Directors' remuneration test under section 10(4A) turns on commercial justification and prudent business judgment, not revenue preference.

Section 10(4A) permits disallowance of directors' remuneration only where the payment is excessive or unreasonable having regard to the company's legitimate business needs and the benefit derived by it. The reasonableness test must be applied objectively from the standpoint of a prudent businessman, not by substituting a purely revenue-oriented view. On the stated facts, the company's structure, the directors' work, the scale of operations, head-office expenditure, and the smooth running of the business supported the commercial justification of the remuneration and commission scheme, so the payments were not disallowable.

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Issues: Whether the disallowance of a part of the remuneration and commission paid to directors under section 10(4A) was justified.

Analysis: Section 10(4A) empowers the Income-tax Officer to disallow remuneration or similar payments to a director if the allowance is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it. The provision is not to be applied arbitrarily; the assessment must be made objectively from the standpoint of a prudent businessman, and the officer cannot substitute a purely revenue-oriented view for the company's commercial needs. On the facts, the company's structure, the work performed by the directors, the scale of business, the head-office expenditure, and the smooth running of the enterprise showed that the payments were not excessive or unreasonable. The payments were also consistent with the company's articles, and the special position of the chairman and other directors supported the commercial justification of the remuneration scheme.

Conclusion: The disallowance under section 10(4A) was not justified, and the remuneration and commission paid to the directors were allowable. The question was answered in favour of the assessee.

Ratio Decidendi: In applying section 10(4A), the reasonableness of directors' remuneration must be judged objectively from the perspective of a prudent businessman, with reference to the company's legitimate business needs and the benefit derived by it; payments made pursuant to a commercially justified arrangement are not disallowable merely because they are substantial.

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