{"id":135171,"date":"1972-10-03T00:00:00","date_gmt":"1972-10-02T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/british-india-corporation-vs-commissioner-of-income-tax-on-3-october-1972"},"modified":"2017-11-08T23:51:52","modified_gmt":"2017-11-08T18:21:52","slug":"british-india-corporation-vs-commissioner-of-income-tax-on-3-october-1972","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/british-india-corporation-vs-commissioner-of-income-tax-on-3-october-1972","title":{"rendered":"British India Corporation vs Commissioner Of Income-Tax, … on 3 October, 1972"},"content":{"rendered":"
Supreme Court of India<\/div>\n
British India Corporation vs Commissioner Of Income-Tax, … on 3 October, 1972<\/div>\n
Equivalent citations: 1973 AIR 416, \t\t 1973 SCR (2) 524<\/div>\n
Author: P J Reddy<\/div>\n
Bench: Reddy, P. Jaganmohan<\/div>\n
           PETITIONER:\nBRITISH INDIA CORPORATION\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME-TAX, U.P., LUCKNOW\n\nDATE OF JUDGMENT03\/10\/1972\n\nBENCH:\nREDDY, P. JAGANMOHAN\nBENCH:\nREDDY, P. JAGANMOHAN\nHEGDE, K.S.\nDUA, I.D.\n\nCITATION:\n 1973 AIR  416\t\t  1973 SCR  (2) 524\n 1973 SCC  (3) 285\n\n\nACT:\nExcess\t Profits   Tax\t Act   1940,   Schedule\t  I,\tr.12\n(1)--Determination   by\t officer  whether   expenditure\t  is\nreasonable and necessary--Tests for.\n\n\n\nHEADNOTE:\nRule  12  (1) of Schedule I to the Excess Profits  Tax\tAct,\n1940,  is  designed  to prevent the  dissipation  of  excess\nprofits\t by inflating expenditure which has no\trelation  to\nthe  requirements of the business.  The test is whether\t the\nexpenditure is unreasonable and unnecessary having regard to\nthe  requirements  of  the business, and,  in  the  case  of\ndirectors'  fees  or  other payments for  services,  to\t the\nactual\tservices rendered.  All relevant  facts,  especially\ncommercial expediency or commercial practice, must be  taken\ninto  consideration  by the Excess Profits  Tax\t Officer  in\nconsidering  whether  the  expenditure\tis  reasonable\t and\nnecessary; that is, he could not apply the rule to increases\nthat  can  be justified on ordinary  commercial\t principles,\nbecause, an increase in profits may in certain cases be\t due\nto increase in the activity of the management or increase in\nthe establishment justifying a corresponding increase in the\nexpenditure.  But when huge profits are earned,, not due  to\nany  activity  of managers but due to  national\t emergencies\nsuch  as  war situations, the government is  entitled  to  a\ncertain share of the excess profits computed under the\tAct.\nAny  commission\t paid on the excess profits  for  which\t the\nmanagers or employees made no sort of contribution would  ex\nfacie be unreasonable and unnecessary and the Excess Profits\nTax   Officer\twould  be  justified  in   disallowing\t the\nproportion,  which, according to him, was 'unreasonable\t and\nunnecessary  having  regard  to\t the  requirements  of\t the\nbusiness. [530A-D; 531G-H; 532A]\nIn  the\t present  case, the assessee  is  a  public  limited\ncompany having several branches and subsidiary companies  It\nhas  a\tBoard of Directors which looks after  its  business.\nThe managers who look after the branches ,of the company are\nalso  members of the Board.  The assessee  was\tremunerating\nits directors by way of commission based on a certain  fixed\npercentage  of\tits net audited profits.   