TaxTMI 
TaxTMI 
2008 (9) TMI 918
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....bsp; (ii)Whether on the facts and circumstances of the case, Tribunal was right in law in holding that sum of Rs. 44,194 contributed by the assessee-company to the Staff Provident Fund was not allowable as deduction in the assessment under consideration? (At the instance of assessee). (iii)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that value of the perks provided to director, Shri Tapedar in the form of user of assessee-company's car had to be estimated independently and irrespective of the provisions of rule 3, Income-tax Rules? (At the instance of assessee). (iv)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the value of perks provided to Shri Tapedar in the form of personal user of assessee's car should be reduced from Rs. 21,500 to Rs. 13,000 (inclusive of car expenses and car depreciation) on account of such personal use of the car having been there only for five months during the previous year under consideration? (At the instance o....
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....e). (xiii)Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing deduction on account of contribution towards Employee's Provident Fund? (At the instance of revenue). (xiv)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the provision and expenses on telephones installed at the residences of Directors and other Senior Executives of the company were not perquisites and those did not result into any benefit or amenity to them? (At the instance of revenue). (xv)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that only half of the expenses on telephones installed at the residences of the Executives of the company can be treated as perquisite/facility for the purpose of section 40A(5)? (At the instance of revenue). (xvi)Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the actual expenditure on providing facilities to the Directors/Employees shou....
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....nt year 1972-73? (At the instance of revenue). (xxiv )Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing a deduction of Rs. 40,826 on account of contribution to Gratuity Fund? (At the instance of revenue)." 2. The assessee derives income from manufacture and sale of industrial felts used in paper making industry. It filed its return for the assessment year 1977-78 on 29-7-1977. The accounting year of the assessee was up to 30-9-1976. 3. The Assessing Officer disallowed certain claims of the assessee. Details thereof are as under :- (i) Re: Excise Duty It debited the amount to profit and loss account as excise duty payable but the amount was not actually paid till the date of assessment. The assessee took the plea before the authorities that the excise duty was not payable. The Assessing Officer disallowed deduction following judgments of the Hon'ble Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1975] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v . CIT [1974] 97 ITR 615 . It was held that deduction could....
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....to the funds during the year could not be allowed as deduction. It was further held that funds other than gratuity funds had not been approved for the year under consideration. Since the said funds were dealt with under section 36(1)(iv) and (v), general provision of section 37 could not be invoked. (iv) Re: Perquisites under section 40A(5) The Assessing Officer also disallowed expenditure on employees which was considered to be perquisites for section 40A(5), following its order in respect of assessment year 1976-77 which had been affirmed by the CIT(A). The said items are rent paid for housing of servants of the directors, house maintenance expenses of directors, value of perquisites in the hands of employees, expenditure incurred on running/maintenance of one car in the hands of directors which had been given for personal use, wages paid to personal servants of employees, rent of garage of the car used for personal use, depreciation on assets used for personal use of the directors/employees, reimbursement of medical expenses and house rent paid to employees. In respect of house rent allowance, it w....
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....e towards advertisement in souvenir of Indian National Congress and similar other expenditure on advertisement was disallowed in absence of production of souvenir or other proof. 4. The CIT(A) partly allowed the appeal of the assessee in the following manner :- (a)Expenditure on maintenance of cars provided to S/Shri N. Nath and Tapedar was partly allowed to the extent of Rs. 8,500 on the ground that Shri Tapedar had used the car only for five months. (b)Expenditure related to refreshments etc. to employees and staff was partly allowed to the extent of Rs. 6,000 on the ground that the said amount was referable to refreshments to business constituents. Reliance was placed on judgment of this Court in CIT v. Gheru Lal Bal Chand [1978] 111 ITR 134 . (c)Claim of the assessee for professional fees and expenses was partly allowed. (d)Deduction in respect of excis....
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....ssee. (vi)The Tribunal allowed the claim in respect of travelling expenses. (vii)The Tribunal allowed the claim towards contribution to gratuity fund under section 36(1)(iv). (viii)The Tribunal allowed the expenditure on advertisement. (ix)The Tribunal allowed the claim for contribution to gratuity fund which had been approved by the Commissioner. 8. We have heard learned counsel for the parties and perused the record. Learned counsel for the parties have also filed written notes, which we have perused. We now proceed to deal with the questions referred serial-vise. Re: Q. No. (i) 9. Learned counsel for the assessee submitted that the Staff Superannuation Fund was established vide trust deed dated 1-12-1976 with effect from 1-10-1975 which was granted recognition by the Commissioner vide order dated 30-12-1978 with effect from 1-10-1970. The deed was ....
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....provisions in this section, there is a ban on the deduction in computing the income chargeable under the head 'Business' of any payment to a provident or other fund established for the benefit of the employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head 'Salaries'. Admittedly, there was no provision made in the trusts as originally drawn up and which governed the fund during the relevant previous year. The subsequent amendment or modification of the trust deed cannot operate retrospectively and there was clearly no mechanism provided in the trust deed to secure deduction of tax at source in respect of payment chargeable to it. In the course of hearing, it was suggested that as there was an obligation under the Income-tax Act itself for deduction of appropriate tax from any payment chargeable to tax by the trustees of the fund, it must be assumed that effective arrangements were there. But this contention has no force and is repelled by the decision in Hindustan Commercial Bank Ltd. v. CIT 46 ITR 910. Before parting with this ground,....
