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TMI Blog2008 (9) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... company to the Staff Provident Fund was not allowable as deduction in the assessment under consideration? (At the instance of assessee). (iii)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that value of the perks provided to director, Shri Tapedar in the form of user of assessee-company s car had to be estimated independently and irrespective of the provisions of rule 3, Income-tax Rules? (At the instance of assessee). (iv)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the value of perks provided to Shri Tapedar in the form of personal user of assessee s car should be reduced from ₹ 21,500 to ₹ 13,000 (inclusive of car expenses and car depreciation) on account of such personal use of the car having been there only for five months during the previous year under consideration? (At the instance of revenue). (v)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that business promotion expenses were to the extent of ₹ 37,078 in the nature of the entertainment expenditure and as such disallowable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those did not result into any benefit or amenity to them? (At the instance of revenue). (xv)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that only half of the expenses on telephones installed at the residences of the Executives of the company can be treated as perquisite/facility for the purpose of section 40A(5)? (At the instance of revenue). (xvi)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the actual expenditure on providing facilities to the Directors/Employees should not be taken into consideration and the disallowance should be worked out on the basis of Board s circular dated 12-1-1970? (At the instance of revenue). (xvii)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that reimbursement of medical expenses amounting to ₹ 38,649 should not be treated as a perquisite for the purpose of section 40A(5)? (At the instance of revenue). (xviii )Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the rents of garages and servant quarters hired at resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities that the excise duty was not payable. The Assessing Officer disallowed deduction following judgments of the Hon ble Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1975] 87 ITR 542 and Sinclair Murray Co. (P.) Ltd. v . CIT [1974] 97 ITR 615 . It was held that deduction could not be allowed unless the amount was actually paid. The judgment of the Hon ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 was held to have been modified on the ground that judgments in Chowringhee Sales Bureau (P.) Ltd. s case (supra) and Sinclair Murray Co. (P.) Ltd. s case (supra ) were later. (ii) Re: Sales Tax The assessee also claimed deduction in respect of sales tax payable. Out of the said amount, sales tax for the fourth quarter was actually paid after close of the year. The assessee was contesting the matter and on 3-9-1973, the Hon ble Supreme Court decided in assessee s favour and the sales tax already paid was held to be refundable. The Assessing Officer disallowed the claim for deduction. The plea of the assessee that the amount was to be refunded to the customers was also rejected on the ground that the assessee had not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement of medical expenses and house rent paid to employees. In respect of house rent allowance, it was observed that the assessee s appeal was allowed by CIT(A) but the revenue had carried the matter to ITAT. (v) Re: Commission paid to employees The Assessing Officer also disallowed the claim for deduction in respect of commission paid to employees on the ground that the same could not be treated as part of salary for disallowance under section 40A(5). The said amount was ex gratia payment without any commercial expediency. (vi) Re: Cost of interest-free loan to director Cost of interest-free loan provided to director Shri N. Nath was treated as perquisite. (vii) Re: Telephone for personal use Expenditure on telephones provided to employees of the company for personal use was disallowed under section 40A(5)(a)(ii ). (viii) Re: Tiffins to workers and lunches to officers and Travelling expenses beyond rule 6D The Assessing Officer also disallowed amount spent for providing tiffins to workers and lunches to officers of the Delhi office and factory. It was held that the expenditure was not for any commercial ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation in respect of technical know-how was allowed. 5. The revenue as well as assessee preferred appeals before the Tribunal. 6. Dealing with the appeal of the revenue, the Tribunal partly set aside claim for deduction of excise duty to the extent it was beyond the provision made. Relief granted in respect of expenditure incurred on the car was also partly reduced. 7. Dealing with the appeal of the assessee, the Tribunal made following modifications :- (i)The assessee was entitled to deduction in respect of contribution as governed by the Employees Provident Fund Act. (ii)The Tribunal allowed the claim of the assessee on expenditure on telephones on the ground that the phones were installed to enable the staff to attend to business after office hours and personal advantage was incident. (iii)Claim for medical reimbursement was allowed. (iv)The Tribunal allowed deduction on account of rent of garages and servant quarters. (v)The Tribunal allowed the claim of the assessee on account of cost of interest-free loan on the ground that the same constituted negligible percentage of total bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the contributions are eligible for deduction notwithstanding the fact that the concerned funds do not stand approved or recognized, as required by section 36(1)(iv), there is apparently conflict of view between the Madras High Court in CIT v. Carborandum Universal Ltd. relied on by the Department in support of its stand and the Karnataka High Court decision in Additional CIT v. Karnataka State Warehousing Corporation, relied on by the assessee in support of its stand. We might have accepted the assessee s contention on the principle that if two views are reasonable on a question of law, the view that favours the assessee should be accepted but we find, that the provisions of section 40(a)( iv) clearly stand in the way of the assessee. The provisions of this section are clear and specific and apply notwithstanding anything to the contrary in sections 30 to 39. According to the provisions in this section, there is a ban on the deduction in computing the income chargeable under the head Business of any payment to a provident or other fund established for the benefit of the employees of the assessee, unless the assessee has made effective arrangements to secure that tax shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applicable to question No. (ii). 