1989 (9) TMI 142 - AT - Income Tax

Issues Involved:
1. Application of Section 40(c) vs. Section 40A(5) for quantification of addition out of salary and perquisites to employee-directors.
2. Deduction of excess bonus.
3. Deletion of interest levied under Section 215.
4. Deletion of interest under Section 216.
5. Disallowance under Section 80VV.
6. Disallowance of foreign traveling expenses and professional charges for preparing a project report.
7. Allowability of expenses related to a new unit under Section 35D.
8. Disallowance of interest out of loans forwarded to a sister concern.
9. Quantification of addition out of remuneration and perquisites to employee-directors under Section 40(c).
10. Maintenance of cars and disallowance under Section 40(c)/40A(5).
11. Reimbursement of medical expenses as part of salary vs. perquisites under Section 40A(5).
12. Calculation of disallowance under Rule 6D.

Detailed Analysis:

1. Application of Section 40(c) vs. Section 40A(5):
The Department's appeal contended that Section 40A(5) should apply instead of Section 40(c) for quantifying additions out of salary and perquisites to employee-directors. The Tribunal upheld the precedent set by the Special Bench in Geoffrey Manners & Co. Ltd., consistently followed by the Bombay Benches, and rejected the Department's ground of appeal.

2. Deduction of Excess Bonus:
The Department's appeal against the deduction of excess bonus was also rejected. The Tribunal cited Supreme Court decisions in Mumbai Kamghar Sabha vs. M. Abdullabai and Shahzada Nand & Sons vs. CIT, which supported the allowance of such deductions.

3. Deletion of Interest Levied under Section 215:
The CIT(A) had deleted the interest levied under Section 215, treating amounts paid within the financial year as advance tax. The Tribunal upheld this view, referencing the Bombay High Court decision in Pfizer Ltd. vs. CIT, which supported the CIT(A)'s stance. Consequently, the Department's appeal on this ground was rejected.

4. Deletion of Interest under Section 216:
The Tribunal agreed with the CIT(A) and the assessee's counsel that interest under Section 216 was not leviable. The first two installments were paid based on a statement, not an estimate, negating the question of underestimation. The Tribunal's decision in Narottandas Ramchand & Co. vs. 4th ITO fortified this view, leading to the rejection of the Department's appeal.

5. Disallowance under Section 80VV:
The assessee's appeal against disallowance under Section 80VV was not pressed and thus treated as rejected.

6. Disallowance of Foreign Traveling Expenses and Professional Charges:
The assessee's appeal contested the disallowance of foreign traveling expenses and professional charges for a new project. The Tribunal examined the factual background and various High Court decisions cited by both parties. It concluded that the expenses related to exploring a new line of business were capital in nature, supporting the CIT(A)'s view and rejecting the assessee's appeal.

7. Allowability of Expenses Related to a New Unit under Section 35D:
For the assessment year 1982-83, the assessee's claim of Rs. 14,38,830 for expenses related to a new unit was allowed by the CIT(A) but contested by the Department. The Tribunal analyzed the nature of these expenses and relevant case law, ultimately concluding that they were capital in nature. Consequently, the Department's appeal was accepted, and the assessee's claim was disallowed.

8. Disallowance of Interest out of Loans Forwarded to a Sister Concern:
The Department's appeal against the deletion of Rs. 28,000 out of interest was rejected. The Tribunal found merit in the assessee's argument that the loans should be treated as coming from the assessee's own funds, supported by cash accruals and the absence of such disallowance in earlier years.

9. Quantification of Addition out of Remuneration and Perquisites to Employee-Directors:
For the assessment year 1982-83, the Department's appeal on applying Section 40(c) for quantification was rejected for the same reasons as in the 1981-82 appeal.

10. Maintenance of Cars and Disallowance under Section 40(c)/40A(5):
The Department's appeal against the CIT(A)'s estimate of 50% for personal and official use of cars was rejected. The Tribunal found the estimate reasonable and upheld the CIT(A)'s decision.

11. Reimbursement of Medical Expenses as Part of Salary vs. Perquisites:
The Tribunal's Special Bench decision in Glaxo Laboratories (India) Ltd. vs. ITO supported treating medical expense reimbursements as part of salary, not perquisites. The Department's appeal on this ground was rejected.

12. Calculation of Disallowance under Rule 6D:
The Department's appeal against calculating disallowance under Rule 6D on an aggregate basis rather than per trip was rejected. The Tribunal cited decisions in S.V. Ghatalia vs. 2nd ITO and Sundaram Finance Ltd. vs. IAC, which supported the aggregate basis calculation.

Conclusion:
The Department's appeals for the assessment years 1981-82 and 1982-83 were largely dismissed, except for the appeal related to the allowability of expenses for the new unit, which was accepted. The assessee's appeals were also dismissed, upholding the CIT(A)'s decisions.

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