Commissioner of Income Tax vs Khanna Industries (P.) Ltd.

The following two questions have been referred for our opinion:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that cash payments such as H.R.A., Conveyance allowance, reimbursement of p Medical expenses made by the assessed to its employees could not be considered as perquisite for the purposes of computation of disallowance u/s 40A(5) of the Income Tax Act, 1961

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was, correct in law in holding that only the overall limit of Rs. 72,000 would be applicable in case of Shri Deepak Singh who was Director Employee and not separate limits prescribed under Clause (c) of Section 40A(5) of the Income Tax Act, 1961

Insofar as Question No. 1 is concerned, we have examined the paper book and we find that the tax effect on this is negligible and accordingly, we return the reference unanswered.

Insofar as Question No. 2 is concerned, the admitted position is that the employees of the assessed who were Directors in the assessed company were paid salary and perquisites.

Commissioner of Income Tax, Bombay Vs. M/s. Indian Engineering and Commercial Corporation Pvt. Ltd., held that if the employee is a Director, then as against Section 40(c) and Section 40A(5) of the Income Tax Act, 1961, both the provisions will be applicable for the purposes of deduction in the hands of the assessed-company and the higher of the two ceilings has to be applied.

Following the view taken by the Supreme Court, we answer the reference accordingly.