P. B. MUKHARJI J. - We do not feel inclined to issue a rule in this case. We are satisfied that no question of law arises in this application under section 66(2) of the Income-tax Act. The questions, as framed in paragraph 8 of the petition, in our view, are really and essentially questions of fact in this case.
The question proposed by the assessee relates to a claim for remuneration to a director as a permissible deduction. The petitioner claimed a certain amount and the income-tax authority has reduced that amount. It turns on the newly amended section 10(4A) of the Income-tax Act introduced by section 7 of the Finance Act of 1956 with effect from April 1, 1956. By the opening expression 'nothing in sub-section (2) shall, in the computation of profits and gains of a company', this newly amended sub-section gets rid of the effect of the legal decisions on section 10(2) prior to the amendment. The material portion of the language now is :
'If in the opinion of the Income-tax Officer, any such allowance is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom.......'
The result of introducing the opinion of the Income-tax Officer is to get round the effect of the previous decisions on section 10(2) (xv) and similar expressions used in section 12(2) of the Income-tax Act reflected respectively in the decisions of Newtone Studios Ltd. v. Commissioner of Income-tax and Eastern Investments Ltd. v. Commissioner of Income-tax, which appeared to suggest that it was not the Income-tax Officer but the business concerned to judge its commercial needs and the remuneration it chooses to pay.
The result therefore today is that, after the amendment, the opinion of the Income-tax Officer is now the primary deciding factor whether the particular allowance is excessive or unreasonable. No doubt the statute lays down the guides by saying (1) 'having regard to the legitimate business needs of the company' and (2) 'the benefit derived by or accruing to it therefrom'. No question here arises to suggest that the Income-tax Officer travelled beyond these two tests of (1) legitimate business needs and (2) the benefit derived. If he did, then it would have been a question of law. What is being really said is that the quantum that he permitted was too small. That, in our opinion, is a question of pure fact.
There is no doubt again that the opinion of the Income-tax Officer should be exercised judicially and not capriciously. But the facts in this case do not even suggest, far less allege, any capricious or unjudicial expression of that opinion.
Therefore, in our view, no question of law arises. The application is dismissed.
BOSE J. - I agree.