Dipak Kumar Sen, J.
1. The assessee. Reform Flour Mills (Pvt.) Ltd.; Calcutta, has initiated this reference under Section 66(2) of the I.T, Act, 1922. As directed by this court, the Tribunal has referred the following question:
' Whether, on the facts and in the circumstances of the case, the disallowances made in the year 1960-61, under Section 10(4A) of the I.T. Act, 1922, in respect of the sum of Rs. 12,000 being a part of the remuneration paid and a sum of Rs. 4,500 being the value of the free furnished accommodation provided for the managing director, Sri Mahabir Prasad Jatia, was right in law '
2. The facts found and/or admitted in this reference are, inter alia, that the assessee is a private limited company. The assessment year involved is 1960-61. The corresponding previous year is the year ended 31st December, 1959. Under a resolution dated the 3rd October, 1959, Mahabir Prasad Jatia and G. D. Jatia were appointed the joint managing directors of the assessee with effect from the 1st October, 1958, for a term of 5 years. They were sanctioned remuneration of Rs. 3,000 per month each and in addition were provided with free furnished accommodation, which were valued at Rs. 4,500 each.
3. It is found that Mahabir Prasad Jatia at the relevant time suffered from a serious physical handicap in that he had an almost totally impaired vision.
4. In the assessment, the ITO disallowed the entire remuneration paid to Mahabir Prasad under Section 10(4A) of the I.T. Act, 1922, and also added back a sum of Rs. 4,500 as vaule of the rent-free furnished accommodation provided for Mahabir Prasad. He held that by reason of the said physical handicap Mahabir Prasad could not have rendered any service to the assessee.
5. From the assessment an appeal was preferred by the assessee to the AAC, who confirmed the assessment of the ITO. A further appeal was preferred by the assessee to the Tribunal.
6. The Tribunal considered the evidence on record and came to the conclusion that Mahabir Prasad was actively engaged in looking after the affairs of the assessee even though under a handicap. The Tribunal found that in the capacity of a joint managing director it was possible for Mahabir Prasad to render valuable service, and held that the total disallowance of the remuneration and the perquisite by way of. free furnished accommodation could not be justified in these facts and circumstances.
7. The Tribunal next considered what remuneration would be adequate and reasonable for Mahabir Prasad, having regard to the business needs of the assessee and the benefits derived by the assessee from the latter's appointment. The following facts were found and considered.
(a) The same amount of remuneration was being paid to the other joint managing director, G. D. Jatia, actively engaged in looking after the affairs of the company.
(b) The turnover for the year in question aggregated Rs. 1,85,24,105 and the net profit was shown at Rs. 8,84,952.
(c) The business of the assessee, viz., flour milling was under Government control, but a major part of it was in respect of free sales.
(d) The part of the business under Government control involved a lot of complicated work.
8. The Tribunal found that it was not possible for G.D. Jatia, the other managing director' alone to handle all the work and that the other managing director, Mahabir Prasad, was not merely a dummy and his services were in fact required by the assessee. The Tribunal considered a statement of the assessee giving particulars of the work performed by Mahabir Prasad.
9. On such facts and evidence, the; Tribunal found that the services of Mahabir Prasad could not be at par with those of G. D. Jatia, and thesame did not entitle Mahabir Prasad to the entire remuneration and pre-quisite claimed.
10. The Tribunal also noted that the directors and their relatives were exercising control over the assessee and as such observed that the remuneration was being paid to Mahabir Prasad on compassionate grounds. The Tribunal allowed Rs. 24,000 on account of remuneration paid to Mahabir Prasad.
