1987 (9) TMI 105 - AT - Income Tax

Business Disallowance, Remuneration To Directors, Subscription Paid To Clubs, Reimbursement Of Medical Expenditure

Summary

Issues: Disallowances under section 40(c) and 80VV of the Income-tax Act, 1961

Disallowance under section 40(c):
The appeal concerned disallowances made under section 40(c) of the Income-tax Act, 1961. The Income Tax Officer (ITO) disallowed a sum of Rs. 28,600 in respect of remuneration paid to the Managing Director, considering personal accident insurance premium, club subscriptions, and medical expenditure reimbursement. The CIT (Appeals) upheld these disallowances. The assessee argued that personal accident insurance and club subscriptions were for the benefit of the company, not the employee-Director, citing relevant case law. The Tribunal agreed, ruling that personal accident insurance did not benefit the employee and should be excluded from disallowance. However, medical expenditure reimbursement was considered part of the remuneration and should be included in the disallowance under section 40(c).

Disallowance under section 80VV:
Regarding the deduction under section 80VV, the expenditure of Rs. 20,000 for contesting proceedings under section 163 of the IT Act was in question. The assessee contended that since this proceeding did not determine any liability under the Act but only declared the assessee as an agent, it should not fall under section 80VV. The Revenue argued that treating the assessee as an agent implied liability under the Act and thus should be covered by section 80VV. The Tribunal held that section 80VV allows deduction for expenses related to the determination of liability under the Income-tax Act, specifically tax, penalty, or interest. As the treatment as an agent did not directly involve liability to income tax, the expenditure incurred was not restricted by section 80VV. The expenditure was deemed allowable under section 37 following the precedent set by the Supreme Court. Similarly, expenses for pursuing surtax appeals were also allowed as a deduction under section 37. The claim for the deduction of expenditure for examining title deeds was not pressed by the assessee.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on various points related to disallowances under section 40(c) and deductions under section 80VV of the Income-tax Act, 1961.