Excessive director remuneration under tax law may be disallowed where evidence shows it is unreasonable and unsupported by business needs.

Section 40(c) permits disallowance of director's remuneration that is excessive or unreasonable having regard to the company's legitimate business needs and the benefit derived by it. The question is primarily factual where relevant material exists, and the finding is sustainable if supported by evidence. On the stated facts, the director lacked technical qualification or relevant experience, and the payment was linked in part to her relationship with other directors, so the excess salary was treated as unreasonable and disallowance of the excess was upheld. Authorities dealing with deductions under section 10(2)(xv) were distinguished because they arose in a different statutory context.

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Issues: Whether the Tribunal's finding that the remuneration paid to the director was excessive or unreasonable was supported by material and whether the disallowance of the salary was justified.

Analysis: The payment to the director was examined under section 40(c) of the Income-tax Act, 1961, which permits disallowance where remuneration to a director is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by it. The Court noted that the corresponding restriction had earlier been introduced by section 10(4A) of the Indian Income-tax Act, 1922, and that the issue was essentially factual when relevant material was available. On the facts found by the Tribunal, the director had no technical qualification or relevant experience, and the remuneration was partly attributable to her close relationship with the other directors. The Court held that there was material to support the view that payment beyond Rs. 400 per month was excessive. Authorities dealing only with deductions under section 10(2)(xv) were distinguished because that provision operated in a different statutory setting.

Conclusion: The finding that the remuneration was unreasonable was supported by material, and the disallowance of the excess salary was upheld against the assessee.

Ratio Decidendi: Where section 40(c) applies, the Income-tax Officer may disallow director's remuneration that is shown on relevant material to be excessive or unreasonable having regard to the company's legitimate business needs; the issue is one of fact and is not arbitrary if supported by evidence.

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