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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 ..... contributed by the assessee-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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 residence of the directors is not a perquisite for the purpose of section 40A(5)? (At the instance of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eau (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 actually refunded the said amount to the customers and if refund was made, the same could be allowed in the year in which it is actually refunded. (iii) Re: Contributions to providen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT. (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 expediency. Part of the amount claimed for travelling expenses was disallowed, following assessment order for the previous year, beyond rule 6D. This item included expenses on fare which was not for business expenses, on tour to Delhi though the HQ was at London, expenses on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 borrowings of the assessee. (vi)The Tribunal allowed the claim in respect of travelling expenses. (vii)The Tribunal allowed the claim towards contribution to gratuity fund under section 36(1)(iv). (viii)The Tribunal allowed the expenditure on advertisement. (ix)The Tribunal allowed the claim for contribution to gratuity fund which had been approved by the Commissioner. 8. We have heard learned counsel for the parties and perused the record. Learned counsel for the parties have also filed written notes, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 shall be deducted at source from any payments made from the fund which are chargeable to tax under the head 'Salaries'. Admittedly, there was no provision made in the trusts as originally drawn up and which governed the fund during the relevant previous year. The subsequent amendment or modification of the trust deed cannot operate retrospectively and there was clearly no mechanism provided in the trust deed to secure deduction of tax at source in respect of payment chargeable to it. In the course of hearing, it was suggested that as there was an obligation under the Income-tax Act itself for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion 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 revenue is that the Tribunal erred in permitting deduction for user of the car for personal use without recording any finding about the period the car was used for business purpose. Finding of the Tribunal is as under :- "18. . . . On the facts stated above there can be no objection to the relief of ₹ 8,500 allowed by the learned Commissioner since the disallowance of ₹ 30,000 on the basis that Shri Tapedar used the car for the entire year was obviously incorrect. There is nothing wrong in the order of the learned Commissioner as he has, on his own calculation held that the disallowance should be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee'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 section 36(1)(ii) of the Income-tax Act, 1961 does not postulate that there should be any extra services rendered by an employee before payment of commission to him can be justified as an allowable expenditure. If the services were, in fact rendered by the employee, it is immaterial that the services rendered by the employee was in no way greater or more onerous than the services rendered by him in the earlier years. This being the position and the reasonableness of the amount not having been doubted by the authorities below and the genuineness of the payment having been accepted, we feel that the learned Commissioner (Appeals) rightly allowed the assessee's claim for & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicators (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 amendment made vide Act 10 of 1981 to the Haryana General Sales Tax Act, whereby Entry XIV of Schedule 'B' was amended and the product was added as taxable retrospectively with effect from 26-4-1971 up to 6-9-1978. Though, the Hon'ble Supreme Court had earlier given a different interpretation by which the assessee was held not liable to sales tax and the amount of sales tax was not liable to sales tax but the Tribunal still allowed the assessee to deduction in respect of the assessment year in question on the ground of liability having accrued but in view of amendment, liability of the assessee having been duly crystallised, the finding of the Tribunal has to be upheld and the question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provision of any perquisite to an employee and secondly it covered expenditure incurred directly or indirectly in respect of any asset of the assessee used by the employee wholly or partly for his private purpose. The second limb, the learned Commissioner found, did not apply in the present case since the telephone was not an asset belonging to the company but the first limb became applicable as provision of the telephone, even if it was not the company's asset, was a benefit or amenity provided to the Director or the employee and, therefore, it could be treated as a perquisite and the value thereof could be included in the perquisites for the purpose of section 40A(5). On estimate the learned Commissioner held that 50 per cent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 is seen that the amount of loan advanced to Shri N. Nath is a negligible percentage of the total borrowings reflected in the month-wise figures of bank balances including the overdrafts detailed at page 184 of the paper book compilation filed by the assessee. There is, therefore, according to us, no basis for holding that any sum was borrowed by the assessee specially for the purpose of advancing loan to Shri N. Nath, a Director." 52. Learned counsel for the assessee relied upon judgment of the Hon'ble Supreme Court in V.M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383, wherein it was held that giving of interest-free loan to any employee was not covered by the provision of disallowance under section 40A(5). 53. Learned counsel for the revenue is unable to disp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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