British India Corporation v. Commissioner Of Income-Tax, U.p. Lucknow

fafer gfesat aIeattaat7 MAHL WITS, FAC TaN, TAT:(British India Corporation| Commissioner of Income-tax, U.P., Lucknow) |(3 wazaz, 1972)| (Fato Fo Wao AMV, Ho ATaAtea WY ate ago To snr) ugaa sifaca faq (afrata ae afafaan), 1940—agqat-1wt frat 12(1)—faatfech-eeaet arr ga at feafa & area, a fewaa sara fatal ar raat at fearitear & ara, afwara sathfeat amat— haat atc saeual atom afrardt re sel atmarant at sat—fathead ater 0a sates a THR F fae afrara Te& Ge BT erat—areare aTmera at alee A Cat THA ST BE aTgfagesitet arses adi t—ge a 2a & faq seu sar wTaaA fasifcat, fafes gfosar areata, ow ate ofcatfad acqadtfreerwf grad atx mrasfirn sratar € 1 eect at arena a Aatea saeeal areat arch2 Saga faal 8, afew afuara we afafran, 1940 % afeaca F ah& ga et fataa aeazea t21 faatfedt-werdt caer frzaret ate Tat| ogacaat afza aaa fataal at acter & wT A aa He S Tfeafas act cat& 1 27-1-1940 at afaara ae fates Sexta frara aur A quearfaa fratvar at ate 24 wzadt, 1940 aren exer WY afta fear qatar faat, seqarat & ara-ara, (sazqfsa sifama wit eaaaa) “HUTA & faa feo aesqaa afga” afweafes er sate fear war att 27 Gare, 1940 at ow aaeTqifca awe ze afveaion ar ate ofan ease fear Tarafrara ae afanreyyam tae st aqqay-1F fae 12(1) ¥ saat sr eara cea Ey, ag ATaq featfa dfs dafea card war ararafaat F aa fag ay Kala saanal # &@ aar fee ae fara faatfedt wecat aga ora ta tal await atedits afaare at ® er 8 ata wiles st oH ar sat oTfas Uredta aratafeafa % gafaa feat aa at, om frase F satrata gfaga att araeae adat, aa: dafaa cad Gear ararafeat % fay faq ag faatat F st at“gait df oS aagara et fear wari ga fread oe agaa afeara ae afrard&fagfen ate deer % faataal wt aTHATT Fe feat at gat 1943 we 1944 are gaat are faatia ant & aaa Fafencey & ater gr sere faa 2 1 faaifeddare afew att sea eararaa F aner ails fewst ot fraifedl H faceet fava fear war. ser eqrray set faase faeg fauifed & osaaaaaa A atta at1 adler afta Hw ge, afataaifea—afeare ax afefaan at agg1 oar fae 12(1) 28cna ay faraaor eae wIVaTT at Tae | faege Wt a a, agr-aarae feard guafas arat ar aqery tar % fag ofcafera 2 1 gaat water az 2 fe gat azCAT HIATT GT ATaraT ste fadaral a). Gla ar dar} fau fae aw ga aaratel aa A, BY 1g aealas Aarat sr cara wae gu agfnge we, waa eyfafeaa eo & ea fran & ea ara oe faare wea aaa fe aor AE aaa TTeaITat ataral Br cara cad gu aghage ale waraerR @, afufsan adtstaarar afafsan ofeardl & ofa ang wt faze ad} fear warPrreg og ala wazaml ag Uh gaU st gf afaara we ahaa a ag fare wzF fH aa agamg Ofagr at arazas Z, aa gaara arat a eqraFH <aar afewga araa at aa fanaa g ag ag 2 fe afsara Ht ofan? ga gfeat al ag framay Tat at aeaT oY fe ararcar arfufsae fagrdds arare ot eatatfaaBzuE aT aH at, aalfe ara Ht wl gfe Aare ag fact wraal ¥ gavw-aq HY BTataaT Ht es gfe B are ar ead H ge afe F area st aad eat fe saa 4 cena gfe at caritfaa se andl 21 afeara ae ofeardt 2ag fasse faarar fe ot dara fac ae}areare a ataral wr cara taeet, Waraaas wT a ofee a ote agfegEae an gas ana az faare favfaar gat fram 12 at ary aw gc ag afafraifca fear fe afsara axaaelal Bt He Ge Ys aH Sa-orare ae aaa ar afaara at amarwetfaq faatfta-araat & arate & gatas saw fav ae gras mat ar)AAASo Sat sa HL gl Hele far fart aafwa dara F sy ws sararft,aftHaqara 8t fear | gaqara al as wea ay sam wea gu ca Pa agafafaeifea fear fe tat ara aga 2 faa sere ax afsara HXafasrd ag fang faara azar ar site fram ara ae afaaza ga fasegay gfez &t BHAT at 1 (Fa 8)Soaaagare afaare ae afsardt & ge van at anwar at af fe arianat gfagw tea etate fae agara fear star arfeq ati 3a araraar &afaaraafta a caratfaes fearg adi agarfis afaara at afasrd ar afaae®t‘rar atafga aaa ai a) meta feu fear arqdfaa Ber® gear azgzfaq ag argel ata at agqara a aza ® fac as HITT Ast FATT a‘3 eraara ease aeafes * fa an aa ye snfaa at feafa fa % area, art, at a faravery garcal tee et feat & aha Pravattaer anfag‘afamalat Pare fat& afacr sateerat sta ay TicT aatarfead BLA HY& SHAT fey Tt SF ara MBIT @.1 BT ta AeA afsaral wel F fear araiz at, BRITISH INDIA CORPORATION COMMISSIONER OF INCOME-TAX, U.P .. LUCKNOW October 3, 1972 [K. S. HEGDE, P. JAGANMOHAN REDDY AND I. D. DUA, JJ.J Excess Profits Tax Ac: .. 