1999 (8) TMI 15 - HC - Income Tax

Summary

Issues:
1. Whether medical expenses and personal accident insurance premium paid for managing directors are disallowable under section 40A(5) of the Income-tax Act.
2. Whether expenditure on the issue of bonus shares is of a revenue nature and allowable as such.
3. Whether payment made to Mettur Beardsell Ltd. for the use of the trade mark "tebilized" is an allowable deduction.

Analysis:

Issue 1:
The court addressed the question of disallowing medical expenses and insurance premiums for managing directors under section 40A(5) of the Income-tax Act. Referring to a previous case, the court held that such expenses related to the managing director in their capacity as a director, not an employee, and thus fell under section 40(c)(i) of the Act. The court concluded that the expenditure on cash reimbursement of medical expenses to the managing director would be considered under section 40 and not under section 40A(5)(a). Therefore, the answer was in favor of the Revenue.

Issue 2:
Regarding the expenditure on the issue of bonus shares, the court relied on previous decisions to determine that such expenses are not deductible as revenue expenditure. The court established that expenses related to bonus shares are incurred for the permanent structure of the company and are directly linked to capital acquisition with enduring benefits. Citing relevant cases, the court answered this question in the negative and in favor of the Revenue.

Issue 3:
The court examined the deduction of payments made to Mettur Beardsell Ltd. for the use of the trade mark "tebilized." Referring to a previous case, the court emphasized that the agreements for the use of the trade mark did not create any permanent rights or assets. The court concluded that the payments were made to enhance the business efficiency and profitability without conferring permanent rights. Therefore, the court ruled in favor of the assessee and against the Revenue, allowing the deduction of these payments.

In conclusion, the court provided detailed analyses and rulings on each issue raised in the references, ultimately disposing of both cases accordingly, with no orders as to costs.