The\tphrase\t'net\naudited\t profits\"  was clarified to mean  the  amount  after\ndepreciation  had  been\t allowed  for,\tbut  prior  to\t any\nallocation  or appropriation of profits including  provision\nfor taxation.  The Excess Profits Tax Act came into force on\nApril 5, 1940, and on 27th July, 1940, the phrase \"including\nprovision  for\ttax'  in  the  clarification,  was   further\nclarified  that\t it  was  intended to  cover  all  forms  of\ntaxation  including  excess  profits  tax  and\tother\tlike\nimpositions.  Therefore, no, deduction of excess profits tax\nwas  to\t be  made prior to  the\t calculation  of  managerial\ncommissions.   For the chargeable accounting years 1945\t and\n1946 the Excess Profits Tax Officer found that the  assessee\nhad  made large profits and held that if the commission\t was\nto  be\tpaid on the ,net audited profits  the  whole  excess\nprofits\t would\tbe  taken into account for  the\t payment  of\ncommission; that a portion of the commission attributable to\nexcess\tprofits,  in  the  peculiar  circumstances  of\t war\nconditions.  was  not  reasonable and  necessary  with.\t the\nmeaning of r. 12 (1), and that any payment, in excess of the\nagreed\tproportion  of the net profit's after  deduction  of\nexcess\tprofits\t tax,  was not\tjustified.   He,  therefore,\ndisallowed  a  percentage of the said excess  profits  which\nwould  be payable to the State on account of excess  profits\ntax liability. [526A-H;, 527A.C]\n525\nOn  the question whether the disallowed we for each  of\t the\nyears was rightly made, the Tribunal and the High Court held\nagainst the assessee.\nDismissing the appeal to this Court,\nHELD : The Excess Profits Tax Officer and the Tribunal\thave\ngiven  valid reasons for not allowing the entire  commission\nclaimed\t on  the  basis\t of  the  audited  accounts  without\ndeducting the excess profits tax., [531G]\nAhmedabad  Manufacturing & Calico Printing Co. v.  Commr  of\nE.P.T., 38 I.T.R. 675 followed.\nBritish\t India\tCorporation  Ltd. v. Commr.  of\t E.P.T.,  33\nI.T.R. 826 and Shyamlal Pragnarain v. C.I.T., 27 I.T.R.\t 404\nreferred to\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1987 to
\n1988 of 1.969.\n<\/p>\n
Appeals\t by  certificate from the judgment and\torder  dated
\nOctober\t 22, 1965 of the Allahabad High Court in  Income-tax
\nReference No. 154 of 1957.\n<\/p>\n
S.  T.\tDesai,\tAlok Kumar Verma and B.\t P.  Singh  for\t the
\nappellant
\nB.  Sen, J. Ramamurthy, B.D. Sharma and R. N.  Sachthey\t for
\nthe  respondent.\n<\/p>\n
The Judgment of the Court was delivered by
\nJAGANMOHAN  REDDY,  J.\t These appeals\tare  by\t certificate
\nagainst\t the  Judgment\tof the Allahabad  High\tCourt  in  a
\nreference  under S. 21 of the Excess Profits Tax  Act,\t1940
\n(hereinafter  called  the ‘Act’) read with s. 66(2)  of\t the
\nIndian Income-tax Act, 1922.  The questions referred were in
\nrespect\t of  the  two chargeable  accounting  periods  being
\nJanuary 1, 1945 to December 31, 1945 and January 1, 1946  to
\nMarch 31, 1946 and are given below\n<\/p>\n
\t      1.    Whether  on the facts and  circumstances
\n\t      of this case the amount of Rs. 5,39,057\/-\t was
\n\t      rightly  disallowed  under rule 12(1)  of\t the
\n\t      Schedule to the Excess Profits Tax Act?\n<\/p>\n
\t      2.    Whether  on the facts and  circumstances
\n\t      of this case the amount of Rs. 1,28,743\/-\t was
\n\t      rightly  disallowed  under  rule\t12  (1)\t  of
\n\t      Schedule I to the Excess Profits Tax Act?\n<\/p>\n
Both these questions were answered in the affirmative.
