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TMI Blog1995 (1) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... water charges came to Rs. 28,911. Besides, there was composite expenditure of Rs. 14,963 on account of medical expenses of the Managing Director and Director for which no bifurcation was given by the assessee. In the assessment order, the Assessing Officer allowed the amounts of salary paid to the Managing Director and the Director being within the permissible limits envisaged by section 40A(5) but restricted the perquisites to 20% of the salary. In the assessment order made on 24-1-1989, the Assessing Officer made some clerical mistakes in making the disallowances u/s 40A(5) but in the rectificatory order passed subsequently, those mistakes were corrected and ultimately an amount of Rs. 52,071 in respect of both the Directors was disallowed u/s 40A(5) of the Act. 3. The assessee preferred an appeal before the learned CIT(A) who following the judgment of the jurisdictional High Court of Punjab and Haryana in the case of CIT v. Amritsar Rayon Silk Mills (P.) Ltd. [1989] 179 ITR 292, and the judgment of the Kerala High Court in the case of Travancore Rayons Ltd. v. CIT [1986] 162 ITR 732, held that the Assessing Officer was justified in making the disallowance u/s 40A(5) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that in the said judgment the Andhra Pradesh High Court had held that while applying the ceiling on the expenditure incurred upon and the remuneration paid to and perquisites provided to a director-employee, the expenditure referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account and the aggregate of the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (a) of sub-section (5) of section 40A and the expenditure and allowances referred to in clauses (i) and (ii) of sub-section (c) of section 40 shall not exceed Rs. 72,000. It was submitted that against this background, the decision of the Supreme Court in the case of Indian Engg. Commercial Corpn. (P.) Ltd., though not a detailed one, has to be read as laying: down the correct law on the point. 5. The learned Counsel for the assessee further submitted that the aforesaid decision of the Supreme Court in the case of Indian Engg. Commercial Corpn. (P.) Ltd. was followed by the Bombay High Court in the case of Bombay Forgings (P.) Ltd. v. CIT [1994] 206 ITR 562 in which the following question being question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions. One of the questions being question No. 1 was as under : " (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission paid by the assessee-company to its directors was an additional remuneration forming part and parcel of the salary allowed to them and that the said remuneration would not be covered by section 40(a)(v) of the Income-tax Act and thereby allowing the assessee's claim for allowing the deduction of the whole amount of commission paid to the directors ? " The Supreme Court noted the provisions of section 40(a)(v) of the Act and compared the language of that section with the successor provisions contained in section 40A(5) and came to the conclusion that both the provisions were substantially similar. The question to be decided in that case was whether the payment of commission on sales directly to the employee-directors was additional remuneration forming part and parcel of the salary and the said remuneration would be covered by section 40(a)(v) of the Act or not. The Supreme Court came to the conclusion that since the provisions of both the sections, namely, section 40A(5) and section 40(a)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40A(5)(a) and (c). This according to the Kerala High Court meant that the permissible deduction in respect of salary and perquisites referred to in sub-section (5)(a)(i) and (ii) of section 40A is limited to the respective amounts mentioned under sub-clauses (i) and (ii) of clause (c) of sub-section (5). Every expenditure resulting in any provision of remuneration or benefit or amenity or allowance mentioned u /s 40(c) but which does not partake the character of salary or perquisite referred to in section 40A(5)(c)(i) and (ii) read with Explanation 2(a) and (b) or that sub-section, according to the Kerala High Court, can be deducted in addition to salary and perquisites in respect of a director-employee, provided the aggregate deduction under these heads in terms of section 40(c)(i)(ii)(A) and (B) and section 40A(5)(a)(i) and (ii) does not exceed the maximum of Rs. 72,000 as stipulated in the first proviso to section 40A(5)(a). This matter was further clarified by the Kerala High Court at page 741 of the report in which certain illustrations were given. It was, for instance, explained that if an employee-director was given salary of Rs. 50,000 and perquisite of Rs. 10,000, agg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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