COMMISSIONER OF INCOME TAX Vs. FENNER INDIA LIMITED

JUDGEMENT

(1.) THE assessee is a public limited company and the assessment year involved is 1979-80, the relevant previous year ending on 31st August, 1979. THE ITO, while completing the assessment made certain disallowance under s. 40(c) of the IT Act, 1961 (hereinafter to be referred to as 'the Act'). He held that the gratuity paid to one Krishnan, the director of the company should be taken into account for the purpose of determining the ceiling under s. 40(c) of the Act. Similarly, he took into account the provident fund contribution, pension contribution and one year term assurance contributed by the company in respect of directors amounting to Rs. 72,593. He, therefore, held that the entire sum would represent the payments made to the director and it has to be disallowed under s. 40(c) of the Act. He, therefore, disallowed a sum of Rs. 1,05,593 in the computation of the income of the assessee applying the provisions of s. 40(c) of the Act.

(2.) THE CIT(A), on appeal, directed the ITO to exclude the payments made by the assessee-company towards gratuity, payment to an approved gratuity fund, payment to a recognised provident fund and payment to an approved superannuation fund from the value of remuneration, benefits and amenities provided by the assessee-company to the director and then, determine the ceiling limit under s. 40(c) of the Act. In so far as the payment made by the assessee towards Life Insurance Corporation for taking out an one year term assurance policy is concerned, the CIT(A) upheld the action of the ITO to include the same in the value of remuneration, benefits and amenities. THE Revenue as well as the assessee, aggrieved by the order of the CIT(A) preferred appeals to the Tribunal.

(3.) WE have carefully considered the rival submissions of the parties. In so far as the first question of law relating to the contribution made to provident fund and pension fund is concerned, we are of the view that the Tribunal was correct in holding that those two amounts cannot be regarded as remuneration, benefit or amenity. The CIT(A) referred to proviso to s. 40(c) of the Act and he also referred to sub-s. (5) of s. 40A of the Act and held that under the said sub-section of s. 40A of the Act, the amount paid towards contribution to provident fund and pension fund cannot be regarded as remuneration or benefit or amenity. Since the CIT(A) as well as the Tribunal has proceeded on the basis that the director is also an employee of the company, we are of the view that the proviso to sub-s. (5) of s. 40A of the Act would apply and the contribution to the provident fund and pension fund shall not be taken into account for the purpose of determining the ceiling under s. 40(c) of the Act. WE are not expressing any opinion on the question when such a contribution is made in a case of a director or a person who is substantially interested in the company and who is not an employee of the company.