S. C. MOHAPATRA J. - This a reference at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961. The following two questions have been referred to this court for our answer :
'1. Whether the Tribunal was correct in upholding the deletion of Rs. 88,911 made by the Commissioner of Income-tax (Appeals) which was added under section 40A(5) of the Income-tax Act by the assessing authority ?
2. Whether the perquisites under section 40A(5) are to be calculated by applying rule 3 of the Income-tax Rules ?'
Correctness of an assessment of a limited company relating to profits and gains of business for the year 1980-81 under the Act is the subject-matter of consideration where permissible deduction towards perquisites provided by the assessee to its employees is to be determined.
The assessee filed the return including the perquisites provided to its employees in respect of motor vehicles provided and, for that purpose, computed the same under rule 3 of the Income-tax Rules, 1962. The Income-tax Officer did not accept the return and enhanced the taxable income by Rs. 88,911 towards the perquisites provided to employees computing the same under section 40A(5) of the Act which was in force for the period of assessment. On appeal by the assessee, the Commissioner of Income-tax (Appeals) relied upon a decision of the Tribunal and computed the income by applying rule 3 and reversed the assessment in this regard. The appeal by the Revenue to the Income-tax Appellate Tribunal being unsuccessful in view of its earlier decision, the questions of law have been referred to this court at the instance of the Revenue.
For appreciating the points involved, section 40A(1) and (5) are to be read together. They read as follows :
'40A. Expenses or payments not deductible in certain circumstances. - (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head Profits and gains of business or profession....
(5) (a) Where the assessee -
(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or
(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or, partly for his own purposes or benefit,
then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction :
Provided that where the assessee is a company, so much of the aggregate of -
(a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause; and
(b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40.
In respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of seventy-two thousand rupees, shall in no case be allowed as a deduction...
(c) The limits referred to in clause (a) are the following, namely :- ...
(ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one-fifth of the amount of the salary payable to the employee or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of employment in India of the employee during the previous year, whichever is less.
Explanation 1. - The provisions of this sub-section shall apply notwithstanding that any amount not to be allowed under this sub-section is included in the total income of the employee or, as the case may be, the former employee.
Explanation 2. - In this sub-section -
(a) salary has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to the following modifications, namely :-
(1) in the said clause (1), the word perquisites occurring in sub-clause (iv) and the whole of sub-clause (vii) shall be omitted :
(2) in the said clause (3), the references to assessee shall be construed as references to employee or former employee and the references to his employer or former employer and an employer or former employer shall be construed as references to the assessee;
(b) perquisite means -
(i) rent-free accommodation provided to the employee by the assessee;
(ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee;
(iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee;
(iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee; and
(v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity.'
A plain reading of section 40A(1) makes it clear that, in view of the use of the non-obstante clause 'notwithstanding anything to the contrary contained in any other provision of this Act', the provisions in section 40A would prevail over other provisions and such provisions, if inconsistent with section 40A, shall have no application.
Mr. A. K. Ray, learned standing counsel for the Department, has put strong reliance on the plain language of the provision and has also referred to a decision of the Kerala High Court in Travancore Rayons Ltd. v. CIT : [1986]162ITR732(Ker) in support of his submission. Mr. B. K. Mohanti, learned senior advocate on behalf of the assessee, on the other hand, submitted that 'perquisites' as described in section 40A (5) has been similarly described in section 17(2) and rule 3 of the Income-tax Rules provides the manner of computation of perquisites relating to motor vehicles. The intention of the Legislature is that the same amount which is taxed in respect of the salary of an employee should not also be taxed in the hands of the employer and only that amount which is deducted from taxation in the hands of the employee under section 17 read with rule 3 should be added in the income of the employer to be taxed. He relies on two decisions, one of the Calcutta High Court in CIT v. Britannia Industries Co. Ltd. : [1982]135ITR35(Cal) and another of the Punjab and Haryana High Court in Porritts and Spencer (Asia) Ltd. v. CIT which directly support Mr. Mohantis submission.
In Travancore Rayons Ltd. v. CIT : [1986]162ITR732(Ker) , the Kerala High Court was considering a case whether computation of income of a company chargeable under the head 'Profits and gains of business or profession' would be governed under section 40(c) or section 40A(5) in respect of the amenities given to a director. It was held that, in view of the non obstante clause in section 40A(1), section 40(c) is controlled by section 40A(5).
In the decision of the Calcutta High Court in CIT v. Britannia Industries Co. Ltd. : [1982]135ITR35(Cal) , it was observed (at p. 38) :
'... It is rightly pointed out by the Tribunal that it would lead to a very anomalous situation if the value of the perquisite of the car provided by the assessee-company to the employees was taken at Rs. 150 per month for the purpose of assessment of the employees under the head salaries and was taken at a different figure for the purpose of working out a ceiling under section 40(c)(iii) in the hands of the assessee-company, which is the employer. We are fully in agreement with the view of the Tribunal that there cannot be two different standards for assessment in respect of the employees and the employer. It is also equitable that what the payer gives is what the receiver receives. In this case, we do not find that the Appellate Tribunal was in any way unjustified in confirming the findings of the Appellate Assistant Commissioner...'.
The Punjab and Haryana High Court, in the decision in Porritts and Spencer (Asia) Ltd. v. CIT , relied upon the Calcutta High Court decision. Same was the view of that court in an earlier decision in CIT v. Nuchem Plastics Ltd. . The Gujarat High Court, in the decision in CIT v. Rajesh Textile Mills Ltd. : [1988]173ITR179(Guj) , distinguished the decision of the Calcutta High Court.
The Calcutta High Court and the Punjab and Haryana High Court have not taken into consideration the effect of the non-obstante clause in section 40A(1). The Calcutta High Court was influenced by equitable considerations. While interpreting a taxing statute, equity has no place. The clear language of the statute is to be given effect notwithstanding hardship. The legislative intention is also clear when Explanation 2 to section 40A(5)(c) is taken note of where section 17 is made applicable subject to modification. Hence, section 17, so far as it relates to perquisites which cover perquisites of motor vehicles has no application to section 40A(5). Since rule 3 is made in respect of section 17, there is no scope to apply the same while computing the income in respect of business or profession since it is only applicable to computation of income in respect of salary. Accordingly, the submission of Mr. Mohanti on the basis of the decision of the Calcutta High Court and the Punjab and Haryana High Court has no force.
In view of our above discussion, both the questions are answered in favour of the Revenue and against the assessee. No costs.
S. K. MOHANTY J. - I agree.