1995 (12) TMI 20 - HC - Income Tax

Any Remuneration Business Expenditure Development Allowance High Court Per Annum Territorial Jurisdiction Weighted Deduction

Issues Involved:
1. Eligibility for weighted deduction under Section 35B for certain expenses.
2. Disallowance of director's remuneration exceeding Rs. 72,000 under Section 40(c).
3. Method of calculating the value of perquisites for free use of cars by employee directors under Section 40A(5).
4. Applicability of Rule 3(c)(ii) of the Income-tax Rules for valuing perquisites.
5. Tribunal's direction on the adoption of valuation of perquisites.
6. Binding nature of High Court decisions on other High Courts and Tribunals.

Detailed Analysis:

1. Eligibility for Weighted Deduction Under Section 35B:
The Tribunal held that expenses on duty and clearing charges, delivery charges, insurance, and freight charges aggregating to Rs. 63,769 were not eligible for weighted deduction under Section 35B. The controversy was settled by the decision in Forbes Forbes Campbell and Co. Ltd. v. CIT [1994] 206 ITR 495, which concluded in favor of the Revenue. Thus, the court answered this question affirmatively and in favor of the Revenue.

2. Disallowance of Director's Remuneration Exceeding Rs. 72,000 Under Section 40(c):
The court examined whether the ceiling of Rs. 72,000 under Section 40(c) applied only if the remuneration was found to be excessive or unreasonable. The court clarified that Section 40(c) imposes an absolute ceiling of Rs. 72,000 on the allowance of expenditure on remuneration paid to a director, independent of whether the payment is excessive or unreasonable. The court supported this interpretation with the decision in Bilaspur Spg. Mills and Industries Ltd. v. CIT [1982] 135 ITR 496 and Union Carbide India Ltd. v. CIT [1993] 203 ITR 584. Consequently, the court answered this question affirmatively and in favor of the Revenue.

3. Method of Calculating the Value of Perquisites for Free Use of Cars by Employee Directors Under Section 40A(5):
The Tribunal had to determine the method for calculating the value of perquisites in the form of free use of cars by employee directors. The Income-tax Officer attributed 75% of the total car expenses to personal use, which was contested by the assessee. The Commissioner (Appeals) and the Tribunal applied Rule 3(c)(ii) of the Income-tax Rules, 1962, for valuation. The court upheld this method, stating that Rule 3(c)(ii) provides a reasonable basis for valuation and is appropriate for determining the value of perquisites for Section 40A(5). The court answered this question affirmatively and in favor of the assessee.

4. Applicability of Rule 3(c)(ii) of the Income-tax Rules for Valuing Perquisites:
Given the affirmative answer to question No. 3, the court found it unnecessary to answer this question separately. It noted that Rule 3(c)(ii) should be applied where possible, and only if it presents difficulty should the valuation be made using the alternative method provided in the rule.

5. Tribunal's Direction on the Adoption of Valuation of Perquisites:
Similar to question No. 4, the court did not find it necessary to provide a separate answer, reiterating that Rule 3(c)(ii) is the appropriate method for valuation unless impractical.

6. Binding Nature of High Court Decisions on Other High Courts and Tribunals:
The court addressed whether the Tribunal was right in following the Calcutta High Court decision in Britannia Industries Co. Ltd. The court reaffirmed that decisions of one High Court are not binding on other High Courts or Tribunals outside its territorial jurisdiction, as established in CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727. Thus, the court answered this question in the negative and in favor of the Revenue.

Conclusion:
The court provided detailed answers to each question, with the majority favoring the Revenue. The reference was disposed of accordingly, with no order as to costs.

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