1940, Schedule I, r.12 (!)-Determination by office,. H'llether expenditure is ireasonab/e and 11ec£•ssary-Tests for. (!)-Determination Rule 12 ( 1) of Schedule I to the Excess Profits Tax Act. D40. is designed to prevent the dissipation of excess pofits by intlating °'penditure which bas_ no relation to the requirements of the business. The test is whether the expenditure is unreasonable and unnecessary haring regard to the requirements of the business, and, in the case of directors' fees or other payments for services, to the actual services rendered. A!l ::-elevant facts, especiaUy commercial expediency or commercial practice, must be taken into consideration b)· the ExCess Profits Tax Officer in con3idering whether the expenditure is reasonable and necessary; that is, he c"1lld not ap.PlY the nile to increases that can be justified on ordinary commercial principles, because, an increase iit profits n1ay in certain cases b~ Clue to increase in the activity of the management or increase in the estab!ishmcnt justifying a corresponding increase in the expenditure. But when huge profits are earned,. not due to any activity of managers but due to national emergencies such as war situati<>.n•, the govem,ment is entitled to a certain share of the excess profits computed under the Act. Any commission paid on the excess profits for which the manage!\' pr employees made no sort of contribution would ex facie be unreasonable and unnecessary and the Excess Profits Tax Officer would be justified in disallowing the proportion, which, according to him, was unreasonable and unnecessary having regard to the requirements of the business. [530A-D; 53 !G-H; 532A] In the present case, the assessee is a public limited com.Panv having several branches and subsidiary compaimes. It hds a Board of Directors which looks after its business. The managers who look after the branche' of the c'ompany are also members of the Board. The assossee was rem· underating its directors 'by way of commission based on a certain fixed percentage of its net audited profits. The phrase 'net audited profits' was clarified to mean the amount after depreciation ha.d been allowed for, but prior to any allocation or appropriation of profits including provision· for taxation. The Excess Profits Tax Act came into force on April 5, 1940, and on 27th Inly. 1940, the phrase 'including provision for tax' in the clarification, was further clarified that it was intended to cover all forms of taxation including excess profits tax and other like impositions. Therefore, no deduction of ex_t;ess profits tax was to be mad~ prior to the calculation of managerial commissions. For the char· gea.ble accounting years 1945 and 1946 the Excess Profits Tax Officer found that the assessee had made large profits and held that if the comm-is~ion was to be paid on the \net audited profits the whole exce3S p"e>lits would be taken into account for the payment of commission; that a por-tion of the commission attributable to extess profits, in the peculiar cir-cumstances of war conditio:ris. was _not reasonable an'1 necessaJ1Y wjthin· the meaning of r. 12 (I), and that any pdyment, in excess of the agreed proportion of the net profits after deduction of excess profits tax, was nM justified. He. therefore, dis>allowed a percentage of the said excess profits ·which would be payable to the State on actje>unt of exress proftts ta.x liability. [526A-H; 527A-C] On the question \Vhcthcr the disaJIOYia~ncc for each of the years was rightly made, the Tribunal and the High Court held against the assessec. Dismissing thL' <ippcal to this Court, HELD : The Excess Profits Tax Officer and the Tribunal have given valid reasons for not a\lov•ing the entire commision claimed on the basis of the audited accounts without deducting the excess profits tax .. [5310]'• -F1960] mara at frata earatfaafa dre anaaler test 3 fear y wararfaafa tsst— .