TMI Blog1999 (3) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... btful and the interest of which the assessee has neither credited to the interest suspense account nor to the profit and loss account ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that two separate limits will apply for the purposes of computing disallowance under section 40A(5) where an employee retires and ceases to be in employment during the previous year, so much so that one limit will apply in respect of the amounts and benefits received by him as an employee and another for the amounts and benefits received by him as a former employee ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenses incurred by the assessee in respect of club membership subscription fees in respect of its employees as also the expenses incurred in respect of repairs and maintenance of the accommodation provided to the employees is not to be taken into account for the purposes of computing disallowance under section 40A(5) ?" Heard learned counsel for the parties. Learned counsel for the parties agreed that questions Nos. (i), (ii) and (iv) stand covered by the judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the above section 40A(5)(c) and that the assessee was entitled to claim the benefits of both the limits. The Assessing Officer did not agree with the above contentions advanced on behalf of the assessee. On appeal, the Commissioner of Income-tax (Appeals) accepted the claim of the assessee by referring to a decision of the Special Bench of the Income-tax Appellate Tribunal in the case of Kodak Limited, published at 3-SOT-517. In view of the judgment of the Special Bench, the Tribunal in the present case, confirmed the order of the Commissioner (Appeals). Hence, the above question has been referred to this court for opinion. Learned counsel for the assessee in the present case drew our attention to the relevant provisions of the Income-tax Act, 1961, as it stood at the material time, the material parts thereof are quoted hereinafter : "17. For the purposes of sections 15 and 16 and of this section, (1) 'salary' includes-... (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages... (3) 'profits in lieu of salary' includes (i) the amount of any compensation due to or received by an assessee from his employer or former ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of section 40A(5)(c) and in such a case, both the limits should be taken into account for the purposes of allowing deduction prescribed under the said section. In support of his submissions, learned counsel for the assessee relied upon the judgment of the Calcutta High Court in the case of Hindustan Motors Ltd. v. CIT [1985] 156 ITR 223, and another decision also of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1991] 187 ITR 709. On the other hand, learned counsel for the Revenue contended that there was no bar on the assessee to pay any amount to his employee or his former employee, but the limit of the deductions which the assessee would be allowed was fixed in the said section 40A(5)(c). It was further urged on behalf of the Department that on a bare reading of section 40A(5)(a)(i) read with section 40A(5)(c)(i) of the Income-tax Act, the legislative intent was clear, viz., that the aggregate amount of deduction should not exceed rupees sixty thousand. In the light of the rival contentions, we are required to examine the relevant sections of the Income-tax Act. Section 40A(5) was introduced in the Income-tax Act, 1961, by section 10 of the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and the figure of Rs. 60,000 in the case of a former employee read with the meaning of the word "salary" as stated hereinabove, clearly shows that salary for the purposes of disallowance under section 40A(5) includes terminal benefits like gratuity. This is particularly in view of section 17(1)(iii) of the Act. Hence, where an employee ceases to be an employee of an assessee during the relevant previous year, the aggregate limit of Rs. 60,000 prescribed in section 40A(5)(c)(i) applies. Therefore, the status of the person on the last date of the relevant previous year is crucial. In other words, the maximum allowable deduction is only Rs. 60,000. Under section 40A(5)(c)(i), the expression "employee" comes within the definition of the expression "former employee". As a former employee, the terminal benefits by way of gratuity paid to him by the assessee come within the definition of the word "salary" and, therefore, the total amount including his salary and gratuity cannot exceed Rs. 60,000. In the case of Hindustan Motors Ltd. v. CIT [1985] 156 ITR 223 (Cal/), the Calcutta High Court, on interpretation of the above section, laid down that section 40A(5) provided for two continge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the Tribunal was right in holding that expenses incurred by the assessee in respect of club membership subscription fees-and in respect of repairs of the accommodation provided to the employees are not taken into account for the purposes of computing disallowance under section 40A(5) ? (b) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred by the assessee on account of maintenance of accommodation provided to the employees is not taken into account for the purposes of computing disallowance under section 40A(5) of the Act ?" As regards the abovementioned question No. (iv)(a) both the learned advocates for the parties agree that the controversy is squarely covered by the judgment of the Division Bench of this court in the case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682. Accordingly, question No. (iv)(a) is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. As regards question No. (iv)(b) both the learned advocates agree that the controversy is covered by the judgment of the Division Bench of this court in the case of Lubrizol India ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