\nThe  facts  and\t circumstances of the case  on\twhich  these
\nanswers\t were given are :-The assessee is a  public  limited
\ncompany\t  (hereinafter\tcalled\tthe  ‘Corporation’)   having
\nseveral\t branches and subsidiary companies.  It has a  Board
\nof  Directors which looks after its business.  The  branches
\nof the Company are looked after by mangers who ,ire  members
\nof the Board of Directors.  It
\n526<\/span>
\nappears\t that for a long time and even before the  Act\tcame
\ninto  force  the  corporation  has  been  remunerating\t its
\ndirectors   including  the  Managing  Director\tand   branch
\nmanagers  by  way  of commission based on  a  certain  fixed
\npercentage of its net audited profits.\tThis commission\t was
\nin addition to the directors’ fees and\/or stipulated monthly
\nsalary.\t  In  the  case of a branch manager  the  amount  of
\ncommission  to be paid was calculated on the profits of\t the
\nbranch of which he was in charge.  In the case of others the
\nprofits\t made by the Corporation as a whole were taken\tinto
\nconsideration.\t The commission to be paid was either  fixed
\nat   the  time\tof  appointment\t or  by\t resolution   passed
\nsubsequently.\tIn so far as the two  chargeable  accounting
\nperiods are concerned, the position in regard to the payment
\nof  the commission has been set out in the statement of\t the
\ncase  but  this\t is not relevant for the  purpose  of  these
\nappeals\t except to note. as we have earlier mentioned,\tthat
\nthe  commission was to be calculated with reference  to\t the
\nnet  audited  profits  which  phrase  was  clarified  by   a
\nresolution of the Corporation dated February 24, 1940.\tThat
\nresolution is as follows :-\n<\/p>\n
\t      “Commission.\n<\/p><\/blockquote>\n
\t      In order to regularise previous Resolutions on
\n\t      the  subject  of\tManagerial  Commission,\t the
\n\t      Board  resolved  that commission on  profits
\n\t      would be payable to the Managing Director\t and
\n\t      the  Branch Managers entitled thereto, on\t net
\n\t      audited  profits, only after depreciation\t had
\n\t      been  allowed for but prior to any  allocation
\n\t      or  appropriation\t of such  profits  including
\n\t      provision for taxation.”\n<\/p><\/blockquote>\n
\t      Though it is not mentioned in the statement of
\n\t      the  case\t we can take judicial notice  of  it
\n\t      that   the   Excess  Profits  Tax\t  Bill\t was
\n\t      introduced in the Central Legislative Assembly
\n\t      on  January 27, 1940 and after it was  passed,
\n\t      received the assent of the Governor-General on
\n\t      April  5, 1940.  On July 27, 1940\t the  phrase
\n\t      ‘including provision for taxation’ was further
\n\t      clarified by the following resolution :-
\n\t      “The Board, therefore, resolved that the words
\n\t      ‘including   provision  for   taxation’\twere
\n\t      intended\tto  and did specifically  cover\t all
\n\t      forms of taxation including the Excess Profits
\n\t      Tax and other like impositions and, therefore,
\n\t      no  deduction of excess profits tax and  other
\n\t      like  impositions\t from  the  audited  profits
\n\t      should  be  made prior to the  calculation  of
\n\t      Managerial   commissions.\t  The\tBoard\talso
\n\t      resolved that this ruling, which could only be
\n\t      regarded\tas fair and reasonable\tshould\thave
\n\t      effect retrospectively to the commission\tpaid
\n\t      in respect of the year 1939.”\n<\/p><\/blockquote>\n
\t      527<\/span><\/p>\n
\t      In respect of the chargeable accounting period
\n\t      ending  December 31, 1945 the  Excess  Profits
\n\t      Tax  Officer had observed in his\torder  dated
\n\t      December 15, 1947 as follows :-\n<\/p><\/blockquote>\n
\t      “For  reasons stated in the order dated  30-3-
\n\t      1945 and Rule 12 Schedule I for the chargeable
\n\t      accounting  period  up to 31-12-1943,  1\thold
\n\t      that, having regard to the requirements of the
\n\t      business\tand the actual services rendered  by
\n\t      the persons concerned, the commission  allowed
\n\t      to  the management and directors is  both\t un-
\n\t      reasonable  and unnecessary.  Any\t payment  in
\n\t      excess  of  the agreed proportion of  the\t net
\n\t      profits after deduction of Excess Profits\t Tax
\n\t      is not justified.”\n<\/p><\/blockquote>\n
The  Excess  Profits Tax Officer accordingly held  that\t Rs.
\n11,47,143 for the first chargeable accounting period and Rs.
