Gujarat High Court
Commissioner Of Income Tax vs Synpol Products Pvt. Ltd. on 8 September, 1995
Equivalent citations: [1996]217ITR154(GUJ)
JUDGMENT Rajesh Balia, J.
1. At the instance of CIT, Gujarat I, the Tribunal, Ahmedabad, has referred the following six questions of law stated to be arising out of its order in ITA No. 1892/Ahd/1987 for the asst. yr. 1984-85 in respect of the respondent-assessee :
"(1) Whether the Tribunal is right in law and on facts in directing the ITO to apply the provisions of s. 40(c) instead of s. 40A(5) of the Act in respect of the remuneration due to the managing directors who have been treated as employees of the company ?
(2) Whether the Tribunal is right in law and on facts in directing the ITO not to include the value of medical reimbursement as a perquisite ?
(3) Whether the Tribunal is right in law in deleting the addition of Rs. 1,89,190 (Rs. 1,13,830 + Rs. 75,380) on ground that the amount of Rs. 1,89,190 represented the sales-tax and central sales-tax liability for the last quarter of the accounting year and was deposited by the assessee not only within the statutory time-limit provided by relevant State legislation and Central legislation but also before the due date for furnishing the return under s. 139(1) and, therefore, provisions of s. 43B would not be applicable ?
(4) If the answer to question No. 3 is in the negative whether the Tribunal is right in law and on facts in holding that the sales-tax collections of Rs. 1,89,190 is a part of trading receipt ?
(5) Whether the Tribunal is right in law in deleting the addition of Rs. 722 and Rs. 4,463 on the ground that said sums represented respectively the ESI and liability for the last month of accounting year and was deposited by the assessee within the statutory time-limit provided by relevant ESI legislation and PF legislation ?
(6) Whether the Tribunal is right in law in holding that the provisions of s. 43B are applicable even if the amounts collected by the assessee by way of sales-tax is neither debited to P&L account or not is a provision made therefore and deduction claimed for the same ?"
2. In respect of remuneration paid to "managing directors" of the company who had been treated as employees, the Assessing Officer (AO) applied the provisions of s. 40A(5) of the IT Act, 1961, for the purpose of applying limit upto which remuneration paid to the employee of the company could be allowed as an expenditure for the purpose of computing income from its business. The Tribunal in its decision has held that for the purpose of computing income of the company maximum limit upto which the amount spent by the company in paying the remuneration to its directors could be allowed as expenditure under s. 40(c) for the purpose of payment of tax was applicable under s. 40A(5) by accepting the contention of the assessee.
3. The matter has now been concluded by a decision of the Supreme Court in the case of CIT vs. Indian Engg. & Commercial Corpn. P. Ltd. (1993) 201 ITR 723 (SC) wherein it has been held as under :
"The employees concerned herein also happen to be directors. The provision in clause (c) of s. 40 applies to directors among others. Of course, s. 40(c) is applicable only to companies whereas s. 40A(5) is applicable to employees whether of companies or others. In the case of directors who are also employees, both the provisions will be attracted - the higher of the two ceilings has to be applied."
4. Following the aforesaid decision, we hold that the Tribunal was right in directing to apply the provisions of s. 40(c) instead of s. 40A(5) of the Act in respect of remuneration due to the managing directors who have been treated as employees of the company. Accordingly, the question is answered in the affirmative in favour of the assessee and against the Revenue.
5. The question No. 2 pertains to includibility of reimbursement of medical expenses within the maximum limit under s. 40(c) has been allowed in deduction.
6. In the case of Gujarat Steel Tubes Ltd. vs. CIT (1995) 210 ITR 358 (Guj) it is held that reimbursement of medical expenses incurred by the directors is a benefit to a director within the meaning of s. 40(c)(1) of the IT Act.
Accordingly question No. 2 is decided in negative that is to say in favour of the Revenue and against the assessee.
7. Regarding the third question, it has been found by the Tribunal that additions of amounts representing the sales-tax and central sales-tax liability for the last accounting year, it was though unpaid at the close of previous year but deposited by the assessee within the statutory limit provided by the respective statutes and also before the date of furnishing returns under s. 139(1) and, therefore, s. 43B would not be applicable and consequently, such existing liability but not actually paid until end of previous year on account of sales-tax cannot the income of the assessee. For the same reason, additions made on account of unpaid contribution to ESI, and PF remaining outstanding on last date of previous year but actually paid before filing of return was ordered to be deleted.
8. It is to be noticed that the following proviso to s. 43B was inserted by Finance Act, 1987, which reads as under :
"Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-s. (1) of s. 139 in respect of the previous year in which the liability to pay such sums was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return :
Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Expln. below clause (va) of sub-s. (1) of s. 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."
9. This Court had an occasion to consider the effect of this provision in the case of CIT vs. Chandulal Venichand (1995) 209 ITR 7 (Guj) wherein a Bench of this Court has held that :
"the first proviso to s. 43B of the IT Act is remedial and curative in nature and the proviso was brought into force to remedy unintended hardship which was likely to be caused by s. 43B. It is further held that it is also declaratory in its nature and hence the said proviso relates back to the date when s. 43B came into operation, i.e., 1st April, 1984."
10. In view of the aforesaid decision, it must be held that in view of proviso to s. 43B being effective from the date of the insertion of s. 43B, that is 1st April, 1984, the Tribunal was right in holding that to the extent payment of sales-tax and contribution to ESI and P. F. were made by the assessee within the time-limit set out in proviso, no recourse to s. 43B can be resorted to. Accordingly question No. 3 and 5 are answered in favour of assessee and against the Revenue.
11. In view of our answer to question No. 3 is in the affirmative, Question No. 4 which is referred to us as a consequential to answer to question No. 3 in the negative, it does not call for any decision thereon.
12. In our opinion, question No. 6 becomes academic and need not be answered in view of our answer to question No. 3 and accordingly we decline to answer question No. 6. Reference accordingly stands disposed of with no order as to costs.