TaxTMI 
TaxTMI 
1985 (11) TMI 18
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....f taking over the business of Atma Singh carried on by him as a sole proprietor under the name and style of M/s. Construction Equipments and Parts Distributors. On May 19, 1971, the date on which the assessee-company was incorporated, a separate agreement was entered into by and amongst the said Atma Singh, Prem Chand Bhalla and Joginder Singh, which provided that Atma Singh would be the first managing director of the assessee-company for life and that the entire management and control of the assessee would be retained in his hands. It was agreed further that the other two shareholders, namely, Prem Chand Bhalla and Joginder Singh, would also become the directors of the assessee-company. On March 30, 1972, at a meeting of the director....
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....ere wholly disallowed. Being aggrieved, the assessee preferred an appeal to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner held that the remuneration paid was excessive considering the business needs, the turnover and the financial status of the assessee and upheld the decision of the Income-tax Officer. The assessee preferred a further appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the remuneration paid to the directors of the assessee were reasonable inasmuch as Atma Singh, carrying on the same business as a sole proprietor, had an annual income of over Rs. 40,000. Prem Chand Bhalla, another director, was formerly in the service of another company on a....
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....e. Having regard to the legitimate business needs of the assessee, the Tribunal considered it reasonable to allow deduction at the rate of Rs. 250 per month on account of the remuneration paid to Joginder Singh and directed the Income-tax Officer to allow deduction of the said amount. On an application of the assessee under section 256(2) of the Income-tax Act, 1961, this court directed the Tribunal to refer the following questions as questions of law arising from the order of the Tribunal for the opinion of this court: " 1. Whether the Tribunal was right in law under section 40(c) of the Income-tax Act, 1961, to sustain the remuneration of Shri Atma Singh at Rs. 1,500 per month and Rs. 1,000 to Shri P. C. Bhalla and Rs. 250 per month....
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....lowed deduction of a part of the remuneration paid to the managing director and the deputy managing director on the ground that the same was excessive and unreasonable. The disallowance was confirmed by the Appellate Assistant Commissioner and the Tribunal. On a reference, the High Court held that the disallowance could not be held to be unjustified or illegal. In an appeal before the Supreme Court, it was held as follows (at pp. 271 and 272): " It is, however, for the taxpayer to establish by evidence that particular allowance is justifiable. Apparently, no evidence was tendered by the assessee relating to the duties of the managing director and the deputy managing director, the services rendered by them, the manner in which the profits....
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....0 per month from which it was found that the persons concerned were attending to the business of the assessee. The Supreme Court upheld the decision of the High Court that the remuneration and commission paid to the directors and the particular employee were not excessive or unreasonable. (c) Eastern Scales (P.) Ltd v. CIT [1979] 117 ITR 477 (Cal). In this case, a dispute arose in respect of the deductibility of an increment in salary of the managing director of the assessee. On a reference, this court noted that the increments had been considered by the Tribunal in the light of the evidence adduced, namely, the legitimate business needs of the assessee and the benefit accruing to the assessee. The question referred was answered in favou....
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....such business have increased in subsequent years. Evidence on this appeal was before the Tribunal. Evidence was also before the Tribunal that Prem Chand Bhalla had previously been employed at more or less the same salary in another concern though not as a director. This yardstick of the commercial worth of Prem Chand Bhalla has not been properly appreciated. On the evidence on record, we are unable to accept the conclusion of the Tribunal that remuneration paid to this director had been excessive. So far as Atma Singh, the managing director, is concerned, only a part of his remuneration and the entire house rent allowance has been disallowed. Evidence is on record that he was the sole proprietor of the business in the earlier years and t....