COMMISSIONER OF INCOME TAX Vs. RAMAN AND RAMAN P LIMITED

JUDGEMENT

(1.) THE assessee is a private limited company carrying on transport business and having also income from servicing of vehicles and execution of jobs for others. In the assessment year 1960-61, the company also extended its activity to undertaking coach building as well. In respect of assessment years 1956-57 to 1960-61, the Income-tax Officer added a portion of the remuneration and bonus paid to three of the directors purporting to act under Section 10(4A) of the Indian Income-tax Act, 1922 (hereinafter called "the Act"). Though the Income-tax Officer held that the payment of the remuneration could be supported as having been wholly and exclusively for the purpose of the business under Section 10(2)(xv) and the payment of bonus satisfied the conditions prescribed under Section 10(2)(x) of the Act, he was of the view that the payment was excessive and unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to the company. But, on a further appeal, the Appellate Assistant Commissioner held that, having regard to the services rendered by these directors, the benefits derived by the company and the increase in the volume of its business, the remuneration and the bonus paid were reasonable and not excessive and that, therefore, there was no case for disallowance of any part of the remuneration or bonus paid in any of these years under Section 10(4A) of the Act.

(2.) REVENUE preferred an appeal to the Tribunal. Before the Tribunal, in regard to the bonus, the revenue contended that the payment was not in accordance with Section 10(2)(x) and that, therefore, that money had to be added back to the income returned. This argument was rejected by the Tribunal holding that all the conditions prescribed under Section 10(2)(x) were satisfied and that if it is not to be disallowed under Section 10(4A) it had to be allowed under Section 10(2)(x). The Tribunal considered the applicability of Section 10(4A). In its view, the history of the company, the services rendered by each one of these directors of the company in the matter of carrying on the business, their qualification in the business and other surrounding circumstances, did not warrant the Income-tax Officer's finding that the payment was either excessive or unreasonable. Accordingly, it confirmed the order of the Appellate Assistant Commissioner. At the instance of the revenue the following question has been referred: