JUDGMENT
M. S. Shah, J.
1. In this reference at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following questions for our determination arising out of I. T. A. No. 1347/Ahd of 1985 in respect of the assessment year 1984-85 :
“(1) Whether in law and on facts, the Tribunal is right in holding that medical benefit and house rent allowance to the managing director cannot be considered, for the purpose of disallowance under Section 40(c) of the Income-tax Act, 1961 ?
(2) Whether in law and on facts, the Appellate Tribunal is right in holding that cash payment of a special duty allowance of Rs. 16,611 to the employees cannot be considered for disallowance under Section 40A(5) of the Income-tax Act, 1961 ?
(3) Whether the assessee is entitled in law and on facts, to a deduction of Rs. 4,750 under Section 80VV of the Income-tax Act, 1961 ?”
2. In so far as question No. 1 pertains to reimbursement of medical benefit, the controversy is concluded against the assessee by the decisions of this court in Gujarat Steel Tubes Ltd. v. CIT [1994] 210 ITR 358 and CJT v. Ambica Mills Ltd. [1999] 236 ITR 921. Accordingly, the first part of question No. 1 will have to be answered in the negative, i. e., in favour of the Revenue and against the assessee.
3. In so far as the controversy about the house rent allowance is concerned, the same is concluded in favour of the assessee and against the Revenue inasmuch as in CIT v. Mafattal Gangabhai and Co. P. Ltd, [1996] 219 ITR 644, the apex court has held that the cash payment by an assessee to his/its employees do not fall within the ambit of Section 40(a)(v) or Section 40A(5)(a)(ii), and that the words “any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite” contemplate a situation where the assessee makes a payment (in cash) in respect of an obligation of the employee, which would have been payable by the employee if it is not paid by the assessee. The payment by the assessee contemplated by these words is evidently not a payment to the employee but to a third party, no doubt, on account of the employee.
4. In view of the aforesaid pronouncement of the apex court that cash payments by an assessee to his/its employees do not fall within the ambit of the aforesaid provision, it is obvious that the payment of house rent allowance by the assessee to its managing director in cash cannot be considered for the purpose of disallowance under Section 40(c) of the Act. Hence, the second part of question No. 1 is required to be answered in the affirmative, i. e., in favour of the assessee and against the Revenue.
5. As regards question No. 2 pertaining to cash payment of special duty allowance of Rs. 16,611 to the employees, in view of the aforesaid principle laid down by the apex court in CIT v. Mafatlal Gangabhai and Co. P. Ltd. [1996] 219 ITR 644, it will have to be held that cash payment of special duty allowance to the employees cannot be considered for disallowance under Section 40A(5) of the Act. Accordingly, question No. 2 will have to be answered in the affirmative, i. e., in favour of the assessee and against the Revenue.
6. As far as question No. 3 is concerned, since the provisions of Section 80VV are not covered by the provisions of Section 80VVA, the Tribunal was right in confirming the finding given by the Commissioner of Income-tax (Appeals) that the expenditure of Rs. 4,750 in connection with the legal proceedings in respect of the tax liability under the Act will have to be allowed from the balance of 30 per cent, of the income of the assessee. Accordingly, the Commissioner of Income-tax was justified in deleting the addition of Rs. 4,750 made by the Income-tax Officer. In view of the above discussion, question No. 3 is also required to be answered in the affirmative, i. e., in favour of the assessee and against the Revenue.
7. In the result, the second part of question No. 1 (pertaining to house rent allowance) and questions Nos. 2 and 3 are answered in the affirmative, i. e., in favour of the assessee and against the Revenue. The first part of question No. 1 regarding reimbursement of medical benefit is answered in the negative, i.e., in favour of the Revenue and against the assessee.
8. The reference accordingly stands disposed of with no order as to costs.