Commissioner of Income Tax vs Indopol Limited

Bharucha, J.—This reference u/s 256(1) of the Income Tax Act, 1961, is made at the instance of the Revenue. It raises the following question :

"Whether, on the facts and in the circumstances of case, the Tribunal was right in holding that the perquisites allowed to the foreign technicians would not be covered by section 40(c)(iii)/40(a)(v) of the Income Tax Act, 1961, and thereby deleting the disallowance made u/s 40(c)(iii)/40(a)(v) to extent of Rs. 8,310, Rs. 12,232 and Rs. 17,883 for the assessment years 1968-69, 1969-70 and 1970-71, respectively ?"

The facts are indicated in the question itself.

The Income Tax Officer disallowed the expenditure because it related to perquisites which were in excess of one-fifth of the salaries of the foreign technicians of the assessee-company. The Appellate Assistant Commissioner, in appeal, confirmed the disallowance. The Tribunal, in further appeal, pointed out that salaries of foreign technicians were exempt from tax so that they were not chargeable under the head "Salary". The Tribunal, therefore, held that the perquisites allowed to the foreign technicians were not to be considered under the provisions of section 40(c)(iii) or section 40(a)(v) of the Income Tax Act, 1961, by virtue of the provisos to those sub-sections.

The question referred to us arises out of this finding of the Tribunal. The provisos to section 40(c)(iii) and section 40(a)(v) of the Income Tax Act, 1961, read, in identical terms, thus :

"Provided further that nothing in this sub-clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head ''Salaries'' is seven thousand five hundred rupees or less."

The Madras High Court in Additional Commissioner of Income Tax Vs. Brakes India Ltd., , took the view that the words "seven thousand five hundred rupees or less" would include a "nil" amount and could not be understood to mean "from one rupee to Rs. 7,500". The court was unable to find any rationable or logic for not giving the benefit of the proviso to a case where no part of the amount paid was chargeable under the head "Salary".

This court, in the case of Bombay Burmah Trading Corporation Ltd. Vs. Commissioner of Income Tax, Bombay City-IV, , followed the aforesaid judgment in the interest of uniformity of construction of the provisions of the Income Tax Act.

Following the aforesaid judgment, as we must, we take the same view. The assessees'' foreign technicians would receive salary which would be "nil" for the purpose of the aforementioned proviso. The perquisites paid to them would, therefore, not be covered by the provisions of sections 40(c)(iii) and 40(a)(v) of the Income Tax Act, 1961.

Accordingly, the question is answered in the affirmative and in favour of the assessee.

No order as to costs.