Gujarat H.C : Whether medical benefits and H.R.A. paid to the managing directors were to be considered for computing the disallowance under s. 40(c) of the Act? Whether H.R.A. paid to the employees of the company was to be considered for the purpose of computing the disallowance under s. 40A(5) of the Act?

High Court Of Gujarat

CIT vs. Nutan Mills Ltd.

Sections 37(3), 40(c), 40A(5), Rule 6D

Asst. Year 1984-85

J.M. Panchal & M.S. Shah, JJ.

IT Ref. No. 54 of 1988

6th February, 2001

Counsel Appeared

B.B. Naik with Manish R. Bhatt, for the Petitioner : None, for the Respondent

JUDGMENT

M.S. SHAH, J. :

In this reference at the instance of the Revenue, the following questions have been referred to us for our opinion in respect of asst. yr. 1984-85 :

1. Whether medical benefits and H.R.A. paid to the managing directors were to be considered for computing the disallowance under s. 40(c) of the Act? Whether H.R.A. paid to the employees of the company was to be considered for the purpose of computing the disallowance under s. 40A(5) of the Act?

Whether all the tours undertaken by a person during the year were to be grouped together and only thereafter the limits. laid down in r. 6D be applied?

We have heard Mr. B.B. Naik, learned counsel for the Revenue, instructed by M/s M.R. Bhatt & Co. Though served, none appears for the respondent-assessee.

At the hearing of this reference, Mr. Naik points out that the issue regarding reimbursement of medical benefits is covered by the decisions of this Court in Gujarat Steel Tubes Ltd. vs. CIT (1994) 116 CTR (Guj) 82 : (1994) 210 ITR 358 (Guj) : TC 16R.718 and Ambica Mills Ltd. vs. CIT (1998) 147 CTR (Guj) 347 : (1999) 235 ITR 264 (Guj) : TC S16.1663 wherein this Court has taken the following view : As regards the medical expenses which were reimbursed to the directors by the assessee, the matter is squarely covered by the decision of this Court in Gujarat Steel Tubes Ltd. vs. CIT (1994) 210 ITR 358 (Guj), in which it was held that reimbursement of medical expenses incurred by the directors is a benefit of the director within the meaning of s. 40(c)(i) of the said Act. Similar view has been taken by this Bench on 11th March, 1998, in IT Ref. No. 277 of 1987—Ambica Mills Ltd. vs. CIT (1998) 146 CTR (Guj) 195 : (1998) 231 ITR 583 (Guj) : TC S18.2021 in the assessee’s own case in respect of the asst. yr. 1980-81 and it was held that the reimbursement of medical expenses to the director would fall in s. 40(c)(i) of the Act and the decision of the Supreme Court in CIT vs. Mafatlal Gangabhai & Co. (P) Ltd. (1996) 132 CTR (SC) 248 : (1996) 219 ITR 644 (SC) : TC S18.2017, which was rendered in the context of payments made to be employees of the company under s. 40A(5)(a)(ii) would not be applicable to such case. The Tribunal was, therefore, right in treating reimbursement of medical expenses as not allowable.”

In view of the above decision of this Court, it will have to be held that reimbursement of medical benefits will have to be considered for computing the disallowance under s. 40(c) of the Act.

4. As regards the allowability or otherwise of H.R.A. paid to the managing directors, the controversy is concluded in favour of the Revenue and against the assessee by the decision of this Court in Ambica Mills Ltd. vs. CIT (supra) wherein it has been held that s. 40(c)(i) of the Act includes direct cash payments to the director. Similar view has been taken in respect of payment of to the employees of the company in the context of s. 40A(5) of the Act. We accordingly hold that H.R.A. paid to the managing directors has to be considered for computing disallowance under 40(c) of the Act. Coming to question No. 2, in view of the aforesaid decision dt. 5th Feb., 1997, in IT Ref. No. 27 of 1984, it has to be held that H.R.A. paid to the employees of the company is to be considered for the purpose of computing the disallowance under s. 40A(5) of the Act.

Coming to question No. 3, Mr. Naik submits that the Andhra Pradesh and Punjab & Haryana High Courts have considered this very controversy and have taken a view in favour of the Revenue after analyzing the relevant provisions of r. 6D.

In CIT vs. Coromandel Fertilizers Ltd. (1996) 135 CTR (AP) 354 : (1996) 220 ITR 298 (AP) : TC S18.2050, a Division Bench of the Andhra Pradesh High Court, speaking through Hon’ble Mr. Justice S.S.M. Quadri (as His Lordship then was) has held that the ceiling fixed by cl. (b) of sub-r. (2) of r. 6D has to be calculated with reference to trip of an individual employee, but if an employee travels more than once in an year and spends more amount in one trip but less in another trip, the excess amount expended in one trip cannot be adjusted against the expenditure made in the next or subsequent trips. The actual expenditure incurred on each trip has to be ascertained with reference to the provisions of r. 6D. The unit of expenditure for purposes of r. 6D is the trip but. not the individual employee. Accordingly, the expenditure incurred by the assessee will have to be taken into consideration with reference to each trip of an individual employee but not with reference to the totality of the trips made by an individual employee. Similar view has been taken by the Punjab & Haryana High Court in CIT vs. Porritts & Spencer (Asia) Ltd. (1999) 153 CTR (P&H) 603 : (2000) 241 ITR 126 (P&H). We see no reason to take a different view regarding interpretation of the provisions of r. 6D.

In view of the above discussion, we hold that all the tours undertaken by an employee during a year are not to be grouped together and that the limits laid down in r. 6D have to be applied with reference to each trip of an individual employee.

8. In view of the above discussion, we answer the questions as under : Question No. 1 is answered in the affirmative i.e., in favour of the Revenue and against the assessee; Question No. 2 is answered in the affirmative i.e., in favour of the Revenue; and Question No. 3 is answered in the negative i.e., in favour of the Revenue and against the assessee.

We hold that the limits laid down in r. 6D have to be applied with reference to each trip of an individualemployee. The reference accordingly stands disposed of with no order as to costs.

[Citation : 254 ITR 519]

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