15. In so far as the assessee’s contention that as the remuneration paid to the directors were increased in a properly called meeting of the Board of Directors, such payment is to be considered as reasonable and not excessive, we are of the view that this contention of the assessee would be of no much assistance to the assessee as discussed hereafter. There is no dispute in the fact that the Board of Directors consist of only four directors, to all of whom the remunerations at the same rate have been paid by the assessee company. It is also an admitted in position that there are only four share holders of the assessee company who are at the same time the directors of the company and are receiving the equal remuneration from the company. The present assessee company is a domestic private limited company where the public is hot substantially interest. The resolution was taken by the four directors allowing the increase of remuneration to themselves- The copy of the minutes of the Board of Director’s meeting has not been placed on record so as to show what was the criteria on the basis of which the total remuneration payable to the four directors was increased from Rs 36 lakhs to Rs.80 lakhs. It was stated by the assessee that this resolution was taken in the meeting of the Board of Directors at the beginning of the year and not at the end of the year. In other words, it was stated that the resolution was taken in the month of April, 2000. It has also been stated by the assessee that the directors to whom the remuneration has been paid has not voted on the issue, which in our considered opinion, is very difficult to believe in the light of the fad that there were no other directors per share holders other than these four directors, who are the only share holders of the assessee company. The resolution taken in the Board of Director’s meeting to increase the remuneration of four directors from Rs.36 lakhs to Rs.80 lakhs in addition to the conveyance allowance of Rs. 38,400/- is not at arms length, but it is taken by the directors of the assessee company in their favor.
16. More over, it is well settled that merely because of the existence of a resolution passed in the Board of Director’s meeting in the case of this private limited company, where the directors are only share holders, and the fact that the actual payment of remuneration paid by the company to the directors, the A.O. is not bound to hold that the payment was made exclusively and wholly for the purpose at assessee’s business and no part thereof can be considered to be unreasonable and excessive in the light of the provisions contained in section 40A(2) of the Act. Although there might be such a resolution in exitence allowing the company to increase the remuneration payable to the directors and the payment might have been made, it is still open to the A.O. to consider all the relevant factors and determine for himself whether the remuneration paid by the company to their directors or any person thereof is reasonable and allowable. In this connection, we may refer to a decision of Hon’ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. vs CIT reported in  63 ITR 57 where it has been held merely because of the existence of an agreement between the assessee and his employee for payment of a certain remuneration and the fact of the actual payment, the Income-tax Officer is not bound to hold that the payment was made exclusively or wholly for the purpose of the assessee’s business. Although there might be such an agreement in existence and the payment might have been made, it is still open to the Income-tax Officer to consider all the relevant factors and determine for himself whether the remuneration paid to the employee or any portion thereof is properly deductible under section 10(2)(xv) of the Income-tax Act. Further, the Hon’ble Calcutta High Court in the case of CIT vs.-Edward Ceventer Pvt. Ltd.  86 ITR 370, while dealing with the question as to the disallowance of the amount out of the remuneration and commission paid to the directors of the company under section 10(4A) of the Indian Income Tax Act, 1922 has made it clear-that they were not allowing the amounts paid to the directors including the Rani, merely because such payments are made on the basis-of the provision contained in the articles. It was also observed by the Hon’ble High Court that the Supreme Court makes it clear in the case of Nund and. Samonth Co. Pvt. Ltd. vs. CIT (supra) that payment of any remuneration to a director only on the basis of the provisions contained in the articles does not constitute sufficient justification and does not bar the jurisdiction of the A.O. u/s 10(4A) of the Indian Income Tax Act. 1922.
