Vildirect: IncomeTax-caselaws-1995-VIL-378-GUJ-DT

1995-VIL-378-GUJ-DT

Equivalent Citation: [1996] 217 ITR 154, 130 CTR 356

GUJARAT HIGH COURT

Date: 08.09.1995

COMMISSIONER OF INCOME-TAX

SYNPOL PRODUCTS PRIVATE LIMITED

BENCH

Judge(s) : C. K. THAKKER., RAJESH BALIA

JUDGMENT

The judgment of the court was delivered by

RAJESH BALIA J.--At the instance of the Commissioner of Income-tax, Gujarat-I, the Income-tax Appellate Tribunal, Ahmedabad, has referred the following six questions of law stated to be arising out of its order in I. T. A. No. 1892/(Ahd) of 1987 for the assessment year 1984-85 in respect of the respondent-assessee :

" (1) Whether the Appellate Tribunal is right in law and on facts in directing the Income-tax Officer to apply the provisions of section 40(c) instead of section 40A(5) of the Act in respect of the remuneration due to the managing directors who have been treated as employees of the company ? "

(2) Whether the Appellate Tribunal is right in law and on facts in directing the Income-tax Officer not to include the value of medical reimbursement as a perquisite ?

(3) Whether the Appellate Tribunal is right in law in deleting the addition of Rs. 1,89,190 (Rs, 1,13,830 + Rs. 75,360) on the ground that the amount of Rs. 1,89,190 represented the sales tax and Central sales tax liability for the last quarter of the accounting year and was deposited by the assessee not only within the statutory time-limit provided, by the relevant State legislation and Central legislation, but also before the due date for furnishing the return under section 139(1) and, therefore, provisions of section 43B would not be applicable ?

(4) If the answer to question No. 3 is in the negative whether the Appellate Tribunal is right in law and on facts in holding that the sales tax collections of Rs. 1,89,190 are a part of trading receipt ?

(5) Whether the Appellate Tribunal is right in law in deleting the additions of Rs. 722 and Rs. 4,463 on the ground that the said sums represented respectively the Employees' State Insurance and liability for the last month of the accounting year and was deposited by the assessee within the statutory time-limit provided by relevant Employees' State Insurance legislation and Provident Fund legislation ?

(6) Whether the Appellate Tribunal is right in law in holding that the provisions of section 43B are applicable even if the amounts collected by the assessee by way of sales tax are neither debited to profit and loss account or not is a provision made therefor, and deduction claimed for the same ? "

In respect of the remuneration paid to the " managing directors " of the company who had been treated as employees, the Assessing Officer applied the provisions of section 40A(5) of the Income-tax Act, 1961, for the purpose of applying the limit up to which remuneration paid to the employee of the company could be allowed as an expenditure for the purpose of computing income from its business. The Tribunal in its decision, has held that for the purpose of computing the income of the company the maximum limit up to which the amount spent by the company in paying the remuneration to its directors could be allowed as expenditure under section 40(c) for the purpose of payment of tax was applicable under section 40A(5) by accepting the contention of the assessee.

The matter has now been concluded by a decision of the Supreme Court in the case of CIT v. Indian Engineering and Commercial Corporation P. Ltd. [1993] 201 ITR 723 at page 728, wherein it has been held as under :

" The employees concerned herein also happen to be directors. The provision in clause (c) of section 40 applies to directors among others. Of course, section 40(c) is applicable only to companies whereas section 40A(5) is applicable to employees whether of companies or others. In the case of directors who are also employees, both the provisions will be attracted the higher of the two ceilings has to be applied. "

Following the aforesaid decision, we hold that the Tribunal was right in directing to apply the provisions of section 40(c) instead of section 40A(5) of the Act in respect of the remuneration due to the managing directors who have been treated as employees of the company. Accordingly, the question is answered in the affirmative in favour of the assessee and against the Revenue.

Question No. 2 pertains to includibility of reimbursement of medical expenses within the maximum limit under section 40(c) has been allowed in deduction.

In the case of Gujarat Steel Tubes Ltd. v. CIT [1994] 210 ITR 358 (Guj), it is held that reimbursement of medical expenses incurred by the directors is a benefit to a director within the meaning of section 40(c)(i) of the Income-tax Act.

Accordingly, question No. 2 is decided in the negative, that is to say in favour of the Revenue and against the assessee.

Regarding the third question, it has been found by the Tribunal that in respect of additions of amounts representing the sales tax and Central sales tax liability for the last accounting year, though unpaid at the close of the previous year but deposited by the assessee within the statutory limit provided by the respective statutes and also before the date of furnishing returns under section 139(1), section 43B would not be applicable and, consequently, such existing liability but not actually paid until the end of the previous year on account of sales tax cannot be the income of the assessee. For the same reason, additions made on account of unpaid contribution to the Employees' State Insurance and the Provident Fund remaining outstanding on the last date of the previous year but actually paid before filing of the return was ordered to be deleted.

It is to be noticed that the following proviso to section 43B was inserted by the Finance Act, 1987, which reads as under :

" Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sums was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return :

Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."

This court had an occasion to consider the effect of this provision in the case of CIT v. Chandulal Venichand [1994] 209 ITR 7 (Guj), wherein a Bench of this court has held that :

" . . . . the first proviso to section 43B of the Income-tax Act is remedial and curative in nature and the proviso was brought into force to remedy unintended hardship which was likely to be caused by section 43B. It is further held that it is also declaratory in its nature and hence, the said proviso relates back to the date when section 43B came into operation, i.e., April 1, 1984.

In view of the aforesaid decision, it must be held that in view of the proviso to section 43B being effective from the date of the insertion of section 43B, that is, April 1, 1984, the Tribunal was right in holding that, to the extent payments of sales tax and contribution to the Employees' State Insurance and the Provident Fund were made by the assessee within the time-limit set out in the proviso, no recourse to section 43B can be had. Accordingly, questions Nos. 3 and 5 are answered in favour of the assessee and against the Revenue.

In view of our answer to question No. 3 being in the affirmative, question No. 4 which is referred to us as consequential upon the answer to question No. 3 in the negative, does not call for any decision thereon.

In our opinion, question No. 6 becomes academic and need not be answered in view of our answer to question No. 3 and, accordingly, we decline to answer question No. 6. Reference accordingly stands disposed of with no order as to costs.

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