C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court at the instance of the Commissioner of Income-tax:
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Income-tax Officer was not justified in disallowing Rs. 10,050 under Section 40(c) of the Act, out of remunerationpaid to the directors of the assessee-company, for the assessment year 1964-65 ?'
2. The assessee carried on the business of manufacture and sale of sugar. The assessment year in question is the year 1964-65, being the first year of assessment. The company was formed for the purposes of taking over the business of one of its promoters, Seth Puran Chand, who was running a business in the name of Kundan Sugar Mills. During the previous year, the assessee paid an amount of Rs. 3,500 to Puran Chand, its managing director, and an amount of Rs. 2,500 p.m. to Ram Niranjan, director-in-charge. The ITO disallowed a part of this remuneration on the view that it was excessive and unreasonable having regard to the legitimate needs of the business. He found that although Seth Puran Chand had long experience in the sugar industry, the factory was running at a loss, and other sugar factories were not paying the (sic) amount of remuneration. As regards Ram Niranjan, he took the view that he had no previous experience of sugar business, as he was a young man of hardly 22-23 years, and had passed B.Com. and M.A. examination in the second division. Further, on being questioned by the ITO, he was not able even to tell the actual number of shares held by him or the date or the information as to whether they were purchased at the time of first issue or subsequently. Neither was he able to disclose the names of the other directors of the company. The AAC set aside the disallowance made by the ITO, which was to the tune of Rs. 10,050. The assessee had urged before the AAC a number of contentions which may now be concisely stated. It was asserted that Seth Puran Chand had over 30 years of experience in the sugar manufacturing business and had been assigned the duties of the managing director, as a result he had to look after the sales and to exercise general supervision and control over the management of the business, and had also to arrange finances for the company. Apart from him, there was no general manager or any other top executive to look after the purchases and sales and the financial affairs of the company. As regards Ram Niranjan, who was the director-in-charge, it was urged that after his appointment, he had to look after the office correspondence, cane purchases, transport, stores purchases and maintenance, staff, mill, school, time office accounts, mill working, repairs and overhaul-ing, sugar production, payments and business transactions. Apart from these duties, he was also authorised to make purchases and enter into contracts on behalf of the company, and to draw, sign, endorse, accept and negotiate all bills of exchange, hundis, and other negotiable instruments. He was also authorised to sign cheques for the company. It was be sought to be impressed on the appellate authority that as the chief chemist and the chief engineer were drawing a salary of Rs. 1,500 and 2,560, respectively, the salary of the director-in-charge had to be commensurate with the payment made to these officers. The AAC accepted the nature of duties discharged by these directors but on the view that the manufacturing unit was being looked after by the chief chemist and the chief engineer, he held that the remuneration paid to them for the services rendered appeared to be excessive. But, considering the fact that the remuneration paid to these directors was one of the modes of return as made to the HUF for use of the family assets in the business of the company, he allowed the remuneration. The finding of the AAC in the earlier part of the judgment where he remarked that the remuneration 'appeared to be excessive' must, on a fair reading of the order, be taken as only a prima facie expression of his opinion on this question and his final conclusion that the remuneration paid was either excessive or unreasonable. The Tribunal, on appeal by the Commissioner, has approved the order. Sri R. K. Gulati, appearing on behalf of the department, have vehemently urged that on the finding recorded that the remuneration was excessive and unreasonable, it could not be allowed on the consideration that it was paid to the directors as a mode of return to the HUF for user of its assets by the company. It was pointed out that the HUF had been amply compensated by payment of lease money, and the transfer of its liabilities to the company.
3. The remuneration has been allowed after taking into account Section 40(c) of the Act. The relevant part of this section runs as under:
'40. (c) In the case of any company- (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be.....'
4. The Supreme Court had, looking at the language of Section 10(4A) of the Indian I.T. Act, 1922, which was the precursor of Section 40(c)(i), in the case of Nund & Samont Co. P. Ltd. v. CIT : 78ITR268(SC) , held that in the case of payment of remuneration by a company to a director the onus is upon the assessee that the allowance is justified. While considering as to whether the amount paid was excessive or unreasonable, the duties of the directors, services rendered by them, the manner in which profits of the assessee were enhanced by their special aptitude and qualifications, the legitimate business needs of the assessee, and the benefit accruing to the assessee by the service performed by the directors had all to be looked into. These considerations are equally relevant in a case which is covered by Section 40(c)(i). The fact that Seth Puran Chand and Ram Niranjan were managing director and director-in-charge, respectively, is not in doubt. The appellate authority and the Tribunal have accepted the case of the assessee that these two directors were discharging the duties ascribed to them by the assessee as pointed out to the AAC. As has been seen earlier,it had been pointed out by the assessee that Seth Puran Chand had ample experience in the sugar manufacturing business, and Ram Niranjan, although not equally experienced, had ample experience of sugar manufacturing business so as to make him capable of taking up the managerial responsibility. It is also pertinent to point out that the AAC had adopted the findings given by him in the appeal filed by Seth Puran Chand, HUF, to the effect that the HUF had made no attempt to enhance the lease money, although additions had been made to the buildings; plant and machinery year after year, and that the HUF had been incurring establishment expenses which had to be borne by the company. The HUF had also offered its assets as security for making funds available to the com- pany. Thus, in this case we find that the HUF of which both the directors were members had afforded considerable facilities to the company for its business, and the two directors were looking after its management to the best of their ability, one of them was adept in the manufacture of sugar, and the other entrant was also discharging his duties, and had experience of sugar business. Section 4(c)(i) permits allowance of expenditure of the type envisaged by Clause (i) thereof provided it is not excessive or unreasonable in the context of the legitimate needs of the business. What the legitimate needs of a company, are will vary from case to case depending upon the problems with which a company is faced in a particular year. In the present case, on the facts noticed by the AAC and the Tribunal, it cannot be said that the view taken by the Tribunal was unjustified in law.
5. Before parting with the ease it is necessary to advert to two decisions referred to by Sri R. K. Gulati in the case of Nund & Samont C0. P. Ltd. v. CIT : 78ITR268(SC) and the other, CIT v. Motor and General Sales (P.) Ltd. : 68ITR102(All) . Nund's case : 78ITR268(SC) has already been noticed earlier. It cannot be said in the circumstances of the case that the Tribunal decided the matter contrary to the principles laid down therein. The other case is haj-dly in point, for the Tribunal had found in that case that the directors did not work for the company, apart from attending some meetings. The remuneration was paid to them because they were financiers. It was in these circumstances that the court found that the disallowance was justified. Here, on the facts, as are apparent, the directors were directly looking after the company's business and assisting in raising finances for the efficient conduct of the business The case of Sri Krishna Tiles and Potteries (Madras) P. Ltd. v. CIT  ITR 439 is also of no avail, as the facts are dissimilar.
6. The question referred is answered in the affimarive, in favour assessee and against the department. There shall be no order as to costs.