C.S.P. Singh, J.
1. The assessee, a private limited company, was manufacturing electronic wires in the financial year relevant to the assessment year 1971-72. Dr. Jagmohan Garg, who was president of the company, was an expert in this line of production. There were two other directors of this company. One was Sri N. L. Garg, who was the uncle of Dr. Jagmohan Garg and the other, Smt. Leelavati Garg, who was appointed as director from April, 1971, In the accounting period ending 31st March, 1971, the assessee-company paid an amount of Rs. 38,400 to Dr. Jagmohan Garg, Rs. 10,200 to Sri N. L. Garg and Rs. 9,600 to Smt. Leelavati Garg. The remuneration paid to these directors totalled Rs. 58,200 while the sales were to the tune of Rs. 6,30,431. The assessee claimed deduction of these amounts in the computation of its income, but the ITO on the view that the remuneration paid was abnormally high, took recourse to the provisions of Section 40(c) of the I.T. Act, 1961, and disallowed an amount of Rs. 6,000 paid to Dr, Jagmohan Garg and Rs. 4,800 to Smt. Leelavati Garg. On an appeal filed by the assessee, the AAC disagreed with the ITO as regards disallowance of the remuneration paid to Dr. Jagmohan Garg but upheld that in respect of Smt. Leelavati Garg. An appeal was filed before the Tribunal. The Tribunal has upheld the disallowance.
2. Counsel has urged that the ITO had no jurisdiction to sit in judgment over the decision of the management as regards the quantum of remuneration to be paid to these directors. In this context he had drawn our attention to a large number of decisions to which we shall presently refer. But before doing so it is necessary to recapitulate the finding recorded by the Tribunal on this issue. The Tribunal has, agreeing with the findings recorded by the ITO and the AAC, held that Smt. Leelavati Garg was formerly a vice-principal of the Municipal Board's Girls' College and drawing a salary of only Rs. 400 per month. She was also the mother of Dr. Jagmohan Garg and is the sister-in-law of Sri N. L. Garg. She had no technical qualification and no experience in handling labour employed in the factory. Further, the company would not have engaged auy other lady of equal qualification at the high salary of Rs. 800 per month. It appears to have agreed with the finding given by the ITO that the remuneration of Rs. 800 per month was partly in consideration of the close relationship which Smt. Leelavati Garg had with the other directors. It would be more profitable to refer to Section 40(c) of the Act before commenting on the various decisions relied upon by counsel in support of this argument. The relevant part of Section 40(c) reads :
' 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.......
if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and(ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it......'
3. Its precursor was Section 10(4A) of the Indian I.T. Act, 1922, which was introduced in Section 10 of that Act by Section 7 of the Finance Act of 1956 with effect from April 1, 1956. An assessee whose income was taxable under the head ' Profits and gains of business, profession or vocation ' is normally entitled to compute his income after deducting expenditure which is laid out wholly and exclusively for purposes of that business. Section 10(4A) of the Indian I.T. Act, 1922, however, imposed a restriction on allowance of such expenditure when paid by way of remuneration to a director in case the amount was excessive or unreasonable. The present Act also achieves the same result by Section 40(c). Section 40 by its opening part excludes deductions which are detailed in its later part, one such being remuneration paid to a director. The rigour is, however, mitigated on account of the discretion given to the ITO to allow the deduction in case it is not excessive or unreasonable having regard to the legitimate business needs of the company. The question as to whether the expenditure 'was excessive or unreasonable is essentially a question of fact in cases where relevant material has been taken into account, for arriving at that decision. * In the present case the material, on the basis of which the ITO, the AAC and the Tribunal have taken the view that the remuneration paid to Smt. Leelavati was reasonable to the extent of only Rs. 400 per month has already been detailed earlier. In the circumstances, it cannot be said that the conclusion that payment of an amount in excess of Rs. 400 to the lady is arbitrary is based on no material. On the findings recorded by the Tribunal the case clearly fell within the purview of Section 40(c) and the disallowance was justified. The cases relied upon by the counsel afford little assistance to the argument raised, for they are distinguishable on facts and the majority of them relate to cases arising under Section 10(2)(xv) of the I.T. Act, 1922, for a period when Section 10(4A) was not on the statute book. The very first decision cited, viz., CIT v. Roman and Raman Ltd : 71ITR345(Mad) , is one which arises under Section 10(2)(xv) of the Act. Referring to Section 10(4A) it was held that this provision came into play also in cases where expenditure was wholly and exclusively laid out for the purposes of business. This case is thus an authority for a proposition which does not aid the assessee, for it lays down that the business expenditure of the nature contemplated by Section 10(4A) can be probed into by the ITO for the purposes of testing as to whether it is excessive or unreasonable.
4. The decisions in the case of D. N. Sinha Pot. Ltd. v. CIT : 102ITR491(Cal) , CIT v. Turner Morrison & Co. P. Ltd. : 93ITR385(Cal) , Nund & Samont Co. P. Ltd. v. CIT : 78ITR268(SC) and CIT v. Chart and Chart Ltd. : 57ITR400(SC) , need not be commented upon for they were decided with reference to Section 10(2)(xv), where an expenditure is allowable as soon as it is established that it was laid out wholly and exclusively for the purposes of business. The position, as we have seen, has been altered by introduction of Section 10(4A) in the Indian I.T. Act, 1922, and Section 40(c) in the present Act.
5. Two other cases now remain for consideration. In Natesan and Co. (P.) Ltd. v. CIT  51 ITR 386 , the Tribunal had in the earlier orders allowed the remuneration paid to directors, but it upheld the disallowance in the year in question. The ITO had not given any specific reasons for disallowing the remuneration, and the Tribunal had, without adverting to its earlier decision, approved the view of the ITO. The Madras High Court, taking the view that disallowance under Section 10(4A) could not be made arbitrarily and capriciously, but should be based on some material, reversed the decision of the Tribunal. In the present case there is relevant material on the basis of which the Tribunal could have reached the conclusion that the payment made to the lady was excessive. The decision of this court in Carlton Hotel (P) Ltd. v. CIT : 94ITR311(All) is, on facts, clearly distinguishable. In that case the company had two directors. A thirddirector was appointed on a salary of Rs. 200 per month from June, 1956. His salary was raised to Rs. 500 per month from November, 1959. The salary paid was disallowed by the ITO. The Tribunal found that in the circumstances it was legitimate for the company to have appointed another joint managing director and also that after the appointment of the third director the business of the company had improved. It further found that the salary of the joint managing director was raised so as to bring it on a par with that of the other joint managing directors. It was in these circumstances that this court held that the disallowance under Section 10(4A) was not justified. The decision could not have been otherwise, for on the finding that the business of the company had improved after appointment of the third joint managing director and that it was necessary to do so, the conclusion of the ITO and the Tribunal that the remuneration paid was excessive or unreasonable was purely conjectural and arbitrary. The facts that have been found here are otherwise, for what has been found is that the lady did not have any special qualification which would help in the business of the assessee-company.
6. The facts of this case appear to be in pari materia with the decision of the Delhi High Court in the case of J. B. Bottling Co. (P.) Ltd. v. CIT : 98ITR512(Delhi) , to which our attention was drawn by Sri Ashok Gupta, learned counsel for the department.
7. On the conclusions reached above we answer the question, which is to the following effect:
' Whether the finding of the Tribunal that the remuneration paid to the director, Smt. Leelavati Garg, was unreasonable, is based on any material and whether the Tribunal was right in disallowing the salary paid to her ' in the affirmative, in favour of the department and against the assessee. The department is entitled to costs which we assess at Rs. 200.