Commissioner of Income Tax vs Ess Ess Kay Engg. Co. P. Ltd.

M.M. Kumar, J.—This order shall dispose of ITR Nos. 82 of 1989, 64 of 1992, 18 and 19 of 1993 as identical questions of law have been raised. The controversy in the present bunch of references has emerged out of the orders passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity, "the Tribunal", in the following cases:

-------------------------------------------------------------------------------- Sr. ITR No. Tribunal''s Arising out of Assessment No. order dated year -------------------------------------------------------------------------------- 1. 82 of 1989 (CIT v. Ess Ess Kay Engg. 7-5-1987 I.T.A. No. 1981-82 Co. P. Ltd., Kapurthala 30/ASR/1987 2. 64 of 1992 (CIT v. Ess Ess Kay Engg. 14-9-1990 I.T.A. No. 1979-80 Co. (P.) Ltd., Kapurthala 263/ASR/1990 3. 18 and 19 of 1993 (CIT v. Ess Ess Kay 21-9-1992 I.T.A. No. 1982-83 Engg. Co. F Ltd., Kapurthala 704 and and 705/ASR/1987 1983-84 --------------------------------------------------------------------------------

The common questions of law, which have arisen in these references are as under:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in deleting the disallowance made representing value of perquisite of concessional rate of interest charged on borrowings from managing director (Rs. 29.610) and meeting fees (Rs. 2,400) which are clearly hit by the proviso to Section 40A(5)/40A(6) of the Income Tax Act, 1961?

Whether, on the facts and in the circumstances of the case and keeping in view the provisions of Section 40(c)(A) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal is right in law in holding that the amount of Rs. 2,400 being the director''s meeting fee over and above the total emoluments of the director amounting to Rs. 72,000 is allowable?

In order to put the controversy in proper perspective, the facts are being stated from ITR No. 64 of 1992. As per the statement of the case, the assessee is a private limited company dealing in manufacture and sale of electrical accessories and porcelain fuse units. For the assessment year 1979-80, the assessee filed its return on December 31, 1979, declaring its taxable income Rs. 1,76,680, which was subsequently revised on February 23, 1982, declaring taxable income Rs. 1,82,180. The Assessing Officer, vide his order dated February 28, 1982, framed the assessment on the total income of Rs. 2,81,565 after making additions, inter alia, on account of disallowance u/s 40A(5)/40A(6) as well as disallowance on account of concessional interest charged from the managing director on borrowings/drawings. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), Jalandhar, who, vide his order dated February 18, 1987, allowed the appeal of the assessee, inter alia, by deleting the additions on account of disallowance made under Sections 40A(5)/40A(6) and 37(3A) and concessional interest charged from the managing director on the borrowings/drawings. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals).

The matter is no longer res integra. A Division Bench of the Andhra Pradesh High Court in the case of CIT v. Vazir Sultan Tabacco Co. Ltd. [1998] 173 ITR 290 has taken the view that the difference between the concessional rate of interest and the market rate of interest on loans advanced to employees for building houses was not to be considered as a perquisite for the purposes of Section 40A(5). The hon''ble Supreme Court in the case of Commissioner of Income Tax, Bombay Vs. M/s. Indian Engineering and Commercial Corporation Pvt. Ltd., , has observed that in the case of directors, who are also employees, both the provisions are attracted. Likewise, for determining permissible expenditure, which is outside the ceiling limit, both these ceilings would be applicable. For the aforementioned proposition reliance may be placed on the judgment of the hon''ble Supreme Court in the case of Commissioner of Income Tax, Delhi (Central-I) Vs. M/s. Continental Construction Ltd., . Accordingly, we confirm the view taken by the Tribunal in upholding the order of the Commissioner of Income Tax (Appeals), which is consistent with the view expressed by the Division Bench of the Andhra Pradesh High Court in the case of Vazir Sultan Tobacco Co. Ltd. [1998] 173 ITR 290 and the Division Bench judgment of the Calcutta High Court in the case of Indian Oxygen Ltd. Vs. Commissioner of Income Tax, . Therefore, the question is decided against the Revenue.

A photocopy of this order be placed in the file of the connected cases.