Green Carriers & Contractors ... vs Deputy Commissioner Of Income ...
1995 Latest Caselaw 334 Del

ORDER

N.S. CHOPRA, A.M. :

The assessee as also the Revenue are in cross appeals against order dt. 2nd Nov., 1989 of the learned CIT(A). Both the appeals having been heard together, are disposed of by this common order.

2. The first grievance of the assessee is against disallowance of a lump sum of Rs. 10,000 out of tyre expenses. The assessee-company is engaged in business of transport of goods with a network located in different parts of the country. Assessing Officer (AO) noted that the expenditure claimed by the assessee on tyres as relating to a newly acquired truck No. RSJ-3745 was excessive (Rs. 64,233) as compared to tyre expenses of various old trucks. The AO noted that the expenditure was incurred within a period of 10 months of the acquisition of the truck. He disallowed a sum of Rs. 10,000 on estimate basis. The assessee went in appeal before the learned CIT(A) but, however, failed to meet with any success.

2.1 The learned authorised representative submitted that the authorities below misread the facts and, therefore, reached erroneous conclusion. He submitted that the truck was acquired during the relevant previous year and as per invoice dt. 25th July, 1984 the truck was supplied with four nylon tyres as against 7 wheels supplied and two of the tyres were of 14 ply (front tyres) while two were of 16 ply (rear tyres). He submitted since a truck requires six tyres and 14 ply tyres are not suitable for long range plying with loaded burden, the assessee purchased four tyres of 16 ply on 17th Aug., 1984 and fitted this truck with these tyres. He submitted that while the assessee was, thus, having 8 tyres, six were fitted while one was used as spare wheel, the remaining one was used as spare wheel in another truck and the replaced tyres were also used in the business of the assessee. He submitted that the number of tyre consumed by the truck compares very favorably with the same as used by trucks already in use. In this connection he referred to page 1 of the paper book indicating tyre consumption of all the trucks. It was also submitted that expenses on this account on this truck in the next year have come down as compared to the same as relating to other trucks. He referred to the submissions made before the learned CIT(A) in this connection. On the other hand, the learned Departmental Representative fully supported the order of the Assessing Officer.

2.2 Having heard the learned representatives of the parties as also after going through the relevant record, we are of the view that there is no justification for the impugned addition and the explanation given by the assessee, as backed up by the evidence, is not controverted by the Revenue with the help of any material. Addition of Rs. 10,000 is deleted.

3. Ground No. 2 is not pressed.

4. Ground No. 3 is that the Assessing Officer is wrong in disallowing a sum of Rs. 14,737 on account of rent of director-employees. It is the claim of the assessee that this payment, including the other remuneration are much within the limits prescribed under S. 40(c) of the IT Act. The AO made disallowance of Rs. 80,246 under S. 40A(5)(c) being related to remuneration to directors Rs. 14,737 and staff salaries Rs. 65,509. With regard to Rs. 14,737 it was claimed that the amount could not be included while computing assessees income since the total remuneration of directors even after including the above amount did not exceed the limit of Rs. 1,02,000 per annum prescribed under S. 40(c) of the Act. The AO and the learned CIT(A) both did not agree with the plea of the assessee. The assessee is aggrieved.

4.1 It is submitted that house rent allowance even if treated as part of salary in the case of directors is to be considered under S. 40(c) and not 40A(5)(c). In support of this proposition, the learned authorised representative places reliance on Bombay High Court judgment in the case of CIT vs. Hico Products Pvt. Ltd. (1993) 201 ITR 567 (Bom) and again Bombay High Court judgment in the case of CIT vs. Hico Products (1993) 201 ITR 575 (Bom), wherein it has been held that in the case of employee-director the provisions of S. 40A(5)(a) and the ceiling of limit contemplated therein under cl. (c) would not apply but the ceiling of Rs. 72,000 (as then was prescribed contained in proviso to S. 40A(5)(a) r/w S. 40(c) would be applicable. The Honble High Court dissented with the judgment of Honble Kerala High Court in the case of Travancore Rayons Ltd. vs. CIT (1986) 162 ITR 732 (Ker). On the other hand, the learned Departmental Representative submitted that the Honble High Court of Delhi in the case of Continental Construction vs. CIT (1990) 185 ITR 178 (Del) have held that in the case of directors, the provisions of S. 40A(5) are applicable.

