{"id":95065,"date":"1998-02-03T00:00:00","date_gmt":"1998-02-02T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-delhi-vs-ms-continental-contraction-ltd-on-3-february-1998"},"modified":"2016-10-03T00:28:21","modified_gmt":"2016-10-02T18:58:21","slug":"commissioner-of-income-tax-delhi-vs-ms-continental-contraction-ltd-on-3-february-1998","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-delhi-vs-ms-continental-contraction-ltd-on-3-february-1998","title":{"rendered":"Commissioner Of Income Tax, Delhi … vs M\/S. Continental Contraction Ltd on 3 February, 1998"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income Tax, Delhi … vs M\/S. Continental Contraction Ltd on 3 February, 1998<\/div>\n
Author: M S V.Manohar<\/div>\n
Bench: Sujata V. Manohar, S.S.M. Quadri<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME TAX, DELHI (CENTRAL-I)\n\n\tVs.\n\nRESPONDENT:\nM\/S. CONTINENTAL CONTRACTION LTD.\n\nDATE OF JUDGMENT:\t03\/02\/1998\n\nBENCH:\nSUJATA V. MANOHAR, S.S.M. QUADRI\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t      J U D G M E N T
\nMrs. Sujata V.Manohar, J.\n<\/p>\n
     The appeals  pertain to  assessment year  1983-84.\t The
\nfollowing question of law was referred to the High Court for
\ndetermination at the instance of the Revenue :\n<\/p>\n
     “Whether on  the facts  and in  the
\n     circumstances  of\t the  case,  the
\n     Tribunal  was  correct  in\t holding
\n     that   having    regard   to    the
\n     provisions of  Sections 40\t (c) and
\n     40A (5)  (b) of the Income-tax Act,
\n     the  remuneration\t paid\tto   the
\n     Directors\tin   respect  of   their
\n     employment outside India had to  be
\n     excluded  from  the  limit\t of  Rs.
\n     72,000\/- laid  down  in  the  first
\n     proviso to\t Section 40A  (5) (a) as
\n     well  as\tSection\t 40(c)\t of  the
\n     Income-tax Act, 1961?”\n<\/p><\/blockquote>\n
Facts:\n<\/p>\n
     The respondent-assessee is a civil construction company
\nwhich has executed a large number of projects outside India.
\nIts overseas  projects include irrigation and hydle projects
\nin Libya,  a fibre  board factory  at Abu-Sukhir in Iraq and
\nthe Karkh  Water Supply\t Project, Banghdad which had a total
\nvalue of 534 million dollars.\n<\/p>\n
     For the  assessment year 1983-84, the assessee had paid
\na sum  of Rs. 14,0074,570\/- to its Directors as remuneration
\nand commission.\t The Income-tax\t officer disallowed a sum of
\nRs. 13,94,98,570\/- being excess amount over the limit of Rs.
\n72,000\/- per  Director prescribed  under Section  40(C)\t and
\nSection\t 40A(5)\t  (a)  of  the\tIncome-tax  Act,  1961.\t The
\nrespondent  did\t  not  dispute\t the  disallowance   of\t Rs.
