneration could not be sustained.

Conclusion: The disallowance of part of the increased remuneration was not justified; the issue was answered in favour of the assessee and against the revenue.

Ratio Decidendi: Where increased managerial remuneration is found to be commercially warranted, its reasonableness must be assessed from the businessman's point of view and not by a subjective judicial standard.

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