COMMISSIONER OF INCOME TAX vs. ARUNA MILLS LIMITED

ITR/272/1984HC GujaratGJHC24011937198410 May 1999Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
AI SummaryAllowed

What were the facts?

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench A, in its order for assessment year 1979-80, held that cash payments of house rent allowance did not form part of salary for the purpose of Section 40A(5) of the Income Tax Act, 1961. The Income Tax Officer had disallowed the deduction by extending the provisions of Section 40A(5). The ITAT's decision was challenged by the Commissioner of Income Tax (CIT) by way of a reference to the High Court of Gujarat. The facts found by the Tribunal were that the assessee paid house rent allowance in cash to its employees.

What did the High Court hold?

The High Court held that cash payments are not covered by Section 40A(5) of the Income Tax Act, 1961. This decision was based on the Supreme Court's ruling in CIT v. Mafatlal Gangabhai Co. (P) Ltd. (219 ITR 644), which affirmed the Bombay High Court's decision. The High Court also referred to its own prior decision in CIT v. Aruna Mills (201 ITR 84) dated 10.02.1999, which upheld the Tribunal's view that cash payments of house rent allowance are not covered by Section 40A(5). Consequently, the question of law was answered in the affirmative in favour of the assessee and against the revenue. The operative direction was to uphold the Tribunal's order. No issue was expressly left undecided.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that cash payment of house rent allowance did not form part of salary for the purpose 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 before the High Court. However, the Tribunal's decision in favour of the assessee implies that the assessee argued that cash payments are not covered by Section 40A(5). Revenue's Contention: The revenue argued that the cash payment of house rent allowance should be disallowed by invoking the provisions of Section 40A(5) of the Income Tax Act, 1961. The revenue relied on the Supreme Court decision in CIT v. Mafatlal Gangabhai Co. (P) Ltd. 219 ITR 644.

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 272 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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? -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus ARUNA MILLS LIMITED --------------------------

The order continues below.

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