\n7,61,05,230\/- payable  to  the\ttow  India  based  Directors
\nsubject tot he allowance of Rs. 72,00\/- each as laid down in
\nSection 40(c)  and 40A\t(5)(a). The  dispute related  to the
\nremuneration  paid  to\tthe  Directors\twho  were  stationed
\noutside India in connection with the work of the respondent-
\nassessee. According  to the  assessee the amount paid to its
\nemployee-Directors in  respect of  their employment  outside
\nIndia was not to be taken into account while calculating the
\nceiling under Section 40A(5) or Section 40(c).\n<\/p>\n
     The assessee filed an appeal before the Commissioner of
\nIncome-tax who\tmodified the order of the Income-tax Officer
\nand held  that any remuneration paid to employee – Directors
\nin respect  of any  period of their employment outside India
\nshould not  be taken  into  account  while  calculating\t the
\nexpenditure subject  to the  ceiling limit  of Rs.  72,000\/-
\nunder Section  40(c) and 40A(5)(a). The department preferred
\nan  appeal  before  the\t Tribunal  from\t the  order  of\t the
\nCommissioner  of  Income-tax.  The  Tribunal  dismissed\t the
\nappeal.\n<\/p>\n
     On the  application  of  the  department  the  Tribunal
\nreferred the  question set out above as a question of law to
\nthe High  Court. The High Court by its impugned judgment and
\norder  dated   24.5.1990  answered   the  question   in\t the
\naffirmative and against the Revenue. The present appeals are
\nfiled on  a certificate granted by the High Court of fitness
\nto appeal.\n<\/p>\n
     The  relevant   provisions\t of  Section  40(c)  are  as
\nfollows:\n<\/p>\n
     “Section  40:  Notwithstanding…..<\/p>\n
     the following  amounts shall not be
\n     deducted in  computing  the  income
\n     chargeable under  the head `Profits
\n     and   gains    of\t  business    or
\n     profession’,\n<\/p><\/blockquote>\n
     (a)…………\n<\/p><\/blockquote>\n
     (b)…………\n<\/p><\/blockquote>\n
     (c) : in the case of any company-\n<\/p><\/blockquote>\n
     (i)   any expenditure which results
\n\t  directly or  indirectly in the
\n\t  provision of\tany remuneration
\n\t  or benefit  or  amenity  to  a
\n\t  director………\n<\/p><\/blockquote>\n
     (ii)   any expenditure or allowance
\n\t  in respect  of any  assets  of
\n\t  the company used by any person
\n\t  referred to  in sub-clause (i)
\n\t  either wholly\t or  partly  for
\n\t  his own purposes or benefit,
\n     if in the opinion of the Income-tax
\n     Officer  any  such\t expenditure  or
\n     allowance as  is mentioned\t in sub-
\n     clauses (i)  and  (ii) is excessive
\n     or unreasonable  having  regard  to
\n     the legitimate  business  needs  of
\n     the company and the benefit derived
\n     by or accruing to it therefrom, so,
\n     however,  that   the  deduction  in
\n     respect of\t the aggregate\tof  such
\n     expenditure   and\t  allowance   in
\n     respect of\t any one person referred
\n     to in  sub-clauses (i) shall, in no
\n     case, exceed-\n<\/p><\/blockquote>\n
     (A)  where\t  such\texpenditure   or
\n\t  allowance related  to a period
\n\t  exceeding    eleven\t  months
\n\t  comprised  in\t  the\tprevious
\n\t  year, the  amount of\tseventy-
\n\t  two thousand rupees;\n<\/p><\/blockquote>\n
     (B)  where\t  such\texpenditure   or
\n\t  allowance relates  to a period
\n\t  not  exceeding  eleven  months
\n\t  comprised  in\t  the\tprevious
\n\t  year, an  amount calculated at
\n\t  the  rate   of  six\tthousand
\n\t  rupees for  each month or part
\n\t  thereof  comprised   in   that
\n\t  period;\n<\/p><\/blockquote>\n
\t  provided that\t in a case where
\n     such person  is also  an employe of
\n     the   company    for   any\t  period
\n     comprised\tin  the\t previous  year,
\n     expenditure of  the nature referred
\n     to in  clauses (i), (ii), (iii) and\n<\/p><\/blockquote>\n
     (iv)  of\tthe  second  proviso  to
\n     clause (a)\t of sub-section\t (5)  of
\n     section 40A  shall not    be  taken
\n     into account  for the  purposes  of
\n     sub-clause (A)  or sub- clause (B),
\n     as the case may b e;”<\/p><\/blockquote>\n
     Section 40(c),  therefore, deals with the remuneration,
\nbenefit or  amenity to\ta Director  of a  company (and other
\npersons described there in) and any expenditure or allowance
\nin respect of any asset of the company used, inter alia, b y
