1960 PLP 487 (PTD)

KUMARA PILLAI, J.-This is a reference made by the Madras Bench of the Income-tax Appellate Tribunal under section 66 (2) of the Indian Income-tax Act in pursuance of the order of the High Court of Travancore-Cochin in O. P. No. 113 of 1955. The assessee, S. Veeriah Reddiar, is a dealer in piece-goods on a large scale, both wholesale and retail, having his head-office at Alleppey and branches at Quilon, Kottayam, Changanassery, Kayamkulam and Trivandrum. He has also a purchasing branch in Bombay.

2. For the assessment year 1124 M. E. (accounting period, year ending 31st Karkatakam, 1123) the assessee submitted a return to the Income-tax Officer, Alleppey, showing a net loss of Rs. 17,

100. Holding that the percentage of profits as per the assessee's books of accounts was too low and the books did not disclose his real profits the Income-tax Officer rejected both the accounts of the assessee and his return and assessed, him on an income of Rs. 1,48,

886. In making this assessment the Income-tax Officer had fixed the assessee's income from his head-office at Alleppey and the other branches, mentioned in paragraph 1 above, at Rs. 76,478 and disallowed a large part of the amount which the assessee had claimed as permissible deduction on account of payment of salary and allowances to his general manager and the manager of the Alleppey office who was also the cashier. The general manager, K. Lakshmana Reddiar, was the assessee's nephew and had been employed for a very long time, and the manager of the Alleppey office, D. Ramamurthi, was the assessee's son-in-law. According to the assessee, during the accounting period in question the general manager was paid a salary of Rs. 36,000 (Rs. 3,000 per month) and an allowance of Rs. 5,000 and the manager of the Alleppey office was paid a salary of Rs. 12,000 (Rs. 1,000 per month). Out of the amount of Rs. 41,000 claimed by the assessee on account of payment of salary and allowance to the general manager the Income-tax Officer allowed only a sum of Rs. 9,890 arid out of the sum of Rs. 12,000 claimed on account of the pay ment to the manager of the Alleppey-office the Income-tax Officer allowed only a sum of Rs. 4,

200. There were also other differences between the assessee and the Income-tax Officer. But this reference relates only to the above two matters, namely, (1) the profits from the assessee's business at Alleppey and other branches, and (2) the deductions claimed by him on account of the payment of the salary and allowances to the general manager and the manager of the Alleppey office. Other matters have been settled by the orders of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, and are not now in dispute.

3. In the appeal I. T. A. No. 318 of 1953-54, which the assessee filed before the Appellate Assistant Commissioner of Income-tax, Trivandrum, against the assessment order, the amount of Rs. 76,478 fixed by the Income-tax Officer as profits from the business at Alleppey and the branches was reduced by the Appellate Assistant Commissioner by Rs. 35,569 and the deductions allowed on account of the payment of salary and allowances to the general manager and the manager of the Alleppey office were raised by Rs. 3,110 and Rs. 4,800 respectively. According to the Appellate Assistant Commissioner's order, the profits from the business at Alleppey and the branches was Rs. 40,909 and the deductions which could be claimed on account of the payment of salary and allowances to the general manager and the manager of the Alleppey office were Rs. 18,000 and Rs. 9,000 respectively. Thus, the net result of the appellate order was the inclusion of a sum of Rs. 40,909 to the figures supplied by the assessee on account of the profits from the business at Alleppey and the branches and the disallowances of two sums of Rs. 23,000 and Rs. 3,000 respectively out of the deductions claimed by the assessee on account of the payment of salaries and allowances to the general manager and the manager of the Alleppey office.

4. Against the Appellate Assistant Commissioner's order the assessee filed an appeal I. T. A. No. 7386 of 1953-54, before the Income-tax Appellate Tribunal, and the Madras Bench `A' of the Tribunal heard that appeal and dismissed the same on September 30, 1954: As regards the inclusion of the amount of Rs. 40,909 mentioned above, which was referred to in the Tribunal's order as "(i) Rs. 40,909-additions for trading deficiency", the Tribunal said; "Regarding the first contention, in the absence of a variety -wise stock tally, the proviso to section 13, is clearly attracted. For the Alleppey head office, the Appellate Assistant Com missioner has accepted the Income-tax Officer's estimate of 5.5% as against 5.07% shown by the assessee, whereas for the other branches, the Appellate Assistant Commissioner has reduced the estimate of gross profit rate made by the Income-tax Officer to only 5%, with the result that eventually Rs. 40,909 has been added in the assessment. The assessee cited a few cases in the locality alleged to be comparable with his own. In view, however, of the importance of the various categories of quotas held by the textile dealers and the quantity distributed under each head, with differential margin thereon, no useful comparisons can be made. In all the circumstances of the case we have to hold that the assessee has not proved that the additions presented in question are, by any means, excessive or unreasonably. The contention is dismissed." So far as the disallowance of the amounts of Rs. 2,000 and Rs. 3,000 out of the claim for payment of salary and allowances to the general manager and the manager of the Alleppey office was concerned, the Tribunal said; "No doubt in the earlier year, Rs. 28,000 has been allowed as salary to him, but this is because of the profit of Rs. 43,613 shown by the books. The year in question, however, has ended in a loss and naturally a good part of the salary paid to him cannot be considered as necessary for purposes of the business, viewed on the standards laid down in section 10 (2) (x). We have, therefore, to hold that the salary of Rs. 18,000 allowed for the employee by the Appellate Assistant Commissioner is adequate. No further relief is due. Regarding the third contention, Ramamurthi, the son-in-law of the assessee, is stated to be the cashier at the head-office where also the highly paid general manager, Lakshmana Reddiar, works. We are unable to appreciate the business necessity for such a high salary, which, we are convinced, would not have been paid, had it not been for the fact that the em ployee in question is also the assessee's son-in-law. Rs. 9,000 has already been allowed by the Income-tax authorities for his services and, in our opinion, nothing more is due. This con tention is dismissed."

