2001 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Reimbursement of medical expenses and house rent allowance u/s 40(c).
2. Cash payment of house rent allowance u/s 40A(5).
3. Deduction of royalty payment.
4. Computation of disallowance u/r 60D.
5. Entitlement to deduction u/s 80HHC.

Summary:

Issue 1: Reimbursement of Medical Expenses and House Rent Allowance u/s 40(c)
The court addressed whether the reimbursement of medical expenses and house rent allowance to managing directors should be considered for computing disallowance u/s 40(c) of the Income-tax Act, 1961. The court referred to the case of Aroon K. Basak v. Union of India [1999] 236 ITR 931 (Delhi) and held that reimbursement of medical expenses is to be considered for disallowance. However, house rent allowance is not to be included, as per CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644. Thus, the first portion is against the assessee and the second portion against the Revenue.

Issue 2: Cash Payment of House Rent Allowance u/s 40A(5)
The court ruled that cash payment of house rent allowance to employees is not to be considered for disallowance u/s 40A(5) of the Act, following the Supreme Court decision in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644. This was answered in the negative, in favor of the assessee and against the Revenue.

Issue 3: Deduction of Royalty Payment
The court confirmed that the payment of Rs. 2,69,842 to Mettur Beardsell Ltd. on account of royalty is deductible, referencing CIT v. Ashoka Mills Ltd. [1996] 218 ITR 526. This question was answered in the affirmative, in favor of the assessee and against the Revenue.

Issue 4: Computation of Disallowance u/r 60D
The court held that disallowance u/r 6D of the Income-tax Rules, 1962, should be computed by considering each trip undertaken by an employee separately, not by grouping all tours during the year. This was based on CIT v. Nutan Mills Ltd. [2002] 254 ITR 519. The question was answered in the negative, in favor of the Revenue and against the assessee.

Issue 5: Entitlement to Deduction u/s 80HHC
The court examined whether the assessee was entitled to deduction u/s 80HHC of the Act. The Revenue argued that profits from export activity were necessary, citing several cases. The assessee contended that section 80HHC did not require profits from export business. The court concluded that section 80HHC, as it stood, did not necessitate profits from exports and was not governed by section 80AB. The court agreed with the Bombay High Court's view in CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429, holding that section 80HHC is a complete code by itself. Thus, the Tribunal rightly held that the assessee was entitled to the deduction. This question was answered in the affirmative, in favor of the assessee and against the Revenue.

Disposition:
The reference was disposed of with no order as to costs.