\na Director.  The ceiling  of allowable expenditure which can
\nbe deducted is fixed at Rs 72,000\/- when such expenditure or
\nallowance relates  to a\t period exceeding  eleven months. If
\nthe period  is less  than eleven  months  then\tthe  ceiling
\nexpenditure is to be excluded at the rate of Rs. 6,000\/- per
\nmonths. Under the proviso set out above, certain expenditure
\nis of  the kind\t referred to in clauses (i), (ii), (iii) and\n<\/p>\n
(iv) of\t the second  proviso to Section 40A (5) (a). Section
\n40A(5) relates\tto expenditure\trelating to  payment of\t any
\nsalary or  providing any  perquisite to\t an  employee  or  a
\nformer employee\t of the\t assessee. There  is  a\t ceiling  on
\ndeductible expenditure of this nature which is provide under
\nSection 40A(5).\t The relevant  provisions of Section 40A (5)
\nare as follows:\n<\/p>\n
     “40A(5)(a) : Where the assessee-\n<\/p><\/blockquote>\n
     (i)   incurs any  expenditure which
\n\t  results directly or indirectly
\n\t  in the  payment of  any salary
\n\t  to an\t employee  or  a  former
\n\t  employee, or\n<\/p><\/blockquote>\n
     (ii) incurs  any expenditure  which
\n\t  results directly or indirectly
\n\t  in  the   provision\tof   any
\n\t  perquisite\t\t(whether
\n\t  convertible into money or not)
\n\t  to  an   employee  or\t  incurs
\n\t  directly  or\t indirectly  any
\n\t  expenditure or  is entitled to
\n\t  any allowance\t in  respect  of
\n\t  any  assets  of  the\tassessee
\n\t  used\tby  an\temployee  either
\n\t  wholly or  partly for\t his own
\n\t  purposes or benefit,
\n     than, subject  to the provisions or
\n     clause  (b),   so\tmuch   of   such
\n     expenditure or  allowance as  is in
\n     excess of\tthe limit  specified  in
\n     respect thereof in clause (c) shall
\n     not be allowed as a deduction:\n<\/p><\/blockquote>\n
\t  Provided   that    where   the
\n     assessee is  a company,  so much of
\n     the aggregate of-\n<\/p><\/blockquote>\n
     (a)   the expenditure and allowance
\n\t  referred to in sub-clauses (i)
\n\t  and (ii) of this clause; and\n<\/p><\/blockquote>\n
     (b)   the expenditure and allowance
\n\t  referred to in sub-clauses (i)
\n\t  and (ii)  of\tclauses\t (c)  of
\n\t  section 40,
\n     in respect\t of  an\t employee  or  a
\n     former employee,  being a\tdirector
\n     or a  person who  has a substantial
\n     interest  in   the\t company   or  a
\n     relative of the director or of such
\n     person, as\t is excess of the sum of
\n     seventy-two thousand  rupees, shall
\n     in\t no   case  be\t allowed  as   a
\n     deduction:\n<\/p><\/blockquote>\n
\t  Provided   further   that   in
\n     computing the  expenditure referred
\n     to\t in  computing\tthe  expenditure
\n     referred to  in sub-clause\t (i)  or
\n     the expenditure (ii) of this clause
\n     or the  aggregate\treferred  to  in
\n     sub-clause (ii)  of this  clause or
\n     the aggregate  referred to\t in  the
\n     foregoing\tproviso,  the  following
\n     shall not\tbe taken  into\taccount,
\n     namely :-<\/p><\/blockquote>\n
     (i)  the\tvalue  to   any\t  travel
\n\t  concession\tor    assistance
\n\t  referred to  in clauses (5) of
\n\t  section 10;\n<\/p><\/blockquote>\n
     (ii) passage moneys or the value of
\n\t  any\tfree   or   concessional
\n\t  passage referred  to\tin  sub-
\n\t  clause (i)  of clause\t (8)  of
\n\t  section 10;\n<\/p><\/blockquote>\n
     (iii)any  payment\treferred  to  in
\n\t  clauses (iv)\tor clause (v) of
\n\t  sub-section (1) of section 36;\n<\/p><\/blockquote>\n
     (iv) any expenditure referred to in
\n\t  clause (ix) or sub-section (1)
\n\t  of section 36.\n<\/p><\/blockquote>\n
     (b)   Nothing in  clause (a)  shall
\n     apply   to\t  any\texpenditure   or
\n     allowance in relation to-\n<\/p><\/blockquote>\n
     (i)  any employee in respect of any
\n\t  period   of\this   employment
\n\t  outside India;\n<\/p><\/blockquote>\n
     (ii)   any\t   employee   being   an
\n\t  individual referred to in sub-
\n\t  clause  (vii)\t  or  sub-clause
\n\t  (vii-a)  of\tclause\t(6)   of
\n\t  section 10  in respect  of any
\n\t  period during\t which\th  e  is
\n\t  entitled  to\t the   exemption
\n\t  under sub-clause  (vii) or, as
\n\t  the case  may\t be,  sub-clause
\n\t  (vii-a) aforesaid;\n<\/p><\/blockquote>\n
     (iii)any  employee\t  whose\t  income
