1997 (3) TMI 128 - AT - Income Tax

Summary

Issues:
1. Disallowance of excess perquisite under s. 40A(5) and s. 40(c) of the IT Act for the managing director.
2. Deduction under s. 80-I of the IT Act.
3. Disallowance of bonus payment exceeding the maximum bonus under the Payment of Bonus Act.

Analysis:

Issue 1: Disallowance of excess perquisite under s. 40A(5) and s. 40(c) of the IT Act for the managing director:
The Assessing Officer (AO) disallowed the excess perquisite of Rs. 11,940 provided to the Managing Director under s. 40(c) r/w s. 40A(5) of the IT Act. The CIT(A) upheld the disallowance. However, the Tribunal found that the provisions of s. 40A(5) are applicable to employees, while s. 40(c) applies to company directors. Relying on a judgment, the Tribunal held that the disallowance was not justified as the perquisite was not excessive or unreasonable considering the business needs and benefits to the company. The Tribunal deleted the disallowance.

Issue 2: Deduction under s. 80-I of the IT Act:
The AO allowed a deduction under s. 80-I at a lower amount than claimed by the assessee. The Tribunal agreed with the assessee that the deduction should be calculated at 25% of the gross total income without deducting relief under s. 80HH. Citing precedents, the Tribunal clarified that the deduction should be based on profits derived from an industrial undertaking, and the basic figure for deductions under ss. 80HH and 80-I should be the same. Consequently, the Tribunal allowed the higher deduction claimed by the assessee.

Issue 3: Disallowance of bonus payment exceeding the maximum bonus under the Payment of Bonus Act:
The AO disallowed an additional bonus payment made to workers on the occasion of Diwali festival, stating it exceeded the maximum bonus payable under the Payment of Bonus Act. The CIT(A) upheld the disallowance. However, the Tribunal found that the additional bonus was a business expenditure to maintain relations and avoid worker strikes. Citing a relevant case, the Tribunal held that such payments are allowable under s. 37(1) of the IT Act as they serve business expediency. Consequently, the Tribunal deleted the disallowance.

In conclusion, the Tribunal allowed both appeals, ruling in favor of the assessee on all grounds, deleting the disallowances and allowing higher deductions claimed under s. 80-I.