Business expenditure scrutiny upheld where remuneration and accommodation for a managing director lacked proof of full commercial necessity.

Part of the remuneration and rent-free furnished accommodation provided to a managing director was examined against the company's legitimate business needs and the benefit derived by it, applying an objective prudent-businessman standard. The Tribunal's finding was supported by evidence on the nature of the business, the directors' functions, turnover and profits, the comparative role of another managing director, the concerned director's physical handicap, and family control of the company. The partial disallowance rested on relevant considerations and was not shown to be based on no evidence, conjecture, or perversity, so it was upheld in favour of the Revenue.

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Issues: Whether the disallowance of part of the remuneration and the perquisite of rent-free furnished accommodation provided to the managing director under section 10(4A) of the Income-tax Act, 1922 was justified in law.

Analysis: The allowance had to be tested against the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, and the taxing authority was required to act objectively as a prudent businessman. The Tribunal had considered the relevant evidence, including the nature of the assessee's business, the work performed by the managing directors, the company's turnover and profits, the comparative role of the other managing director, the physical handicap of the concerned director, and the control exercised by the family group. On those materials, the partial disallowance was based on relevant considerations and could not be said to rest on no evidence, conjecture, or perversity.

Conclusion: The disallowance was upheld and the question was answered in favour of the Revenue.

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