Judgment

SHAH (Actg. C. J.): These appeals related to the assessment to tax of M/s. Bengal Enamel Works Ltd. - a public limited company - for the assessment years 1951-52, 1952-53 and 1953-54.

2. The Company is doing business of manufacturing "enamelled-ware". It had originally employed a technician at a monthly salary of Rs. 500. In June, 1941 the technician was relieved, and one Col. Bhattacharya who was a director of the Company was appointed its "Technical Adviser". He was to receive as remuneration 15% of the gross annual profits of the Company. Col. Bhattacharya resigned his office and Dr. Ganguly (Son-in-law of Col. Bhattacharya) was appointed to that office. The Board of Directors resolved on May 18, 1950 to pay to Dr. Ganguly 15% of the gross annual profits (without deducting depreciation) as his remuneration.

3. In the assessment years 1951-52, 1952-53 and 1953-54 the Company claimed under Section 10 (2) (xv) of the Income-tax Act, 1922, as admissible allowance, in computing its taxable income, Rs. 52,947, Rs. 64,356 and Rs. 79,227 respectively paid as remuneration to Dr. Ganguly under the terms of the resolution dated May 18, 1950. The Income-tax Officer, Companies District III, Calcutta, allowed for each of the years renumeration at the rate of Rs. 42,000 only as a permissible deduction. The order was confirmed in appeal to the Appellate Assistant Commissioner and by the Tribunal.

4. The Tribunal referred in respect of each of the three years the following question:

"Whether on the facts and in the circumstances of the case, the disallowance of a part of the expenses incurred by the assessee for payment of remuneration to its Technical Adviser is permissible under the provisions of Section 10 (2) (xv) of the Indian Income-tax Act?"

The High Court answered the question in the affirmative, and disallowed the claim of the Company. With certificate of fitness, these appeals are preferred against the order of the High Court.

5. In computing the taxable income of an assessee whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of the business, profession or vocation of the assessee must be decided on the facts and in the light of the circumstances of each case: Swadeshi Cotton Mills Co. Ltd. v. Commr. of Income-tax, U. P., (1967) 63 ITR 57 (SC). Resolution of the assessee fixing the remuneration to be paid to an employee and production of vouchers for payment together with proof of rendering service do not exclude an enquiry whether the expenditure was laid out wholly and exclusively for the purpose of the assessee s business. It is open to the Tax Officers to hold - agreement to pay and payment notwithstanding - that the expenditure was not laid out wholly and exclusively for the purpose of the business: Swadeshi Cotton Mills Co. Ltd. s case, (1967) 63 ITR 57 (SC). But an inference from the facts found that the expenditure was wholly and exclusively laid out for the purpose of the business is one of law and not of fact, and the High Court in a reference under Section 66 of the Income-tax Act is competent to decide that inference raised by the Tribunal is erroneous in law.

6. In the present case, the facts found are these: Col. Bhattacharya and his son-in-law Dr. Ganguly were two of the directors of the Company who between them held on January 1, 1950, 49% of the total number of shares of the Company and the other directors of the Company held only 1% of the shares. Dr. Ganguly had received no training in the technique of enamelling: he was a medical practitioner earning Rs. 20,000 per annum by the exercise of his profession. Apparently no applications were invited for the appointment of a Technical Adviser when Col. Bhattacharya resigned his office. In the resolution passed by the Directors it was recorded that many "personal enquiries" regarding the post were made, but no candidate was found suitable. The Board, it was recorded, considered the applications of S. Urbeneck and