-Satter efesaa army cea Yaz, 1922 at are 66 (2) aaahgare shea aa daz, 1940 (afaara at afafaan, 1940) (faa cat cadqeard ‘tae’ Het Tar g)at aw 21ata feu ae fade F sarerarasoa rararay% fraas face fate earga wae at ae 21 ay wea Fadiafeu ae &, 3 at cara wer“ stnataal & ararq Fa, at fH 1 qaad, 1945 & 31 fearaz, 1945 aa ate l waa, 1946 8 31 ard, 1946 am & faeat Soar Ae fers we—oo (oy1, sarge arma & geal ate ofefeafaat & rare az, 5,39,057 eaat wey a ofaara ae afefaaa st aqqal | & faa 12(1) ¥ait adh ak & saga fear var ar?|2, aa ge ares & aeal ale afefeafaal & sarang at 128,743. eae:at wea al afsara ae afafaan at aqqdll & faaw 12 (1) ¥mala dal VR a Tagara fear war ar ? -|: 3. ga dal sea Sr Saxwarns wTfear war aT| 2. ga Ae F faa aeat ate ofefeafaat & grave gw a Vat far aTa, 2a e—fratfedt cm ate ofedtfatasradl 3 (fea gat gat qeara@reataa’ ser mat 2), fast ate mare oe mqefaa awrafaat &eaeun fatae ae Alar 2 Wi fe sad sreart sl @a-Rq azar 21 saeaH fadersMS F aaa Aas, TT fH sew ay great Ht Ba-t|q. Hz Fi dar sladat 2 fe aga aaa as ate dee B gaa AF a gd a, areas wea &Ya arriifera arat & feat frag sfaae % arent eeala FH att IT, TATfrtaal ate arar-scaeral afga, aA fasaat ar orfvafan sar var ae waterfatas at sta alc/ar aaafaa mfan Jaq % waren fear arar art arenqaeIsET B aTAg A fee ary aver Halas Hl THA TY ATMA Tas Telaeq AATSarat & arearcat st ara Atgee aA B aay A areata B TGA ATAwt cara H tar qatar) war fear ory ata waa aT at fagher B war arara 4 ofea far art aia anet F gre fafeaa fear srat ary wat aH faMat card sar prarafaal ar aga@, sei aH HalasaaahaaaHaatait feafg,ga ga arre % fare F gag Teg, Frey satfe em garet ge 8, ea ara at ate cara 2% fears fe aaa a area ts asaeqafara arat & ofa fader wa Bo atsre aA, ate fae afaeafes wr egetBU Te 24 Grad, 1940 are sredttaa B aaer gre fear var ar, gtoital } satwafar aegana adh3 1 aed farafafar er FH Z— vault a far wat aa ater % facr Bh tHaga aaoo amet atfrafaa aaa &efee a, ae ae anes fear fe arateavoadler fear stm,agwaaTT A. agaia Be fer.qr ¥ az a, fg:>merera & fae feo ae siget afed Ba rat F feat araed ar fafaaiora:(Raga Ye aeqitfae ara Fareane ge aeT fataw aeBs aren.CS igstaalat aaa array fewae eereetyy 3, maf arae % ara far we faa F ag ara aah garg TE 2, fatBA.Sa ata a cafe ater we ane 2 fe afaara-ne fadaw 27 aaa, 1940at dear afaentea adzact (Fedta farraaar) F gazearfos fear aay aT aeSTH ae,Ga 5 wT a, 1940 at nade-aaza a aquia faa dt 27 Garg,1940.a1, war%. far fara. sodat. afga, afaeafes ar farafafadeaer are ate att eqsdiata farame :ga: aS XR gecdaet far fe acrara & fare fee ae asaafer geal & afeara-ae alt get sat B ara afedaul afga weraRat eq gata tate & sak weadd at & a eeifag,arqdfea art Faafeara-we ate sat gare H gee afta HTalgat actdl saeaat ar fer ore ara aad at arava HAH Ta|al #8 art arfayi are tag wt ane fear fa fafaara ar cara faa_ —-fra[ ate][ gfage][ at][ Arar][ aT][ amar][ ar,][ 1939][ arr][ ay][ aH][ araey] Tae.fae me Hataa Ix yaaa er SF osat arfgT 1”:o 31fearaz, 1945 at aaa at aritswg wear srarafr Raraa §,.afsara at afaard & arte 15 fearaz, 1947 arr aaa arta a farafafarBq 8 aa eat fear—ee _“31-12-1943 aa at sara crear ararafa % fat arta 30-3-1945AT. aTeT ate aagel 1% faaa 12H aaa au arrat a, Fag~ooafafraticr azar g fe, start at atarat are arafiaa cafeaat,gre at ag areafas Jarak ar earat waa eu saraat ate freaatat—aqara fear wat adler agfeagat ate aaraean dat &1 tar.arg dara ait fe afeara we at etd wet Beara gs aral F HUTfac ag agar& afre at, cartfaa adhe A !1111edahad Ma11ufact11ring &. Calico Printing Co. v. Commt'. oJ, E.P.T., 38 l.T.R. 675 followed. British India Corporalio11 Ltd. v. Commr. of E.P. T •• 33 l.T.R. 826 and Shya111/a/ Pra1111arain v, · C.l.T .. 