11. Mr. S. Dutt, learned counsel for the assessee, contended before us that the decision of the Tribunal was not based on objective facts but was entirely its subjective opinion based on conjectures and surmises. It was pointed out to Mr. Dutt that the assessee had not challenged any of the findings of fact by the Tribunal either in its application under Section 66(1) or in its application before this court under Section 66(2) but he urged that it was still open for the assessee to challenge the facts found and conclusions arrived at by the Tribunal inasmuch as the question referred was a mixed question of law and fact. When such question was before the court, a separate question on the ground of perversity, he submitted, need not be raised. In support of his contentions Mr. Dutt relied on several decisions of the Supreme Court, namely. Eastern Investments Ltd. v. CIT : 20ITR1(SC) , CIT v. Chari and Chan Ltd. : 57ITR400(SC) , Swadeshi Cotton Mills, Co. Ltd. v. CIT (No. 1) : 63ITR57(SC) and CIT v. S.P. Jain : 87ITR370(SC) . The decision in the case of CIT v. S. P. fain reported in : 87ITR370(SC) , cited by Mr. Dutt, may be noted in particular. In the case before the Supreme Court, the assessee had sought to raise before the Tribunal the following question :
' Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that a sum of Rs. 10,80,000 paid for the purpose of the shares was not the assessee's own income was a perverse finding having regard to the evidence on record '
12. The Tribunal did not refer this question. On the assessee's application under Section 66(2) the High Court also did not direct the Tribunal to refer the said question. The questions which were allowed by the High Court to be raised were as follows :
'(1) Whether, on the facts and the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on record and which the department wanted to adduce as evidence ?
(2) Whether, on the facts and in the circumstances of the case, theTribunal's finding that the purchase of the shares by the Rana was not abenami transaction was legally valid ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the totalincome of the assessee by holding that the Rana was not the benamidar of the assessee '
13. On these facts, the Supreme Court held as follows (page 381) :
' This question was repeated in its application under Section 66(2), but perhaps the High Court thought that questions Nos. (2) and (3) on which it directed the Tribunal to state a case would cover the scope and ambit of question No. (3) on which the revenue had asked for reference. We think that the two questions on which the reference has been made impugn the findings and the validity of the Tribunal's conclusion that Rs. 10,80,000 was not an income from undisclosed sources, but was the product of a genuine sale by the vendor-companies. Though this question does raise the validity of the finding given by the Tribunal, we have to ask ourselves the question, in what circumstances will this court interfere with the finding given by the Tribunal, or arrive at a different conclusion to that arrived by it.
In our view, the High Court and this court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated.'
14. Accordingly, the Supreme Court held that the Tribunal had failed to take into account relevant materials on record in arriving at its findings, had acted on inadmissible evidence and had based its conclusions on conjectures, surmises and wrong facts.
15. The facts in the case before us can be distinguished from the special facts which were before the Supreme Court in the above case. In the instant case, the assessee at no stage sought to impugn the findings of the Tribunal on facts. The High Court when directing the Tribunal to refer the question which is before us had no question on facts in view. In view of the specific questions raised by the assessee in the instant case, it appears that the assessee is precluded from agitating the question of perversity or to otherwise challenge the facts found by the Tribunal.
16. Law has been definitely and repeatedly laid down by the Supreme Court in India Cements Ltd. v. CIT : 60ITR52(SC) , Hooghly Trust (P.) Ltd. v. CIT : 73ITR685(SC) ; and 82 ITR 533 .
17. In any event, it cannot be held that in the instant case the Tribunal acted merely on conjecture or surmise. Evidence in detail was adduced before the Tribunal and on such evidence, the Tribunal has come to its conclusion. It cannot be said that the Tribunal had no evidence before it in reaching its conclusion or that on such evidence no reasonable person could arrive at such conclusion.
18. Mr. Dutt next urged that the Tribunal did not apply the tests as laid down in Section 10(4A) of the Indian I.T. Act, 1922. It may be convenient at this stage to set out Section 10(4A) which reads as follows :
' (4A) Nothing in Sub-section (2) shall, in the computation of the profits and gains of a company, be deemed to authorise the making of--
(a) any allowance in respect of any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or a person who has a substantial interest in the company within the meaning of Sub-clause (iii) of Clause (6C) of Section 2, or
(b) any allowance in respect of any assets of the company used by any person referred to in Clause (a) either wholly or partly for his own purposes or benefit,
if in the opinion of the ITO any such allowance is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom.
Explanation--The provisions of this sub-section shall apply notwithstanding that any amount disallowed under this sub-section is included in the total income of any person referred to in Clause (a).'
