C.I.T.JALANDHAR vs. M/S ESS ESS KAY ENGG.CO.(P) LTD.

ITR/82/1989HC Punjab & HaryanaPHHC01022624198909 May 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR5 pages
AI SummaryDismissed

What were the facts?

The Revenue (Commissioner of Income Tax) is in appeal against the orders passed by the Income Tax Appellate Tribunal (Tribunal) for assessment years 1981-82, 1979-80, 1982-83, and 1983-84. The assessee is M/s Ess Ess Kay Engg. Co. (P) Ltd. The dispute arises from additions made by the Assessing Officer, including disallowances under Section 40A(5)/40A(6) and on account of concessional interest charged from the Managing Director on borrowings. The Commissioner of Income Tax (Appeals) had deleted these additions, and the Tribunal upheld the CIT(A)'s order. The total income assessed for AY 1979-80 was Rs. 2,81,565/-, after additions, compared to the revised returned income of Rs. 1,82,180/-.

What did the High Court hold?

The High Court held that the question regarding the deletion of disallowance for concessional interest and meeting fees is no longer res integra. The Court relied on the Andhra Pradesh High Court's decision in CIT v. Vazir Sultan Tobacco Co. Ltd. (1998) 173 ITR 290, which held that the difference between the concessional rate of interest and the market rate on loans to employees for housing is not a perquisite under Section 40(c). The Court also referred to the Supreme Court's observations in CIT v. Indian Engineering and Commercial Corporation P. Ltd. (1993) 201 ITR 723, stating that for Directors who are also employees, both provisions (Section 40A(5)/40A(6) and Section 40(c)) are attracted. The Supreme Court in CIT v. Continental Construction Ltd. (1998) 230 ITR 485 was cited for the proposition that for determining permissible expenditure outside a ceiling limit, both ceilings would apply. The High Court confirmed the Tribunal's view, aligning with the Andhra Pradesh High Court and the Calcutta High Court in Indian Oxygen Ltd. v. CIT (1994) 210 ITR 274. Therefore, the question was decided against the revenue. The operative direction was to confirm the Tribunal's order.

What were the issues?

1. Whether, on the facts and in the circumstances, the Tribunal was correct in law in deleting the disallowance representing the value of the perquisite of concessional interest charged on borrowings from the Managing Director (Rs. 29,610/-) and Meeting Fees (Rs. 2,400/-), which are allegedly hit by the proviso to Section 40A(5)/40A(6) of the Income-tax Act, 1961? 2. Whether, on the facts and in the circumstances and in view of Section 40(c)(A) of the Income-tax Act, 1961, the Tribunal was correct in law in holding that the amount of Rs. 2,400/- being the Director’s Meeting fee, over and above the total emoluments of the Director amounting to Rs. 72,000/-, is allowable? Assessee's contentions: Not recorded. Revenue's contentions: The Revenue contended that the disallowances relating to concessional interest and meeting fees were correctly made under the relevant provisions of the Act, as these constituted perquisites or expenses exceeding permissible limits.

Which sections of the Income-tax Act were involved?

Section 40A(5),Section 40A(6),Section 40(c)(A),Section 37(3A),Section 40(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
In the High Court of Punjab and Haryana, Chandigarh I.T.R. No. 82 of 1989 Date of Decision: 9.5.2007 The Commissioner of Income Tax, Jalandhar …Petitioner Versus M/s Ess Ess Kay Engg. Co. (P) Ltd., Kapurthala …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE RAJESH BINDAL PRESENT: Mr. S.K. Garg Narwana, Advocate, for the revenue. Mr. S.K. Mukhi, Advocate, for the assessee.

JUDGMENT M.M. KUMAR, J. This order shall dispose of I.T.R. Nos. 82 of 1989, 64 of 1992, 18 and 19 of 1993 as identical questions of law have been raised. The controversy in the present bunch of references has emerged out of the orders passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity, ‘the Tribunal’), in the following cases:- Sr. No. I.T.R. No. Tribunal’s order dated Arising out of Assessment Year 1. 82 of 1989 (CIT v. M/s Ess Ess Kay Engg. Co. (P)

Ltd., Kapurthala) 7.5.1987 1981-82

I.T.R. No. 82 of 1989 2. 64 of 1992 (CIT v M/s Ess Ess Kay Engg. Co. (P)

Ltd., Kapurthala) 14.9.1990 1979-80 3. 18 & 19 of 1993 (CIT v. M/s Ess Ess Kay Engg. Co. (P) Ltd., Kapurthala) 21.9.1992 I.T.A. No. 704 & 705/ASR/ 1987 1982

The order continues below.

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