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....-tax Rules, 1962 which had not been done. In view of judgment of the Hon'ble Supreme Court in CIT v. British Bank of Middle East [2001] 251 ITR 217 1 this question is answered against the assessee and in favour of the revenue. Re: Q.No. (iv) 18. Contention raised on behalf of the revenue is that the Tribunal erred in permitting deduction for user of the car for personal use without recording any finding about the period the car was used for business purpose. Finding of the Tribunal is as under :- "18. . . . On the facts stated above there can be no objection to the relief of Rs. 8,500 allowed by the learned Commissioner since the disallowance of Rs. 30,000 on the basis that Shri Tapedar used the car for the entire year was obviously incorrect. There is nothing wrong in the order of the learned Commissioner as he has, on his own calculation held that the disallowance should be taken at Rs. 21,500 against Rs. 30,000 for the entire year. This is, however, subject to the decision in quantum that may be taken in the assessee's appeal." 19. We are of the view that the finding of the Tribunal is a find....
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....the remaining amount of Rs. 81,000 was allowed as a deduction. The position remains the same before us. It does appear that the commission of Rs. 81,000 was paid to the Sr. Executive Staff, over and above, the salary payable to them. It was thus a payment made by the employer to the employees in consideration of the services rendered. As held in Shahzada Nand's case section 36(1)(ii) of the Income-tax Act, 1961 does not postulate that there should be any extra services rendered by an employee before payment of commission to him can be justified as an allowable expenditure. If the services were, in fact rendered by the employee, it is immaterial that the services rendered by the employee was in no way greater or more onerous than the services rendered by him in the earlier years. This being the position and the reasonableness of the amount not having been doubted by the authorities below and the genuineness of the payment having been accepted, we feel that the learned Commissioner (Appeals) rightly allowed the assessee's claim for Rs. 81,000. Before closing, it must be mentioned that the payment was clearly for commercial expediency since it was made to the Sr. Executive Staff in or....
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....sion paid to an employee is to be treated as salary for purposes of section 40A(5). 32. Accordingly, we hold that the Tribunal was right in directing that the commission paid to executive staff be treated as salary for purposes of section 40A(5). 33. Accordingly, the question is answered in favour of the revenue and against the assessee. Re: Q. No. (xii) 34. Learned counsel for the revenue referred to amendment made vide Act 10 of 1981 to the Haryana General Sales Tax Act, whereby Entry XIV of Schedule 'B' was amended and the product was added as taxable retrospectively with effect from 26-4-1971 up to 6-9-1978. Though, the Hon'ble Supreme Court had earlier given a different interpretation by which the assessee was held not liable to sales tax and the amount of sales tax was not liable to sales tax but the Tribunal still allowed the assessee to deduction in respect of the assessment year in question on the ground of liability having accrued but in view of amendment, liability of the assessee having been duly crystallised, the finding of the Tribunal has to be upheld and the question has to be answered against the revenue and in favour of the assessee. 35. Accordingly....
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.... in law in treating the said expenditure as a perquisite since the telephone was installed at the residence of the Directors and the senior employees for the purpose of business and further more it was not an asset belonging to the assessee-company and hence, the provisions of section 40A(5)(a)( ii) could not be applied. The learned Commissioner, however, could not agree as he noticed that the aforementioned provision of section 40A(5) had two limbs. Firstly, it covered expenditure resulting directly or indirectly in the provision of any perquisite to an employee and secondly it covered expenditure incurred directly or indirectly in respect of any asset of the assessee used by the employee wholly or partly for his private purpose. The second limb, the learned Commissioner found, did not apply in the present case since the telephone was not an asset belonging to the company but the first limb became applicable as provision of the telephone, even if it was not the company's asset, was a benefit or amenity provided to the Director or the employee and, therefore, it could be treated as a perquisite and the value thereof could be included in the perquisites for the purpose of section 40....
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....f the assessee. Re: Q. No. (xix) 51. On this issue, the finding of the Tribunal is as under :- "38. . . . It cannot, therefore, be held that the borrowing was not for the purpose of the assessee's business but for advancing the loan to Shri Nath. Even otherwise it cannot be denied that small financial accommodation provided to a Director or employee can be considered to be in the interests of business as a matter of commercial or business prudence and so can be treated as for the purpose of the assessee's business. This is particularly because it is seen that the amount of loan advanced to Shri N. Nath is a negligible percentage of the total borrowings reflected in the month-wise figures of bank balances including the overdrafts detailed at page 184 of the paper book compilation filed by the assessee. There is, therefore, according to us, no basis for holding that any sum was borrowed by the assessee specially for the purpose of advancing loan to Shri N. Nath, a Director." 52. Learned counsel for the assessee relied upon judgment of the Hon'ble Supreme Court in V.M. Salgaocar & Bros. (P.) Ltd. v. C....