Case: Ahmedabad Manufacturing &amp; Calico Printing Company Limited Vs. Commissioner of Excess Profits Tax, Bombay North Kutch &amp; Saurashtra

was paid, percentage of bonus to salary ranged between 412 to 884%, if payment was calculated before deducting the excess profits tax. In the case of the fifth employee to whom no salary was paid in the year, a sum of no less than Rs. 2,46,260 was paid as bonus in the relevant year. He also showed that the percentage of the Provident Fund contribution of salary ranged from 56 % to 553% and this, according to him, was also excessive. He therefore concluded as follows:"From the figures supplied in the attached lists, it may kindly be seen that the contribution by the Company as bonus not only exceeds the contributions of the employees but is several times more than the annual salaries paid to the employees. If such excessive payments as claimed were foreseen at the time when the recognition was given, the C.I.T. while recognising the Fund would not have recognised the Fund without this rule (R. 10 of the Provident Fund Rules) and basis being changed.From the above facts, it is clear that the payments made to the five employees and the 53 employees admitted to the benefits of the Provident Fund are clearly excessive having regard to the requirements of the business and the actual services rendered by the powers concerned within the meaning of Rule 12(1) of Sch. I."13. Learned counsel for the assessee Company contended that there was no evidence whatever, on which the conclusion that the payments were unreasonable could be justified, and that the matter was wrongly apprehended by the authorities. According to him, the Excess Profits Tax Officer could have acted on one of the two and only two grounds, viz.,(a) That the payment of percentage without deduction of Excess Profits Tax was per se unreasonable and unnecessary; or(b) That a payment to an individual employee or to his Provident Fund by the Company was unreasonable or unnecessarily large, having regard to the requirements of the business.He contended that the Excess Profits Tax Officer had acted solely on the first ground and had thus acted, not under R. 12 of Sch. I but on a rule of thumb which led to rather inconsistent and startling results in that a few hundreds of rupees paid to one employee came to be considered unreasonable but not tens of thousands of rupees paid to another employee. He stated that there was no enquiry made as to whether the emoluments paid to any of these employees were unreasonable.14. In our opinion, none of these arguments can avail the assessee Company. To begin with, it was never the case of the assessee Company that there was no evidence to support the findings of the Tribunal. In the thirteen questions proposed by the assessee Company, none relates to the existence or even the quantum of the evidence. The assessee Company was more interested in relying on the agreements and the Regulations as embodying a provisions that income-tax, super-tax and excess profits tax should not be deducted before applying the percentages, or, in the alternative, in showing that profits indicate the ordinary trading profits and not what is left over after payment of these taxes. Question No. 8 of these proposed questions does not involve any consideration whether the decision proceeded on evidence or material.15. Further, the assessee Company seems to have acquiesced in the modified questions because it did not seek special leave of this Court at that stage. Even in the statement of the case filed here, there is no mention of the Tribunal having acted on no evidence. We are also of the opinion that there was evidence on which the Tribunal could reach the conclusion that the payments were unreasonably high, having regard to the requirements of the business. The Excess Profits Tax Officer had prepared schedules showing the proportion of bonus or additional payments to the salary of these employees and also the proportion of the Provident Fund contributions to salary and had stated that in no other concern such extraordinarily high payments were being made. The Tribunal also examined one of the employees of the assessee Company who was present, and collected data in relation to some typical cases. All this material was before the Tribunal when it gave its finding.16. The schedules which are appended to the order of the Excess Profits Tax Officers remand report speak volumes. The payments even in the lowest cases seem extraordinarily high, and cannot be justified as dictated by the requirements of the business. There was again the practice of other concerns similarly situated to make a comparative study.The Excess Profits Tax Officer on a view of the matter held that it was not reasonable to apply the percentage before deducting the taxes. The process of his reasoning was that looking to the facts above stated the payments to the five employees and the contributions to the Provident Fund were unnecessarily large and also unreasonable, having regard to the requirements of the business, and he proceeded to prune them, not by taking up each individual case but by insisting that the percentage be applied only after all the taxes were paid by the assessee Company. It was open to the Excess Profits Tax Officer to say that payment to an employee or contributions to the Provident Fund, before deducting the excess profits tax were unreasonable and led to an unnecessarily large payment to the employees, having regard to the needs of the business. In other words, the Excess Profits Tax Officer having come to conclusion (b), viz., that payment to an individual employee or to his Provident Fund by the Company was unreasonable or unnecessarily large, having regard to the requirements of the business, applied conclusion (a), viz., that the payment of percentage without deduction of Excess Profits Tax was per se unreasonable and unnecessary, to reduce these large payments and contributions.In our opinion, there was material on which he could proceed, and the Tribunal in affirming that finding had further material to act upon.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]From the above facts, it is clear that the payments made to the five employees and the 53 employees admitted to the benefits of the Provident Fund are clearly excessive having regard to the requirements of the business and the actual services rendered by the powers concerned within the meaning of Rule 12(1) of Sch. I.In our opinion, none of these arguments can avail the assessee Company. To begin with, it was never the case of the assessee Company that there was no evidence to support the findings of the Tribunal. In the thirteen questions proposed by the assessee Company, none relates to the existence or even the quantum of the evidence. The assessee Company was more interested in relying on the agreements and the Regulations as embodying a provisions thatx and excess profits tax should not be deducted before applying the percentages, or, in the alternative, in showing that profits indicate the ordinary trading profits and not what is left over after payment of these taxes. Question No. 8 of these proposed questions does not involve any consideration whether the decision proceeded on evidence or material.15. Further, the assessee Company seems to have acquiesced in the modified questions because it did not seek special leave of this Court at that stage. Even in the statement of the case filed here, there is no mention of the Tribunal having acted on no evidence. We are also of the opinion that there was evidence on which the Tribunal could reach the conclusion that the payments were unreasonably high, having regard to the requirements of the business. The Excess Profits Tax Officer had prepared schedules showing the proportion of bonus or additional payments to the salary of these employees and also the proportion of the Provident Fund contributions to salary and had stated that in no other concern such extraordinarily high payments were being made. The Tribunal also examined one of the employees of the assessee Company who was present, and collected data in relation to some typical cases. All this material was before the Tribunal when it gave its finding.16. The schedules which are appended to the order of the Excess Profits Tax Officers remand report speak volumes. The payments even in the lowest cases seem extraordinarily high, and cannot be justified as dictated by the requirements of the business. There was again the practice of other concerns similarly situated to make a comparative study.The Excess Profits Tax Officer on a view of the matter held that it was not reasonable to apply the percentage before deducting the taxes. The process of his reasoning was that looking to the facts above stated the payments to the five employees and the contributions to the Provident Fund were unnecessarily large and also unreasonable, having regard to the requirements of the business, and he proceeded to prune them, not by taking up each individual case but by insisting that the percentage be applied only after all the taxes were paid by the assessee Company. It was open to the Excess Profits Tax Officer to say that payment to an employee or contributions to the Provident Fund, before deducting the excess profits tax were unreasonable and led to an unnecessarily large payment to the employees, having regard to the needs of the business. In other words, the Excess Profits Tax Officer having come to conclusion (b), viz., that payment to an individual employee or to his Provident Fund by the Company was unreasonable or unnecessarily large, having regard to the requirements of the business, applied conclusion (a), viz., that the payment of percentage without deduction of Excess Profits Tax was per se unreasonable and unnecessary, to reduce these large payments and contributions.In our opinion, there was material on which he could proceed, and the Tribunal in affirming that finding had further material to act upon