Director remuneration can be disallowed as excessive or unreasonable even if fixed in the articles, absent supporting evidence.

Remuneration paid to a managing director and deputy managing director, even if fixed under the articles of association, remained subject to disallowance where it was excessive or unreasonable having regard to the company's business needs and the benefit derived. The statutory power of scrutiny was not displaced by contractual or corporate approval. Where the assessee produced no evidence on the duties performed, services rendered, or business justification for the payment, the burden was not shifted to the tax authority to independently collect proof before acting. The disallowance was therefore sustained on the materials before the taxing authority.

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Issues: (i) Whether remuneration paid to the managing director and deputy managing director, fixed under the articles of association, could be disallowed under section 10(4A) as excessive or unreasonable. (ii) Whether, when the assessee produced no evidence to justify the allowance, the Income-tax Officer was bound to independently collect evidence before making the disallowance.

Issue (i): Whether remuneration paid to the managing director and deputy managing director, fixed under the articles of association, could be disallowed under section 10(4A) as excessive or unreasonable.

Analysis: Section 10(4A) authorises disallowance of an allowance that results in remuneration or benefit to a director if, in the opinion of the Income-tax Officer, it is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom. The fact that the remuneration was fixed by the articles of association did not exclude the statutory power of scrutiny under that provision.

Conclusion: The disallowance was within jurisdiction and was upheld.

Issue (ii): Whether, when the assessee produced no evidence to justify the allowance, the Income-tax Officer was bound to independently collect evidence before making the disallowance.

Analysis: The assessee bore the burden of establishing that the claimed allowance was justified. No evidence was produced regarding the duties of the directors, the services rendered by them, the business needs of the company, or the benefit obtained from the remuneration. In that situation, the finding of excessiveness or unreasonableness could not be faulted, and the Income-tax Officer was not required to undertake an independent inquiry in the absence of supporting material from the assessee.

Conclusion: The burden was on the assessee, and the disallowance could be sustained without further evidence from the department.

Final Conclusion: The statutory restriction on excessive or unreasonable director remuneration was correctly applied, and the assessee's challenge failed.

Ratio Decidendi: Under section 10(4A), remuneration to a director may be disallowed as excessive or unreasonable on the materials before the taxing authority, and the assessee must produce evidence to justify the claim; in the absence of such evidence, the authority is not bound to independently gather proof before acting.

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