5. After the Tribunal dismissed the appeal filed before it, the assessee applied for a reference under section 66 (1) of the Income-tax Act. The Commissioner of Income-tax opposed that application and the Tribunal dismissed it on January 28, 1955. Thereupon the assessee filed O. P. No. 113 of 1955 before the High Court of Travancore-Cochin, and, by its order dated October 7, 1955, in that O. P. the High Court' formulated two questions of law as arising out of the Tribunal's order and directed the Tribunal to state a case and refer those questions under section 66 (2) of the Income-tax Act. The reference has been made in pursuance of the above order, and the question s referred are; "(i) Whether in the circumstances of the case the Tribunal was justified in holding that the proviso to section 13 was attracted ; and (ii) whether on the facts and in the circumstances of the case the disallowance out of the salary paid to the manager and cashier can be justified on the ground of reasonableness under section 10 (2), clause (x) of the Act." Both sides admitted before us that the manager and cashier referred to in question No. (ii) were the general manager and manager of the Alleppey office respectively, i.e., the persons in respect of payment of salaries and allowances to whom the assessee had claimed deductions of Rs. 41,000 and Rs. 12,000 respectively.

6. Question No. (i) relates to the inclusion of the amount of Rs. 40,909 on account of the profits of the business at Alleppey and the branches, referred to in the Tribunal's order of September 30, 1954, as; "(i) Rs. 40,909 additions for trading deficiency". According to the Appellate Tribunal and the learned counsel for the Income-tax Department, the decision of the Tribunal on the matters involved in this question was based on pure apprecia tion of facts and no point of law is involved in it for consideration in a reference under section 66.

7. Section 13 of the Income-tax Act the proviso to which, according to the Tribunal, is clearly attracted in the absence of a variety-wise stock tally, reads as follows; "

13. Income, profits and gains shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee: Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine." Upon the language of the section it is clear that if the assessee has been regularly employing a method of accounting and his income, profits and gains can properly be computed therefrom the assessment has to be made in accordance with that method of accounting and that an assessment under the proviso can be made only if either no method of accounting has been regularly employed by him or the method of accounting employed is such that in the opinion of the Income-tax Officer the assessee's income, profits and pains cannot properly be deduced the therefrom Commenting upon this section Kanga says at page 457 of the 4th Edition of his book on the Law and Practice of Income-tax; "The Income-tax Officer must give a definite finding that the case falls within one or the other of the two categories covered by this proviso." In Pandit Bros v. Commissioner of Income-tax ((1954) 26 I T R 159, 165, 168-69), the Punjab, High Court has said; "The wording of this proviso makes it quite clear that before the Income-tax Officer can reject the final statement of profit and loss given by the assessee he must either hold that there is no method of accounting or that the method employed is such that it does not disclose the true profits and losses of the firm . . . in this case there is no definite finding by the Income-tax Officer that the case falls within the proviso to section 13, for he does not say that the method of accounting employed by the assessee was such that in his opinion `the income, profits and gains could not properly be deduced therefrom. In the second place, even if such a finding were to be implied from his order it cannot be said that there was material before him which would enable him to come to this finding. The fact that the profits appeared to him to be insufficient and the fact that there was no stock register maintained by the assessee are not in my view materials upon which such a finding can be given, but these are circumstances which may provoke an inquiry. The Income-tax Officer must discover evidence or material aliunde before he can give such a finding." If the assessee has regularly employed a method of accounting even if the profit as entered in his accounts is not the true profit, the Income-tax Officer will not, in the opinion of the Privy Council, be justified in rejecting his method of accounting. Their Lordships say in Commissioner of Income-tax v. Sarangpur Cotton Manufacturing Company Ltd. ((1938) 6 I T R 36, 40). " . . . the section relates to a method of accounting regularly employed by the assessee for his own purposes-in this ease for the purposes of the company's business-and does not relate to a method of making up the statutory return for assessment to income-tax. . Secondly, the section clearly makes such a method of accounting a compulsory basis of computation unless in the opinion of the Income-tax Officer the income, profits and gains cannot properly be deduced therefrom. It may well be that, though the profit brought out in the accounts is not the true figure for income-tax purposes the true figure can be accurately deduced therefrom. The simplest case would be where it appear on the face of the accounts that a stated deduction has been made for the purpose of a reserve. But there may well be more complicated cases in which, nevertheless, it is possible to deduce the true profit from the accounts, and the judgment of the Income-tax Officer under the proviso must be properly exercised. It is misleading to describe the duty of the Income-tax Officer as a discretionary power. Despite some statements in the reference which will be referred to later, their Lordships agree with the High Court that the facts stated make clear that here the Income-tax Officer has never exercised his judgment under the proviso . . . . . ." The Supreme Court had occasion to consider this proviso in Commissioner of Income-tax v. McMillan & Co. ((1958) 33 I T R 182, 188, 191). There was difference of opinion in that case as to whether the decision to reject the assessee's method and make the assessment under the proviso can be taken by the Income-tax Officer alone or whether it may be taken by the appellate authorities also in the appeals filed against the Income-tax Officer's order. The majority view taken by their Lordships S. K. Das and Kapur, JJ. was that the decision in this behalf can be taken not only by the Income-tax Officer but also by the appellate authorities, while the dissenting Judge, Bhagwati, J., held that it can be taken only by the Income-tax Officer. As regards the requisites for making an assessment under the proviso there was no difference of opinion at all. Their Lordships S. K. Das and Kapur, JJ. have said in that case; "The section enacts that for the purposes of section 10 (profits of business, profession or vocation) and section 12 (income from other sources) income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. The choice of the method of accounting lies with the assessee ; but the assessee must show that he has followed the method regularly for his own purposes. The section and the proviso read together clearly make such a method of accounting regularly employed by the assessee a compulsory basis of computation unless, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom. If the true income, profits and gains cannot be ascertained on the basis of the assessee's method, or where no method of accounting has been regularly employed, the income must be computed upon such basis and in such manner as the Income-tax Officer may determine." "The words in the opinion of the Income-tax Officer' are not to be construed in the sense of a mere discretionary power ; but in the contest of the words used in the proviso to section 13 they impose a statutory duty on the Income-tax Officer to examine in every case the method of accounting and to see (i) whether or not it is regularly employed and (ii) to determine whether the income, profits and gains can properly be deduced therefrom." Their Lordships held further that the decision in regard to the method of accounting is to be arrived at first by the Income-tax Officer after a careful scrutiny of the accounts, whether they be simple or complicated, and the power is to be reasonably and judicially exercised, which excludes any subjective or arbitrary deci sion by the Income-tax Officer: but the power so exercised is not clothed with finality and is not excluded from review by the Appellate Assistant Commissioner ; and in reviewing the order the appellate authorities can exercise the same powers which the Income-tax Officer could exercise. In support of his contention that the Income-tax Officer has an absolute discre tion to decide as to whether the assessment should be made under the proviso to section 13 and that his decision in this matter cannot be questioned by the High Court, the Department's learned counsel relied upon Ganga Ram Balmokand v. Commissioner of Income-tax ((1937) 5 I T R 464, 488) wherein it was held that: " . . . . under the terms of the proviso, the Income-tax Officer is the only proper person to decide whether the accounts are such as reflect the true income of the assessee, and if he holds the contrary, he is at liberty to compute the taxable income of the assessee upon such basis and in such manner as he may determine ; " . . . . the proceedings before the income-tax Officer are not judicial proceedings in the sense in which this term is ordinarily used, and that all that is required of him is to proceed without bias and give sufficient opportunity to the assessee to place his case before him, or, in other words, to conduct himself in accordance with the rules of justice, equity and good conscience ; and that the control exercisable by the High Court on the Income-tax Officer in these circumstances is slight," It is needless to say that after the law on the subject has been clarified by the Supreme Court in Commissioner of Income-tax v. McMillan & Co. ((1958) 33 I T R 182) this decision cannot hold the field, Following the decisions in Commissioner of Income-tax v. McMillan & Co. Pandit Bros. v. Commissioner of Income-tax ((1954) 26 I T R 159) and Commissioner of Income-tax v. Sarangpur Cotton Manufactur ing Co. Ltd. ((1938) 6 I T R 36) we would hold that no assessment under the proviso to section 13 can be sustained if the Income-tax Officer (or the appellate authority, in cases of appeal) has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income, profits and gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting, and that the Income-tax Officer's decision on these matters is not to be a subjective or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his finding.