\n11,06,693 for the second chargeable accounting period  could
\nnot be allowed and was further of the view that a portion of
\nit  was\t not reasonable and necessary having regard  to\t the
\nrequirements  of  the  business\t and  the  actual   services
\nrendered by the persons concerned.  It was pointed out that
\nthe  commission of the nature under consideration was  being
\npaid by the Corporation even before the Act came into  force
\nand  that such commission was being allowed in its  entirely
\nfor  purposes  of  computing profits, under  s.\t 10  of\t the
\nIncome-tax  Act, 1922 in the two  corresponding\t assessments
\nmade under s. 10 of the Income-tax Act.\t Though this was  so
\nunder  the Income-tax Act the Excess Profits Tax Officer  on
\nthe  facts of the case and having regard to rule 12  of\t the
\nSchedule to the Act took the view that since the  commission
\nin  the respective chargeable accounting periods  were\tpaid
\nout  of\t the  profits which could not  be  retained  by\t the
\nCorporation, a portion of the commission attributable to the
\nExcess Profits Tax Act earned in the peculiar  circumstances
\nof  a national calamity was not “reasonable  and  necessary”
\nwithin the meaning of the said rule.  It was found that\t for
\nthe  first chargeable accounting period the  Excess  profits
\npayable\t were  approximately  Rs.  64,36,000\/-\tbut  if\t the
\ncommission was to be paid on the net audited profits of\t Rs.
\n1.37  crores,  the whole excess profits which could  not  be
\nretained  by the Corporation for its own use would be  taken
\ninto  account for the payment of the commission as  such  be
\ndetermined the portion to be disallowed was at 8.4 % of\t the
\nsaid  excess profits which will be payable to the  State  on
\naccount\t of the Exces Profits Tax liability.  On this  basis
\nthe  amount worked out was Rs. 5,39,057.  Applying the\tsame
\nmethod for the following accounting chargeable, period ended
\nMarch 3 1. 1946 he determined the amount as Rs.\t 1,28,743\/-.
\nThese two amounts were disallowed in the assessments for the
\nrespective  chargeable accounting periods.  In\tarriving  at
\nthese  amounts\tthe Excess Profits Tax Officer\tignored\t the
\nterms  of appointment and the resolutions and  drew  support
\nfrom the orders passed by the
\n528<\/span>
\nTribunal  in  respect of the two prior assessments  for\t the
\naccounting periods ended December 31, 1943 and December\t 31,
\n1946,  against which orders of the Tribunal a reference\t had
\nearlier\t been  made  to\t the  Allahabad\t High  Court.\tThis
\nreference  was\tthen pending before it when  the  subsequent
\nassessments  were being dealt with.  In the appeals  against
\nassessments  made for the accounting periods in the  instant
\ncase,  it was admitted on behalf of the\t Corporation  before
\nthe Tribunal that there was no new material other than\twhat
\nwas  on record in the, Excess Profits Tax  assessment  files
\nand the Tribunal files relating to the chargeable accounting
\nperiods\t for  the  years 1943 and 1944.\t  These\t files\twere
\nproduced  before  the  Tribunal\t in  the  appeals  for\t the
\nassessments  in\t question.  The Tribunal  however  dismissed
\nthose appeals following its earlier decision relating to the
\nchargeable  accounting periods for 1943 and  1944.   Against
\nthat  order  the  High Court on a reference  under  the\t Act
\nconsidered  a  similar question, viz.  whether\tthe  amounts
\nclaimed\t by  the  Corporation  in respect  of  each  of\t the
\nassessment  year was rightly disallowed under rule 12(1)  of
\ntile First Schedule to the Act.\n<\/p>\n
In  the earlier reference for the assessment in\t respect  of
\nthe  assessment\t years\t1943  and  1944,  a  Bench  of\t the
\nAllahabad  High Court in British India CorPoration  Ltd.  v.
