Decided on June 17,1968



- (1.) In compliance with the directions of this Court in O. P. 878 of 1966 the following questions have been referred to this court for our decision by the Income tax Appellate Tribunal, Madras Bench :- (1) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the disallowance of salary of Rs. 6,000/- and bonus of Rs. 2,500/- was justified (2) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the addition of Rs. 18,685/- on the ground of purchase inflation was sustainable
(2.) The year of assessment with which we are concerned is 1962-1963, the corresponding accounting period having ended on the 30th of September, 1961. During that year of account one Sri. P. Gopinathan Nair who is the husband of the assessee was paid a sum of Rs. 1250 per mensem as salary. The salary fixed by the assessee for Sri. P. Gopinathan Nair for the period before 1-10-1960 was Rs, 1000/- per month. The business of the assessee is being managed by the said Gopinathan Nair, is not disputed. The business consists of dealing in cashew nuts processing of the nuts for sale either by way of export or for internal consumption. The assessee owns 8 cashew nut factories. The turnover for the year in question was 61 lakhs rupees.
(3.) On the above facts and circumstances the Tribunal found that the salary is in excess of what should reasonably be paid to a manager managing such business. To use their own words we would extract Para.8, 9 and 10 of the order passed in appeal by the Tribunal. "The assessee's representative supplied us some trading data in respect of a few other assessees. We put it to him whether any of these assessees paid their general managers of this nature. He was not able to furnish the necessary information. According to the information of the Department, the maximum salary paid to a manager by one assessee was Rs. 1,548/- per annum and in another case when the assessee had employed her husband as general manager the maximum salary was Rs. 9,000/-. In the assessee's case the disparity in the salary paid by the assessee to her long standing staff and the salary paid to her husband who joined her only three years back, suggests that it was not business consideration that was at the back of the fixation of the salary. The maximum salary that the assessee paid her manager was Rs. 150/- p.m. The assessee's learned representative would have it that these persons were mere supervisors. Salary nearly ten times this cannot be said to have been made out of purely business consideration. The assessee returned an income of Rs. 28,125/- as against this the claim of salary and bonus to the general manager Gopinathan Nair amounted to Rs. 20,500/-. In the preceding year i.e. 1961-62, the Department allowed Rs. 6,000/- and the assessee accepted this. In the year 1960-61 as against a claim of Rs. 11,484/- the Department allowed only Rs. 3,242/- and this was also accepted.";

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