ORDER
Thanikkachalam, J.
1. At the instance of the Department, the Tribunal referred the following question for the opinion of this Court under s. 256(1) of the IT Act, 1961, hereinafter referred to as the ‘Act’, for the asst. yrs. 1975-76 and 1976-77 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the disallowance towards the remuneration paid to Sri R. K. Swamy, the managing director of the company, should be regulated in terms of s. 40(c) and not as per s. 40A(5) of the IT Act, 1961 ?”
2. The reference applications relate to the asst. yrs. 1975-76 and 1976-77. For these two years, the ITO made additions of Rs. 19,164 and Rs. 19,355 respectively in respect of the remuneration paid to the managing director, Shri R. K. Swamy, under s. 40(c)(i)(ii), r/w s. 40A(5) of the Act.
3. On the assessee’s appeal, the CIT(A) held that the excess to be disallowed, if any, should be computed under s. 40(c) of the Act, which applies specifically to directors and not with reference to s. 40A(5), relying on the Gujarat High Court’s decision in Addl. CIT v. Tarun Commercial Mills Ltd. (1978) 113 ITR 745 (Guj) : TC 18R.634. Hence the CIT(A) remitted the matter back to the ITO for recalculating the disallowance under s. 40(c) of the Act. On Revenue’s appeal, the Tribunal upheld the CIT(A)’s direction on this point, following the decision in (1978) 113 ITR 745 (Guj), cited supra as also the decision of the Bombay Special Bench of the Tribunal in the case of Geoffry Manners & Ltd. in ITA No. 1296/Bom/1976-77, for the asst. yr. 1975-76, in which it was held that regarding the director cum employees, s. 40(c) will apply and not s. 40A(5) of the Act.
4. Before us, the learned senior standing counsel appearing for the Department submitted that in the present case, the provisions of s. 40A(5) of the Act would apply, r/w s. 40(c)(i)(ii) of the Act. According to the learned senior standing counsel, the repairing charges borne out by the employer to be treated as perquisite in the hands of the employee director. The learned senior standing counsel further submitted that the Tribunal was not correct in directing the AO to apply s. 40(c) in the present case and find out the reasonableness in allowing the expenditure incurred by the employer towards its managing director.
5. We have heard the learned senior standing counsel appearing for the Department and also the learned counsel appearing for the assessee, who supported the order passed by the Tribunal. The fact remains that the Tribunal in its order, though gave certain findings with regard to certain items of expenditures incurred by the employer, but ultimately directed the ITO to recompute the liability in accordance with s. 40(c) of the Act, especially after finding out the reasonableness of the expenditure, if any, under s. 40(c) of the Act. The Tribunal also directed that in such recomputation, the AO may also deal with the issue about the apportionment of the rent between official and personal use of the managing director. The Tribunal also held that the repairing charges borne out by the employer would amount to perquisite in the hands of the employee-director. In CIT v. Indian Engg. & Commercial Corpn. , the Supreme Court held that the employees concerned herein happen to be directors. The provision in cl. (c) of s. 40 applies to directors among others. Of course, s. 40(c) is applicable only to companies, whereas s. 40A(5) is applicable to employees, whether of companies or others. In the case of directors of company who are also employees, both the provisions ss. 40(c) and 40A(s) will be attracted-the higher of the two ceilings has to be applied”. In view of the abovesaid decision of the Supreme Court, we consider that there is no infirmity in the order passed by the Tribunal in the present case directing the AO to recompute the liability in accordance with the provisions contained in s. 40(c) of the Act. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.