8. It is not disputed in the present case that the assessee has been regularly employing a method of accounting. Not only is there no finding in the orders of the Income-tax Officer, the Appellate Assistant Commissioner, and the Appellate Tribunal that the assessee has not been regularly employing a method of accounting, but the fact that he had produced his books of accounts is specifically referred to in the orders of the Income-tax Officer and the Appellate Assistant Commissioner. Further more, their orders show that they have accepted the figures in his books relating to the opening stock and purchases and sales during the accounting year, and that all that they have done, apart from disallowing some items of deductions claimed by the assessee, is to add certain percentages of profits calculated on the sales disclosed by the books. The assessee's complaints in the reference are ; (1) that the income-tax authorities' have not con sidered the question whether the income, profits and gains can properly be deduced from his method of accounting without which it was not competent for them to reject his method of accounting, and (2) that there were no materials before them for holding that the income, profits and gains cannot properly be deduced from his method of accounting. In view of the decisions in the cases referred to above and the principles deducible therefrom there can be no doubt that the questions raised by these complaints are questions of law and not pure questions of fact. Whether or not the Income-tax Officer and the appellate authorities have considered a matter which they were bound to consider judicially under the statute and whether there was material before them for arriving at the conclusion which the Department contends they have arrived at on that matter are not questions of fact but questions of law on which a reference under section 66 is competent.

9. The Income-tax Officer, the Appellate Assistant Com missioner and the Appellate Tribunal have nowhere in their orders stated that the assessee's method of accounting was such that his income, profits and gains cannot properly be deduced therefrom. Learned counsel for the Department contended that from the facts they have not accepted the assessee's accounts and have com puted the profits otherwise an implied finding in this behalf can be inferred. But, as has been pointed out in the cases referred to in paragraph 7 above, the decision of the income-tax authorities is not to be a subjective or arbitrary decision, and if there was no material before them to support their finding it cannot be sus tained. The only reasons given by the Income-tax authorities for rejecting the assessee's method of accounting were the low profits as disclosed by, his books of account and the absence of a regular stock register. In paragraphs 13 to 15 of the statement of the case the Appellate, Tribunal says; "The Income-tax Officer rejected the books in the absence of a variety-wise stock tally. As he found that the profits disclosed for the B & C quota goods aforesaid were inadequate, he made an addition of Rs. 76,

478. At the same time he accepted the profits shown in the rest of the trading as he found them to be adequate and reasonable. The Appellate Assistant Commissioner, in appeal, upheld the rejection of the books by the Income-tax Officer, but reduced the addition to Rs. 40,

909. In the appeal to the Tribunal that followed, the Tribunal held that in the absence of a variety-wise stock tally, the proviso to section 13 was attracted. It also upheld the above residuary addition which, in its opinion, was reasonable." Same were the reasons given by the Income-tax Officer in Pandit Bros. v. Commissioner of Income-tax ((1954) 26 I T R 159, 166,169) also, for rejecting the assessee's accounts in that case, and Khosla, J., with whom Kapur, J., agreed, has said therein; "All he (Income-tax Officer) said was that the profits appeared to be somewhat low and there was no stock register. In my view the fact that the profits are low is merely a warning to him to look into the accounts more carefully and see whether there is material to lead him to the conclusion that there is something false in the account books. The mere fact that the profits are low is not material upon which a finding under section 13 can be based, because the assessee may be incompetent or his methods of business may be uneconomic. Again, the fact that there is no stock register only cautions him against the falsity of the returns made by the assessee. He cannot say that merely because there is no stock register the account books must be false. The account books in this case were accepted as correct and disclosing a true state of affairs. The absence of one register cannot amount to material and there must be material before the Income-tax Officer before he can apply the provisions of the, proviso to section 13 . . . . . . The fact that the profits appeared to him to be insufficient and the fact that there was no stock register maintained by the assessee are not in my view materials upon which such a finding (i.e., a finding that the income, profits and gains could not be properly deduced from the assessee's method of accounting) can be given, but these are circumstances which may provoke an inquiry. The Income-tax Officer must discover evidence or material aliunde before he can give such a finding." Regarding the absence of a stock register, it has been observed by the Bombay High Court in Bombay Cycle Sores Co. Ltd. v. Commissioner of Income-tax ((1958) 33 I T R 13, 19) "Whether the absence of a stock register is or is not material must depend upon the other circumstances of the case and the other material which is available to the Income-tax Officer, and if the accounts, notwithstanding the absence of the stock register, enable the Income-tax Officer to deduce properly the income, profits and gains of the business, the mere absence of the register will not be a sufficient ground for invoking the proviso to section 13."