\n\t  chargeable  under   the   head
\n\t  “Salaries” is\t seven\tthousand
\n\t  an  five   hundred  rupees  or
\n\t  less.”<\/p><\/blockquote>\n
\t   [underlining ours]
\n     The permissible  limit  of\t deduction  for\t expenditure
\nfalling under  sub-clauses (i)\tand (ii)  of Section 40A (5)\n<\/p>\n
(a) is laid down in clause (c). In respect of salaries to an
\nemployee or former employee, the permissible deduction is up
\nto an  amount at  a rate or Rs. 5,000\/- per month during the
\nperiod of  an\temployee’s employment  in India\t during\t the
\nprevious year.\tIn respect  of\texpenditure  on\t perquisites
\nunder clause  (a) (ii),\t the permissible  deduction is up to
\n1\/5th of the amount of the salary payable to the employee or
\nan amount  calculated at  the rate  of Rs.  1,000\/- for each
\nmonth or part thereof comprising the period of employment in
\nIndia of the employee during the previous year, whichever is
\nless. Thus  ceiling for expenditure deductible under clauses
\na(i) is\t Rs. 60,000\/-  and clause  a(ii)  is  Rs.  12,000\/-.
\nHowever, in  the case  of an employee or former employee who
\nis also\t a Director  of the  company, the proviso to Section
\n40A(5) (a)  provides that  the ceiling\tfor deduction  is an
\noverall\t ceiling  of  Rs.  72,000\/-  in\t respect  of  a\t sum
\nallowance referred  to in  Section 40A(5)(a)(i)\t and\t(ii)
\nwhich cover expenditure on an employee, plus expenditure and
\nallowances referred  to Section\t 40(c)(1) and\t (ii)  which
\nrelate, inter alia, to a Director.\n<\/p>\n
     In the  case of an employee, however, section 40A(5)(b)
\nprovides that while calculating the expenditure or allowance
\nin relation  to an employee under Section 50A(5)(a), certain
\nexpenditure will  not be  taken into account. This includes,
\ninter alia,  any expenditure  or allowance in relation to an
\nemployee in  respect of any period of his employment outside
\nIndia. The  question we\t have to  consider is  whether\tsuch
\nexpenditure when incurred in connection with an employee who
\nis  also  a  Director,\twill  be  similarly  excluded  while
\ncalculating the\t aggregate  of\texpenditures  under  Section
\n40A(5)(a)(i) and  (ii) plus expenditure and allowances under
\nSection 40(c)  (i) and (ii) incurred in connection with that
\nemployee-Director. According  to the  department, so long as
\nthe employee  is also  a Director,   expenditure of the kind
\nreferred to  in Section\t 40A(5)(b) cannot  be excluded\tfrom
\nexpenditure  while   calculating  the  ceiling\tlimit  under
\nSection 40(c)  or  Section  40A(5)(a).\tThe  department\t has
\nsubmitted that\tsuch an exclusion is permissible only in the
\ncase of\t an employee  who is  not a Director at the relevant
\ntime when the expenditure was incurred.\n<\/p>\n
     The  question   of\t interpreting  the  provisions\to  f
\nSections 40(c) and 40A(5) in connection with persons who are
\nboth employees\tand Directors of the company has come up for
\nconsideration in a number of cases before the High Court and
\nbefore this Court. In the impugned judgment before us (which
\nis reported in 185 ITR 178), the Delhi High Court has looked
\nat the\tlegislative history  of these  two provisions with a
\nview  to   examining  their  effect.  Section  40(c)  as  it
\noriginally stood  and the  amendments made  in Section 40(c)
\nhave been  set out in the High Court’s judgment. Originally,
\nSection 40(c) itself contained sub-clause (iii) dealing with
\nexpenditure which  results directly  or\t indirectly  in\t the
\nprovision of  any remuneration\tor  benefit or amenity to an
\nemployee. The  ceiling prescribed  was Rs. 5,000\/- per month
\nfor any\t period of  employment after  29th day\tof February,
\n1963. The expenditure on perquisites with a ceiling of 1\/5th
\nof the\tamount of  the salary  payable to  the employee\t was
\nsubsequently also added. The expenditure on employees is now
\nremoved from  Section  40(c)  and  incorporated\t in  Section
\n40A(5).\n<\/p>\n
     The two  Sections 40(c)  and 40A(5)  are, however,\t not
\nmutually exclusive.  In\t section  40(c),  the  proviso,\t for
\nexample, referees  to a case where the Director (or a person
\nwho had\t a substantial interest in the company or a relative
\nof the\tDirector or  of such  person) is also an employee of
\nthe company  for any period prescribed in the previous year.
