1993 (4) TMI 2 - SC - Income Tax

Assessee paid to its foreign technical director a total remuneration of Rs. 66,000 including a sum of Rs. 28,576 paid by way of perquisites - Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the provisions of section 40(c)(iii) were rightly invoked in relation to the remuneration of the technical director of the assessee-company - Provision limiting allowance of perquisite are not applicable

Summary

Issues:
Interpretation of the words "whose income chargeable under the head 'Salaries'" in section 40(c)(iii) for the assessment year 1965-66.

Analysis:
The case involved the interpretation of the provision of section 40(c)(iii) of the Income Tax Act for the assessment year 1965-66. The dispute arose regarding the deduction of perquisites paid to a foreign technical director by the assessee company. The Income-tax Officer disallowed a portion of the perquisites exceeding one-fifth of the salary paid to the director, as per section 40(c)(iii). The Appellate Assistant Commissioner allowed the deduction, citing the exemption of the director's salary under section 10(6)(vii). However, the Tribunal held that the exemption under section 10(6)(vii) does not negate the application of section 40(c)(iii) since the director's income chargeable under the head "Salaries" exceeded Rs. 7,500.

The Tribunal's decision was challenged, and the High Court was asked to opine on whether section 40(c)(iii) was rightly invoked for the assessment year 1965-66 concerning the director's remuneration. The High Court accepted the assessee's contention that the director's salary being exempt under section 10(6)(vii) should be treated as "nil" income for the purposes of section 40(c)(iii). The High Court reasoned that if even an income of one rupee is less than Rs. 7,500, then "nil" income should also be considered less than Rs. 7,500. Thus, the High Court held that the exempted salary income should be treated as "nil" income for the application of section 40(c)(iii).

The Supreme Court upheld the High Court's decision, stating that the interpretation was reasonable and did not warrant any interference. The Court found that treating the exempted salary income as "nil" for the purposes of section 40(c)(iii) was a valid approach. Consequently, the appeal was dismissed, and no costs were awarded.