Commercial expediency governs deduction of remuneration, and partial disallowance needs reasons and evidence before reduction.

Deductibility of additional remuneration depends on whether the expenditure was incurred on grounds of commercial expediency and laid out wholly and exclusively for business, judged from the businessman's standpoint rather than the revenue's. A fact-finding tribunal must act judicially and record reasons if it partially disallows such a claim; it cannot reduce genuine business expenditure merely because profits did not increase proportionately, or without evidentiary support. On that basis, the partial disallowance of the directors' and executive officers' remuneration was unsustainable, and the deduction claim was allowed.

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Issues: Whether the Tribunal was justified in partially disallowing the additional remuneration paid to the assessee's directors and executive officers as not being expenditure laid out wholly and exclusively for the purposes of business, and whether the disallowance was sustainable when no reasons were recorded.

Analysis: The allowance was claimed under section 10(2)(xv) of the Indian Income-tax Act, 1922. In deciding such a claim, the proper test is whether the expenditure was incurred voluntarily and on grounds of commercial expediency, and whether it was laid out wholly and exclusively for the purposes of the business. Reasonableness must be judged from the businessman's point of view, not from the revenue's perspective. The Tribunal, though vested with judicial powers under section 33(4) of the Income-tax Act, 1922, is required to act judicially and to record reasons for its conclusions. It cannot substitute its own view of the salary that ought to have been paid to employees, especially when it accepts the business justification but still reduces the claim without evidentiary basis or reasons.

Conclusion: The partial disallowance of the additional remuneration was not supported by evidence and was unsustainable. The claim for deduction could not be curtailed on the ground that the increase in remuneration was not matched by a corresponding increase in profits.

Final Conclusion: The assessee's claim for deduction of the additional remuneration succeeded, and the revenue's appeals were dismissed.

Ratio Decidendi: For deduction of business expenditure on remuneration, the decisive test is commercial expediency judged from the businessman's standpoint, and a fact-finding tribunal must support any partial disallowance with reasons and evidence; it cannot reduce a genuine business expenditure merely because profits did not proportionately increase.

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