\nIn that\t situation, expenditure of the nature referred to in
\nclauses (i),  (ii), (iii)  and (iv) of the second proviso to
\nclause (a) of Section 40A(5) shall not be taken into account
\nfor the\t purpose of  calculating the  ceiling under  Section
\n40(c).\t These excluded items are items such as the value of
\nany travel concession, passage money, payment referred to in
\nSection 36(1)(iv)  and (v)  and expenditure  referred to  in
\nSection 36(1)(ix).  These items\t in  Section  36  deal\twith
\ncontribution towards  provident fund, approved gratuity fund
\nand promotion  of family  planning. Similarly Section 40A(5)
\ndoes not  deal only  with  employees.  It  also\t deals\twith
\nemployee-Directors  in\tthe  first  proviso  to\t sub-section
\n(5)(a).\t In   the  case\t of  employee-Directors\t both  these
\nsections are applicable.\n<\/p>\n
     There   have been a number of cases in the various High
\nCourts as  well as  that is  Court which have dealt with the
\nquestion: which\t ceiling applies  when a  person  holds\t the
\npositions both\tof a Director and an employee. Section 40(c)
\nprescribes an overall ceiling or Rs, 72,000\/- on expenditure
\ncovered in  Section 40(c). Under Section 40A (5), there is a
\nceiling of  Rs, 60,000\/- on expenditure in respect of salary
\nand Rs,\t 12,000\/- in  respect of  perquisites totalling\t Rs,
\n72,000\/-. This\tCourt considered  t his question in the case
\nof Commissioner\t of Income-tax\t v.   Indian Engineering and
\nCommercial Corporation\tPvt. Ltd.<\/a>[1993\t(201) ITR 723]. This
\nCourt has  held (page 728) that in the case of Directors who
\nare also  employees both these sections will be attracted an
\nthe higher  of the  two ceiling\t has to be applied. The same
\nview had  earlier been\ttaken\tby the\tAndhra Pradesh\tHigh
\nCourt  in   the\t case\tCommissioner  of   Income-tax\t  v.
\nD.B.R.Mills<\/a> [172  ITR 366],  and by the Bombay High Court in
\nthe case  of Commissioner  of\tIncome-tax  v. Hico Products
\nPvt.  Ltd.  [201  ITR  567]  where  the\t Bombay\t High  Court
\nemphasised the\tfirst proviso to Section 40A(5) (a) where an
\nexpress provision  is made  that if  an employee  is also  a
\nDirector  or   a  person  specified  in\t Section  40(c)\t the
\naggregate of expenditure and allowances specified in Section
\n40(c), sub-clauses  (i) and  (ii) as well as expenditure and
\nallowances specified  in Section 40A(5)(a)(i) and (ii) shall
\nnot  exceed   Rs.  72,000\/-.   In  other  words,  the  total
\nemoluments  and\t  perquisites  of  Directors  who  are\talso
\nemployees will be allowed up to the limit of Rs. 72,000\/- as
\na deductible  expenditure. In  such cases, therefore, though
\nthe Directors  are also\t employees,  the  separate  callings
\nprescribed of  Rs. 60,000\/-  and Rs.  12,000-\/ under Section
\n40A(5)(c) will\tnot apply.  The contrary  view taken  by the
\nKerala High Court in Travancore Rayons Ltd.  v. Commissioner
\nof Income-tax  [162 ITR\t 732] is,  therefore, no longer good
\nlaw.\n<\/p>\n
     We need  not, in  this connection, refer to the earlier
\njudgments  of\tthe  Gujarat  High  Court  which  have\tbeen
\ndiscussed at  length in\t the impugned  judgment.  After\t the
\ndecision of  this Court\t in  the  case\tof  Commissioner  of
\nIncome-tax     v.  Indian     Engineering   and\t  Commercial
\nCorporation (supra),  the Gujarat High Court has now, in the
\ncase of\t Commissioner of  Income-tax V. Synpol Products Pvt.
