Harnam Singh, J.— IN Civil Reference No. 5 of 1950 the question that has been referred for decision to, this Court is;—
“Whether there was material upon which the Tribunal could find that any portion of the salaries paid to Miss Florence Hotz and Mr. Edwin Hotz represented expenditure which was not expended wholly and exclusively for the purposes of business.”
2. In considering the question referred to this Court for decision it has to be borne in mind that the claim of the assessee being a claim for exemption of an amount under Section 10(2)(xv) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, the burden of proving the necessary facts in that connection is on the assessee. Authority for this proposition is to be found in Commissioner Of Income Tax, West Bengal v. Calcutta Agency Ltd. [1951] 19 I.T.R 191 In that case Kania, C.J, said:—
“Now it is clear that this being a claim for exemption of an amount, contended to be an expenditure falling under Section 10(2)(xv), the burden of proving the necessary facts in that connection was on the assessee, it being common ground that the commission was due and had become payable and was, therefore, the business income of the assessee company liable to be taxed in the assessment year.”
3. Briefly summarized the facts, so far as material, are these. The assessee is a trust which owns five hotels, including Cecil Hotel, Delhi and Cecil Hotel, Agra. Mr. Robert Hotz is the Manager of Cecil Hotel, Delhi, and Mr. Edwin Hotz is the Manager of Cecil Hotel, Agra, while Miss Florence Hotz is the Chief Manageress of all the hotels. Originally the salaries paid to Mr. Robert Hotz, Mr. Edwin Hotz and Miss Elorence Hotz were Rs. 1,200 per mensem each. With effect from the 1st of March, 1943, the salaries were increased to Rs. 2,000 per mensem each. For the 1943–44 assessment the Income-tax Officer allowed the claim for the increased salary paid in March, 1943. For 1944–45 the Income-tax Officer allowed Rs. 1,600 per mensem as against the claim of Rs. 2,000 per mensem each as a proper deduction in terms of Section 10(2)(xv) of the Act, and disallowed the balance of the claim amounting in all to Rs. 14,400. On appeal the Appellate Assistant Commissioner confirmed the order passed by the Income-tax Officer, holding that no further allowance was jnstified. For the 1945–46 assessment salaries amounting to Rs. 2,000 per mensem in respect of Mr. Robert Hotz, Miss Florence Hotz and Mr. Edwin Hotz were claimed but the Income-tax Officer and on appeal the Appellate Assistant Commissioner refused to allow more than Rs. 1,600 per mensem each.
4. For the 1946–47 assessment the Income-tax Officer found that the salaries of Rs, 1,600 per mensem in the case of Miss Florence Hotz and Mr. Edwin were fair, but that Mr. Robert Hotz, who’ was not provided with free board and lodging, was to be paid Rs. 2,000 per mensem. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.
5. For the 1947–48 assessment the same question came up for determination. This time, however, the Income-tax Officer allowed the full claim in respect of the salaries paid to Mr. Robert Hotz,. Miss Florence Hotz and Mr. Edwin Hotz. The Income-tax Department did not appeal from that assessment order.
6. In the assessment of 1948–49 the Income-tax Officer found that-pay of Rs. 1,600 per mensem was ample in the case of Miss Florence Hotz and Mr. Edwin Hotz and allowed the pay of Rs. 2,000 per mensem in the case of Mr. Robert Hotz. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.
7. From the orders passed by the Appellate Assistant Commissioner; in the several matters referred to above and the excess profits tax assessments for those periods, appeals were taken to the Income-tax Appellate Tribunal, Delhi Branch. The assessee also appealed against the 1948–49 assessment and the business profits tax assessment for the corresponding chargeable accounting period. In the proceedings before the the Income-tax Appellate Tribunal, Delhi Branch, the assessee objected inter alia to the partial disallowance of the salaries paid to Mr. Robert Hotz, Miss Florence Hotz and Mr. Edwin Hotz in respect of the assessments for 1944–45 and 1945–46 and the corresponding excess profits tax assessments and partial disallowance of salaries paid to Miss Florence Hotz and Mr. Edwin Hotz in respect of assessments for 1946–47 and 1948–49, the excess profits tax assessment corresponding to the 1946–47 income-tax assessment and the business profits tax assessment for 1948–49. In deciding the appeals the Income-tax Appellate Tribunal found:—
“We hold that the increment of Rs. 800 per month in the salaries of Miss Florence Hotz and Edwin Hotz during the year 1944–45 and 1945–46 teas not at all justified by business considerations and the Income-tax authorities were perfectly justified in cutting down the increase of Rs. 800 per month to half and allowing only an increase of Rs. 400 per month in their case.”
8. From what was said by the Income-tax Appellate Tribunal it appears that the Tribunal did not allow Rs. 2,000 in the case of Miss Florence Hotz and Mr. Edwin Hotz for the reasons specified hereunder:—
(1) that no particular reason was given for the increase by the assessee;
(2) that Miss Florence Hotz and Mr. Edwin Hotz were not called upon to render any service in addition to what they had been rendering in the past;
(3) that the reason for the increase given before the Appellate Assistant Commissioner was not correct; and
(4) that no demand was made by Miss Florence Hotz and Mr. Edwin Hotz for increase in the salaries.
9. Mr. Indar Dev Dua's contention is that it was for the assessee trust to determine what remuneration the assessee trust should pay to its employees for the services rendered by them and considering that it was not disputed that there was an agreement between the assessee trust and the employees to pay Rs. 2,000 per mensem to each of them, the Tribunal was not entitled to challenge the amount paid by the assessee trust to its servants for their services on the ground of excess or over-generosity in the amount.
10. In my judgment, the contention raised is not covered by the reference and in any case, for the reasons given in Jethabhai Hirji and Company v. Commissioner of Income-tax, Bombay City, the contention put in this form is wholly unacceptable to me.
11. Mr. Dua then contends that there was no material upon which the conclusions arrived at by the Tribunal have been based. As pointed out above, the Income-tax Appellate Tribunal has proceeded upon the circumstances of the case and has come to the conclusion that the increase in the salaries of Miss Florence Hotz and Mr. Edwin Hotz from Rs. 1,200 to Rs. 2,000 was not justified by business considerations. In other words, the Tribunal has found that the allowance claimed cannot be said to be an expenditure laid out or expended wholly and exclusively for the purposes of business. The claim of the assessee being a claim for exemption of an amount under Section 10(2)(xv) of the Act, the burden of proving the necessary facts in that connection was on the assessee. That burden has not been discharged. Finding as I do that the finding of the Tribunal is supported by material on the record, the question referred to this Court for decision must be answered in the affirmative.
12. In these proceedings we assess costs at Rs. 200.
Khosla, J.— I agree.
13. Reference answered accordingly.