17. The purpose behind the Legislature enacting section 40A(2) was to provide for shifting of burden on the assessee in cases where the transactions are not at arms length as so observed by the Hon’ble Bombay High Court in the case of CIT vs. Shatrunjay Diamonds (supra) (at page 261, last para of the report). In this case, the fact that all the four directors are the share holders of the assessee company is not in dispute and, as such, the intricacy of the resolution taken in the Board of Director’s meeting and transaction of payment of remuneration to the directors were required to be explained by the assessee. The assessee has not explained as to what was the crieteria adopted in a meeting of the Board of Directors for determining the total remuneration payable to the four directors at the rate of Rs. 20 lakhs each against Rs. 9 lakhs each paid in the immediate preceding assessment year. However, in the course of the hearing, the learned counsel for the assessee has submitted that the remuneration has been increased from Rs. 36 lakhs to Rs. 80 lakhs because of increase in the turnover of the assessee company from year to year. It is the assessee’s case that the resolution in the meeting of the Board of Directors was taken at the beginning of the year, which goes to prove that the figure of the turnover of this current assessment year were or could not be available before the Board of Directors. The assessee has contended that the turnover of the assessee company has been increased from Rs. 77.34 crores in the financial year 1990-00 to Rs. 241.17 cores in the current financial year 2000-01, and by contending so the assessee has tried to establish the reason ability of the remuneration paid to the directors. with reference to the increase in the turnover But the fact remains that the turnover of Rs.241.17 crores is in the current financial year 2000-01, which could be ascertained only at the end of the year and not-at the” beginning of the year when the resolution was taken. When the resolution was taken at the beginning of the year in the month of April, 2000, the turnover of immediate preceding financial year i.e. financial year 1999-2000 could be available with the Board of Directors, which was at Rs.77.34 crores as compared to Rs.35.09 crores pertaining to the financial year 1998-99. The total remuneration paid to the directors in financial year 1998-99 was of Rs. 30 lakhs which was increased to Rs.36 lakhs in the financial year 199y-UU-as against the turnover of Rs.35.09 crores of financial year 1998-99 and Rs.77.34 crores for financial year 1999-00 respectively. It is well known that every increase in the turnover would not justify the increase in the salary or remuneration payable to the directors in the same proportion as the turnover in respect of one year bears to the total turnover of the earlier year. An employer in fixing the remuneration of his employees would consider the extent or his business the nature of the duties to be performed, and the special attitude of the employee, future prospectus of extent of the business and host: of other related circumstances. It is erroneous to think that increase in the remuneration payable to the director is justified merely on the basis of corresponding increase in the turnover of the business.’ The learned counsel for the assessee has tried to justify the increase in remuneration from Rs.36 lakhs to Rs.80 lakhs on the footing that the turnover of the assessee company has been increased from year to year, which, in our considered opinion, cannot be a sole criteria to increase the remuneration of the four directors from Rs.36 lakhs to Rs.80 lakhs in the current year. As to the nature of*the business, it has been stated by the assessee in the statement of-“facts that after formation of this private limited company on 24/06/1998, the company has started its activity of marketing of state lottery tickets. M/s N.V. Marketing Pvt. Ltd., New Delhi has appointed the assessee company as sole stockiest for Parasmani Set of weekly lotteries Arunachal State Government. It was also the authorized stockiest of Shri Laxmi Marketing, Pune for Mizoram State Government lotteries. Be it mentioned here that Shri Laxmi Marketing, Pune by which the assessee has been appointed as authorized stockiest in respect of Mizoram State Government lotteries is a proprietary concern of its one of directors viz. Shri Suresh H. Rupeeja. The assessee is, thus, engaged in the business of marketing of lottery tickets as sole stockiest for Parasamani Set of weekly lotteries of Arunachal State Government and as authorized stockiest of shri Laxmi Marketing, Pune for Mizoram State Government lottery. This business was being carried on by the assessee in the earlier years. The business of marketing of lottery tickets were looked after by the directors with the help and aid of its employees who were being paid salary in the range of Rs. 35,600/- to Rs. 86,00/- per annum only. number of the staff employed by the assessee company are 19, and the total salary paid to them is only of Rs. 11,75,750/- in the range of Rs. 35,600/- per annum to Rs. 86,000/- per annum. The business of the assessee were looked after by these four directors in the year under consideration in the manner as the same were being looked after by these four directors in earlier year also. The learned counsel for the assessee has referred various duties and functions assigned to each and every director for the purpose of carrying on assessee’s business of sale of lottery tickets The nature of the services rendered