10. In the present case, in the opinion of the Appellate Assistant Commissioner the profits of the business as disclosed by the books were not so low or inadequate as the Income-tax Officer considered, and he has reduced by one-half the sum added by the Income-tax Officer to make up this inadequacy. The Income-tax Department had no complaint as regards this reduction and had not appealed against it to the Appellate Tribunal. In was further pointed out by the assesee to the Tribunal that the per centage of profit disclosed by his accounts did not at all compare unfavourably with the percentages of profits disclosed by similar concerns in the locality. But the Tribunal brushed aside this submission saying; "The assessee cited a few cases in the locality alleged to be com parable with his oven. In view, however, of the importance of the various categories of quotas held by the textile dealers and the quantity distributed under each head with differential margin thereof no useful comparison can be made. In all the circumstances of the case we have to hold that the assessee has not proved that the additions presently in question are by any means excessive or unreasonable." This was to cast the burden of proof entirely on the wrong shoulders. When the assessee had a method of accounting, and he had been regularly employing it, it was for the Department to consider whether there were sufficient materials for rejecting that method of accounting and computing the profits on other basis and not for the assessee to prove that his method of accounting ought not to be rejected. Over and above the circums tances pointed out in Pandi Bros. v. Commissioner of Income-tax ((1954) 26 I T R 159), there might also be other reasons in this case for the low percentage of profits as compared with the percentages of profits in previous years. In the years immediately preceding the accounting period in question textile control was in force in the Travancore State. It was lifted in Makarom, 1123, and re introduced about 15 days before the close of the year. The Income-tax Officer seems to think that the lifting of the control was bound to bring about increased sales and profits. The assessee, on the other hand, contends that the immediate effect of the lifting of the control .was to reduce the sales and profits. According to his counsel, when the control was in force the tendency on the part of the consumers was to buy as much as they could get, even beyond their requirements, because of their fear that they might not get timely supplies according to their needs, and their anxiety to provide against such contingency, and when this fear and anxiety were removed by the lifting of the control the demand fell off as the tendency on the part of the consumers was then only to purchase, what was sufficient for their immediate requirements. It cannot be denied that this is also a factor to be taken into account in considering the causes for the low percentage of profits. But whatever that be, the inadequacy or low percentage of profits, as pointed out in Pandit Bros. V. Commissioner of Income-tax ((1954) 26 I T R 159), is not a material upon which a finding under section 13 can be based. Coming to the absence of a stock register it has to be pointed out that this is not a case in which the closing stock could not have been ascertained at all. There was an inventory showing the quantities of the closing stock in the head office and the various branches and also their value. The correctness or other wise of the inventory could easily, have been ascertained by checking it with the opening stock, the purchases, and the sales, none of which is now questioned by the Department. When the opening stock, purchases and sales are not questioned, if there is material to show the quantity and value of the closing stock, the profits or loss can easily be ascertained, and so, the absence of a regular stock register or a stock register kept accord ing to the Government notification under the Textile Control Regulations would not be sufficient ground to reject the assessee's method of accounting in such a cage. The finding in the Income-tax Officer's order as regards the inventory was; "The inventory prepared by the assessee is not in the least to be believed," and it was on the basis of this finding that he took the decision to reject the assessee's books of account and make the assessment under the proviso to section

13. In the light of this finding the importance the Income-tax Officer attached to the absence of. a variety-wise stock register cannot be gainsaid. But this finding in regard to the accuracy of the inventory was not upheld by the Appellate Assistant Commissioner in appeal, and the Appellate Assistant Commissioner's order was not questioned by the Department before the Tribunal. The Income-tax Officer himself appeared before the Appellate Assistant Commissioner at the time of the hearing of the appeal filed by the assessee and strange to say, he conceded before the Appellate Assistant Commissioner that most of the reasons given by him in his own order for rejecting the assessee's accounts and holding the inventory to be incomplete and incorrect were wrong. In con sidering the profits of the assessee's business the Appellate Assistant Commissioner says in his order; "The appellant objects to the above estimate on the ground that it is excessive and unwarranted. He urges that his accounts contain a complete and correct record of all his transactions, that the result disclosed by them has always been accepted in the past and that the Income-tax Officer acted unjustly in disbelieving them now, He further explains that the Income-tax Officer went wrong in the calculation of the rates of gross profit as per the accounts. For instance, the Income-tax Officer's assumption that the appellant was charging a profit of not less than 2% on sales to branches and on other inter-branch transfers is wrong. Such transfers were made strictly at cost price and the Income-tax Officer erred in not noticing this plain fact and in thereby arriving at a gross profit of only 3.5% at the head office as against the correct rate of 5.07%. He committed the same error in working out the rates of profits at the other branches also though the difference involved therein was smaller. The Income-tax Officer who re-examined this point at the hearing of the appeal admits the correctness of the appellant's contention-and agrees that a reduction of as much as Rs. 22,746 should be made in the amount of gross profit adopted in the assessment order. It is further agreed by the Income-tax Officer that the adverse comments in the assessment order regarding the stock inventory are not quite accurate and must have been due to some misunderstanding. It is also conceded that details of sales are recorded in a sales register into which bills are copied." And the Appellate Assistant Commissioner sums up; "The exact position, shorn of all inappropriate criticisms, is therefore, that the rate of gross profits on sales of B and C quota goods and non-quota goods at the head office is 5.07% that the rates range from 3% to 4.4% at the Trivandrum, Quilon, Changanassery and Kayamkulam branches and that the correctness of these rates is not verifiable in the absence of a regular stock register." Thus, it was conceded by the Income-tax Officer himself before the Appellate Assistant Commissioner at the time of the hearing of the appeal that the assessee's inventory of the closing stock was not inaccurate and that the criticisms in his own order against the assessee's accounts were wrong. There was no sugges tion by the Department before the Tribunal or before us that the statements in the Assistant Commissioner's order as to the concessions made by the Income-tax Officer at the time of the hearing of the appeal were unfounded. In spite of these concessions, the Assistant Commissioner also proceeded on what he considered to be the inadequacy or low percentage of profits and the absence of a regular stock register. If the stock inventory was not incomplete and inaccurate we fail to see why it was not sufficient, and how a stock register' was necessary in its place, for computing the profit of the business. When there is no dispute as to the opening stock, the purchases and the sales, all that is necessary for computing the profit is only information about the quantity and value of the closing stock. That informa tion was easily available from the stock inventory, and the correctness of the inventory could have been easily checked with the help of the records relating to the opening stock and the purchases and sales. The Income-tax Officer bad not questioned the correctness of the opening stock and purchases in his order, and although he had said in it that the accounts of the sales were not acceptable for want of details the Appellate Assistant Commissioner has specifically said in his order : "It is also conceded that details of sales are recorded in a sales register in which bills are copied." However, while dealing with the assessee's contention that immediately after the lifting of the controls there was a fall in demand and the low profit was a consequence of it, the Appellate Assistant Commissioner also laid emphasis on the absence of a regular stock register. The Appellate Tribunal too has referred in its statement of the case to the facts that the assessee was bound to keep a variety-wise stock register under the Textile Control Orders and indicated its opinion that he must; therefore, have maintained such a register and his omission to produce it before the income-tax authorities must be due to a desire to conceal the large profits realised immediately after the controls were lifted. According to the notification under the Textile Control Order, dated 16th May 1944, dealers in cotton and yorn goods were bound to submit quarterly returns in a prescribed form, for prepar ing which it was highly necessary to keep a variety-wise stock register showing the quantities of goods as per the classification in the prescribed form. But the textile control was lifted a few months after the commencement of the accounting period in question, and it was re-introduced only at the very friend of the year. Therefore, it is quite possible that the assessee might have kept no stock register in the form prescribed by the notification after the control was lifted. The Department's counsel referred to Ganga Ram Balmokand v. Commissioner of Income tax ((1937) 5 I T R 464), in support of his contention that the absence of a stock register and low profits would be sufficient to attract the proviso to section