19. The only tests, Mr. Dutt urged, to be applied in the instant case were whether the allowance given to Mahabir Prasad had any relation to the legitimate business needs of the assessee and the benefits derived by or accruing to the assessee therefrom. Such tests had to be applied by the taxing officer not as a tax collector but as a prudent businessman. It was to be worked out what allowance should be sanctioned in such cases keeping in view the legitimate business needs of the assessee and the benefits derived by the assesses, or accruing to the assessee therefrom. It was contended that the Tribunal proceeded on the sole basis that Mahabir Prasad was physically handicapped with impaired vision and, therefore, the allowance was given to Mahabir Prasad on compassionate grounds. The services which Mahabir Prasad had rendered to the assessee in his capacity as a managing director were lost sight of.
20. In support of his contentions Mr. Dutt has relied on a number of decisions. These may be discussed in their chronological order. The first case cited was the Newtone Studios Ltd. v. CIT : 28ITR378(Mad) , for the proposition that under Section 10(2)(xv) the taxing authority did not have any power or jurisdiction to determine the reasonableness of theamount fixed and paid by the assessee. This decision has no application as in the instant case we are concerned not with Section 10(2)(xv) but with Section 10(4A), which is an exception to the earlier section.
21. The next was a decision of this court in the case of Rajasthan Investment Ltd. v. CIT : 57ITR194(Cal) , cited for the proposition that while allowing or disallowing remuneration under Section 10(2)(xv) the Tribunal should not be guided by a subjective test but by objective facts. This decision was on Section 10(2)(xv) and is of little assistance in the instant case.
22. Two other decisions cited by Mr. Dutt, namely, CIT v. Walchand and Co. Private Ltd. : 65ITR381(SC) and J.K. Woollen Manufacturers v. CIT : 72ITR612(SC) , both on Section 10(2)(xv), need not be discussed any further.
23. Lastly, Mr. Dutt cited a decision of this court in the case of CIT v. Edward Keventer (Private) Ltd. : 86ITR370(Cal) . In this case the question which was referred to the court under Section 66(1) was as follows ;
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the disallowance of the amounts of Rs. 46,162, Rs. 45,753, Rs. 42,967 and Rs. 46,720 for the assessment years 1956-57, 1957-58, 1958-59 and 1959-60, respectively, out of the remuneration and commission paid to the 4 directors of the company and to Sri K. A. Dikshit by recourse to Section 10(4A) of the Indian I.T. Act, 1922, was not justified and in deleting the said additions?'
24. The High Court upheld the decision of the Tribunal and answered the above question in favour of the assessee. Relevant observations in the judgment at pages 380 and(381 (of 86 ITR) of the report are as follows :
' Section 10(4A) casts a duty and confers the power on the ITO not to allow any deduction in respect of any remuneration or benefit or amenity to any director or any person who has a substantial interest in the company, as contemplated in the said section, if the ITO is of the opinion that any such allowance is excessive or unreasonable, having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom. It is to be noted, as the section itself expressly mentions, that this power can be exercised by the ITO, in the matter of computation of the profits and gains of the company, notwithstanding the provisions contained in Section 10(2), which must necessarily include Section 10(2)(xv). This section contains substantive provision and is not merely clari6catory in nature. This section clearly contemplates that even if the requirements of Section 10(2) including the necessary requirements under Section 10(2)(xv) are satisfied, the ITO is enjoined not to make any allowance in respect of any expenditure which may come within the mischief of Section 10(4A). In other words, even if the qualitative characteristics of Section 10(2)(xv) justify any item of expenditure as wholly and exclusively laid out for the business of the company, the ITO is enjoined andempowered to consider the reasonableness or otherwise of the quantum or the amount expended on the item, if the item of expenditure comes within the purview of Section 10(4A) and the ITO is not to allow the entire amount so spent, if the provisions of Section 10(4A) are attracted and the sum spent comes within the mischief of the said provisions. The ITO must, however, consider the entire position dispassionately and objectively and from the viewpoint of a prudent businessman...The opinion of the ITO as to the reasonableness or otherwise of the amount spent must not be arbitrary and is not to be the subjective and prejudiced opinion of an officer interested in collecting more revenue. The opinion as to reasonableness or otherwise of the amount spent must be formed, having regard to the legitimate business needs of the company and the benefit derived by the company or accruing to the company fr6m the said sum expended. The said Section 10(4A) itself, while conferring the necessary powers on the ITO, places two limitations in the matter of exercise of the power and the said sections enjoin the ITO to take into consideration in exercising the power, (I) the legitimate business needs of the company, and (2) the benefit derived by or accruing to the company in forming any opinion as to the reasonableness or otherwise of the amount spent. The legitimate business needs of the company must be judged from the view-point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the ITO to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term 'benefit' to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business...Whether, in any particular case the ITO has properly exercised his jurisdiction and power under Section 10(4A) or not, must necessarily depend on the facts of each particular case. '
25. Mr. Suhas Sen, learned counsel on behalf of the revenue, has contended on the other hand, that it is for the assessee to justify the remueration sanctioned to its directors or employees before the taxing authorities and the onus is cast on him to produce evidence to support the reasonableness or otherwise of such remuneration. For this proposition Mr, Sen relied on a decision of the Supreme Court in the case of Nund & Samont Co. P. Ltd. v. CIT : 78ITR268(SC) . The Supreme Court held that in an enquiry under Section 10(4A) of the I.T. Act, 1922, to determine the excessiveness or unreasonableness of any allowance contemplated therein, it was for the tax-payer to establish by evidence that a particular allowance was justifiable. If such evidence was not produced, the ITO was not to collect evidence independently but could decide the excessiveness or unreasonableness or otherwise of such allowance having regard to the legitimate business needs of the company.
