Directors' remuneration deductible when commercially expedient and free from extra-commercial consideration on objective business facts.

Directors' remuneration is deductible where, on an objective appraisal of the proved facts, it is incurred wholly and exclusively for business purposes and not tainted by extra-commercial consideration. The Tribunal, as final fact-finding authority, may draw the legal inference from those facts, and its conclusion will stand unless it is based on no evidence, ignores material facts, or applies the wrong legal test. On the facts discussed, the directors were senior executives who had earlier accepted a reduction in pay in the company's interest, had no shareholding or control over policy, and later received restoration of part of that cut. The deduction was therefore upheld as commercially expedient.

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Issues: Whether the increased remuneration paid to the directors was an admissible deduction as expenditure laid out wholly and exclusively for the purpose of the assessee's business, and whether the Tribunal erred in law in allowing the deduction.

Analysis: The allowance of directors' remuneration under section 10(2)(xv) depends on whether, on an objective appraisal of all relevant facts, the expenditure was incurred wholly and exclusively for business purposes or was tainted by extra-commercial consideration. The Tribunal, as final fact-finding authority, was entitled to draw the legal inference from the proved facts, and its conclusion could be interfered with only if it proceeded on no evidence, ignored material facts, or applied the wrong legal test. On the facts found, the directors were senior executives who had earlier accepted a substantial reduction in remuneration in the company's interest, had no shareholding or control over company policy, and later received restoration of part of the earlier cut when the feared decline in business did not occur. The absence of a specific demand for increase and the duration of the earlier agreement were not decisive, since the real question was whether the payment was commercially expedient from the business point of view.

Conclusion: The Tribunal correctly held that the entire remuneration was an allowable deduction and that no extra-commercial consideration was shown.

Final Conclusion: The reference was answered in favour of the assessee, and the deduction was upheld as expenditure incurred wholly and exclusively for the purposes of business.

Ratio Decidendi: For purposes of section 10(2)(xv), directors' remuneration is deductible if, judged objectively from the standpoint of the business, it is commercially expedient and not shown to have been paid for extra-commercial consideration; the Tribunal's legal inference from proved facts will stand unless it is perverse or unsupported by evidence.

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