14. Submission on behalf of the assessee is that the trust deed was established on 9-9-1971 and was granted recognition vide order dated 21-2-1972 which was withdrawn on 31-10-1979. The trust deed was amended by adding rule 17A for deduction of tax at source and thereafter, recognition was granted on 14-3-1980. 15. We find merit in the contention raised on behalf of the revenue. Recognition to the fund had been withdrawn and having regard to these facts, the Tribunal decided the issue against the assessee for the reasons already quoted. 16. Accordingly, this question is answered against the assessee and in favour of the revenue. Re: Q. No. (iii) 17. On behalf of the assessee, it has been conceded that value of perks provided to the director in the form of user of company s car was required to be valued as per rule 3(c)( ii) of the Income-tax Rules, 1962 which had not been done. In view of judgment of the Hon ble Supreme Court in CIT v. British Bank of Middle East [2001] 251 ITR 217 1 this question is answered against the assessee and in favour of the revenue. Re: Q.No. (iv) 18. Contention raised on behalf of the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix) 26. This question has not been pressed on behalf of the assessee and the same is, thus, answered against the assessee and in favour of the revenue. Re: Q. No. (x) 27. The finding of the Tribunal on the said question is as under :- 13. . . . Referring to these facts, it was urged that the payment was made to the Sr. Executive Officers, over and above, the contractual salary and it was admissible in view of Supreme Court decision in the case of Shahzada Nand Sons v. CIT, Patiala 108 ITR 358 since the genuineness of the payment to the various employees had not been doubted. The learned Commissioner found force in the argument of the assessee s counsel and except for ₹ 13,500 paid to the two Directors which could not be allowed in view of section 40(c) and section 40A(5), the remaining amount of ₹ 81,000 was allowed as a deduction. The position remains the same before us. It does appear that the commission of ₹ 81,000 was paid to the Sr. Executive Staff, over and above, the salary payable to them. It was thus a payment made by the employer to the employees in consideration of the services rendered. As held in Shahzada Nand s case s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, reject the assessee s contention in this connection. 30. On behalf of the assessee, it is pointed out that the said question was gone into by this Court for the earlier assessment year in judgment CIT v. Porrits Spencer (A) Ltd. [2002] 257 ITR 49 1. 31. On behalf of the revenue, it is pointed out that in that case, there was no finding of the Tribunal that the commission paid to the employees was in the nature of salary and thus covered by section 40A(5). In the present case, the Tribunal has recorded a finding against the assessee which finding has not been shown to be perverse. Moreover, it has not been disputed on behalf of the assessee that in Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 2, the Hon ble Supreme Court held that the commission paid to an employee is to be treated as salary for purposes of section 40A(5). 32. Accordingly, we hold that the Tribunal was right in directing that the commission paid to executive staff be treated as salary for purposes of section 40A(5). 33. Accordingly, the question is answered in favour of the revenue and against the assessee. Re: Q. No. (xii) 34. Learned counsel for the revenue referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or that the telephones were so provided only to benefit the employees and not for the purpose of the assessee s business, we must uphold the claim of the assessee. We, accordingly, delete the disallowance in this connection. 41. We have dealt with an identical issue while adjudicating upon question No. (iv) and for the reasons given therein, we decide this question against the revenue and in favour of the assessee. Re: Q. No. (xv) 42. On this issue, the finding of the Tribunal is as under :- 17. . . . Before the learned Commissioner of Income-tax (Appeals) it was urged that the learned Inspecting Assistant Commissioner was not right in law in treating the said expenditure as a perquisite since the telephone was installed at the residence of the Directors and the senior employees for the purpose of business and further more it was not an asset belonging to the assessee-company and hence, the provisions of section 40A(5)(a)( ii) could not be applied. The learned Commissioner, however, could not agree as he noticed that the aforementioned provision of section 40A(5) had two limbs. Firstly, it covered expenditure resulting directly or indirectly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract the disallowance of section 40A(5) if the car is the property of the employer or owned by it and, therefore, it is in its own interest that the garage is provided for keeping the car. So far as their accommodation personal servants of the executives are concerned, here also, we do not think the provision of any accommodation to them would result in any perquisite or benefit to the executives if the servants are employees of the employer-company and not employed by the executives themselves as the own servants. . . . 50. In view of above finding, we decide the question against the revenue and in favour of the assessee. Re: Q. No. (xix) 51. On this issue, the finding of the Tribunal is as under :- 38. . . . It cannot, therefore, be held that the borrowing was not for the purpose of the assessee s business but for advancing the loan to Shri Nath. Even otherwise it cannot be denied that small financial accommodation provided to a Director or employee can be considered to be in the interests of business as a matter of commercial or business prudence and so can be treated as for the purpose of the assessee s business. This is particularly because it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Re: Q. No. (xxi) 58. Finding of the Tribunal on this issue is as under :- 53. . . . On a consideration of the facts and the submissions of the parties, we find substantial merit in the assessee s claim that the relevant provisions of section 36(1)(iv) clearly authorize deduction on the basis of actual payment and as there is no dispute that the payment has been made during the relevant year, we direct deduction of the amount in computing the assessee s income. . . . 59. In view of finding of the Tribunal, which has not been shown to be erroneous by the revenue, we decide the question against the revenue and in favour of the assessee. Re: Q. No. (xxiii) 60. It was pointed out on behalf of the assessee that the said question is covered by judgment of this Court in the case of the assessee in the earlier assessment year Porritts Spencer (Asia) Ltd. v. CIT [1999] 180 ITR 211 1, which has been further followed by this Court in the case of the assessee in CIT v. Porritts Spencer (Asia) Ltd. [2002] 255 ITR 189 (Punj. Har.). 61. In view of earlier judgments of this Court, the question is answered in favour of the assessee and against the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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