\nCommr.\tof E.P.T.(1) consisting of Bhargava, J. (as he\twas)
\nand  Mehrotra, J. were of the View that the findings of\t the
\nExcess\tProfits Tax Officer that the payments were both\t not
\nnecessary  and not reasonable amounted to holding  that\t the
\nprevious practice and agreements save no indication that the
\ncommission  had\t to  be paid without  deducting\t the  excess
\nprofits tax from the net profits and that the payments\tmade
\nwere  beyond the terms of the agreement.  According to\tthat
\ncourt  this  was  not the basis on  which  the\tquestion  of
\nreasonableness\tand  necessity\tof the payments\t had  to  be
\ndecided.   But\twhat the officer and the Tribunal  ought  to
\nhave  decided is the question whether or not these  payments
\nwere necessary and justified, having regard to the  ordinary
\ncommercial  practice and commercial expediency ,and  taking
\ninto  account the services rendered by the persons  to\twhom
\nthe  _payments\twere made.  Bhargava, J. who  delivered\t the
\njudgement  of the Bench in arriving at the  conclusion\tthat
\nthe disallowance of the amounts was act justified followed a
\nFull Bench judgement of that Court in Shyamlal Pragnarain v.
\nC.I.T.(2). In that Full Bench it was observed that what\t the
\nExcess\tProfits Tax Officer had to bear in mind is that\t the
\namount\tcould  be disallowed in whole or in part if  it\t was
\nfound  that it was not reasonable and it was  not  necessary
\nhaving\tregard to the requirements of the business  and\t the
\nactual\tservices rendered by the managers.  The question  as
\nto the terms of the contract, it said “may have been a
\n(1) 33 I.T.R. 826.\n<\/p>\n
(2) 27 I.T.R. 404.\n<\/p>\n
529<\/span><\/p>\n
matter\tof  importance\tas  between  the  employer  and\t the
\nemployee  but not for the purposes of the  determination  of
\nthe question of reasonableness or necessity either under the
\nIncome-tax  Act or the Excess Profits Tax Act” which had  to
\nbe  judged in the light of the requirements of business\t and
\nto  the exigencies of the business keeping in view  ordinary
\ncommercial practice and commercial expediency.
\nWhen  the Tribunal decided the appeal which is\tthe  subject
\nmatter of this reference, the decision of the High Court, as
\nwe  said earlier, had not been rendered and consequently  it
\ndid not have the benefit of that decision the High Court  in
\nthe judgment under appeal however observed :-\n<\/p>\n
\t      “The  Full Bench did not discuss\twhether\t for
\n\t      disallowing a deduction both  unreasonableness
\n\t      and  want of necessity are required or  either
\n\t      is  enough and presumed Presumably  from\tthe,
\n\t      fact  that both reasonableness  and  necessity
\n\t      are  required  for allowing it that  both\t are
\n\t      required.\t  As the question was not  expressly
\n\t      raised  before  and decided  by  Bhargava\t and
\n\t      Mehrotra,\t JJ. in one case and the Full  Bench
\n\t      in  the  other case, the assumption  on  which
\n\t      they proceeded would not bind us.”
\n\t      In  our  view,  these  observations  are\t not
\n\t      justified\t because  in both  those  cases\t the
\n\t      aspects  referred\t to were certainly  kept  in
\n\t      view in determining the questions before them.