by these four directors in the year under consideration are same and identical as that of services rendered in earlier years. The assessee has not pointed out any extra or additional endeavor or services rendered by these four directors to the assessee company in the current financial year as compared to the earlier years, so as to justify the increase in their remuneration from Rs.36 lakhs in the immediate preceding year to Rs.80 lakhs in the current year. The case, before us is not the case where the department has taken a stand that the directors have not Tendered any services at all. The issue before us is as to whether the payment of Rs.80 lakhs as compared to Rs. 36 lakhs in the immediate ^preceding assessment year can be considered to be reasonable having regard to the fair market value of the services rendered by the directors for which the payment is made or having regard to the legitimate need of the business of the assessee, and the benefits derived by the assessee on acquiring the services so rendered by the directors to the assessee company. The A.O. had proceeded to inquire whether the remuneration of Rs.80 lakhs and conveyance allowance of Rs.38,400/- paid to the directors was excessive or unreasonable having regard to the aforesaid factors. The assessee was required to prove and establish by proper evidences as to whether the services rendered by these four directors in the year under consideration did justify the increase of remuneration from Rs.36 lakhs paid in the immediate preceding assessment year to Rs.80 lakhs paid in the current year. It; is not in dispute that the four directors were looking after the assessee’s business and, as such they can be paid remuneration on that account. Payment of remuneration, as such is not a matter of dispute. Dispute is only with regard to the quantum of remuneration paid by this private limited company to the four directors, who are at the same time only share holders of the assessee company. We find that the various nature of services rendered by these four directors in the current year as explained by the assessee are not sufficient to justify the increase of remuneration from Rs.36 lakhs to 80 lakhs inasmuch as the nature and volume of services and functions undertaken by these four directors in the current assessment year are similar and akin that of the services rendered in the earlier years.
18. We must also bear in mind that the sale of lottery tickets of any State Government, always depends upon the amount and number of the prizes given in a particular draw of the lottery of that Government. Purchaser, who wish to purchase the lottery ticket, purchases the lottery ticket of such a draw where the amount of the prize as well as the number of the prizes are on higher side. In the present case, the assessee is a sole stockiest of Parasmani Set of weekly lotteries of Arunachal State Government, and if the prizes given in Parasmani Set of weekly lotteries of Arunachal State Government are of higher in amounts as well as in number, the lottery tickets would in purchased by the higher number of buyers that would automatically result into the increase in the turnover of the assessee company. It is not the case of the assessee that during the year under consideration, the assessee has acquired any new stockiestship or distributorship of other State Government in addition to the distributorship or stockiestship of other State Government already held by the assessee in earlier years. There is no material produced by the assessee to show and establish that any new stockiestship or distributorship of any other State-Government was acquired by the assessee in the current year because of any endeavour undertaken by the four directors. Therefore, the increase in the turnover from one year to another that by itself would not be-sufficient to justify the so much increase of remuneration from Rs.36 lakhs in the immediate preceding year to Rs.80 lakhs in the current year. There is no doubt that some increase in remuneration to the directors may be warranted having: regard to the increase in the turnover of the assessee’s business as well as having regard to the fact that some increase in wages of employees are made from year to year by any business organization or any other institutions. However, the dispute is with regard to the extent of increase of remuneration from Rs.36 lakhs to Rs.80 lakhs in the light of the provisions contained in section 40A(2) of the Act. At this stage, it is pertinent to note that the assessee has contended that one of its director viz. Shri Suresh H. Rupeeja was looking after the day to day administration, financial accounts, banking etc and was experienced in this line for last 18 years and was devoting whole time in managing and administrating business of the assumes company It is further seen that Shri Suresh H. Rupeeja was independently carrying on the business of marketing in lottery under the name and style of Shree Laxmi Marketing P. Ltd: as its sole proprietor in which the turnover of the sale of lottery tickets were of Rs.50,45.40, 991/- in the year ended on 31/03/2001 Rs.38,40,07, 289/- for the year ended on 31/03/2000 and Rs. 44,99,41,565/ – on 31/03/1999 which goes to prove that even without devoting too much time in the proprietorship business of the director, the turnover of the lottery tickets was very much substantial. We may therefore, say that increase in the turnover in the sale of lottery tickets cannot be therefore a solitary criteria for steep increase in the remuneration payable to the director.