VEERIAH REDDIAR S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is a reference made by the Madras Bench of the Income Tax Appellate Tribunal under S.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 piecegoods 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 Karkitakam 1123) the assessee submitted a return to the Income Tax Officer, Alleppey, showing a net loss of Rs. 17,109. Holding that the percentage of profits as per the assessees 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 assessees income from his head Office at Alleppey and the other branches, mentioned in Para.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 assessees nephew and had been employed for a very long time, and the Manager of the Alleppey Office, D.Rama Murthi, was the assessees son inlaw. According to the assessee, during the accounting period in question the General Manager was paid a salary of Rs. 36, 000 (Rs. 3000 per month) and an allowance of Rs. 5000 and the Manager of the Alleppey Office was paid a salary of Rs. 12, 000 (Rs. 1000 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. 9390 and out of the sum of Rs. 12000 claimed on account of the payment to the Manager of the Alleppey Office the Income Tax Officer allowed only a sum of Rs. 4200. 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 assessees 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 Commissioners order, the profits from the business at Alleppey and the branches was Rs. 40,905 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.