T.T. (P) LTD v. INSPECTING ASSISTANT COMMISSIONER
[Citation -1985-LL-0226-1]

Citation 1985-LL-0226-1
Appellant Name T.T. (P) LTD
Respondent Name INSPECTING ASSISTANT COMMISSIONER
Court ITAT
Relevant Act Income-tax
Date of Order 26/02/1985
Assessment Year 19981-82
Judgment View Judgment
Keyword Tags house rent allowance • payment of premium • insurance premium • provident fund • overall limit
Bot Summary: The IAC restricted the amount allowable under s. 40A(5) to Rs. 72,000 in each case and disallowed the balance of Rs. 39,686 and Rs. 14,350, respectively, aggregating to Rs. 54,036. The CIT held that s. 40(c) of the Act applied. For the purposes of s. 40(c), what is relevant is any expenditure which has resulted directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be. The main question to be considered in this case is whether s. 40(c) is to be applied in this case to the entire exclusion of s. 40A(5). Either s. 40A(5) or s. 40(c) is applicable. So far as contribution to the provident and gratuity are concerned, as rightly observed by the CIT, they are governed by the second proviso to s. 40A(5)(a) and the CIT has asked the IAC to examine the same. There is nothing wrong in the direction given by the CIT. In the result, we hold that s. 40A(5) applies in this case and not s. 40(c) and further that house rent allowance and payment of personal accident insurance premium are to be excluded for determining the overall limit of Rs. 72,000.


B.V. VENKATARAMAIAH, A.M.: IAC disallowed Rs. 54,036 under s. 40A(5) of IT Act, 1961 (' Act '). 2 . Two of employees of assessee-company, viz., Shri T.T. Jagannathan and R. Rajagopalachari were in receipt of total remuneration of Rs. 1,11,686 and Rs. 86,350, respectively. IAC restricted amount allowable under s. 40A(5) to Rs. 72,000 in each case and disallowed balance of Rs. 39,686 and Rs. 14,350, respectively, aggregating to Rs. 54,036. Before CIT (A) it was urged that IAC should not have taken into account house rent allowance and employees' provident fund, contribution paid to two employees as also contribution to gratuity and personal accident insurance premium paid in respect of Shri T.T. Jagannathan. relevant amounts are given below : T.T. R. . . Jagannathan Rajagopalachari . . Rs. Rs. House rent (a) 6,000 17,950 allowance Employees' (b) 4,000 4,800 provident fund Contribution to (c) 543 . gratuity Personal (d) accident insurance 945 . premium It was submitted that house rent allowance could not be regarded as ' perquisite ' following decision of Karnataka High Court in CIT vs. Mysore Commercial Union Ltd. (1980) 126 ITR 340 (Kar). remaining payments, it was contended, were towards statutory obligations and as such cannot be considered as ' perquisite ' for purposes of Act. CIT (A) held that s. 40(c) of Act applied. For purposes of s. 40(c), what is relevant is any expenditure which has resulted directly or indirectly in provision of any remuneration or benefit or amenity to director or to person who has substantial interest in company or to relative of director or of such person, as case may be. term ' perquisite ' did not occur in this provision and question whether house rent allowance and other cash payments, although they may not be considered as ' perquisites ' have to be considered together for purposes of applying limit of Rs. 72,000. He then observed that above reasoning applied to personal accident insurance premium paid in case of Shri T.T. Jagannathan. As regards contribution to employees' provident fund and contribution to gratuity, he directed IAC to examine matter further, since it is to be found out whether above payments are covered by s. 36(1)(iv) and (v) of Act. assessee is in appeal. 3. arguments advanced before CIT (A) were repeated before us. learned Departmental Representative's argument was that since s. 40(c) was applicable, decision given by CIT (A) was basically correct. 4. main question to be considered in this case is whether s. 40(c) is to be applied in this case to entire exclusion of s. 40A(5). It is admitted that Shri T.T. Jagannathan and Rajagopalachari are employee directors. Therefore, either s. 40A(5) or s. 40(c) is applicable. In that case, it goes without saying that provision of law more favourable to assessee has to be applied. In this view of matter, we hold that disallowance has to be examined with reference to s. 40A(5). While applying this section, perquisites allowed to employees will have to be taken into consideration. If any payment cannot be so characterised, it is to be left out of consideration. From this viewpoint, we find that house rent allowance cannot be taken as ' perquisite ' since it is reimbursement in cash of expenditure incurred by employee. This is supported by decision of Karnataka High Court in case of Mysore Commercial Union Ltd. (supra). payment of premium towards personal accident insurance of Shri T.T. Jagannathan cannot also be called ' perquisite ' for there is no benefit to employee. benefit, if any, arises in case of accident. It is only contingent interest. Therefore, this sum also has to be accident. It is only contingent interest. Therefore, this sum also has to be excluded from purview of s. 40A(5). So far as contribution to provident and gratuity are concerned, as rightly observed by CIT (A), they are governed by second proviso to s. 40A(5)(a) and CIT (A) has asked IAC to examine same. There is nothing wrong in direction given by CIT (A). In result, we hold that s. 40A(5) applies in this case and not s. 40(c) and further that house rent allowance and payment of personal accident insurance premium are to be excluded for determining overall limit of Rs. 72,000. It is further to be understood that overall limit of disallowance is Rs. 72,000 even when s. 40A(5) applies in light of decision of Karnataka High Court in case of International Instruments (P) Ltd. vs. CIT (1981) 13ITR 315 (Kar). 5. In result, appeal is allowed. *** T.T. (P) LTD v. INSPECTING ASSISTANT COMMISSIONER
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