Dipak Kumar Sen, J.
1. M/s. Natsin India Private Ltd., the assessee, is a private limited company. In the assessment year 1971-72, the relevant previous year ending on the 31st March, 1971, the assessee claimed deduction of Rs. 38,600 being remuneration paid to its directors. The ITO found that compared to the previous year, there was an increase in the turnover of the assessee by only Rs. 10,000 against which the directors' remuneration has been correspondingly increased by Rs. 10,000. It was also found that the business showed a negligible profit of Rs. 81. The ITO held that such increase of the directors' remuneration was unreasonable and disallowed the same to the extent of Rs. 6,600.
2. Being aggrieved, the assessee preferred an appeal from the said order. It was contended before the AAC that the ITO had ignored the contribution by the principal of the assessee, a foreign company, of amounts aggregating to Rs. 73,000 as against Rs. 30,000 received in the immediately preceding year. It was also pointed out that there had been an increase to the extent of Rs. 43,000 in the volume of business. The AAC, following its decision in the immediately preceding year, directed the ITO to allow increment at the rate of Rs. 100 per month to one of the directors, namely, S. N. Singh, and Rs. 50 to another director, A. K. Jauhar.
3. The assessee preferred a further appeal to the Income-tax Appellate1 Tribunal. It was reiterated before the Tribunal, on behalf of the assessee, that there was an increase in the business of the assessee in the relevant year in respect of the agency commission earned. This amount increased from Rs. 28,686 to Rs. 38,000. It was also reiterated that the foreign principal of the assessee had increased the reimbursement of expenses and the assessee had received in the year in question Rs. 73,000 as against Rs. 30,000 in the previous assessment year. It was submitted that due to the expansion of the assessee's business, a new branch had been opened by the assessee at Delhi and a new director, viz., Mr. A. K. Jauhar, had to be appointed. On such facts it was contended that no part of the remuneration paid to S. N. Singh could be disallowed. On behalf of the revenue itwas submitted that the Tribunal having decided the same question in the preceding assessment year, the matter was covered.
4. The Tribunal, ,after considering the submissions of the parties as also its earlier order, found that these were decided by it in the assessment years 1969-70 and 1970-71. The Tribunal noted that the assessee no doubt had received higher reimbursement of the expenses, but it did not result in corresponding increase in the net income of the assessee which was only Rs. 87. Therefore, the Tribunal upheld the disallowance of Rs. 4,800 in the year under appeal.
5. On an application of the assessee under Section 256(2) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question for the opinion of this court as a question of law arising out of its order :
' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in confirming the disallowance of Rs. 4,800 out of the remuneration of Rs. 16,200 paid to Sri S. N. Singh '
6. The learned counsel for the assessee has contended at the hearing that the Tribunal was in patent error in ignoring the facts which came into existence in the year in question and which were not in existence during the previous years. Such new facts were as follows :
(a) The increase in the receipt of agency commission.
(b) The increase in the reimbursement of expenses from the assessee's foreign principal.
(c) Opening of a new branch of the assessee at Delhi.
(d) The appointment of a new directer, namely, A. K. Jauhar.
7. It was contended that in view of these new facts which were undisputed the Tribunal could not have followed mechanically its decisions in theearlier years and that, in fact, the Tribunal had not done so inasmuch asthe Tribunal has upheld the allowance of part of the increased remuneration of the director concerned.
8. Learned counsel for the revenue has contended on the other hand that the grounds for the order of the Tribunal in the instant case are to be found in the order of the Tribunal in the previous year which has been incorporated in the paper book. It appears from the earlier order that the Tribunal had found as follows :
(a) Expenses of the assessee in several assessment years had been reimbursed mainly by the foreign principal.
(b) The financial position or the earning of profit of the assessee had not improved.
(c) Payments had been made to the, directors who are husband and wife.
(d) In the case of the wife, payment had been allowed by the Income-tax Officer in the earlier years, but in the years in question, that is, assessment years 1969-70 and 1970-71, S.N. Singh, the-husband, joined as a director.
(e) The onus lay on the assessee to prove what specific service had been rendered by S. N. Singh.
(f) Though remuneration paid to the lady director had not been disturbed, yet it was found that remueration had been granted to the directors on extra-commercial consideration.
9. On perusal of the said two orders, it appears to us that in the order with which we are concerned, there were new facts in existence which were not properly considered or appreciated by the Tribunal. Further, we are unable to understand why the remuneration of one of the directors was disallowed in part whereas the remuneration of the other two directors were allowed in full.
10. The position in law is now well settled. We may refer to the following decisions :
(a) Nand & Samont Co. P. Ltd. v. CIT : 78ITR268(SC) . In this case, the Supreme Court laid down that in order to disallow the allowance paid to a director an ITO has to reach a conclusion that the allowance was excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefor. It is, however, for the taxpayer to establish by evidence that the particular allowance is justifiable.
(b) CIT v. Edward Keventer (P.) Ltd. : 86ITR370(Cal) . In this case it was laid down by this court, inter alia, that in considering the allowability of such remuneration the ITO must apply his mind objectively from the view-point of a prudent businessman and not a tax collector. The court further observed as follows (p. 385) :
' In every company of any standing and status, there will necessarily be employees and their number and cadre and remuneration will depend on the nature of the company, its needs and capacity. There will be ordinary workers and there will be officers and amongst them there may again be gradation. The fact that there are employees and officers who may do most of the hard labour, cannot justify an argument that the remuneration paid to directors should not be allowed. Directors who are at the helm of the affairs of the company remain mainly responsible for managing the affairs of the company and the company may get larger benefit from their advice, guidance, supervision and effective and efficient manner of discharge of their responsibility of properly managing the affairs of the company. Among the directors again there may be a division of labour for the efficient administration of the affairs of the company and there may also bemanaging directors with larger powers and greater responsibility in thematter of management of the affairs of the company. The benefit of theirservices derived by or accruing to the company cannot be judged by considering the number of hours of work put in or the kind of physical or hard labour done by them. The benefit has to be considered from the point ofview of the company as a prudent man of business by applying one's mindto all the relevant facts and circumstances.'
11. It appears to us that the Tribunal did not apply its mind to the new facts which were brought to its notice on behalf of the assessee. It also appears that the Tribunal did not apply the correct legal principle in disallowing the part of the remuneration of only one of the directors.
12. We remand the matter to the Tribunal for a proper consideration of the new facts which were relevant for determination of the quantum of remuneration or allowance payable to its directors. The Tribunal will consider the said facts and determine the matter in accordance with law indicated earlier. This reference is disposed of accordingly. There will be no order as to costs.
Bimal Chandra Basak, J.
13. I agree.