LexBENGAL ENAMEL WORKS LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL
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/·.,., ----~i .;_ . , I - ·., - BENGAL ENAMEL WORKS LTD. v .. COMMISSIONER OF INCOME-TAX, WEST BENGAL December 9, 1969 _- [J. C. SHAH, ACTING C.J. AND K. S. llEGDE, J.] · Income-tax Act (11 of 1922), s. 10(2)(xv)-Payment of remunera- tion by ·employer to employee-:-lurisdiction of tax_ officers tO hold that expenditure was not laid wholly· and exclusively for the purpose of .busi- ness-Whether question of law. -· · ' The appeIIant, which was doing the bUsiness of manufacturing en.a.- . melled wa're, appointed a technical adviser and the Board of Directors . resolved to pay him 15% of the gross annual profits,as his remuneration • . for the ~ssessmeqt years, 1951-52, 1952-53 and 1953-54, the appellant claimed the amounts paid to-the- technical adviser- as admissible allowances under s. 10(2)(xv) of the Income-tax Act, 1922. The Income-tax.Officer found, · that the technical adviser was a doctor of medicine without any "<pecial qualification for the post/that he was not trained.in the technique ,. of enamelled ware, that he and his father-in-law, by the number of shares <they. held, were able to control the voting before the Board of Directors, . that good technical experts in enamelling could have been secured for a ·_'smaller remuneration, that the remuneration agi'eed to be paid to -the · technical adviser was . influenced by extra-commercial considerations and · · · therefore, disallowed a part of the · amount, holding that it was expendi- ture not incurred wholly and exclusively for the purpose of the business. The order was confirmed by the Appellant Assistant Commissioner, the · Tribunal and the High Court. In· appeal tO this Court, HELD : The question -whether an amount claimed as expenditure was B. c D E laid out or expended wholly and exclusively for the pu'rpose of the busi- ness must be decided on the facts and circumstances of each case, and the inference drawn from the facts found is one of law. Ordinarily, an em .. ployer, in fixing the remuneration of his employee, is entitled to take into F consideration the extent of his business, the nature of duties to be per- formed, the special aptitude of the employee, the future plrospects of the business and other related· circumstances, and the taxing authorities can· not substitute their own view as to the reasonable remuneration which should have been agreed to be paid to the employee. But, the taxing authority may disallow an expenditure claimed, on the ground that the payment is not real or is not incu'rred by~ the assessee in the course of his business or that it is not "laid out wholly and exclusively for the pur- pose of the business. In doing so, the authority does not substitute its own· view of how the assessce's business affairs should be managed, but proceeds to disallow the expenditure, because, the -'Condition of its admis- sibility is absent. [316 B, D; 317 F-H; 318 A, D] . . · Swadeshi Cotton Mills Co. Ltd. v. CJ.T., U.P. 63 I.T.R. 57 (S.C.), followed. CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2143 to 2145 of 1968. G H · .... J ~· ' • • A BENGAL ENAMEL V. C.I.T. (Shah, Ag. C.J.) 315 Appeals from the judgments and orders dated March 18, 1965 of the Calcutta High Court in Income-tax References Nos. 154, 155 and 156 of 1961. M. C. Chagla, P. C. Bhllltari, and 0. C. Mathur, for the appel- lant (in C.As. Nos. 2143 and 2144 of 1968). B S. Mitra, P. C. Bhartari and 0. C. Mathur, for the appellant (in C.A. No. 2145 of 1968). c D S. T. Desai, S. K. Aiyar and B. D. Sharma, for the respondent (in all the appeals) . The Judgment of the Court was delivered by Shah, Actng C.J. These appeals relate to the assessment to tax of M/s. Bengal Enamel Works Ltd.-a public limited com- pany-for the assessment years 1951-52, 1952-53 and 1953-54. The Company is doing business of manufacturing "enamelled- ware". It had originally employed a "technician" at a monthly salary of Rs. 5001-. In June 1941 the technician was relil}ved, and one Col. Bhattacharya who was a director of the Company was appointed its "Technical Adviser." He was to receive as remuneration 15% of the gross annual profits of the Company. Col. Bhattacharya resigned his office and Dr. Ganguly (son-in- law of Col. Bhattacharya) was appointed •o that office. The E Board of Directors resolved on May 18, 1950 to pay to Dr. F G H Ganguly 15 % of the gross annual profits (without deducting depreciation) as hi
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