TaxTMI 
TaxTMI 
1978 (7) TMI 240
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....d 5-3-1977 in respect of the assessment for 1974-75 held that the assessee had incurred a liability in respect of additional wages and allowances payable to its workers as accepted by it before the Industrial Tribunal in a dispute arising with its employees and it directed that the ITO shall allow a deduction for the assessee's claim to the extent he may find the estimate in respect of the additional liability to be reasonable having regard to the relevant facts and circumstances. Shri Dastur's stand that the said order of the Tribunal had become final was not controverted by Shri Tamhane. It is also not suggested that there is any material distinction between the relevant facts and circumstances of the case for 1974-75 and 1975-76. The AAC did not allow the corresponding claim of the assessee for 1975-76 at a stage at which the above mentioned order of the Tribunal had not been passed. One of the grievances of the assessee before us is that a deduction of the sum of ₹ 10,08,356 may be allowed. For the reasons stated in the earlier order of the Tribunal dated 5-3-1977 with which we are in agreement, we hold that the ITO shall allow the assessee's claim to the e....
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....is (₹ 1,20,000-₹ 60,000) ₹ 60,000 and in the case of M.G. Maheshwari it is (₹ 90,000-₹ 60,000) ₹ 30,000, i.e., the total amount of addition has to be ₹ 90,000. 7. Though the ITO and the AAC in their respective orders have mentioned that the assessee has worked out the amount not allowable at ₹ 1,09,183 and the ITO has determined the amount not allowable at ₹ 1,13,478, the difference of ₹ 4,295 is the difference between the sums of ₹ 90,000 and ₹ 85,705 determined in the manner stated above. As indicated earlier, the assessee objects to the addition of ₹ 4,295 sustained by the AAC. 8. As also indicated above, the fundamental reason for such a dispute is that whereas according to the department the addition has to be determined in accordance with the limits prescribed under clause (c) of the provisions of section 40A(5) because the concerned persons are employees of the assessee-company, according to the assessee the addition has to be determined in accordance with the provisions of section 40(c) which operate in the cases of companies when the payment in question is made to directors. The scope for suc....
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.... as set out by the proviso will apply and it is that the total amount to be allowed whether as salary for the period when he was only an employee or as salary or remuneration paid to him as a director-employee should not exceed a sum of ₹ 72,000. The relevant language used in the said proviso is "...in respect of an employee or a former employee, being a director..." The language seems to refer to a director who is an employee or who has been an employee. In the case of a director who is an employee during the relevant previous year the question that arises is as to whether the remuneration paid to him will come within section 40A(5)(a)(i) & (ii) or 40(c)(i) & (ii). If it comes under all those clauses, or for instance under section 40A(5)(a)(i) & (ii) then the provision under clause (b) of the proviso will be redundant or inapplicable. Similarly, if it falls under section 40(a)(i) & (ii) it would appear as if the provision contained in clause (a) of the proviso becomes redundant or inapplicable. The apparent difficulty is resolved when we hold that the remuneration paid to a director whether as an employee or otherwise would fall only under section 40(c), clauses (....
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....s of sections 40(c) and 40A(5)(a) with their relevant provisos, on a combined reading of the provisions is that the cases of directors are taken out for special treatment and consideration concerning the allowance of expenditure on the remuneration or benefit or other amenities which are contained in the provisos to sections 40(c), 40A(5), etc. The intention to carve out for special treatment the cases of directors or persons having substantial interest in the company or their relatives is also borne out by the proviso contained in section 40A(2) which states that the provisions of section 40A(2)(a) applicable to the category of persons referred to in clause (b) will not apply in respect of expenditure contemplated by section 40(c)(i). In the context of the enactment of the provisos to sections 40(c) and 40A(5)(a), the question as to whether a director who is an employee falls exclusively under section 40(c) or under section 40A(5)(a) does not arise because the Legislature itself has understood each of the sections to include director-employees and has enacted special provisions for the purpose of fixing the overall limit in the first proviso to section 40A(5)(a). Thus, we find th....
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....s or directors. The above-mentioned contention of the department is also of no avail to it. 15. We have considered above the more important contentions urged on behalf of the department. Before parting with the matter, we may briefly refer to a few more points made by learned representative of both sides. 16. Shri Tamhane referring to the observations of the report of the decision in the case of Keshavlal Premchand v. CIT [1957] 31 ITR 7 (Bom.) suggested that when a proviso is enacted by a Legislature to curb a certain mischief, it should be interpreted taking into account the intention of the Legislature. In our opinion, the interpretation adopted by us does not go against this suggestion. Each of the two provisos, i.e., the first proviso to section 40A(5) and the proviso to section 40(c) provides for certain limits up to which the relevant kind of expenditure may be allowed as a deduction in certain given situations. We are not holding that the limits shall not operate. We have merely tried to interpret and construe the provisions in a reasonable and harmonious manner. 17. Shri Dastur in the course of his arguments suggested that if a case should fall under two provisions of....