ORDER
Rajendra, Accountant Member
1. The revenue is aggrieved against the order of the Commissioner (Appeals).
2 to 4. [These paras are not reproduced here as they involve minor issues]..
5. The assessee-company had paid salary of Rs. 48,000 to two directors and perquisites in the shape of house rent and water, gas and electricity totalled Rs, 24,322. The said payment was in cash. The ITO allowed Rs. 9,600 being one-fifth of salary of Rs. 48,000 and disallowed balance of Rs. 14,722.
6. The Commissioner (Appeals) following the Bombay Special Bench decision in ITO v. Sapt Textiles Products India Ltd. [1982] 1 SOT 269 as also Addl. CIT v. Tarun Commercial Mills Ltd. [1978] 113 ITR 745 (Guj.) and CIT v. Patiala Flour Mills Co. (P.) Ltd. [1980] 123 ITR 7 (Punj. & Har.) held that Section 40(c) of the Income-tax Act, 1961 (‘the Act’) was applicable in the case of directors and, therefore, only the overall limits of Rs. 72,000 applied and not the separate limit for salary and perquisites under Section 40A(5) of the Act.
7. The learned departmental representative urged before us that the separate limits for salary and perquisites were applicable relying on CIT v. Forbes, Ewart & Figgis (P.) Ltd. [1982] 138 ITR 1 (Ker.) (FB), CIT v. Travancore Chemical Mfg. Co. [1982] 133 ITR 818 (Ker.) and CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936 (Kar.). We are unable to accept the revenue’s contention. Forbes, Ewart & Figgis (P.) Ltd.’s case (supra) dealt with the limit specified under Section 40(a)(v) and Section 40A(5) and did not deal with the provisions of Section 40(c) in contradistinction to Section 40A(5). Section 40(a)(v) was omitted by the Finance (No. 2) Act, 1971, with effect from 1-4-1972 and Section 40A(5) covered the same subject-matter as it came into effect from 1-4-1972, when Section 40(a)(v) was omitted. The Kerala High Court held that Section 40A(5) was applicable after 1-4-1972. There is no discussion regarding ceiling of Rs. 72,000 under first proviso to Section 40A(5)(a) applicable to employee director as against the individual ceiling of Rs. 60,000 for salary and Rs. 12,000 for perquisites, under Section 40A(5)(c) applicable to employees.
8. Travancore Chemical Mfg. Co.’s case (supra) dealt with the limited question whether certain directors were employees and were, thus, covered under the provisions of Section 40A(5). Here also there is no discussion regarding the overall ceiling under first proviso to Section 40A(5) and individual ceiling of salary and perquisites under Section 40A(5)(c) as mentioned above. The Supreme Court rejected the special leave petition against the said judgment on the question whether the managing director as an employee and whether the salary paid to him was subject to limits imposed under Section 40A(5)–[1982] 137 ITR 13 (St.).
9. International Instruments (P.) Ltd. v. C7T [1981] 130 ITR 315 (Kar.) held that ceiling of Rs. 72,000 applied to director under Section 4OA(5) as the managing director, was paid a salary of Rs. 72,000 plus perquisites. No question arose regarding the individual ceiling of salary and perquisites. The said decision was followed in International Instruments (P.) Ltd.’s case (supra). The Gujarat High Court in CIT v. BharatVijay Mills Ltd. [1981] 128 ITR 633 held that Section 40A had an overriding effect in the computation of income under the head ‘Profits and gains of business or profession’ and that the function of the first proviso to Section 40A(5)(a) was to carve out a separate field for its operation and, that the headwise upper limit of permissible expenditure on salary and perquisites was not applicable to employee director. The Punjab and Haryana High Court without specifically discussing the headwise limit of salary and perquisites held that the limit of Rs. 72,000 applied in the case of employee director under Section 40A(5) and that the same was the limit under Section 40(c).
10. Tarun Commercial Mills Ltd’s. case (supra) did not deal with existing provisions of law but dealt with Section 40(c) and Section 40(a)(v). The later section was omitted by the Finance (No. 2) Act, 1971 with effect from 1-4-1972 and in its place Section 40A(5) was introduced as mentioned above. Section 40(a)(v) did have a non-obstante clause but as Clause (c) and Clause (a)(v) were in the same section, therefore, Clause (c) did have priority over Clause (a)(v) as Clause (c) was specific clause dealing with a company. Thus, the said ruling is not relevant for resolving the controversy before us.
11. From the above discussions, it is clear that only Bharat Vijay Mills Ltd.’s case (supra) and the Bombay Special Bench decision in Sapt Textiles Products India Ltd. (supra) are the authorities on the controversy before us. The Gujarat High Court in Bharat Vijay Mills Ltd.’s case (supra) lays down that overall ceiling of Rs. 72,000 was applicable to employee directors. Sapt Textiles Products India Ltd.’s case (supra) lays down in para 14 that ceiling of Rs. 72,000 under Section 40(c) and the first proviso to Section 40A(5) is applicable to a director.
12. Thus, the unanimous position is that only ceiling of Rs. 72,000 was applicable to a director whether he was an employee of the company or not. Applying the said test to the remuneration of the two directors of Rs. 48,000 and the perquisites of Rs. 24,322 in the shape of house rent allowance and water, gas and electricity charges, they are well within the ceiling of Rs. 72,000 applicable to director and, therefore, no disallowance is called for. We, accordingly, uphold the order of the AAC deleting the addition of Rs. 14,722 though on a different ground.
13. In the result, the revenue’s appeal is deemed to be partly allowed.