27 l.T.R. 404 referred to CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1987 to c 1988 of )969. Appeals by certificate from the judgment an<l order dated October 22, 1965 of the Allahabad High Court in Income-tax Reference No. 154 of 1957. S. T. Desai. Alok Kumar Verma and B. P. SinJ?h for the appel-lant. B. Sen, J. Ramam1m/1y, B. D. Sharma artd R. N. Sachthey for the respondent. The Judgment of the Court was delivered by JAGANMOHAN REDDY, J. These appeals-are by certificate against E the Judgment of the Allahabad High Court in a reference under s. 21 of the Excess Profits Tax Act, 1940 (hereinafter called the 'Act') read with s. 66(2) Qf the Indian Income-tax Act, 1922. The questions referred were in respect of the two chargeable accounting periods being January l, 1945 to December 31, 1945 and January 1, 1946 to March 31, 1946 and are given below:- · I. Whether on the facts and circumstances of this case the amount of Rs. 5,39,057 /- was rightly disallow-ed under rule 12 (1) of the Schedule to the Excess Profits Tax Act ? 2. Whether on the facts and circumstances of this case the amount of Rs. 1,28,743/- was rightly dis-G allowed under rule 12 (I) of Schedule I to the Excess Profits Tax Act ? Both these questions were answered in the affirmative. The facts and circumstances of the case on which these answers were given are :-The assessee is a public limited com-pany (herinafter called the 'Corporation') havi_ng several _branches II and subsidiary companic» It has a Board of Directors wluch looks 'after its husincS'. The branches of the Company are )naked after hy managers who ar~ members of the Board of D1rcclnrs. It appears that for a long time and even before the Act came into force the corporation has been remunerating its directors includ-in~ ~e Managing Directo~ and branch managers by way of com-Illlss1on based on a certam fixed percentage of its net audited profits. This commission was in addition to the directors''-fees and/ or stipulated monthly salary. In the case of a branch mana-ger the amount of commission to be paid was calculated on the profits of the branch of which l)e was in charge. In the case of others the profits made by the Corporation as a whole were taken into consideration. The commissiun (o be ptid was either fixed at the time of appointment or by resolution passed subsequently. In so far as the two chargeable accounting periods are concerned, thi;: position in regard to the payment of the commission has been set out in the .statement of the case but this is not relevant for the purpose of these appeals except to note, as we have earlier men-tioned, that the commission was to be calculated with reference to the net audited profits which phrase was Clarified by a resolution of the Corporation dated February 24, 1940. That resolution is as follows :-- "Commission. In order to regularise previous Resolutions on the subject of Managerial Commission, the Board· resolved that commission oil profits would be payable to the Managing Director and the Branch Managers entitled thereto, on net audited profits, only after depreciation had bee1.1 allowed for but prior to any allocation or appropriation of such profits including provision for taxation." 