R.N. Pyne, J. - (1.) This reference under Section 256(1) of the Income-tax Act, 1961, relates to the assessment year 1962-63, for which the relevant previous year ended on March 31, 1962. The relevant facts of this case as will appear from the statement of the case submitted by the Tribunal are stated here under.
(2.) In the course of the assessment proceedings of the assessee which is a private limited company, the Income-tax Officer found that a total amount of Rs. 73,308 was paid to one Sri M. M. Thapar, son of late Sri K. C. Thapar, which consisted of salary of Rs. 36,000 and share of profit of Rs. 37,308. When called upon to explain the reason for giving such high remuneration, the assessee in its letter dated March 8, 1967, stated that Sri M. M. Thapar had worked in the year under consideration as before as director and had also attended 15 out of 26 directors' meetings. The assessee further submitted before the Income-tax Officer that the share of profit allowed during the accounting year amounted to Rs. 37,308 as against Rs. 64,777 paid in the last year. The Income-tax Officer was of the opinion that taking all factors into consideration, it was clear that such high remuneration like other directors could not have been paid to Sri Thapar had he not been the son of late Sri K. C. Thapar who was the managing direetor of the assessee-company. According to the Income-tax Officer, in any case, within the short period of his assuming service with the company, such high remuneration could not be regarded to have been made out of business consideration only. In the circumstances, remuneration of Rs. 36,000 was allowed but the balance of Rs. 37,308 was disallowed.
(3.) Against the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner who found that Sri Thapar was first appointed a director of the assessee-cempany during the accounting year relevant to the assessment year 1961-62 and upheld the disallowance in accordance with the provisions of Section 40(c) of the Act.;