Commissioner of Income Tax vs Sundaram Fastners Limited

N.V. Balasubramanian, J.—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 u/s 40(c) and u/s 40A(5) of the Act ?

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 u/s 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 u/s 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 u/s 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 u/s 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.

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. Vs. Commissioner of Income Tax, 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 u/s 40(c) of the Act. In so far as the payments to the executives of the companies are concerned, the case would fall u/s 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 u/s 40A(5) of the Act. The Supreme

Court in the case of Commissioner of Income Tax, Bombay, etc. Vs. M/s. Mafatlal Gangabhai and Co. (P) Ltd., , has taken the view that the cash

payment be treated as salary paid to the employees and will be subject to the ceiling prescribed u/s 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 u/s 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.