SALEEM AKHTAR, J.--1. This reference relates to the assessment years 1971-72 and 1972-73. The Company claimed that Rs. 24,000/- paid each year to its Director Mrs. Zeb Gohar Ayub Khan should be allowed as expense incurred whole for purpose of business. The assessing Officer disallowed on the ground that there was no evidence to show that she had rendered any concrete service and therefore the payment made to her were not due to commercial considerations or expediency. The applicant filed an appeal before the Tribunal which upheld the decision of the Assessing Officer.
The applicant then agitated the matter by an application under section 66(1) of the Income Tax Act and the following question has been referred: "Whether on the facts and in the circumstances of the case the learned Tribunal was correct in reaching the conclusion that payment of salary to the Lady Director was not an expenditure laid out on grounds of commercial expediency and to facilitate the carrying on of the business"
2. The facts of this case are not much in dispute. It is an admitted position that Mrs. Khan was a Director from the inception of that company. It has been claimed by the applicant that she had helped in running the business and also secured finances for its operation and was thus actively associated with the business from 1966. In support of the claim the company had also produced a resolution of the Board of Directors as well as of the general body by which remuneration of Mrs. Khan was fixed. The Assessing Officer and the learned Tribunal were of the view that inspire of the fact that this evidence was brought on record there was no substantial evidence to show that any substantive work was rendered by her for the purposes of carrying out the business of the Company. Mr. Muktada Karim has referred to Ata Hussain Khan Limited vs. Commissioner of Income Tax, East Pakistan Dacca (1970) 21 Taxation 1 where it was observed as follows:-- "It will, thus, be seen that the most important factor in determining whether an expenditure by way of payment of remuneration to the Managing Director is "wholly and exclusively for the purpose' of the business of the Company, is whether the expenditure is voluntary and is incurred on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business. The question is not whether the expenditure is reasonable but whether it is incurred bona i.e on the ground of commercial expediency. It is not for the Income Tax Department to say that the expenditure is not reasonable."................................................................................................... The only thing that the Department is entitled to examine is whether the amount claimed was spent wholly and exclusively for the purpose of the business. It is open to the Department to ascertain whether the amount was spent on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business but nothing more. The onus of showing that the amount was spent for such a purpose is, no doubt, upon the assessee. This, however, does not mean that the Department by applying some subjective standard of reasonableness can disallow such an expenditure. If, however, it is found on evidence that the expenditure was not incurred on grounds of commercial expediency but for a consideration other than that it is open to the Income Tax Officer to disallow such an expenditure."
3. The applicant was claiming allowance for payment to the said director under section 10 (2) (xvii of the Income Tax Act. According to this provision the profits and gains shall be computed inter alia after making allowance of any expenditure which is not in the nature of capital expenditure or personal expenses and has been incurred wholly and exclusively for the purpose of business.
Where an assessee makes a claim for such allowance the burden is upon him to prove that the expense was incurred only for the purposes of the business of the assessee. Such burden can be discharged by producing evidence to establish that the money claimed as allowance was spent solely for business expediency, commercial exigencies op entirely for running, maintaining or developing the business. In order to establish its claim the learned counsel for the applicant has referred to the resolutions of the Board of Directors and the General Body. These resolutions can only prove that the remuneration to be paid to her was duly approved. This by itself does not lead to the presumption that the money was spent solely and exclusively for purposes of business. Nor is it sufficient to claim allowance under section 10(2) (xvi). In this regard reference can be made to Ata Hussain's case in which reference has been made to As pro Limited's case 1932 A.C. 683 where it was observed that 'if the only evidence produced is the company's resolution fixing the Director's fees and vouchers for such payments it is difficult to see how it could be said that the amount had been unreasonably disallowed.' The applicant claims that the said director had been arranging finance and has helped sale promotion but no document and no instance of arranging the finances or promoting sale has been produced on record. In the state of this evidence in or view the conclusion drawn by the learned Tribunal was correct.
4. Mr. Shaikh Haider the learned counsel for the responds :1 has referred to Nund & Amount Co. P.
Ltd. Vs Commissioner of Income Tax, Bihar & Orissa (1970) 78-ITR 268 where it was held that:-- 'It is, however, for the taxpayer to establish by evidence that a particular allowance is justifiable^ Apparently, no evidence was tendered by the assessee relating to the duties of the managing director and the deputy managing director, the services rendered by them, the manner in which the profits earned by the assessee were enhanced by reason of their special aptitude or qualifications, the legitimate business needs of the assessee and the benefit derived by or accruing to the assessee in consequence of the services rendered by the managing director and the deputy managing director. In the absence of any such evidence, the finding recorded by the Income- tax Officer and confirmed by the Appellate Assistant Commissioner and the Tribunal must be accepted.'
5. Mr. Shaikh Haider has also referred to Shervani Sugar Syndicate (P) Ltd. Vs. Commissioner of Income Tax, Allahabad (1980) 125ITR 158 which has followed Nand and Amount Co's case. The view of the Indian Courts seems to be that apart from the evidence relating to the duties of the directors and services rendered by them, the manner in which the company has benefited or profits have enhanced due to such service should also be established. In Ata Hussain's case the Supreme Court of Pakistan has laid emphasis that the expenditure should be on the ground of business expediency or wholly and exclusively for purposes of the business. The Department can examine this aspect and also whether it was spent 'in order to facilitate the carrying on of the business'.
There should be a nexus between the expenditure and the business of the company. Any expense incurred which may be indirectly or remotely connected with the business can not be said to have been incurred solely and exclusively for purposes of business.
6. In or humble view the benefit or financial gain from the services rendered by a director may be one way of determining the question whether the remuneration has been paid solely and exclusively for business purposes. But it cannot be made the sole criterion for granting such allowance. There may be cases where a person may render his service for obtaining a tender or executing a project but due to unavoidable circumstances he does not succeed and the company is not benefitted. In such circumstances can it be ruled that the- salary paid to him was not spent wholly and exclusively for business purposes or that it was not expended for business expediency?
7. The question as framed does not dispute the facts as determined by the Tribunal. Where a question opens with the expression 'whether on the facts and circumstances of the case', it means that finding of fact as determined by the Tribunal is to be accepted for deciding the case. Such questions proceed on the assumption that finding of fact is correct and has not been challenged.
On the facts found by the Tribunal and applying the principles as discussed above or answer is in affirmative.