4, aagart afaaraac afsart & ag afafrsifea fear Pe sam gardwar srarafa & fag 11,47,143 ait gaaware wear ararafa ¥ fag 11,06693 eau Agata al fay at aaa ye alt gas aerar saa ag dt ag eae.fatfe Taal TH TAT HIVATT Haterral aar qafaa, safat arr Hl TE |areata aaral #1 cart tad gu gfage ate araea. adl arae wt aarat-vat fi faa sared water oe faare feata tar 8, areatat Uae FTaeata & gt algaat sara we cer ar ate ag fae tar ata ganze daz,1922 at arer 10 % meta fay ae acdaeh fata H eandee Baz, 1922ay are 10% gett arat at aoa wetF gealsral F far gdh ats 8 Gaafrarafat at tarot wala ag wander daeH ala ge sare Bar, faewet afaardt X aayFR aeat Barat gt ates at gagesfaan 12 af care wae gu, ag Aa aaATaT fe dfeaa faa card wearararafaayH, aaa alert al aaa Ca arat 3 a at ag alfaa Hreareearar WIT Wa TAT ta aad ar, qafe salar aren sam a fF wisely araat at fafasafefeafaat 4 afsaosfsaral % ere aa ar, gaa faad & gataia “afaagaa ate aaeae”aah aT tae facad faatar aa fe gag sad Fear— erarafa % fear daa, fray ATA 64,36,000 wad % &, freq afe weitereat ara 1.37 Hig waa F Ys aera fra aah B arare az a oat at,at ta argu afsaral at ot fe areata aga goat & fae age ara garemal te aaa aT, HAT st Herat H fre vet wT A fase F fear area,micsay ag magifcafeat fe wagara fear aarar sare 8a saaafaarat ar at fe afaara-et& aifaca ag usa at eda git, 8.4 sfaaa atat § waged Peat AAT aT| gaH ATATT TTT HH Aral A, ae 5,39,057equa Ratrat131 ara,1946 sy sara ata are farafafaa gardwear ararafa % far saa ag wey 1,28,743 wus wT FH gaarfaati cardat taal at aafrd card Gear serafaat & far faq wy Fata ¥ gagemz fear qatarst cwat at faarat 4, afsara-ne afeardy 2 gaedt atefagfaa % faraat at ster ee at aar gat 31 fearay, 1943 ate 31 fearaz,1946 al sara aa areal war ararafeal $ fae far meah oae % faatrataaa F aferem arf a mea a sae oe fear, afeey esqgta % fase cargrara sea carga Ho wn fata aay A fear a gar arag fade a aaa FAllale Veq aT FH aa sa aay aftaaar aa fsaig are faatza) * aga A sraarey Hl arwal att adara aay ¥ Farmrarafeti & fac faq ag frateat % fase crea aad ata FH, afeacyBe aner areata st aT a 4g eatare far aa on fe sa ara a aeazat fe aftara-az faatcat favan Great F atz-1943 ate 1944 apy agh ®fac card Sar ararafaat 8 dafea ohrawey st greet Hafeda oe atgeaf, ave Wh wea ae aTAaT aetAl1 seamea frat & fac at wf acta Fafar Sane F ore Fa at ae t fHeg afanca F 1943 ake 19442ter ark Sear ararahedt & daar cee fer ag fafeeas ar ogee aege ga aeitet a aifest Ht feat| va wee F faeg sea eqrqray 2, dazata fe ve freer F AAT IT sat wet Tt wala cee aa ot fe aor yeefauteg atBada A areata F fea cHay ar arar fear 3, oF dae atgag aqadtfae12. (1) &seta ad ate & wage fear aa ar,faare feat i. 5. 1943 ate 1944 are faatea aah & gear # feu qe fratea& fan ay fader cen fear agra, sat fafer fear sreditaa fafateaaa afaara-nt et ages (*) ater Aras A eaters Seat eaaTaT AY gat(1) (1958) 33 atgo do ate 826.o Though it is not mentioned in the statement of the case we can take judicial notice of it that the Excess Profits Tax Bill was introduced in the Central Legislative Assembly on January 27, 1940 and after it was passed, received the assent of the Govemor-General on April 5, 194\l. On July 27. 1940 the phrase 'including provision for taxation' was further clarified by the following resolution :- "The Board, therefore, resolved that the words 'including provision for taxation' were intended to and did specifically cover all forms of taxation including the Excess Profits Tax and other like impositions and, therefore, no deduction of excess profits tax and other like impositions from the audited profits should be made prior to the calculation of Managerial commissions. The Board also resolved that this ruling. which could only be regarded as fair and reasonable should have effect retrvsoectivelv to the commission paid in respect of the year 1939." · A In respect of the chargeable accounting period ending December 31, 1945 the Excess :Profits Tax Officer had observed in his order dated December 15, 1947 a~ follows :- "For reasons stated m the order dated 30-3-1945 and Rule 12 Schedule I for the chargeable accounting period Up to 31-12-1943, I hold that, having regard