9911796707
TMI Blog1997 (11) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 40(c) of the Act ? 3. Whether the Tribunal is justified in law in holding that with reference to the sum of Rs. 1,856 paid by the assessee to the ICICI on account of fluctuation in foreign exchange the assessee is not entitled to claim deduction as revenue expenditure or business loss ?" The question of law referred at the instance of the Revenue is as under : "Whether the amount of depreciation allowed to the assessee on cars maintained by it and which, have been used, if not wholly, at least partly, for the personal purposes of the directors, can be taken into consideration for purposes of disallowances in excess of the prescribed limit of Rs. 72,000?" We will deal with the questions separately. The assessee is a private limited company in which the public are not substantially interested doing business of manufacture of rubber products for automobiles, tyre retreading and coach building. The first question raised at the instance of the assessee relates to the assessment year 1975-76 and in the assessment made on the assessee-company, the Income-tax Officer applied the provisions of section 40A(5) of the Income-tax Act, 1961 (hereinafter to be referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the cars have to be taken into account for the purpose of determining the ceiling limit prescribed under section 40(c) of the Act. He also held that in the case of Ratnam, there was a reimbursement of medical expenses and that amount also should be taken into account for the purpose of section 40(c) of the Act. The Commissioner (Appeals) directed the Income-tax Officer to take into account the maintenance expenses, the depreciation allowance in respect of the cars, reimbursement of medical expenses and contribution of the company towards provident fund in determining the total disallowance in respect of the salary and perquisites and disallow the same. The assessee carried the matter by way of appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal did not accept the contention on behalf of the assessee that the cars were used only for business purposes of the directors-employees and not for the private purposes of the directors- employees. The Tribunal held that the assets of the company would have been used, if not wholly, at least partly for personal purposes of the directors. In this view of the matter, the Tribunal confirmed the findings of the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Supreme Court in the case of CIT v. Mafatlal Gangabhai and Co. P. Ltd. [1996] 219 ITR 644, wherein the Supreme Court after considering the provisions of section 40A(5) of the Act held that the cash payment cannot be brought within the purview of the words, "any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite". He, therefore, submitted that the Tribunal was not correct in holding that the medical expenses reimbursed would constitute the benefit or amenity for the purpose of computation of allowance under section 40(c) of the Act. Mr. S.A. Balasubramanian also contended that if under section 40A(5) of the Act, cash payment cannot be regarded as perquisite the same principle would apply to the provisions of section 40(c) of the Act as the Supreme Court in the case of CIT v. Indian Engineering and Commercial Corporation P. Ltd. [1993] 201 ITR 723, has held that in the case of directors who are employees, both the provisions of section 40A(5) and section 40(c) of the Act would apply and the higher ceiling has to be applied. Therefore, according to learned counsel for the assessee, the principles of section 40A(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(c) of the Act, but the word "perquisites" is also absent in section 40(c) of the Act. Therefore, the cash payment paid to an employee by an employer can be included under the head, "Salary", under section 40A(5) of the Act, though it may fall within the expression, "benefit, amenity or perquisite". It is significant to notice that separate ceiling limits are prescribed under clause (c) of sub-section (5) of section 40A of the Act with reference to the salary and the perquisites enjoyed by the employees. On the other hand, the expression employed in sub-clause (i) of clause (c) of section 40 of the Act is "any remuneration or benefit or amenity" and those words are not qualified by the expression, "whether convertible into money or not" and the word, "any" preceding the expression "remuneration" indicates that the expression should receive a wider meaning. That apart, there are no separate ceiling limits in section 40(c) of the Act for salary as well as perquisite as found in section 40A(5) of the Act. Therefore, we are of the view that the language structure, and ambit of section 40A(5) of the Act is not the same as found in section 40(c) of the Act. The decision of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an only be by virtue of some express terms of the contract and, therefore, the reimbursement of medical expenses to a director is liable to be taken into account for the purpose of determining the ceiling limit under sub-clause (i) of clause (c) of section 40 of the Act. As regards the other contention of Mr. S. A. Balasubramanian, learned counsel for the assessee, that both the sections 40(c) and 40A(5) of the Act should be read together and the cash allowance under section 40(c) should be excluded, we are of the view that the contention is untenable. The proviso to section 40A(5) contemplates that the allowance under section 40(c) should be taken into account for the purpose of determining higher ceiling limit of Rs. 72,000 which indicates that the provisions of section 40A(5) of the Act are not ipso facto attracted or applied in determining the ceiling limit prescribed under section 40(c) of the Act. If the intention of Parliament had been otherwise, they would not have indicated in the proviso to section 40A(5) of the Act that the ceiling limit in section 40(c) has to be taken into account. In other words, to determine the ceiling limit the provisions of section 40(c) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(c) of the Act. The Appellate Tribunal held that the depreciation allowance is a statutory allowance and hence it cannot be regarded either as excessive or unreasonable and, therefore, the depreciation allowance can never come up for adjudication for the purpose of section 40(c) of the Act. Mr. C. V. Rajan, learned counsel for the Revenue, contended that the depreciation allowance is also liable to be taken into account for the purpose of determining the ceiling limit under section 40(c) of the Act. Mr. S. A. Balasubramanian, on the other hand, submitted that the provisions of clause (c) of section 40 of the Act would not apply to the statutory allowance as there is no question of any excessive or unreasonable allowance in the case of statutory allowance. We are, however, not able to accept the contention urged by learned counsel for the assessee. Sub-clause (ii) of clause (c) of section 40 of the Act employs the expression, "any expenditure or allowance in respect of any assets of the company" and, in our view, the word, "allowance" in the above provision would include statutory allowance. The object of introduction of section 40(c) of the Act is to curb excessive remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the company. It would, therefore, follow that the company did not, and the director alone did, use that particular asset. It is only in respect of such cases that the allowance is sought to be curtailed by section 40(c)(ii). Therefore, it is necessary for the authorities functioning under the Act to find out as to whether any director has been in occupation of the particular flat as the one in the present case and whether the occupation is for his personal or for the company's purpose. The finding in the director's personal assessment would not really be conclusive in this behalf though it cannot be said to be irrelevant. When it is found that the director or the other person used that asset, then, the jurisdiction to disallow springs up. The Income-tax Officer is then required to go into the question of the excessive or unreasonable nature of the claim having regard to the legitimate business needs of the company. The view that a statutory allowance cannot be scrutinised under section 40(c) is the product of a misapprehension of' the provision which was brought into the statute only to curb the excessive generosity at the expense of the Revenue, practised by some erring compani ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
