C.S.P. Singh, J.
1. The Tribunal has referred the following two questions for the opinion of this court:
' 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally right in confirming the disallowance of the payment of sales tax of Rs. 14,036 pertaining to earlier years ?
2. Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the commission paid to three employees on the net profit of the firm was not allowable expenditure under section 37 of the Act?'
2. The assessee, a registered firm, was carrying on business of sarrafa and cold storage. It filed its return for the assessment year 1968-69 showing a loss of Rs. 26,765. The ITO found on scrutiny of the accounts that a sum of Rs. 14,036 had been debited in the accounts by way of sales tax but that liability did not pertain to the assessment year in question. Apart from this, under the head ' Remuneration and salary', the assessee debited an amount of Rs. 38,050 as remuneration and Rs. 7,000 as salary to its 4 employees which was based on the percentage of the profit. The ITO disallowed the claim for deduction of sales tax on the ground that it did not pertain to the relevant assessment year. So far as the deduction of remuneration is concerned, that was disallowed as the ITO held that the remuneration paid was excessive, considering the fact that these employees were being paid handsome amounts by way of salary. On appeal, the AAC allowed deduction in respect of remuneration at an amount of Rs. 12,050 with the result that the addition under this head was scaled down to Rs. 26,000 only. So far as the claim for deduction of sales tax is concerned, the order of the ITO disallowing it was upheld. Both the assessee and the revenue filed appeals which failed as respects these points.
3. The first question is easily answered as that is concluded by the decision of the Supreme Court in the case of Kedar Nath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) . It has been held in that case that the liability to pay sales tax arises as soon as the transaction is entered into and finalised. As the assessee was following the mercantile system of accounting, liability to pay the sales tax arose in the year in which the sales were effected and the fact that they may have been paid in a subsequent year was of no consequence. Thus, the assessee could not lay claim for deduction of sales tax liability for earlier previous years during the relevant previous years.
4. Coming now to the second question, it is undoubtedly true that the amount of remuneration or the salary paid to an employee has to be adjudged from the standpoint of business needs. But this does not give a handle to claim inflated and excessive amounts of remuneration which are not commensurate with the business needs of the assessee. In case, on the material, the ITO is satisfied that the remuneration or the salary paid is excessive and not commensurate with the genuine business needs, he has jurisdiction to disallow such claims. The Tribunal, in the present case, has found that the assessee had enhanced the salaries of three employees during the relevant previous year by two hundred per cent, and keeping in view the business requirements of the assessee it was not reasonable on the part of the assessee to have granted further remuneration by way of giving a percentage of the profits earned. The Tribunal could justifiably, on these considerations, disallow the expenditure as not being commensurate with the reasonable business activities of the assessee.
5. We accordingly answer both the questions in the affirmative, in favour of the department and against the assessee. The department is entitled to its costs which are assessed at Rs. 200. Counsel's fee is assessed at the same figure.