to B the requirements of the business and the actual services rendered by the persons concerned, the commission allowed to the management and directors is both un-reasonable and unnecessary. Any payment in excess of the agre~ proportion of the net profits after deduc-tion of Excess Profits Tax is not justified." arate ar farararmefer wnta (star fs § se ana @) ate sarodMeUar Fr, ag aT ar fe afeara-ae afaret & F freed fe aT data faeTE 8, & arasae ad & ate gfeagaa wt at , ag afufasifer wR auata fe cee ar heard ate faq ae seret 8 tar dha agy faa feaeel Aare Ys ara HA afeara-we a acid} fw fear fear arat ar aye Wgfa ot aera far qe X,¥ UTR fagegat & aiat fauae 21 va eararaT% TPN, ag ag arare adl at fae oe darat % qfeagad AA aT arazeaH AABaer at fafafeaa fear srat ari faq va afar ale afeeu a atfaftigaa azar aifeg ar, ae ae set @ fe aor a dara ararem atfafsaeaferdl az afqfsas aitstaar ar ear waa ge ste ga eafeaat are faaat fe dara fae ae &, at 1g Vara meaty cant, wasaH ate wialfeaSi earardia wnta & fala fis ae facad frarat ae fe can ar sagapeat rarifaa sgtar, ga eqradts ar faata fear ar, ree MART ATTATUT BITHT ATget (*) art ATs F sa emaraa at gal earadis are factaer agaey feart sa fata Ft qa earadts & ag wa sacs fear fe afraraatafar ay a ara cartwaar afey a}, ag ag & fae Odd HA By gata:aT Mad: Se eae F gagara fear ar awa at, afe ag faswe fawrear war atfa ag areare at aera ate saeaat arcat af areafan Aare ar caraTae gC afage aa a ar ag fe ag arasaewel a1 var ag WT ethfeat fe afar & frau & daaFH A gaat 2, ag faatoe vie dara >dla, a fe gHaceq tae ar afaara-w< afufaaa ® afta ar at gimam eaaT mraare Ba aad Sa Te RT MATT HAFH gala H fae aaragataaa Bt aHar 2, Fra arzare at atearal at ate ara afufsae afeareysite arfufsasn acistarar at car # wea ST HIATT HY TeaTaRaHATAY wyCarat F Far Tra ar || 6. wafe afasug % ga ada a) fafafeaa frat ot fe ca fata atfaqaaeg 3, Tt sea eqraraa at fafagqa, far fe gat cee at war 2, vawaa ae aay fear ware ate wife sa va fafaeaa ar grea Ady fear -art farg adheres fata F seq earareaa Fag wa sam Prar fe—_; “qa raradis § za ara ot fart ag} Pearfie aar frat etdel maga at % fav, agfeger aa at ara ate araeaear araaa sat & wafers g ar ga atal F & cH Aarts ax gaa safaaae aem & fe gfagaa att qraaae A a aig feet weld a aqaTawer % fay aafira gag stareqn fe & dat dt atfaas aia agmaa cea at ufseqaa wa & adl garar war ar wit carat WITT AIT (*) (1955) 27 aro ato atx 404, agar Radar RadarFo we ae A ate qa arate 4 qat ainFFfafafeaa adl fear ar, safer ag sIaT<aAT faae arate at setaagar fauia fear an, gare fae arageaz ad aA 7. gard afse 4 4 faarz avaifaa wet z, aaa atat al aacit it faa eget i fader far mat ot,| gait AAA sag AT Teal BT AATmat ana fafeaa eq 8 faare Ho adl far war ari dar seta gat ¢ feuses fart % safefafece arae F earareter arta aN eararetat AQUATfafasaa ® fang are wt ada adt Grea HY| afrara-ae afearet A 1943sie 1944 ater ward sar ast & date, at fe aaa Fara daar fata 4faface feu au %, cet area meat 8 gare Te FIT BY ATT aA EU, STFrafeait at fear ary ence ag wh fread & fas sea eararay FT TF Tet aefaata Fag aaa arise aet ar fe afrara-ae afaarat § tae a aqqat% faa 12 at ater ay arg ad fearaea 8, aqaay 1 Hr fran 12 (1): ait fe gaia 2, farafafaa et ¥ 8— a#1) frat rata tar ararafa & arat at dawar wat F, sa|wae fan em & arara F fra afaara-at. aaaBITATT BYBaars ar TT faecal a ala at aaral % fau fang[ae][ sea][ daral][ #7]war a, dafaa eafeiat are st ae areata Vaal HT cay Tat ET afraqat att aaa AAT G, mre Hl wetal aqara sal BY Areat :Oo geg ga framaela afrara-ae aaa aa oF arg metal magara vat ata aa ae fe gar aheadae ATgAT FT qa qifTHTegrea a ae feat ar”|otag fran 0 ama ay fae aeaes reat HYToe & facga[wt][ a][ a,][ azr-]gat at faana gu afas are at aoera tae & fre afeafera g| gaat watchag & fa aanag one HILATT AY TTTAAT wT ax faagat: at Hla-araar % fay *ggat Fag