\n\t      It  appears  that the Revenue did\t not  appeal
\n\t      against the decision of Bhargava and Mehrotra,
\n\t      JJ.  in the case above referred.\t The  Excess
\n\t      Profits  Tax Officer had made the\t assessments
\n\t      basing  them  on\tthe  reasons  given  in\t the
\n\t      earlier  orders  relating\t to  the  chargeable
\n\t      accounting  years\t 1943 and  1944\t which\twere
\n\t      referred to in the statement of the case.\t  We
\n\t      also  find that the High Court in its  earlier
\n\t      judgment\twas not justified in  thinking\tthat
\n\t      the Excess Profits Tax Officer had not applied
\n\t      the requirements of rule 12 of the Schedule to
\n\t      the Act.\n<\/p><\/blockquote>\n
\t      Rule 12(1) of Schedule I which is relevant  is
\n\t      as follows
\n\t      “(1)   In\t  computing  the  profits   of\t any
\n\t      chargeable  accounting  period  no   deduction
\n\t      shall  be\t allowed in respect of\texpenses  in
\n\t      excess of the amount which the Excess  profits
\n\t      Tax Officer considers reasonable and necessary
\n\t      having  regard  to  the  requirements  of\t the
\n\t      business\tand, in the case of directors’\tfees
\n\t      or other payments for services, to the  actual
\n\t      services rendered by the person concerned;
\n\t      Provided that no disallowance under this\trule
\n\t      shall  be\t made  by  the\tExcess\tProfits\t Tax
\n\t      Officer  unless  he  has\tobtained  the  prior
\n\t      authority\t  of  the  Commissioner\t of   Excess
\n\t      Profits Tax.”\n<\/p><\/blockquote>\n
530<\/span><\/p>\n
This  rule  is de-signed to prevent the dissipation  of\t the
\nexcess\tprofits\t by  inflating\texpenditure  which  has\t  no
\nrelation to the requirements of the business.  The, test is,
\nwhether\t the  expenditure is  unreasonable  and\t unnecessary
\nhaving regard to the requirements of the business and in the
\ncase  of directors’ fees or other payments for\tservices  to
\nthe  actual  services  rendered.   There  is  of  course  no
\nreference   in\tthis  rule  to\tcommercial   expediency\t  or
\ncommercial practice in considering whether an expenditure is
\nunreasonable   and   unnecessary  having   regard   to\t the
\nrequirements  of the business.\tBut that is another  way  of
\nsaying\tthat  all  relevant  factors  must  be\ttaken\tinto
\nconsideration  by  the Excess Profits Tax  Officer  in\tcon-
\nsidering   whether  that  expenditure  is   reasonable\t and
\nnecessary.   What  it means is that the Excess\tProfits\t Tax
\nOfficer\t could\tnot apply the rule to increase that  can  be
\njustified  on  ordinary\t commercial  principles\t because  an
\nincrease in profits may in certain cases be due to  increase
\nin  the\t activity  of  the management  or  increase  in\t the
\nestablishment  justifying  a corresponding increase  in\t the
\nexpenditure.   The  Full Bench decision in  Shyamlal’s\tcase
\ncame   up   consideration  by  this   Court   in   Ahmedabad
\nManufacturing & Calico Printing Co. v. Commr. of  E.P.T.(1).
\nThat  was  also\t a case where the question  was\t whether  in
\ndetermining  the profits on which the percentage had  to  be
\ndetermined for payment of bonus to five of its employees and
\nthe  contribution to be made to the provident funds of\t5  3
\nemployees, deduction, of depreciation, income-tax and super-
\ntax in respect of first category and deduction of income-tax
\nor  excess  profits tax in respect of  the  second  category
\ncould  be made before arriving at the profits.\t The  Excess
\nProfits Tax Officer came to the conclusion that the payments
\nwere  unnecessarily large and unreasonable having regard  to
\nthe requirements of the business and without taking up\teach
\nindividual  case he held, applying rule 12 that it was:\t not
\nnecessary  for the assessee company for the purpose  of\t its
\nbusiness to calculate the bonus or the contribution on\tthat
\nbasis of net profits before the deduction of excess  profits
\ntax.   He accordingly disallowed the excess of\tthe  payment
\ncalculated without deduction of that tax.  In upholding\t the
\ndisallowance  this  Court held that there  was\tmaterial  on
\nwhich  the  Excess  Profits Tax Officer could  arrive  at  a
\nfinding\t and  on  which\t the  Tribunal\tcould  confirm\tthat
\nfinding.  In that case also the Excess Profits Tax  Officer,
\nin   the  assessment  order  relating  to   the\t  chargeable
\naccounting  year  ending December 31, 1943  gave  sufficient
\nreasons for  disallowing the amounts  which  reasons  were
\nincorporated   by   reference  in  the\t assessment   orders
\npertaining   to\t the  disallowance  of\tthe  claim  in\t the
\nchargeable  accounting\tyears in question.  In\tthe  earlier
\norder the reasons given were as follows :\n<\/p>\n
\t      “The rates of commission were fixed long prior
\n\t      to the commencement of the present war and  no
\n\t      deduction
\n\t      531<\/span>
\n\t      was admittedly made for the Excess Profits Tax
\n\t      liability\t in computing the net profit of\t the
\n\t      corporation  for\tthe purpose  of\t calculating
\n\t      commission    payable   to    directors\t and
\n\t      management.   As a result of  war\t conditions
\n\t      the  profits of the Corporation have  gone  up
\n\t      tremendously  from about Rs. 10 lakhs  in\t the
\n\t      prewar period to about Rs. 2 crores during the
\n\t      relevant chargeable accounting period and\t the
\n\t      commission  to management on the basis of\t net
\n\t      profits  has  risen in  the  same\t proportion.
