KRISHNAKESHSAV LABORATIORIES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the following questions have been referred to this Court for the asst. yrs. 1978 79 and 1979 80 for its opinion under the provisions of S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act") : Questions for the asst. year 1978 79 :

(2.) SO far as the first question referred to this Court for the asst. year 1978 79 and the question referred to this Court for the asst. year 1979 80 is the same, we answer the said question by a common answer.

(3.) SO far as the first question is concerned, it pertains to disallowance under sub s. (5) of S. 40A of the Act. The said question has been answered by the Hon'ble Supreme Court in CIT vs. Continental Construction Ltd. (1998) 145 CTR (SC) 1 : (1998) 230 ITR 485 (SC) : TC S18.2045. The question pertains to the amount of salary paid to a director, who was also an employee of the assessee company, when the said director was outside the country. It has been held by the Supreme Court in the case of CIT vs. Continental Construction Ltd. (supra), that when an employee is given salary in respect of any period of his employment outside India, the amount of salary paid to such an employee would not be subject to disallowance under sub s. (5) of S. 40A. In view of the law laid down by the Supreme Court, it is clear that the assessee will get deduction of the amount of salary paid to an employee, who was outside India, without suffering from disallowance under the provisions of S. 40A(5) of the Act. Thus, we decide the said question in favour of the assessee and against the Revenue. The Hon'ble Supreme Court has come to the said conclusion for the reason that provisions of S. 40A(5)(b) provide that nothing in cl. (a) would apply to any salary or allowance paid to an employee in respect of his employment outside India. By virtue of the said exception provided in S. 40A(5)(b), it is very clear that the amount of salary paid to an employee during his period of employment outside India cannot be disallowed or cannot be subject to the ceiling prescribed under S. 40A(5)(a).