13. But in that case besides these two factors there were numerous other circumstances all of which tended to show that the assessee's method of accounting was defective, for example, the assessee had no vouchers in support of the entries in his accounts, the firm could not prove the total consumption of the raw materials used, etc.

12. Having regard to the circumstances of the present case we hold that in the light of the principles laid down in the other cases referred to by us, neither of the reasons assigned by the income-tax authorities and the Appellate Tribunal, namely, low profits and the absence of a variety-wise or regular stock register, was material on the strength of which a finding under the proviso to section 13 could be based and an assessment there-under could be made. Question No. (i) has therefore to be answered in the negative, i.e., in favour of the assessee.

13. Question No. (ii) relates to the disallowance of Rs. 23,000 and Rs. 3,000 respectively out of the deduction claimed by the assessee on account of the payment of salaries and allowances to the general manager and the manager (cashier) of the Alleppey office. The amount of Rs, 41,000 claimed by the assessee on account of the payment to the general manager was made up of Rs. 36,000 paid as salary and Rs. 5,000 paid as allowances. Out of this the Appellate Assistant Commissioner allowed Rs. 18,000 in respect of the claim on account of salary and disallowed the balance claim of Rs. 18,000 in respect of salary as also the claim for Rs. 5,000 in respect of allowances. Before us it was conceded by the assessee's counsel that he is not entitled to get a deduction in respect of the allowances of Rs. 5,000 paid to the general manager as section 10 (2) (x) of the Indian Income-tax Act would apply to the same and the allowances would not be justified-on the grounds of reasonableness prescribed therein. The Income-.tax Officer had allowed only Rs. 9,890 and Rs 4,200 respectively on account of the payments to the general manager and the manager of the Alleppey office, and his reasons for disallowing the rest of the claims are stated as follows in his order:

"The manager of the head office is Mr. K. Lakshmana Reddiar who is the nephew of the assessee. He is paid a regular salary of Rs. 36,000 and, in addition, an allowance of Rs. 5,000 together making up a total of Rs. 41,

000. In like business at the locality, salary paid to a manager is only Rs. 5,000 in one case and Rs. 3,600 in another case. This unheard of remuneration is given obviously because he is the assessee's sister's son and motivated by love and affection rather than service consideration. In the previous year, in an appeal on this point, the Appellate Assistant Commissioner ruled that 1/3rd of the net profits should be allowed as a special consideration and accordingly a sum of Rs. 9,890 is allowed and the balance disallowed. Similar is the case in regard to the payment to Mr. T. Rama murthi who is the assessee's son-in-law. In this case also, what stands allowed is in accordance with the Appellate Assistant Commissioner's order in appeal for the previous year". The Appellate Assistant Commissioner considered that the services of Mr. Lakshmana Reddiar, the general manager, were very valuable to the business and that having regard to the terms of the contract between him and the assessee and the salary he was receiving in previous years and also the salaries and allowances of the managers of other branches of the assessee the deductions allowed by the Income-tax Officer were too low and had to be raised to Rs. 18,000 in the case of the general manager and Rs. 9,000 for the manager. He fixed these amounts as he considered "this allowance quite reasonable and adequate". Neither the Income-tax Officer nor the Appellate Assistant Commissioner doubted or questioned the factum of the payment of the amounts mentioned by the assessee (namely, Rs. 41,000 and Rs. 12,000 respectively) to the two employees. What the Appel late Tribunal has said about this matter in its order dismissing the assessee's appeal has been extracted in paragraph 4 above. What was said in that order about the amount claimed on account of the payment to the general manager was: "a good part of the salary paid to him cannot be considered as necessary for purposes of the business viewed on the standards laid down in section 10 (2) (x)", and "the salary of Rs. 18,000 allowed for the employees by the Appellate Assistant Commissioner is adequate." and about the claim in respect of the manager (cashier), "We are unable to appreciate the business necessity for such a high salary, which, we are convinced, would not have been paid, had it not been for the fact that the employee in question is also the assessee's son-in-law." The assessee's complaint in the application for references under section 66 (1), which was dismissed by the Tribunal, was that the question of the deduction of the salaries paid to the employees was governed by section 10 (2) (xv) and that the Tribunal was not, therefore, justified in deciding that question on the basis of section 10 (2) (x). After the High Court had said in their order on the assessee's application to compel a reference that "the matter of salaries was not covered by section 10, clause (2), sub-clause (x), on which the Appellate Tribunal had relied" and formulated the question whether the disallowance can be justified on the ground of reasonableness under section 10 (2) (x), the Tribunal said in the statement of the case in the present reference that what it had done when it dismissed the appeal was to consider the case under section 10 (2) (xv) calling to its aid the standards laid down in section 10 (2) (x). To quote its own words; "On a proper consideration of all the facts and circumstances of the case of each of the two employees aforesaid, under section 10 (2) (xv) calling to its aid the standards laid down in section 10 (2) (x) the Tribunal held that the allowances already granted by the Appellate Assistant Commissioner was adequate enough and so dismissed the appeal."

