COMMISSIONER OF INCOME TAX vs. ANIL STARCH PRODUCTS LTD

ITR/198/1985HC GujaratGJHC24012329198507 November 2000Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE D.M.DHARMADHIKARI,HONOURABLE MR. JUSTICE MOHIT S. SHAH2 pages
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What were the facts?

This case involves an Income Tax Reference filed by the Revenue (Commissioner of Income Tax) against the assessee, Anil Starch Products Ltd., for the assessment year 1980-81. The reference was made at the instance of the Revenue for the High Court's opinion on a specific question of law. The core of the dispute concerns a cash payment of Rs. 44,782/- made to employees as house rent allowance. The Income-tax Appellate Tribunal had previously held that this payment could not be considered part of the employees' salary for the purposes of Section 40A(5) of the Income-tax Act, 1961. The Revenue is challenging this decision.

What did the High Court hold?

The High Court held in favor of the assessee, answering the question in the affirmative. The Court noted that the controversy was settled by a Supreme Court decision in Commissioner of Income-Tax v. Mafatlal Gangabhai and Co. (P) Ltd. (1996) 219 ITR 644. In this Supreme Court ruling, it was held that cash payments made to employees for house rent allowance do not fall within the ambit of Section 40A(5)(a)(ii) of the Income-tax Act, 1961. The Supreme Court had specifically overruled the Kerala High Court's decision in Commonwealth Trust Ltd's case, which the Revenue had relied upon, and approved the views of other High Courts, including the one upon which the Tribunal had based its decision in the present case. Therefore, the Tribunal's finding was upheld.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that cash payment of Rs.44,782/- to the employees as house rent allowance cannot be considered as forming part of salary of the employees for the purposes of Section 40A(5) of the Income-tax Act, 1961? Assessee's Contention: The judgment does not record any specific contentions made by the assessee. However, the Tribunal's decision in favor of the assessee implies that the assessee likely argued that cash payments of house rent allowance do not constitute 'salary' for the purposes of Section 40A(5). Revenue's Contention: The Revenue argued that the cash payment of house rent allowance to employees should be considered as part of their salary for the purposes of Section 40A(5). The Revenue relied on the Kerala High Court's decision in Commonwealth Trust Ltd's case (1982) 135 ITR 19 (FB).

Which sections of the Income-tax Act were involved?

Section 40A(5)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 198 of 1985

For Approval and Signature:

Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : N

The order continues below.

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