Director-employee perquisite disallowance: higher ceiling under section 40(c) applies, giving relief to the assessee.

Where a company director is also an employee, disallowance of perquisites is governed by both section 40(c) and section 40A(5) of the Income-tax Act, and the higher of the two ceilings must be applied. The Supreme Court authority treated section 40(c) as applicable to directors and section 40A(5) as applicable to employees generally; on that basis, the Tribunal correctly restricted the disallowance by adopting the higher ceiling under section 40(c). The reference was therefore answered in favour of the assessee and against the Revenue, and the Tribunal's view was upheld.

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Issues: Whether, in the case of directors who are also employees of a company, the disallowance of perquisites is governed by section 40(c) of the Income-tax Act, 1961 and not section 40A(5) of the Income-tax Act, 1961, so that the higher of the two ceilings applies.

Analysis: The question was covered by the Supreme Court decision holding that clause (c) of section 40 applies to directors among others, while section 40A(5) applies to employees generally; where a director is also an employee, both provisions are attracted and the higher of the two ceilings has to be applied. On that basis, the Tribunal had applied the higher ceiling under section 40(c).

Conclusion: The question was answered in favour of the assessee and against the Revenue, and the Tribunal's view was upheld.

Final Conclusion: The references were answered by holding that the higher ceiling under section 40(c) governs the disallowance in the case of director-employees, resulting in relief to the assessee.

Ratio Decidendi: Where a director is also an employee, both section 40(c) and section 40A(5) apply, and the disallowance must be restricted by applying the higher of the two ceilings.

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