NATESA IYER A Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS tax reference arises under the Indian Income-tax Act. The assessee was assessed on his business income for the assessment years 1953-54 and 1954-55. The relevant accounting years are the calendar years 1952 and 1953. In computing the business income the assessee claimed as permissible deduction the salary and bonus paid to his son, Sankaran, who was employed in the business. The salary and bonus payments claimed as deduction by the assessee for the two assessment years were as follows: <FRM>JUDGEMENT_802_ITR46_1962Html1.htm</FRM>

(2.) THE figures contained in the question as framed are not correct. THE disallowed portion of the salary in both the years is Rs. 7500 per year. THE bonus amount disallowed for the year 1953-54 is only Rs. 1900. This inaccuracy does not however affect the real question for determination, namely, whether the assessee is entitled to claim by way of proper deduction the entire amount of salary and bonus paid by him to the employee, his son.

(3.) PAYMENT of salary in excess of the needs of the business cannot be justified as a proper revenue charge on the Income. The taxing authorities have a difficult task to perform when they have to determine whether a salary payment, in whole or in part, is expended wholly and exclusively for the business. Does the payment represent a fair measure of remuneration for services rendered; is it within the limits of commercial prudence of a reasonable business man conducting a business of that magnitude; does the capacity, ability and skill of the employee deserve the salary paid;--these are a few pertinent questions, which if answered may lead to a satisfacory solution of the problem of permissible deduction. Business needs and requirements and the quantum of salary disbursements cannot be nicely and evenly balanced on delicate scales. The department should not use the scissor to prune salary payment to reach absurdly low levels, disregarding the potent factor that the assessee has the privilege and latitude to run his business in the way he likes. A dictatorial assumption and a doctrinaire approach to the problem should of course be avoided.