14. The assessee's contention in the reference is that the question of the deduction of the salaries paid to the employees is governed by section 10 (2) (xv) and not by section 10 (2) (x) and that in deciding the propriety of an allowance claimed under section 10 (2) (xv) the standards of reasonableness prescribed by section 10 (2) (x) cannot be applied. Section 10 provides for taxation of the profits or gains of business, profession or vocation, and clause (2) thereof says that such profits or gains shall be computed after making the allowances provided for in sub- clauses (i) to (xv). Sub-clauses (x) and (xv) read as follows :

"(x) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission : Provided that the amount of the bonus or commission is of a reasonable amount with reference to- (a) the pay of the employee and the conditions of his service ; (b) the profits of the business, profession or vocation for the year in question ; and (c) the general practice in similar businesses, professions or vocations ; . . . . . . (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such the business, profession or vocation." It was not disputed before us that the deductions on account of payment of the salary to employees is governed by section 10 (2) (xv). The Tribunal also has conceded this in its statement of the case wherein "it has said that it has considered the case under section 10 (2) (xv) calling to its aid the standards laid down in section 10 (2) (x).

15. From the very language of sub-clause (x) it would be clear that that sub-clause can have no application to deductions or allowances claimed on account of payment of salaries. Under sub-clause (x) the reasonableness of the allowance or deduction claimed has to be judged with reference to (1) the pay of the employee and the conditions of his service, (2) profits of the business, profession or vocation for the year in question, and (3) the general practice in similar businesses, professions or vocations. None of these considerations can seriously be allowed to affect the question of the allowance claimed on account of the payment of salaries to employees. The first of the standards mentioned above cannot obviously apply when the reasonableness of the pay itself is in question, for it would be meaningless to say that the reasonableness of the pay of the employee should be judged with reference to that pay itself. As regards the second, it would be difficult for a business concern to secure employees who would be prepared to accept pay varying from year to year according to its profit, or loss which would be determined only after the profit or loss for the year is ascertained. Employees have to be paid salaries whether the business earns a profit or incurs a loss. To insist upon payment of salaries to employees only in conformity with the general practice in similar businesses would be to deprive the management of the right to compete with other concerns for securing the services of better qualified and more reliable employees by offering them better salaries than those concerns and its right to manage its business in its own 'way. Commercial expediency is one of the most important factors govern ing payment of salary, and, therefore, the standards prescribed in sub-clause (x) for payment of bonus and commission which are generally dependent upon the profits of the business and the general practice in the trade cannot be made applicable to it. Section 10 (2) (x) is expressly meant to govern only bonus and commission, which are naturally dependent upon the profits made by the business, and the standards prescribed in the clause are also such as cannot be made applicable on general principles to payment of salaries.

16. The principles applicable to allowances claimed on 'account of payment of salary has been thus summed up in Newtone Studios Ltd. v. Commissioner of Income-tax ((1955) 28 I T R 378, 385). "Under our taxing system, it is for the assessee to conduct his business, and in his wisdom or otherwise to fix the remuneration to his staff. The Income-tax Act does not clothe the taxing authority with any power or jurisdiction to determine the reasonableness of the amount so fixed and paid by the assessee. The only test for the deductibility of such remuneration is whether the expenditure has been incurred solely and exclusively for the purpose of the business. If the reality of the payment is challenged or is in dispute different considerations arise ; so also in cases where the tax authorities are able to point to some consideration other than the purpose of the business as accoun ting for any portion of the payment made. In such cases, of course, such portion of the amount claimed, which is either not held to have been paid or is held to have been paid for reasons other than business expediency, could and should be disallowed; but the reason for the disallowance is because either the portion disallowed is not paid, or because the expenditure is not solely and exclusively for the business, and not on the ground that in the opinion of the Income-tax Officer or other taxing authority the remuneration is `unreasonably' high-either because the employee does not, in the authority's opinion, deserve so much, or because the assessee could have secured other employees on more favourable terms." This passage has been quoted with approval and followed by the Rangoon High Court in Chairman of the Income-tax Appellate Tribunal v. Y. E. Aboo ((1956) 30 I T R 27), and, if we may say so with respect, we also are in perfect agreement with the view expressed therein. In deciding the question whether the salary paid to an employee 'is a permissible deduction all that the Income-tax authorities are entitled to enquire is whether it has really been paid and whether it has been laid out or expended wholly and exclusively for the purpose of the business, profession or vocation. The 'question of the reasonableness of the expenditure does not arise as it is for the assessee to decide how his business should be run and whether a particular item of expenditure is reasonable or not having regard to commercial expediency.

17. There is no finding at all in this case that the payments made to the general manager and the manager of the Alleppey office were not really made. The Income-tax Department had no case at any time that the payments in question were not genuine, and barring a belated suggestion in the statement of the case in making-the reference that it might have been open to the Income-tax authorities to hold that the payments were not genuine, the Tribunal also has not found that the two payments were not true either wholly or in part. In paragraph 28 of the statement of the case the Tribunal says : "What the Tribunal felt itself called upon to decide in the appeal was only the extent to which the salary claimed for each of the two employees could be said to be expenditure laid out or expended wholly and exclusively for the purpose of business. It did not have to consider how far the payment claimed were genuine at all, as the orders of the Income-tax authorities do not deal with the matter, though it might have been open to them to do so in the light of the progressively increasing credit balance in Lakshmana Reddiar's account, as revealed by the abstract of his ledger accounts shown in paragraph 21 supra". We consider that the Tribunal has gone not of its way and has acted improperly in making the suggestion contained in the above passage, namely, that the payment which the assessee claims he has made to the general manager on account of his salary might not be true and that a part of the claim might be bogus. We have already referred to the fact that neither the Income-tax Officer nor the Appellate Assistant Commissioner had questioned the factum of the payment of the amounts to the general manager and the manager. The Income-tax. Department had also no case before the Appellate Tribunal that the amounts in question had not really been paid to the employees, and the Tribunal itself had not questioned the genuineness of the payments at the time of the hearing of the appeal, and there is not a word in its order dismissing the appeal suggesting that either the Tribunal or any other authority had ever doubted their genuineness. The assessee had, therefore, no opportunity to prove that the suggestion now made by the Tribunal is groundless and that the payments in question were genuine. Even in the statement of the case the Tribunal has not recorded any finding of fact that any part of the payments in question was not genuine, and has merely made a suggestion that it might have been open to. the Income-tax authorities to find against the genuineness of the payments.

