1995 (9) TMI 26 - HC - Income Tax

Assessment Year, Business Expenditure, Commission Paid To Directors, Question Of Law, State Electricity Board, Trading Liability

Summary

Issues:
1. Disallowance of payments to company directors under section 40(c)
2. Taxability of credit balances written back from previous years
3. Disallowance of building repairs expenses for employee benefit
4. Disallowance of mess expenses
5. Treatment of know-how fee payment
6. Deductibility of water charges as contractual or statutory liability

Analysis:

1. The first issue pertains to the disallowance of payments made to company directors exceeding the prescribed limit under section 40(c) of the Income-tax Act, 1961. The court found this to be a question of law and referred it for opinion based on similar precedents. The court agreed that the applicability of section 40(c) to such remuneration is a legal matter warranting clarification.

2. The second issue involves the taxability of credit balances written back from previous years. The Appellate Tribunal upheld the taxability, stating that the assessee had benefited from these amounts in earlier years and that there was no cessation of liability. The court deemed this to be a referable question of law, warranting further examination.

3. The third issue concerns the disallowance of building repair expenses related to a holiday home for employee benefits. The court identified this as a question of law involving the interpretation of sections 30 and 37 of the Act, thus referring it for opinion to provide clarity on the matter.

4. Regarding the fourth issue of disallowance of mess expenses, the court determined it to be a question of fact rather than a legal issue. Consequently, no question of law arose from this matter.

5. The fifth issue, pertaining to the treatment of know-how fee payments, was not pressed by the assessee and was therefore not examined further by the court.

6. The final issue revolves around the deductibility of water charges as either contractual or statutory liability. The court found this to be a question of law, similar to a previous case, and directed the Tribunal to refer it for the court's opinion. This issue aims to clarify the nature of water charges in relation to liability under the Act.

In conclusion, the court directed the Tribunal to refer questions 1, 2, 3, and 6 to the court for opinion, allowing the petition to that extent and providing a detailed analysis of each issue involved in the judgment.