A.S.BAINS,J. - (1.) THE following two questions arising out of the Tribunal's order dated June 30, 1973, passed in I. T. A. No. 1074 of 1971-72 have been referred for the opinion of this court: " (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal did not misdirect itself in considering the niceties of the question as to what salary was reasonable instead of addressing itself to the question whether the salaries paid to the managing director and the executive director were unreasonable and excessive within the meaning of Section 40 (c) of the Income-tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the disallowance of development rebate to the assessee ?"
(2.) FACTS giving rise to this reference are as under : The assessee is a private limited company. It purchases Toka blades and discs from a sister concern, styled as M/s. Watkins Mayor and Co. and sells the same in the market. During the accounting period ending on March 31, 1969, relevant to the assessment year 1969-70, the assessee appointed Shri P. N. Mayor, as the managing director, on a salary of Rs. 3,000 per month with effect from November 2, 1968, and his son, Shri Ravi Mayor, as executive director, on a salary of Rs. 2,500 per month w. e. f. May 20, 1968. The ITO held that Shri P. N. Mayor was not actively working for the assessee-company and that the salary paid to him was not completely for business consideration. He, therefore, disallowed the entire claim of the assessee-company in respect of the salary paid to Shri P. N. Mayor. As regards Shri Ravi Mayor, the ITO considered his salary at Rs. 1,000 per month to be reasonable on the ground that the remaining salary was not paid for business consideration. Regarding the claim of development rebate the ITO found that the assessee-company had let out the machinery worth Rs. 1,55,048 to M/s. Watkins Mayor and Co. on a rent of Rs. 6,600 per annum and that this amount was credited to the profit and loss account of the assessee-company and not to its trading account. He, therefore, held that the development rebate could not be allowed on the machinery hired out, because letting the machinery on hire was not the assessee's business.
(3.) THE assessee-company filed appeal before the AAC, who held that Shri P. N. Mayor was actively engaged in the conduct of the business of the assessee-company and contributed to some extent to push up its sales. He was of the view that the salary of Rs. 2,000 per month was reasonable for the services rendered by Shri P. N. Mayor. As regards Shri Ravi Mayor, he considered a salary of Rs. 1,500 per month to be reasonable and, therefore, allowed the claim of the assessee to that extent. However, the finding of the ITO on the claim of development rebate was upheld by the AAC and qua that the assessee's appeal was dismissed.;