18. No doubt, in considering the question whether the amounts were laid out or expended wholly for the purpose of the business it will be open to the Income-tax authorities to consider whether the employees are related to the assessee and whether the payments to them were made entirely on account of business considerations or on account of other considerations also, and if there are materials in the case on which the Income-tax authorities can legitimately arrive at a finding that motives other than business considerations have also influenced the payments it will be open to them to deduct from the claim what has been paid on account of motives other than business considerations and allow only what has been paid for the purpose of the business. The correct procedure to be followed in such cases has been thus indicated, in Commissioner of Income-tax v. Jainarain Jagannath ((1945) 13 ITR 410,414), by Fazl Ali, C. J., who later became a Judge of the Supreme Court; "A member of a joint family might conceivably do business in his individual capacity and in that capacity might render services to the joint family trading firm in consideration of which the firm might pay him such remuneration as it would pay to an outsider. If such remunration is not excessive and is reasonable and is not a device to escape income-tax, then it will be a legitimate deduction. If, on the other hand, the amount paid to an individual member of a family, is un reasonably high and' disproportionate to the services rendered by him, then it may be treated as part of the profits of the firm distributed in a particular manner." The question referred in that case was ;- "Can the amount paid to members of a Hindu undivided family by way of remuneration for services rendered in the business of the family be legitimately deducted in computing the profits of the business?" and the specific answer given to it by Fazl Ali, C. J., with whom the other learned Judge composing the Bench agreed, was; " . . . . I would answer it by saying that the exact reply to the question will very largely depend upon the facts of each case but the amount paid can be legitimately deducted if it is found to be a bona fide payment to a bona fide employee for services actually rendered and is not excessive or unreasonable and is not a device to escape the income-tax." The above observations and dictum are equally applicable to employees who, though not members of the assessee's joint family, are related to him otherwise. The reasonableness of the amount has to be judged from the point of view of the business man, and by the commercial expediency in the particular case, and not from the point of view or subjective standard of the Income-tax authorities. Judged in the light of these principles the disallowance of part of the salaries paid to the general manager and the manager of the Alleppey office appears wholly unsustainable.

19. It is true that the Income-tax Officer considered that the payments to the two employees were largely influenced by their relationship to the assessee and that he considered only Rs. 9,890 and Rs. 4,200 to be reasonable salaries payable to the general manager and the manager of 'the Alleppey office respectively. But his finding; were upset by the Appellate Assistant Commis sioner. The Income-tax Officer had also overlooked the fact that the allowances made by the Department on account of the salary paid to the general manager was Rs. 28,000 in 1122 and Rs. 21,500 in 1121, and his order does not disclose any reason for holding that the value of the services of the employee which according to the Department itself was Rs. 21,500 in 1121 and Rs. 28,200 in 1122 had gone down all at once to Rs. 9,890 in 1123. In view of the admissions made by the Income-tax Officer at the time of the hearing of the appeal before the Assistant Commissioner that he had gone wrong in several respects in making the assessment in this case and also in view of his omission to consider the salaries paid to the general manager in the past years there is every reason to consider that beyond his own subjective standard the income-tax Officer has not applied any test of reasonableness to the payments of the salaries of these two employees. The Assistant Commissioner has not said in his order that he considered that any part of their salaries was paid to these two employees on account of their relationship to the assessee. On the other hand, his finding is that the services of the general manager were very valuable to the assessee and that the salary paid to the manager of the Alleppey office was not higher than the salary and allow ances paid to the managers of other branches. Nevertheless, he considered Rs. 18,000 sufficient allowance for the general manager's salary. According to him, Rs. 18,000 represented a fair commercial value of the general manager's services and this allowance was quite reasonable and adequate. Beyond his subjective satisfaction no reason is discernible in the Assistant Commissioner's order also for this conclusion and the disallowance of the rest of the amount claimed by the assessee in respect of the general manager's salary. So long as the Appellate Assistant Commissioner does not say that in making the payment to the employee the assessee was guided by motives other than business considerations the disallowances made by him also cannot be accepted. Although the Tribunal says in its statement of the case : "The reasons for disallowance of a part of the claim for assessment year 1123 M. E. was that the payment has been to a near relative and found excessive compared with the scales of remuneration in similar business in the locality' it has nowhere stated in its order dismissing the appeal that a high salary was paid to the general manager because of his relationship to the assessee or that his salary was fixed on account of motives other than business considerations also. All that the Tribunal had said in that order for disallowing the assessee's claim in respect of the general' manager's salary was contained in paragraph 3 of its order which has been extracted in paragraph 4 of this judgment. The only reason mentioned therein for disallowing the claim was that in spite of the substantial loss during the accounting year the assessee had continued to claim for that year also Rs. 41,000 as in the previous year is salary and allowances to his manager and that as the year in question had ended in a loss a good part of the salary paid to him cannot be considered as necessary for purposes of the business viewed on the standards laid down in section 10 (2) (x) that is to say, the Tribunal then disallowed the claim only because it considered that the salary paid to the general manager should bear a direct propor tion to the profit of the business as in the case of allowances and bonus, a proposition which is wholly untenable both on general principles and in view of the difference between the languages in section 10 (2) (x) and section 10 (2) (xv). In the face of the categorical statement in paragraph 3 of the Tribunal's order it is incorrect to say that the reasons for dis-allowance of a part of the assessee's claim in respect of the payment of salary to the general manager was that the payment had been made to a near relative and is excessive compared with the scales of remunera tion in similar businesses in the locality. From the order of the Tribunal it is clear that when 'it disallowed the claim at the time of dismissing the appeal it had not adverted at all to the scales of remuneration in similar businesses in the locality or the relationship of the general manager to the assessee. As we have already pointed out, the mere relationship of the employee to the assessee is not sufficient reason for disallowing the salary paid to him. The assessee is at liberty to employ any relative so long as the employment is bona fide, and he is also entitled to claim deduction of the salary paid to such employee if the salary is paid bona fide and wholly on account of business considerations and is not influenced by the fact of relationship. The only reason given in the order dismissing the appeal, namely, that the salary must be cut down because the assessee had made no profit during the accounting period, is not tenable in law. The question of the assessee's profit or loss is perfectly immaterial in deciding his claim for deduction of the salary paid to an employee so long as the salary was paid by him bona fide to the employee for the purpose of the business alone and not on account of any other consideration. In such a case the claim falls under section 10 (2) (xv) as an item of expenditure laid out or expended wholly and exclusively for the purpose of the business and is a permissible deduction. We may also point out in this connection that in the previous year also the assessee's claim in respect of the salary paid to the general manager was Rs. 41,000 and that while the income-tax authorities had allowed Rs. 21,500 in 1121 and Rs, 28,200 in 1122 no reason has been assigned by the Tribunal for suddenly cutting it down to Rs. 18,000 in 1123. In the circumstances the disallowances of Rs. 18,000 out of the amount of Rs. 36,000 paid as salary to the general manager cannot be justified on the ground of reasonableness under section 10 (2) (x). It is not section 10 (2) (x) but section 10 (2) (xv) that applies to salaries paid to employees, and the considerations which should weigh in allowing a claim under section 10 (2) (xv) are entirely different from the considerations which should weigh in allowing a claim under section 10 (2) (x). Since it is admitted by the assessee's counsel that the allowances of Rs. 5,000 paid to the general manager would not be justified on the grounds mentioned in section 10 (2) (x) the disallowance of that sum has to be held to be proper.

