2006 (3) TMI 108 - HC - Income Tax

Leave travel concession and medical insurance premium - technical service fees - (1) Whether Tribunal is right in deleting the disallowance of Rs. 62, 056 being technical service fees paid to Mettur Beardsell Ltd.? (2) Whether Tribunal is right in directing the Assessing Officer to exclude the leave travel concession and medical insurance premium in computing the disallowance under section 40(c)? - first question referred to this court opinion will have to be answered in favour of the assessee i.e. in the affirmative - second question therefore referred to this court will have to be answered in favour of the Revenue i.e. in the negative

Summary

Issues:
1. Disallowance of technical service fees paid to Mettur Beardsell Ltd.
2. Exclusion of leave travel concession and medical insurance premium in computing disallowance under section 40(c) of the Income-tax Act, 1961.

Analysis:

Issue 1: Disallowance of Technical Service Fees
In the assessment proceedings, the assessee claimed an allowance of Rs. 62,056 for payment made to Mettur Beardsell Ltd. for using the trade mark "Tebilized" as revenue expenditure. The Income-tax Officer rejected this claim, but the Commissioner of Income-tax (Appeals) allowed it. The Tribunal upheld the Commissioner's decision. The High Court, considering the case law precedent of CIT v. Ashoka Mills Ltd., analyzed that the agreement for using the trade mark did not create any asset or confer a permanent right to the assessee. The payment was deemed deductible as revenue expenditure as it was part of the profit-earning process. The court concluded that the Appellate Tribunal was justified in deleting the disallowance of technical service fees. Therefore, the first question was answered in favor of the assessee.

Issue 2: Exclusion of Leave Travel Concession and Medical Insurance Premium
Regarding the second issue, the court examined whether the leave travel concession and medical insurance premium paid by the company for the managing director should be excluded in computing disallowance under section 40(c). Citing the case law of CIT v. Ambica Mills Ltd., the court emphasized that the nature of the policy, who took it out, and the obligation to pay the premium determined if it constituted a benefit to the director. The court found that the premiums for insurance policies were paid directly by the company, not by the directors themselves, and thus should not be considered a benefit or perquisite to the directors. Applying this reasoning to the present case, the court held that the Tribunal was not correct in directing the Assessing Officer to exclude the amounts of leave travel concession and medical insurance premium. Therefore, the second question was answered in favor of the Revenue, in the negative.

In conclusion, the High Court disposed of the reference, with no orders as to costs.