1982 PLP 78 (PTD)

M. R. SHARMA, J.‑Income‑tax Cases Nos. 45, 46 and 47 of 1976 arise between the same parties and since common questions of law and fact are involved therein they are being disposed of by one judgment. The assessee is a Private Limited Company carrying on the business of manufacture of pistons at Amritsar. Earlier its status was that of a partner ship firm and it was converted into a Private Limited Company with effect from April 1, 1968. The dispute relates to the salary paid to Sh. Sadhu Singh, the permanent life Director of the Company. On the basis of the articles of association of the company, the Board of Directors passed a resolution on June 1, 1968, fixing the monthly salary of Sh. Sadhu Singh at Rs. 3,000 with an annual increment of Rs. 200, the salary rising up to a maximum of RS. 4,000 per month. For the assessment year 1969‑70, salary of Sh. Sadhu Singh was fixed at Rs. 3,000 per month in accordance with the aforementioned resolution of the Board of Directors. The I.‑T. O. did not agree with this fixation of salary as he was of the opinion that in view of the legitimate business needs of the assessee the salary of Rs. 3,000 per month paid to Sh. Sadhu Singh was excessive. Accordingly, he disallowed that salary to the extend of Rs. 1,250 per month under section 40 (c) of the I. T. Act, 1961 (hereinafter called "that Act". The assessee filed an appeal against the order passed by the I.‑T. O. which was dismissed. Second appeal was taken to the Income‑tax Appellate Tribunal which fixed the salary of Sh. Sadhu Singh at Rs. 2,500 per month along with annual increments at the rate of Rs.

200. The application filed by .the assessee before the Appellate Tribunal to state the questions of law arising out of its order to us for our opinion was dismissed. Being dissatisfied with the view taken by the Tribunal, the assessee has come up before us in these three petitions with the prayer that the Tribunal be directed to state the following questions of law arising out of its order for our opinion: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding, that Rs. 6,000 out of the remuneration paid to the Managing Director was an inadmissible deduction for purposes of assessment under the Income‑tax Act ? (2) Whether, on the facts and in the circumstances of the case, there is any material or evidence for sustaining the disallowance of Rs. 6,000 out of the remuneration paid to the Managing Director of the Company ?" After hearing the learned counsel for the parties, we are of the view that there is no merit in these petitions. The Tribunal took notice of all the relevant circumstances, i. e., the education and technical experience of Sh. Sadhu Singh, the part played by him in promoting the business of the Company, and the overall business of the assessee. On this basis, it came to the conclusion that immediately after the formation of the Limited Company the salary of Sh. Sadhu Singh should be fixed at Rs. 2,500 alongwith annual increments of Rs.

200. It is not‑disputed that Sh. Sadhu Singh had substantial share interest in the Company and the matter in controversy has to be settled under sec tion 40 (c) of the Act. Whether this remuneration paid to him excessive or unreasonable, having regard to the legitimate business needs of the Company or not, was a pure question of fact. In coming to this conclusion, the Tribunal took into consideration all the relevant facts. On See Meenakshi Mills Ltd. v: C. I. T. ((1957) 31 I T R 28 (S C)), it was Laid down that when the finding is one of fact, the fact that it is itself an inference from basic facts will not alter its character as one of fact. The Tribunal was, therefore, justified in declining to make a reference to us. The learned counsel for the assessee had, however, placed reliance on some authorities to which a reference may be made now. In C. I. T. v. Walchand & Co. Pvt. Ltd. (2), the Court was concerned with the question whether an expenditure was wholly and exclusively laid out for the purpose of business and whether the reasonableness of such expenditure had been judged from the point of view of a businessman or not. The Court held that as employer in fixing the remuneration of his employees was entitled to consider the extent of his business, the nature of the duties to be performed, the special aptitude of the employee, future prospects of extension of the business and a host of other related circumstances. It was further held that it was erroneous to think that increased remuneration could be justified only if there was a correspond ing increase in the profits of the employer. Same view was taken in C. I. T v. Atma Ram Modi (3) and C. I. T v. Turner Morrison & CO. (Pvt.) Ltd. (4). These three cases are clearly distinguishable. because irk the instant case; as .already observed, Sh. Sadhu Singh was not only the permanent life Director of the, Company but also had considerable financial interest in the undertaking. For the reasons aforementioned, we find no force in these petitions and dismiss the same. No costs. B. S. DHILLON, J.‑I agree. Petitions dismissed.