4.2 We have heard the learned representatives and have also perused the relevant record. The reliance placed by the learned Departmental Representative in the case of Continental Construction Ltd. (supra) is misplaced, inasmuch as, it has been held that the provisions of S. 40(c) do not apply in respect of employee-directors who were posted outside India and such a case is dealt with only by S. 40A(5)(b). On the other hand, a large number of High Courts have taken the view that in the case of directors who may also be employees of the company, the provisions of S. 40(c) of the IT Act would be applicable while computing the income of the company. We may refer to the judgment of Calcutta High court in the case of CIT vs. India Molasses Co. (P.) Ltd. (1989) 176 ITR 473 (Cal) and Peico Electronics & Electricals Ltd. vs. CIT (1993) 201 ITR 477 (Cal) and Gujarat High Court in Addl. CIT vs. Tarun Commercial Mills Ltd. (1978) 113 ITR 745 (Guj). Therefore, we allow the assessees appeal and hold that the amount of Rs. 14,737 is to be included for the purposes of working out limits under S. 40(c) of the Act.

5. Ground No. 4 is against disallowance of Rs. 610 out of general expenses. The amount is on account of cash gifts (Shagun) on the occasion of marriage of members of the staff. This is held to be business expenditure and, therefore, allowed under S. 37.

6. The last grievance of the assessee is against disallowance of Rs. 65,509 under S. 40A(5)(c) on account of payments made to employees. The amount is constituted of house rent allowance being paid to staff in cash Rs. 12,183; to landlord on behalf of staff Rs. 30,090 and staff where total salary does not exceed Rs. 7,500 p.a. Rs. 14,246 or Rs. 65,509. Whereas we do not find much discussion with regard to disallowance in the order of the learned CIT(A) as also of the AO, it is well settled that house rent allowance forms part of salary as defined in Expln. 2 to S. 40A(5) and, therefore, the same is includible in salary for computing disallowance, the house rent Allowance being not a perquisite. We draw support from the judgment of Honble Andhra Pradesh High Court in the case of CIT vs. Warner Hindustan Ltd. (1984) 145 ITR 24 (AP) as also of Honble jurisdictional High Court in the case of CIT vs. Shri Ram Refrigeration Industries (1992) 197 ITR 431 (Del), wherein it has been held that cash payment towards House Rent Allowance are not perquisite but are part of salary. On these facts and under these circumstances we allow this ground of appeal also.

7. In the result, assessees appeal is partly allowed.

8. The only grievance of the Revenue in its appeal is that the learned CIT(A) erred in deleting the addition of Rs. 95,286 which was rightly made by the AO out of expenses under the head customers claim. The claim of the assessee was disallowed by the AO for the reasons that the same pertained to earlier years and the assessee was following mercantile system of accounting and accordingly he considered only the date of issue of goods receipt and concluded that the claim of pertained to earlier years.

In appeal the learned CIT(A) examined the claim of the assessee and found that on facts and in the circumstances the claim made by the assessee was in accordance with the system of accounting as regularly followed by the assessee since the very inception or its business in 1976. The learned CIT(A) himself verified the claim of the assessee and found the same as fully allowable. He, thus, deleted the addition. The Revenue is aggrieved. The learned Departmental Representative supported the order of the AO while the learned authorised representative for the assessee supported the order of the learned CIT(A).

8.1 We have heard the learned representatives of the parties and have also perused the relevant record. We are of the view that the order of the learned CIT(A) does not suffer from any infirmity or fallacy in reasoning and, therefore, endorsing his finding, dismiss appeal of the Revenue.

OPEN