Ajtt Kumar Sengupta, J. - (1.) At the instance of the Commissioner, the following two questions have been referred to this court under Section 256(1) of the I.T. Act, 1961. "1. Whether, on the facts and in the circumstances of the case, remuneration paid to the manager could be allowed under Section 37(1) of the Income-tax Act, 1961, for all the assessment years 1967-68, 1968-69 and 1969-70 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of the entire interest for the first year under appeal was deductible revenue expenditure and also in reducing the payment of interest by Rs. 12,000 for each of the assessment years 1968-69 and 1969-70 ?"
(2.) The facts pertaining to the first question are briefly stated as under: The assessee paid a salary of Rs. 2,000 per month to its manager. The assessee claimed deduction of Rs. 24,000 being the salary paid to the manager for each of the assessment years 1967-68, 1968-69 and 1969-70. The ITO allowed the claim to the extent of Rs. 10,000, following his order for the assessment year 1966-67 and disallowed Rs. 14,000 for each of the said assessment years. All the three assessments were completed on 28th February, 1972. On appeal, the AAC, after taking into account the cumulative effect of all evidence and facts and circumstances, held that the payment of Rs. 18,000 per annum was reasonable and sustained the disallowance to the extent of Rs. 6,000 for each of the said assessment years. The assessee appealed before the Tribunal. The Revenue relied upon the order of the AAC and pointed out that when the manager was the son of a director and brother of another director of the assessee-company, remuneration was not paid wholly for commercial reason. According to the Tribunal, there was no material to hold that the services rendered by the manager was not worth Rs. 24,000 to the assessee. It considered the volume of sales, total salary bill, the nature of the services rendered by the manager of a concern of the nature of the assessee and held that the remuneration paid to the manager was not excessive or unreasonable.
(3.) Mr. H.M. Dhar, the learned counsel appearing for the Commissioner, has submitted that the manager whose salary was disallowed partly by the ITO is a relative of a director and in view of the provisions of Section 40(c), he was justified in doing so. According to him, the Tribunal fell in error in allowing the salary of the manager in entirety. The contention of the Revenue is to be considered in the light of the provisions of Section 40(c) of the Act. Although the first question referred to us relates to the allowance of the remuneration under Section 37(1) of the Act, the income-tax authorities and the Tribunal proceeded to consider the allowance under Section 40(c) of the Act. In the statement of the case also, the Tribunal referred to the provisions of Section 40(c). In the reference application under Section 256(1), a specific question was raised by the Commissioner regarding the allowability of the remuneration of the manager under Section 40(c) of the Act. However, the Tribunal referred the question as set out earlier. Having regard to the facts and circumstances of the case and to bring out the real controversy in issue, we reframe the first question as under : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the manager's remuneration was allowable for all the assessment years 1967-68, 1968-69 and 1969-70 ?;