High Court Of Bombay
CIT vs. Tata Oil Mills Co. Ltd.
Sections 40(a)(5), 32
Asst. Year 1972-73
S.P. Bharucha & T.D. Sugla, JJ.
IT Ref. No. 549 of 1976
6th October, 1989
Dr. Balasubramanian, J. P. Devadhar & K. C. Sidhwa, for the Revenue : A. V. Sonde, Dinesh Vyas & P. C. Tripathi, for the Assessee.
S. P. BHARUCHA, J.:
Two questions have been raised in this reference ade at the instance of the Revenue in relation to the asst. yr. 1972-73 for which the previous year ended on March 31, 1972. The questions read thus :
” 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that roads within the factory premises constituted âplant’ to be entitled to depreciation allowance ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions made for the purchase of deferred annuity policies on the lives of the directors for meeting the assessee’s obligations for payment to them at the time of their retirement would not fall within the mischief of s. 40(a)(v) of the IT Act, 1961?”
Counsel are agreed that the first question is covered by this Court’s judgment in CIT vs. Colour-Chem Ltd. (1977) 106 ITR 323. Following that judgment, the first question is answered thus : The roads within the factory premises are entitled to depreciation allowance as “building”.
So far as the second question is concerned, the facts are these : The assessee paid a sum of Rs. 53,749 to the Life Insurance Corporation of India for the purchase of deferred annuity policies upon the lives of its directors. The ITO observed that what the assessee intended to do was to purchase annuity policies upon the lives of its directors instead of paying them commission. He held that the said sum was paid by the assessee on behalf of the directors and was in the nature of a commission. He took the said sum into account as being salary. The AAC allowed the assessee’s appeal. In further appeal, the Tribunal found that the assessee’s directors had originally been paid commission on sales in addition to salary. By a resolution passed at a general meeting, it had been decided that, instead of commission, the directors be paid a lump sum on retirement or death. This had been accepted by the directors and had become a part of their service conditions. The provision of the said sum for the purchase of the deferred annuity policies was seen to be provided to meet the assessee’s obligations in regard to the payment to the directors at the time of their retirement or death. The Tribunal held that the directors had no present right to the said sum and that it did not represent a present benefit or amenity to them, it being receivable only upon the termination of their service.
Dr. Balasubramanian, learned counsel for the Revenue, drew our attention to the definition of “perquisite” appearing in s. 40A(5), Explanation 2(b)(iv), namely, “payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee”. He submitted that in making payments upon the annuity policies to the Life Insurance Corporation, the assessee had under taken an obligation which fell upon the directors. It is difficult to uphold Dr. Balasubramanian’s submission. There was never an obligation upon the directors to make payment upon the annuity policies. The obligation in that behalf was only that of the assessee.
Mr. Sonde, learned counsel for the assessee, drew our attention to the Supreme Court judgment in CIT vs. L. W. Russel (1964) 53 ITR 91 (SC), in which contributions made by an employer to provide pensionary or deferred annuity benefits to his employees were in question. The Supreme Court held that the expression similar to that set out above in the Indian IT Act, 1922, applied only to sums in regard to which there was an obligation on the part of the employer to pay and a vested right on the part of the employee to claim ; it could not apply to contingent payments to which the employee had no right until the contingency occurred. The employer’s contribution towards the premia were not perquisites allowed to the employee by the employer or amounts due to him from the employer.
This judgment squarely applies to the case before us. It has been held by the Tribunal, and rightly too, that the directors of the assessee had no present right to the said sum which was provided for making payments under contracts between the assessee and the Life Insurance Corporation. The provision of the said sum did not represent any present benefit or amenity to the directors.
In the light of this discussion, the second question is answered in the affirmative and in favour of the assessee. No order as to costs.
[Citation :182 ITR 130]