TaxTMI 
TaxTMI 
1987 (1) TMI 195
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....re parties from Kopargaon and Chalisgaon. The factory itself is situated at Chalisgaon. The shareholders were directly involved in the activity of the company, as seen from the fact that the regular office establishment consists of only one manager and one messenger. The names of Directors along with the dates of appointments are as below: S. No. Name Date of appointment 1. Shri Mohanrao Abasaheb Gade (Kopargaon, Dist. Ahmednagar) 21-2-1977 2. Shri Fakirrao tanaji Deshmukh (Chalisgaon (Dist. Jalgaon.) 21-2-1977 3. Mrs. Sulochanabai Mohanrao Gade Kopargaon (Dist. Ahmednagar) 21-2-1977 4. Mrs. Sushilabai Fakirrao Deshmukh (Chalisgaon (Dist. Ahmednagar) 28-3-1977 5. Shri Pundlik Narayan Pai Ko....
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....79-80 3,36,126 7,116 - 31-3-80 1980-81 4,46,170 10,089 - 31-3-81 1981-82 5,31,935 12,140 49,000 31-3-82 1982-83 5,52,502 16,250 1,44,000 31-3-83 1983-84 9,04,136 16,738 1,44,000 31-3-84 1984-85 9,14,371 21,433 1,44,000 31-3-85 1985-86 15,12,864 25,544 1,44,000 3. Coming to the order of the ITO, Shri Sathe explained how the ITO has proceeded on the wrong basis. Firstly, the ITO has gone on the basis of comparison with public limited company having substantial office managerial staff. Even in the case of public limited company, although the normal sitting fees would not exceed Rs. 500 per meeting, there is no ceiling even on public limited co....
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....was steady and was necessitated by the business needs of the company. Lastly the ITO is not right in finding fault with decision of the assessee-company to hold as many as 9 meetings. All these meetings were necessitated by the business needs. Apart from the minute books which recorded major decisions taken by the Directors and which were produced before the authorities below there is also further evidence to indicate that the Directors continued to take interest in the day to day affair and did not stop with merely looking into papers put before them on the date of the said meeting. 4. Shri Sathe then pointed out that the authorities below have laid undue stress on the alleged absence of qualification. This is also not correct. The qual....
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....cide to draw the sitting fees. It is thus too far fetched an argument to suggest that the shareholders have appropriated to themselves the profits of the company which would have otherwise gone to them as dividends after payment of full tax thereon. The CIT(A) too has again not given due importance to the contention made before him that the office establishment consisted only of one manager and one person. The total office salary figures have already been mentioned in the table in para 2 above. Again the CIT(A) has found fault with the adequacy of the work done during the directors meeting by referring to one item where the Directors decided to purchase 6 Moulds and 40 Rings. The cost of these items was more than Rs. 1 lakhs and could not c....
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....rs' meeting. There is also no evidence on record. In a similar case in ITA No. 1307/PN/1985 dt. 11th April, 1986, the matter had come up before this Bench and the assessment order was set aside with a direction to examine the question de novo. The departmental representative further contended that although, the ITO has not referred to s. 40A in express terms, the tenor of this order shows that he was applying the very tests which are mentioned in s. 40A being legitimate needs of the business and the ultimate benefit to the business. The departmental representative contended that as far as the company is concerned, if it could get the services of the Directors and shareholders during the initial years, without payment of any sitting fees, th....
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....ITO did not specifically refer to s. 40A in his order does not mean that he did not have the same in view, of reasonable presumption particularly from the tenor of ITO's order, would be that the ITO did apply the tests of s. 40A. This does not however, mean that in this case, any disallowance is warranted. Even after applying the test mentioned in s. 40A(1) there is no basis for any disallowance. Firstly, as rightly pointed out by Shri Sathe the company has no regular office establishment which would enable the Directors to delegate the powers of management to the office establishment consisting of one manager and one peon-cum-messenger. The fact that the Directors have not taken regular remuneration for day to day work but have remunerated....