20. As in the case of the general manager in the case of the manager (cashier) also the Income-tax Officer considered that the payment was made because of his relationship to the assessee and that it was excessive. But, as in the case of the general manager, the Income-tax Officer's findings in respect of the manager also were not accepted by the Appellate Assistant Commissioner. The amount allowed by the Income-tax Officer on account of the salary of the manager of the Alleppey office was Rs. 4,

200. This was raised by the Appellate Assistant Commissioner to Rs. 9,

000. What the Appellate Assistant Commissioner has said about this claim is; "This person is the manager of the Alleppey shop. In accordance with the order of the Appellate Assistant Com missioner in the appeal filed against the assessment for 1123, the Income-tax Officer allowed a deduction of Rs. 4,200 to this employee at Rs. 350 per month and disallowed the excess claim of Rs. 7,

800. But it is urged by the appellant's advocate that the full facts of the case were not taken into consideration at the time of the appeal. The Appellate Assistant Com missioner on the ground that managers of other branches were generally allowed Rs. 3,200' and that this manager was more qualified and attending to more important work made a higher allowance of Rs. 350 per moth. But the fact that those other managers were paid bonus besides salary as also mess expenses of a considerable extent and that the Alleppey manager had not been given any such allowance does not appear to have been placed before the Appellate Assistant Commissioner then. If these additional emoluments also had been taken into consideration, it would have been found that the salary of Rs. 1,000 per month paid to Mr. Ramamurthi Reddiar was not more than the overall remuneration allowed to some of those managers. For instance, such overall remuneration paid to the manager of the Trivandrum shop in the year of account was Rs. 13,

545. But the remuneration allowed to other branch managers was somewhat less. Taking all these circumstances into consideration, I am of opinion that a deduction of Rs. 9,000 may reasonably be allowed as remunera tion to the employee in question." Thus, the Appellate Assistant Commissioner does not find that any part of the manager's salary was paid on account of motives other than business considerations. The only reason given by him for not allowing the full deduction claimed by the assessee was that in his opinion Rs. 9,000 would be a reasonable remuneration for the employee. As has been pointed out, the reasonableness of the salary, when no part of it has been paid on account of motives other than business considerations and the whole of it has been paid exclusively for purposes of the business, cannot be questioned by the Income-tax authorities and is a matter for the assessee himself to decide. The test of reasonableness in such cases is not the subjective standard of the income-tax Officer but what the assessee would consider to be reasonable, having regard to the businessman's point of view or commercial expediency. The Appellate Assistant Commissioner himself has referred to the fact that the managers of some of the branches of the very same assessee were being paid an overall remuneration of Rs. 1,000 and above per month. In these circumstances, the Appellate Assistant Commissioner was not justified in reducing the claim in respect of the salary paid to the manager, and he had also no material before him for holding that the salary paid was excessive. The Tribunal considered the case of the manager in paragraph 4 of its order dismissing the assessee's appeal. That paragraph reads: "Regarding the third contention, Ramamurthi, the son-in-law of the assessee, is stated to be the cashier at the head office where also the highly paid general manager, Lakshmana Reddiar, works. We are unable to appreciate the business necessity for such a high salary, which we are convinced, would not have been paid, had it not been for the fact that the employee in question is also the assessee's son-in-law. Rs. 9,000 has already been allowed by the Income-tax authorities for his services and, in our opinion, nothing more is due. This contention is dismissed." No doubt, the Tribunal has found in this paragraph that the manager was the assessee's son-in-law and that the salary paid to him was not wholly on account of business considerations but also on account of his relationship to the assessee. But the test applied by the Tribunal was nothing more than its own subjective standard. Absolutely no reason has been given as to why it considered Rs. 9,000 was sufficient remuneration for the employee. The test of the reasonableness of the salary in such cases cannot be the subjective standard of reasonableness of the Tribunal but the standard of reasonableness from the point of view of a businessman with due regard to commercial expediency. As manners of some of the other branches of this very assessee were being paid an overall remuneration of Rs. 1,000 per month and no reason has been assigned by the Tribunal for holding that Rs. 9,000 would be reasonable remuneration in his case it has to be held that there was no material before the Tribunal also for holding that Rs. 9,000 would be reasonable remuneration for the manager of the head office who was also performing the duties of the cashier, and that the disallowance of Rs. 3,000 out of the claim for deduction of Rs. 12,000 on account of the salary paid to him also cannot be justified.

21. In the result, the answer to question No. (i) is that the Tribunal was not justified in holding that the proviso to section 13 of the Income-tax Act was attracted to this case ; and the answer to question No. (ii) is that the disallowance of Rs. 18,000, out of the amount of Rs: 36,000 paid as salary to the general manager and the disallowance of Rs. 3,000 out of the amount of Rs. 12,000 paid as salary to the cashier (manager of the Alleppey office) cannot be justified on the ground of reasonableness under section 10 (2), clause (x) ; and the disallowance of Rs. 5,000 paid to the general manager as allowances is justifiable under section 10 (2), clause (x). The two questions are answered accordingly and the Depart ment is ordered to pay the costs of the assessee including an advocates' fee of Rs.

200. Reference answered accordingly.