1994 (11) TMI 37 - HC - Income Tax

Amount Paid In Excess Business Expenditure Excess Paid Foreign Currency Gratuity Liability

Summary

Issues involved:
The judgment addresses five questions of law referred by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee.

Question 1:
The first question pertains to the taxability of any amount paid to employee-directors of the assessee-company beyond Rs. 72,000 under clauses (i) and (ii) of section 40(c) of the Income-tax Act, irrespective of excessive or unreasonable expenditure in relation to legitimate business needs and approval by the Government of India under section 310 of the Companies Act. The court answered this question in the affirmative and in favor of the Revenue, citing the decision in CIT v. Hico Products Pvt. Ltd.

Question 2:
The second question revolves around whether the commission paid to the managing director of the assessee-company qualifies as salary subject to limits under section 40(c)(i) and (ii) of the Income-tax Act. The court answered this question in the affirmative and in favor of the Revenue, following the decision in CIT v. Indian Engg. and Commercial Corporation P. Ltd.

Question 3:
Regarding the penalty paid by the assessee to customs authorities, the issue is whether it is allowable as a business expenditure under section 37 of the Income-tax Act. The court ruled that the penalty amount paid by the assessee is considered a penalty simpliciter and not deductible under the Income-tax Act, as it was in lieu of confiscation, thus answering this question in the negative and in favor of the Revenue.

Question 4:
The fourth question concerns the additional expenditure incurred by the assessee due to differences in exchange rates in remitting foreign currency loans. The court answered this question in the negative and in favor of the Revenue, aligning with the decision in Sutlej Cotton Mills Ltd. v. CIT.

Question 5:
Lastly, the fifth question addresses the admissibility of the gratuity liability of the assessee not covered under the Payment of Gratuity Act, 1972, under section 40A(7) of the Income-tax Act. The court answered this question in the negative and in favor of the Revenue, referencing the decision in Shree Sajjan Mills Ltd. v. CIT.

The judgment provides detailed analysis and legal reasoning for each question, ultimately concluding the answers based on relevant precedents and interpretations of the Income-tax Act.