\nLtd. [217  ITR 154]  held that\tin the case of Directors who
\nare also  employees, both  the provisions will be attracted.
\nThe higher of the two ceilings will have to be applied.\n<\/p>\n
     We have  now to  consider in  this\t light\twhether\t the
\nprovisions of  Section 40A(5) (b) will apply for the purpose
\nof  calculating\t  the  expenditure   so\t covered   when\t the
\nexpenditure is incurred in connection with a Director who is
\nalso an\t employee. Under  Section  40A(5)(b)(i)\t nothing  in
\nclause (a)  which deals\t with expenditure  on  salaries\t and
\nperquisites of\tan employee  shall apply, inter alia, to any
\nexpenditure in\trelation to  an employee  in respect  of any
\nperiod of  his\temployment  outside  India.  Therefore,\t for
\nexample, in  calculating the expenditure on the salary of an
\nemployee, the  salary paid  in\trespect\t of  his  employment
\noutside the expenditure which is subject to a ceiling limit.
\nUnder Section  40A(5)(b)(ii) and  (iii),  similarly  certain
\nother expenditures  in connection  with an employee are also
\nexcluded from  the ceiling  limit. The\tquestion is  whether
\nsuch expenditure  will be excluded from the ceiling limit of
\na Director-employee.  If  for  the  purpose  of\t ceiling  on
\nexpenditure, both  Sections 40(c)  and 40A(5)  are  to\tb  e
\napplied to  employee-Directors, there  is no  reason why for
\nthe purpose  of deciding  what is  to be  excluded from\t the
\nexpenditure subject  to\t such  ceiling,\t both  the  sections
\ncannot be  taken into  account. Both  sections constitute  a
\ncomposite scheme.  In the  case of  employee-Directors, both
\nwill operate.  After  all,  the\t purpose  of  prescribing  a
\nceiling on  expenditure in  connection\twith  Directors\t and
\nemployees under\t Section 40(c)\tand Section  40A(5),  is  to
\ndiscourage  a\tcompany\t or   an  organisation\tfrom  paying
\nexcessive salaries,  remuneration, perquisites\tetc. to\t its
\nemployees and\/or  Directors. If it does so, the organisation
\nwill  not  be  able  to\t claim\tthe  entire  expenditure  as
\ndeduction, b  ut only  expenditure up  to the ceiling limit.
\nHowever,  from\t this  ceiling\t limit,\t certain   kinds  of
\nexpenditure on\temployees  have\t been  excluded-  presumable
\nbecause this  kind  of\tan  expenditure\t was  considered  as
\nreasonable and permissible. One such category of expenditure
\nis expenditure\ton an  employee in  respect of his period of
\nemployment outside  India. Presumably  the organisation\t may
\nhave to\t pay to\t an employee  posted outside  India  amounts
\nwhich may  be much higher than what he may be entitled to in
\nIndia in  view of  the exigencies  of  the  saturation,\t his
\nrequirements at the p lace of posting and  the fact that the
\namount any  have to  be para  in  a  foreign  country.\tThis
\nexpenditure is,\t therefore, not\t subject to  a ceiling.\t The
\nsame considerations  would apply to a Director-employee also
\nwho is posted outside the country in the course of his work.
