Section 10(4A) disallowance requires statutory conditions; a salary adjustment based on business needs could not be sustained.

Section 10(4A) of the Indian Income-tax Act, 1922 was confined to disallowance of an allowance claimed under section 10(2) where remuneration, benefit or amenity to a director or person with substantial interest was found excessive or unreasonable having regard to business needs and the benefit derived. A disallowance based instead on the view that part of the director's salary related to extended business requirements did not satisfy those statutory conditions, and the revenue could not rescue the adjustment under section 10(2)(xv) because the assessment was not made on that footing. The disallowance therefore could not be sustained under section 10(4A).

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Issues: Whether the disallowance of part of the salary paid to a director could be sustained under section 10(4A) of the Indian Income-tax Act, 1922.

Analysis: Section 10(4A) was confined to an allowance claimed under section 10(2) and authorised disallowance only where the expenditure resulted in remuneration, benefit, or amenity to a director or a person having a substantial interest, and was found to be excessive or unreasonable having regard to the business needs of the company and the benefit derived therefrom. The disallowance in the present case was made on a different footing, namely, that part of the salary related to extended business requirements. That basis did not fit the statutory conditions of section 10(4A). The revenue's attempt to support the disallowance under section 10(2)(xv) also could not succeed because the assessment order had not proceeded on that ground.

Conclusion: The disallowance could not be sustained under section 10(4A), and the question was answered in the negative in favour of the assessee.

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