Madras High Court
Commissioner Of Income-Tax vs Sundaram Fastners Limited on 21 April, 1998
Equivalent citations: [2000]244ITR741(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT N.V. Balasubramanian, J.
1. The question of law referred at the instance of the Revenue relating to the assessee's assessment year 1980-81 reads as under :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the medical reimbursement and house rent allowance paid to the managing director and executives of the company should not be treated as remuneration for the purpose of working out the limits applicable under Section 40(c) and under Section 40A(5) of the Act ?"
2. The assessee is a company and while determining the income for the assessment year 1980-81, the Income-tax Officer treated the medical expenses reimbursed by the company to its managing director as a part of the remuneration under Section 40(c) of the Income-tax Act and also treated a sum of Rs. 52,406 being the house rent allowance paid in cash and medical reimbursement paid in cash to the executives as forming part of the salary under Section 40A(5) of the Act. The Commissioner of Income-tax (Appeals) held that they should be treated as part of the remuneration for the purpose of determining the ceiling under Section 40(c) or 40A(5) of the Act. The Appellate Tribunal, however, held that the medical reimbursement and house rent allowance paid in cash cannot be considered as part of the salary in reckoning the disallowance under Section 40(c) or 40A(5) of the Act. The Revenue, has challenged the order of the Appellate Tribunal and the question of law set out above has been referred to us for our consideration.
3. In so far as the payment of house rent allowance to the managing directors, the case has to be considered under the provisions of Section 40(c) of the Act. This court in the case of Rane (Madras) Ltd. v. CIT [1995] 212 ITR 583, has taken the view that the cash allowance paid to the managing directors by way of house rent allowance is a part of remuneration and should be taken into account for the purpose of determining the ceiling under Section 40(c) of the Act. In so far as the payments to the executives of the companies are concerned, the case would fall under Section 40A(5) of the Act. The cash allowance paid by the assessee to the executives by way of house rent allowance or reimbursement of medical expenses cannot be regarded as perquisite but still they would form part of the salary for the purpose of determining the ceiling under Section 40A(5) of the Act. The Supreme Court in the case of CIT v. Mafatlal Ganaabhai and Co. (P.) Lid [1996] 219 ITR 644, has taken the view that the cash payment be treated as salary paid to the employees and will be subject to the ceiling prescribed under Section 40A(5) of the Act though they cannot be regarded as a part of the perquisite for the purposes of Section 40A(5) of the Act. The Appellate Tribunal is not correct in holding that the house rent allowance and medical reimbursement should not be taken into account as a part of the salary in reckoning the disallowance under Section 40A(5) of the Act. Accordingly, we answer the question of law referred to us in the negative and in favour of the Revenue. However, in the circumstances there will be no order as to costs.