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TMI Blog1978 (7) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s: IT Appeal No. 464 (Bom.) of 1976-77, by its order dated 5-3-1977 in respect of the assessment for 1974-75 held that the assessee had incurred a liability in respect of additional wages and allowances payable to its workers as accepted by it before the Industrial Tribunal in a dispute arising with its employees and it directed that the ITO shall allow a deduction for the assessee's claim to the extent he may find the estimate in respect of the additional liability to be reasonable having regard to the relevant facts and circumstances. Shri Dastur's stand that the said order of the Tribunal had become final was not controverted by Shri Tamhane. It is also not suggested that there is any material distinction between the relevant facts and circumstances of the case for 1974-75 and 1975-76. The AAC did not allow the corresponding claim of the assessee for 1975-76 at a stage at which the above mentioned order of the Tribunal had not been passed. One of the grievances of the assessee before us is that a deduction of the sum of ₹ 10,08,356 may be allowed. For the reasons stated in the earlier order of the Tribunal dated 5-3-1977 with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 85,705 may be added back in its assessment and this is its stand also before us. 6. According to the department, however, the provisions and the limit provided in clause (c) of section 40A(5) are applicable, the maximum amount allowable out of salary and out of perquisites separately is ₹ 60,000 and ₹ 12,000 respectively, that therefore, though no addition is to be made out of the amounts of perquisites in the cases of both the employees, the amount to be added in the case of K.G. Maheshwari is (₹ 1,20,000-₹ 60,000) ₹ 60,000 and in the case of M.G. Maheshwari it is (₹ 90,000-₹ 60,000) ₹ 30,000, i.e., the total amount of addition has to be ₹ 90,000. 7. Though the ITO and the AAC in their respective orders have mentioned that the assessee has worked out the amount not allowable at ₹ 1,09,183 and the ITO has determined the amount not allowable at ₹ 1,13,478, the difference of ₹ 4,295 is the difference between the sums of ₹ 90,000 and ₹ 85,705 determined in the manner stated above. As indicated earlier, the assessee objects to the addition of ₹ 4,295 sustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors whether they are employees or not with certain modifications in the case of employee-directors. 11. The apparent difficulty arises because of the provisions of the first proviso to section 40A(5)(a) which are applicable in the case of a company and it is only proper that all the provisions should be construed harmoniously and in a reasonable manner. The said proviso requires that in respect of the limit set out in clause 40A(5)(c) (i.e., ₹ 5,000 per month out of the remuneration and one-fifth of the amount of salary or ₹ 1,000 per month out of the perquisites), a different limit as set out by the proviso will apply and it is that the total amount to be allowed whether as salary for the period when he was only an employee or as salary or remuneration paid to him as a director-employee should not exceed a sum of ₹ 72,000. The relevant language used in the said proviso is ...in respect of an employee or a former employee, being a director... The language seems to refer to a director who is an employee or who has been an employee. In the case of a director who is an employee during the relevant previous year the question that arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be considered. In such a case, for the period he was only an employee the remuneration paid to him can only be salary coming within section 40A(5)(a)(i) (ii) but will not be governed by the limit set out in clause (c) by the mere fact of his having become a director subsequently. In a case where a person is throughout the relevant period for which the expenditure has to be considered only a director, the amount of expenditure to be considered under clause (a) of the proviso would be nil and the amount of expenditure under clause (b) would represent the actual amount covered by section 40(c). The net result of the interaction of the provisions of sections 40(c) and 40A(5)(a) with their relevant provisos, on a combined reading of the provisions is that the cases of directors are taken out for special treatment and consideration concerning the allowance of expenditure on the remuneration or benefit or other amenities which are contained in the provisos to sections 40(c), 40A(5), etc. The intention to carve out for special treatment the cases of directors or persons having substantial interest in the company or their relatives is also borne out by the proviso contained in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72-73 onwards. The Gujarat High Court in the case of Addl. CIT v. Tarun Commercial Mills Co. Ltd. [1977] CTR 141(Guj.) being I.T. Reference No. 107 of 1974 decided on 22/23-3-1976, noticed the position as it obtained before section 40A(5) came into the Act. The reference related to an assessment of the company for the assessment year 1969-70. The High Court observed and held that the contention of the revenue that clause (a)(v) and clause (c) of section 40 operate in different fields does not appear to be well founded because they are dealing with the same broad head, namely, amenity, benefit and perquisites; though nonetheless they prescribe conditions in respect of the different sub-heads, namely, the case of employees or directors. The above-mentioned contention of the department is also of no avail to it. 15. We have considered above the more important contentions urged on behalf of the department. Before parting with the matter, we may briefly refer to a few more points made by learned representative of both sides. 16. Shri Tamhane referring to the observations of the report of the decision in the case of Keshavlal Premchand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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