TaxTMI 
TaxTMI 
1981 (9) TMI 54
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....that payments made by the assessee-company to its directors by way of commission were made only for services rendered by them to the assessee-company (2) Whether, on the facts and in the circumstances of the case, the Income-tax Officer was justified in, disallowing payment of commission to the directors of the assessee-company under section 40(c)(i) of the Income tax Act, 1961 ? We are concerned in this case with the assessment years 1962-63, 1963-64 and 1964-65, with the relevant accounting years ending on 31st December, 1961, 31st December, 1962, and 31st December, 1963, respectively. The dispute is as regards allowance of expenditure by way of commission payments to the directors of the assessee-company, being of Rs. 1,34,735, Rs.....
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.... 6,000 25,531 bhaskar, Business 500 5% of Director. p.m. profits 5. Shri H. N. Koti- 1,800@ 10,104@ 1,800 13,777 1,800 15,318 bhaskar, Director 150 3% of p.m. profits 6. Shri R. G. Koti- 1,800@ 10,104@ 1,800 13,777 1,800 15,318 bhaskar, Director 150 3% of p.m. profits ------------------------------------------------------------------------------------------------------------------------------------------------- All the directors come from the same family of Kotibhaskar. The ITO on the same reasoning as given by him in his assessment order for the assessment years 1960-61 and 1961-62, acting under s. 40(c)(i) of the I.T. Act, 1961, disallowed the said payments of commission to the directors. In the company's ....
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.... be noted that the directors have almost paid nearly the same tax as would have been paid by the company, if the said amount was disallowed. It is also an admitted fact that there is an increase in the business of the company ...... But if the payment to each director is taken into account, in our opinion, it cannot be considered excessive, as in similar positions as employees, it would not be difficult for us to believe that such a person would not offer himself for a lower emolument than he gets now. Mere drawing of low salaries as partners in the earlier firm cannot lead us to conclude that large profits accruing to them in the partnership firm were not as a result of services rendered by them. " In appeal to the AAC against the order....
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....of the Indian I.T. Act, 1922, so far as is relevant, provides: " 40. Amounts not deductible.-Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession (c) in the case of any company (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,... if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonabl....