TaxTMI 
TaxTMI 
2003 (9) TMI 50
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.... The assessee is a company registered under the Indian Companies Act which is engaged in the manufacture and export of carpets. The relevant assessment year is 1978-79. The dispute in this case is about the increase of salary of two of the directors, Sri Abdul Qayum Ansari and Abdul Quddus Ansari, who were earlier paid salary of Rs. 1,595 per month each, but this salary was increased to Rs. 2,987 per month each with effect from January 1, 1976. This increase in the salary of the two directors of the assessee-company was disallowed, in respect of which this present reference has been made. The Inspecting Assistant Commissioner disallowed the claim of the assessee in respect of this increase of the salary of the directors. The Commissioner of....
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.... v. Edward Keventer (Pvt.) Ltd. [1972] 86 ITR 370 has observed in the aforesaid decision that: "The legitimate business needs of the company must be judged from the view point of the company itself, and must be viewed from the point of view of a prudent businessman. It is not for the Income-tax Officer to dictate what the business needs of the company should be." The Calcutta High Court referred to the decision of the Madras High Court which, in Natesan and Co. (P.) Ltd. v. CIT [1964] 51 ITR 386, 391, observed: "The Department was forbidden to sit in the armchair of the management of the company and decide what would be the proper remuneration." We respectfully agree with the view taken by the Calcutta and Madras High Courts. In Newtone ....
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....ich he is under no legal obligation to make, but if he does so as a measure of commercial expediency, it must be allowed under section 37 of the Income-tax Act as a legitimate business expenditure. For instance, if a businessman makes a payment to the workers over and above the amount of bonus, which he is legally under obligation to pay under the Payment of Bonus Act, the said expenditure has yet to be allowed as a legitimate business expenditure if it has been incurred to maintain industrial peace, vide CIT v. Arcuttipore Tea Co. Ltd. [1992] 197 ITR 588 (Cal). Similarly, a payment made by a company for settling its dispute with another arising out of a business deal is allowable, even if it is ex gratia, since it is for commercial expe....
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....ay decide to pay a higher remuneration to its directors, officers or employees so as to encourage them to work hard, expand the business, or for a host of other commercial considerations and the matter has to be looked at from the view point of the company. In the present case the assessee has contended that it has increased the salary of the directors because the sales had gone up as mentioned in paragraph 8 of the order of the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has considered the matter in great detail and has noticed the increase in the sales in the relevant assessment year and has observed that such good performance was the result of very good and serious work by the directors, In the order....