TaxTMI 
TaxTMI 
1979 (7) TMI 63
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing Rs. 10,050 u/s. 40(c) of the Act, out of remuneration paid to the directors of the assessee-company, for the assessment year 1964-65 ? " The assessee carried on the business of manufacture and sale of sugar. The assessment year in question is the year 1964-65, being the first year of assessment. The company was formed for the purposes of taking over the business of one of its promoters, Seth Puran Chand, who was running a business in the name of Kundan Sugar Mills. During the previous year, the assessee paid an amount of Rs. 3,500 to Puran Chand, its managing director, and an amount of Rs. 2,500 p.m. to Ram Niranjan, director-in-charge. The ITO disallowed a part of this remuneration on the view that it was excessive and unreasonab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it was urged that after his appointment, he had to look after the office correspondence, cane purchases, transport, stores purchases and maintenance, staff, mill, school, time office accounts, mill working, repairs and overhauling, sugar production, payments and business transactions. Apart from these duties, he was also authorised to make purchases and enter into contracts on behalf of the company, and to draw, sign, endorse, accept and negotiate all bills of exchange, hundis, and other negotiable instruments. He was also authorised to sign cheques for the company. It was also sought to be impress on the appellate authority that as the chief chemist and the chief engineer were drawing a salary of Rs. 1,500 and 2,500, respectively, the sala....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act. The relevant part of this section runs as under : " 40. (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 a 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 ....... " The Supreme Court had, looking at the language of s. 10(4A) of the Indian I.T. Act, 1922, which was the precursor of s. 40(c)(i) in the case of Nund and & Samont Co. P. Ltd. v. CIT [1970] 78 ITR 268 (SC), held that in the case of payment of remuneration by a company to a director the onus is upon the assessee that the allowance is justified. While considering as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d also offered its assets as security for making funds available to the company. Thus, in this case we find that the HUF of which both the directors were members had afforded considerable facilities to the company for its business, and the two directors were looking after its management to the best of their ability, one of them was adept in the manufacture of sugar, and the other entrant was also discharging his duties, and had experience of sugar business. Section 40(c)(i) permits allowance of expenditure of the type envisaged by cl. (i) thereof provided it is not excessive or unreasonable in the context of the legitimate needs of the business. What the legitimate needs of a company are will vary from case to case depending upon the proble....