1984 (3) TMI 152 - AT - Income Tax

Summary

Issues:
Interpretation of section 40(c) of the Income-tax Act, 1961 regarding the limits on salary and perquisites for directors under section 40A(5).

Analysis:
The judgment involved a dispute regarding the application of section 40(c) of the Income-tax Act, 1961, concerning the limits on salary and perquisites for directors under section 40A(5). The assessee-company had paid salary and perquisites to two directors, with the payment made in cash. The Income Tax Officer (ITO) allowed a portion of the salary but disallowed the balance of the perquisites. The Commissioner (Appeals) relied on previous decisions and held that only the overall limit of Rs. 72,000 applied to directors, not the separate limits for salary and perquisites under section 40A(5).

The departmental representative argued that separate limits for salary and perquisites should apply based on other court decisions. However, the tribunal rejected this argument, stating that those cases did not specifically address the provisions of section 40(c) in contrast to section 40A(5). The tribunal highlighted that the overall ceiling of Rs. 72,000 was applicable to directors, irrespective of being employees or not, based on relevant precedents like Bharat Vijay Mills Ltd. and Sapt Textiles Products India Ltd.

The tribunal emphasized that the unanimous position from the authorities cited was that the ceiling of Rs. 72,000 applied to directors, whether they were employees or not. Applying this interpretation to the remuneration and perquisites paid to the directors in question, the tribunal concluded that the total amount was within the Rs. 72,000 limit applicable to directors. Therefore, the tribunal upheld the Commissioner (Appeals) decision to delete the disallowance of the balance of the perquisites, albeit on different grounds. As a result, the revenue's appeal was deemed to be partly allowed.

In conclusion, the judgment clarified the application of section 40(c) and section 40A(5) regarding the limits on salary and perquisites for directors. It established that the overall ceiling of Rs. 72,000 was the determining factor for such payments to directors, regardless of their employment status within the company.