TMI Blog1993 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... court was delivered by B. P. JEEVAN REDDY J. - These appeals are preferred by the Revenue against an order of the Bombay High Court rejecting an application under section 256(2) of the Income-tax Act. By means of the said application, the Revenue sought to raise the following three questions : " (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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,792 Sh. S. B. Mathur 18,000 40,792 Sh. A. B. Mathur 7,800 40,792 The " commission " in the above table means the commission paid to the said directors on the sales effected by the assessee at a prescribed percentage. The Income-tax Officer treated the commission on sales as 11 perquisites" and disallowed the same applying section 40(a)(v) for the year 1971-72 and section 40A(5) for the assessment year 1972-73. He also disallowed the expenses referred to in question No. (iii) as entertainment expenses. On appeal, the Appellate Assistant Commissioner held that the commission on sales cannot be treated as "perquisites". He also held that the expenditure on dinner and tea cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever is less Note : (The two provisos and the two Explanations are omitted as not necessary for the purpose of this case.) Section 40A(5), which in so far as it is material, is substantially in the same terms, reads as follows : " Section 40A. Expenses or payments not deductible in certain circumstances. - (5) (a) Where the assessee (i) incurs any expenditure which results directly or indirectly in the payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m April 1, 1989, by the Direct Tax Laws (Amendment) Act, 1987. The sister provision contained in sub clauses (i) and (ii) of clause (c) of section 40, applicable to directors of company (and other persons mentioned therein), has also been deleted by the very same enactment with effect from April 1, 1989. Since the relevant provisions in sections 40(a)(v) and 40A(5) are substantially similar we shall consider the language employed in the latter provision. Sub-section (5) of section 40A is applicable in the following situations : (1) Where the assessee incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (2) Where the assessee incurs any expenditure which result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) is significant. The first two situations, as we have called them, start with the words " Where the assessee incurs any expenditure which results directly or indirectly . . . " It is difficult to say that payment of a certain cash amount by way of commission on sales, directly to an employee, can be said to fall within the words "Where the assessee incurs any expenditure which results directly or indirectly". Such a payment cannot also fall within the two sub-clauses of clause (3)-in our analysis since they speak of an expenditure or allowance in respect of any assets of the assessee used by the employee. Learned counsel for the Revenue, Shri Manchanda, argued that the words " whether convertible into money or not " bring out the intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay the commission or it is a matter purely in the discretion of the employer, such payment should be treated as a benefit by way of addition to salary rather than in lieu of salary. " It is not necessary for us to make any comment on the said circular. For the above reasons, we are of the opinion that the High Court was justified in refusing to direct the Tribunal to state questions Nos. (i) and (ii) under section 256(2). So far as question No. (iii) is concerned, it has not been seriously pressed before us having regard to the smallness of the amount involved. It is also stated that the said question is pending consideration in a batch of appeals before this court. We do not propose to express any opinion on question No. (iii) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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