26. Mr. Sen further contended that reasonableness of the quantum was a question of fact and could be challenged only on the ground of perversity. In support of this contention Mr. Sen has relied on two decisions, the first being Sri Krishna Tilts and Potteries (Madras) P. Ltd. v. CIT : 90ITR439(Mad) . In this decision, the Madras High Court has construed Section 10(4A) as follows (page 451) :
' We find that Section 10(4A) also vests the power to find out the reasonableness or excessiveness primarily on the ITO and his decision is only subject to review by the Tribunal, The legislature having specially empowered the ITO to find out the reasonableness or otherwise of an allowance claimed, giving certain criteria and that officer having considered those criteria and decided the allowability of the deduction one way or the other, and the same has been confirmed by the Tribunal, this court cannot interfere unless the decision of the ITO or the Tribunal is unreasonable or capricious. In this case, it is not possible for us to say that the inference drawn by the Tribunal from the basic facts is unreasonable or perverse so as to call for interference by this court on reference.'
27. The next decision cited by Mr. Sen was J.B. Bottling Co. v. CIT : 98ITR512(Delhi) . In this case, the question mooted before the Delhi High Court was whether the Tribunal was justified in law in upholding certain disallowances being remuneration paid to the directors of the company and whether there was any evidence before the Tribunal to hold that the remuneration paid to the directors was excessive or unreasonable within the meaning of Section 40(c) of the I.T. Act, 1961. It may be noted that Section 40(c) of the I.T. Act, 1961, is in pari materia with Section 10(4A) of the earlier Act. The Delhi High Court held that the findings reached by the Tribunal were conclusions of fact and as such no question of law arose out of the order of the Tribunal.
28. On consideration of the facts and circumstances as found and the law as cited above, it appears to us, firstly, that the Tribunal had taken note of the entire evidence which was produced before it. Secondly, the Tribunal had based its decision for partial disallowance of the remuneration paid to Mahabir Prasad on the following facts :
(a) The turnover of the assessee for the year in question ;
(b) the profits made by the assessee for the year in question ;
(c) the nature of the services performed by Mahabir Prasad ;
(d) the comparable services performed by the other managing director, G. D. Jatia ;
(e) the physical handicap suffered by Mahabir Prasad ;
(f) the nature of the business carried on by the assessee;
(g) the control exercised by Mahabir Prasad and his relatives on the company ;
(h) the quantum of remuneration and perquisites sanctioned to Mahabir Prasad.
29. It does not appear to us that any of these factors which was specifically taken note of by the Tribunal was irrelevant or were factors which any prudent businessman would not take into account while sanctioning remuneration to its directors or employees.
30. On such facts the Tribunal has reached a particular conclusion and even if the assessee is permitted to urge that this conclusion was perverse it does not appear to us from the materials on record and the facts found and considered by the Tribunal that such conclusion was in any way perverse or was one a prudent businessman could not have arrived at.
31. For the above reasons the assessee cannot succeed in this reference. We answer the question referred to us in the affirmative and in favour of the revenue. There will be no order as to costs.
32. I agree.