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| The Tax Publishers2019 TaxPub(DT) 1527 (Karn-HC) : (2019) 261 TAXMAN 0430 INCOME TAX ACT, 1961
Section 37(1)
Where AO disallowed a part of remuneration paid to trustee by assessee-trust taking a view that it was excessive, in view of the fact that assessee-trust earned income and paid remuneration to trustee who had also offered tax on remuneration so, impugned disallowance was to be deleted.
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Business expenditure - Allowability - Remuneration paid by assessee-trust to its trustee -
Assessee-trust was engaged in business of manufacture and export of garments. During relevant year, assessee paid remuneration to its trustees. AO opined that remuneration paid to trustees was excessive. He thus disallowed a part of deduction claimed for remuneration. However, Tribunal allowed the claim of assessee and deleted the said disallowance made by AO. Aggrieved by the same, Revenue preferred appeal. Held: The reasonability of expenses incurred by assessee-trust should be tested considering the relevant yardsticks and there could not be a subjective opinion of AO in that regard. As trust was created for the purpose of doing business and its trustees also paid taxes for the remuneration received by them, AO could not conclude what should be an appropriate payment or remuneration to be paid to the trustees. It is well settled that the reasonableness of the expenditure is to be judged from the point of view of the businessman and the revenue cannot sit in the arm chair of the businessman to decide what is reasonable and what is not. Hence, Tribunal was justified in deleting the disallowance made in respect of remuneration.
Followed:S.A Builders Ltd. v. Commissioner (Appeals) (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0833 (SC)
REFERRED :
FAVOUR : In assessee's favour
A.Y. : A.Y. 2005-2006
INCOME TAX ACT, 1961
Section 37(1)
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