\nA Director-employee does not cease to be an employee nor his
\nrequirements less  than those  of an employee. Therefore, in
\nhis case  also what  the Act itself has viewed as reasonable
\nallowable expenditure, should b e allowed. We do not see any
\nreason to  hold that  Section 40A(5)(b)\t will not  apply  to
\nemployee-Directors when this Court, in the case of employee-
\nDirectors has  held,  both  Sections  40(c)  and  40A(5)  as
\napplicable. For\t determining the ceiling, the higher ceiling
\nhas to\tbe taken  into account.\t Similarly, for\t determining
\npermissible expenditure\t which is  outside the ceiling limit
\nalso, both  the sections will have to be applied. Therefore,
\nexpenditure under  Section  40A(5)(b) which is excluded from
\nthe expenditure\t on which  a ceiling is placed under Section
\n40A(5)(a), will\t have to  be excluded  in  the\tcase  of  an
\nemployee-Director  also.   Under  the\tproviso\t to  Section
\n40A(5)(a), in  the case\t of  an\t employee-Director  for\t the
\npurposes of  ceiling, expenditure which has to be taken into
\naccount is  both under\tSection 40A(5)(a)  as well  as under
\nSection(40(c).\t For   calculating   the   expenditure\t and
\nallowances under  Section 40A(5)(a),  one has to exclude the
\nexpenditure and allowances referred to in Section 40A(5)(b).
\nTherefore, in  the  case  of  Director-employee\t also  while
\ncalculating  the  expenditure  and  allowances\tspent  on  a
\nDirector-employee under Section 40A(5)(a) and Section 40(c),
\nexpenditure of the kind referred to in Section 40A(5)(b) had
\nto be necessarily excluded.\n<\/p>\n
     A similar\tview has been taken by the Madras High Court
\nin the\tcase of\t Commissioner of  Income-tax   V.  Lucas TVS
\nLtd.<\/a> [226 ITR 281]. The Madras High Court was concerned with
\nforeign technicians  working under  a contract\tin India and
\nfalling\t  under\t   Section   10(6)(vii-a).   Under   Section
\n(40A(5)(b)(ii) expenditure  incurred in\t relation to such an
\nemployee is  to be excluded from the expenditure for which a
\nceiling is  prescribed under  Section 40A(5)(a).  The Madras
\nHigh Court  held that in the case of a Director-cum-employee
\nalso,  if  he  is  covered  by\tSection\t 10(6)(vii-a),\tsuch
\nexpenditure  would   be\t excluded  from\t the  ceiling  limit
\nprescribed under Section 40(c) as well as Section 40A(5)(a).
\nThe Madras  High Court\thas rightly observed (page 291) that
\nthere is  nothing to  suggest that the remuneration which is
\nexcluded from  the scope of consideration for the purpose of
\nSection 40(c)  of the  Act. Both  Sections 40(c)  and 40A(5)
\nhave  to   be  read  together  in  determining\tthe  ceiling
\nprescribed under  Section 40A(5)  of the  Act which includes
\nceiling prescribed  for Director-employees.  Also if certain
\nitems go out of reckoning in Section 40A(5) of the Act, then
\non the\tprinciple of  harmonious construction, the same will
\nhave to\t go out of reckoning in calculating a common ceiling
\nprescribed for\tDirector-employees both\t under Section 40(c)
\nand 40A(5)(a) proviso.\n<\/p>\n
     The Delhi High Court was, therefore, right in coming to
\nthe conclusion\tthat  any  expenditure\tcovered\t by  Section
\n40A(5)(b)(i) in respect of an employee-Director shall not be
\ntaken into  account for\t the  purposes\tof  calculating\t the
\naggregate  of  expenditure  under  the\tproviso\t to  Section
\n40A(5)(a)  for\t the  application   of\tthe   ceiling  limit
\nprescribed there.\n<\/p>\n
     The question, therefore, is answered in the affirmative
\nand in\tfavour of  the assessee.  The appeals  are dismissed
\nwith costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income Tax, Delhi … vs M\/S. Continental Contraction Ltd on 3 February, 1998 Author: M S V.Manohar Bench: Sujata V. Manohar, S.S.M. Quadri PETITIONER: COMMISSIONER OF INCOME TAX, DELHI (CENTRAL-I) Vs. RESPONDENT: M\/S. CONTINENTAL CONTRACTION LTD. DATE OF JUDGMENT: 03\/02\/1998 BENCH: SUJATA V. MANOHAR, S.S.M. QUADRI ACT: HEADNOTE: JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-95065","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income Tax, Delhi ... vs M\/S. 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