\n\t      Since   the  Excess  Profits  Tax,  which\t  is
\n\t      intended\tto prevent the owner of\t a  business
\n\t      from  making a large fortune out of what is  a
\n\t      national\tdanger, is not deducted out  of\t net
\n\t      profits\tin   calculating   commission,\t ‘an
\n\t      employee\tstands to benefit from the  national
\n\t      emergency\t  to  a\t greater  extent   than\t  an
\n\t      employer’;  (Walchand & Co. Ltd. v.  The\tHin-
\n\t      dustan Construction Co. Ltd. (12 I.T.R.  104).
\n\t      it  therefore,  appears  both  unnecessary.and
\n\t      unreasonable  to\tpay  more  than\t the  agreed
\n\t      proportion  of the profits after deduction  of
\n\t      Excess  Profits Tax.  In the circumstances,  I
\n\t      hold  that  the  increased  expenditure  under
\n\t      commission  although of a nature\twhich  under
\n\t      the provisions of s. 10 of the Income-tax Act,
\n\t      is  in  itself  an  allowable  deduction,\t  is
\n\t      ‘unreasonable and unnecessary having regard to
\n\t      the  requirements\t of  the  business  and\t the
\n\t      actual   services\t rendered  by  the   persons
\n\t      concerned.”\n<\/p><\/blockquote>\n
\t      After giving these reasons he went on to say
\n\t      “Having  held that the aforesaid\tpayments  of
\n\t      commission  are unjustifiable and\t exceptional
\n\t      the question arises as to what the  reasonable
\n\t      amount,  having regard to the requirements  of
\n\t      the business and the actual services  rendered
\n\t      by the persons should be.\t As mentioned above,
\n\t      any payment in excess of the agreed proportion
\n\t      of  the net profits after deduction of  Excess
\n\t      Profits Tax is unreasonable and unnecessary.”\n<\/p><\/blockquote>\n
The Excess Profits Tax Officer accordingly computed what was
\nthe reasonable amount of commission which should be allowed.
\nWe can find very little justification in the criticism\tthat
\nno reasons have been given by the Excess Profits Tax Officer
\nor  the\t Tribunal  for not allowing  the  entire  commission
\nclaimed\t on  the  basis\t of  the  audited  accounts  without
\ndeducting  the taxes paid including the excess profits\ttax.
\nIt  is obvious that when huge profits are earned not due  to
\nany  activity of the managers but due to war situation,\t the
\nGovernment  is\tentitled to a certain share  of\t the  excess
\nprofits computed under the Act.\t Any commission paid on\t the
\nexcess\tprofits for which the managers or employees made  no
\nsort of contribution would ex facie be unreasonable and\t un-
\nnecessary  and the Excess Profits Tax Officer was  perfectly
\njustified
\n532<\/span>
\nin disallowing certain proportion which according to him was
\nunreasonable   and   unnecessary  having   regard   to\t the
\nrequirements  of  the business.\t In this view,\tthe  answers
\nrendered  by  the High Court cannot be disturbed  and  these
\nappeals are accordingly dismissed with costs.
\nV.P.S.\n<\/p>\n
Appeals dismissed.\n<\/p>\n
533<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India British India Corporation vs Commissioner Of Income-Tax, … on 3 October, 1972 Equivalent citations: 1973 AIR 416, 1973 SCR (2) 524 Author: P J Reddy Bench: Reddy, P. Jaganmohan PETITIONER: BRITISH INDIA CORPORATION Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW DATE OF JUDGMENT03\/10\/1972 BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-135171","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nBritish India Corporation vs Commissioner Of Income-Tax, ... on 3 October, 1972 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/british-india-corporation-vs-commissioner-of-income-tax-on-3-october-1972\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"British India Corporation vs Commissioner Of Income-Tax, ... on 3 October, 1972 - 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