STITT The Excess Profits Tax Officer accordingly held that Rs. 11,47,143 for the first chargeable accounting period and Rs. 11,06,693 for ihe second ~hargeable accounting period could not be allowed and was further of the view that a portion of it was not reasonable and necessary having regard to the requirements of the business and the actual services rendered by the persons concerned. It was D pointed out that the commission of the nature under consideration was beir1g paid by the Corporation ~ven before the Act came into force and that such commission was being allowed in its entirely for purposes of computing profits under s: 10 of the Income-tax Act, 1922 in the two corresponding assessments made under s. I 0 of the Income-tax Act. Though this was so under the Income-tax E Act the Excess Profits Tax Officer on the facts of the case and having regard to rule 12 of the Schedule to the Act took the view that since the commission in the respective chargeable accounting periods were paid out of the profits which could not be retained by the Corporation, a portion of the commission attributable to the Excess Profits Tax Act earned in the peculiar circumstances of a national calamity was not "reasonable and necessary" within F the meaning of the said rule. It was found that for the first charge-able accounting period the Excess profits payable were approxi-mately Rs. 64,36,000/- but if the commission was to be paid on the net audited profits of Rs. 1.37 crores, the whole excess profits which could not be retained by the Corporation for its own use would be taken into account for the payment of the commis-G sion as such be determined the portion to be disallowed was at 8.43 of the said excess profits which will be payable to the State on account of the Exces Profits Tax liability. On this basis the amount worked out was Rs. 5,39,057. Applying the same method for the following. accounting chargeable period ended March 31, 1946 he determined the amount as Rs. 1,28,743/-. These two H amounts were disallowed in ihe assessments for the respective chargeable accounting periods. In arriving at these amounts .. th~ Excess Profits Tax Officer ignored the terms of appointment and the resolutions and drew support from the orders passed by the Tribunal in respect of the two prior assessments for the accounting ·periods ended December 31, 1943 and December 31, 1946, against which orders of the Tribunal a reference had earlier been made to the Allahabad High Court. This reference wits then pending before it when the subsequent assessments were being dealt with. In the appeals against assessments made for the accounting periods in the instant case, it was admitted on behalf of the Corporation before the Tribunal that there was no new material other than what was on record in the Excess Profits Tax assessment files and the Tribunal files relating to the chargeable accounting periods for the years 1943 and 1944. These files were produced before the Tribunal in the appeals for the assessments in question. The Tribunal however dismissed those appeals following its earlier deci-sion relaiing to the chargeable accounting periods for 1943 and J 944. Against that order the High Court on a reference under the Act considered a similar question, viz. whether the amounts claimed by the Corporation in respect of each of the assessment year was rightly disailowed under rule 12 ( 1 ) of the First Schedule to the Act. (1) In computing the profits of any chargeable accountingperiod, no deduction shall be allowed in respect of expenses inrespect of the amount which the. Excess Profits Tax Officer considersreasonable and necessary, having regard to the requirements of thebusiness and,in the case of Directors fees or other payments for"service, to the actual services. rendered by the person concerned