HAJI K ASSAINAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act) and the question referred to this court for decision is :

(2.) THE assessee, Haji K. Assainar, was carrying on business in rice and provisions on wholesale basis with head office at Changanacherry and branches at Kottayam and Cochin. THE relevant assessment year is 1959-60 and the accounting period is the Malayalam year 1133 ending on August 16, 1958.

(3.) THE assessee took up the matter in appeal to the Appellate Assistant Commissioner. It was contended before the appellate authority that, even though Mohammed Farooq had not qualified himself in accountancy and business management, he had read some books on these subjects and that he was also familiar with three languages, viz., English, Hindi and Tamil. It was further urged on behalf of the assessee that there was an increase of one lakh in the commission receipts in the Cochin branch during the accounting period due to the efforts of Mohammed Farooq. On these grounds it was contended that the disallowance by the Income-tax Officer of the major portion of the remuneration paid to Farooq was unjustified. THE Appellate Assistant Commissioner did not accept the aforesaid contentions of the assessee. He was not satisfied that the increase in the commission receipts was to any extent due to the employment of Farooq in the Cochin branch. On the other hand he was of the view that the probability was that the increase was due to more favorable trading conditions and also to the circumstance that the assessee was himself concentrating his personal attention on the business at Cochin during the relevant accounting period. It was also found by the Appellate Assistant Commissioner that, although the recitals in the agreement would create the impression that Farooq was to exercise administrative control over the staff and to initiate and carry out the policies of the business in the Cochin branch, he was not, as a matter of fact, entrusted with any such responsible functions and the business was being conducted under the direct supervision and control of the assessee himself. He, therefore, concurred with the Income-tax Officer in his finding that the expenditure of which deduction was claimed by the assessee was not laid out or expended wholly and exclusively for the purpose of his business, but was, on the other hand, motivated by considerations which were not relevant to the business. He, therefore, sustained the disallowance of Rs. 16,977.