Commissioner of Income-tax Vs. South India Viscose Ltd. - Court Judgment

Ramanujam, J.

1. At the instance of the Revenue, the following five questions have been referred to this court for its opinion by the Income-tax Appellate Tribunal :

'1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to extra shift allowance in respect of the machineries added during the previous years relevant for the assessment years 1972-73 and 1973-74 on the basis of double and triple shifts worked by the entire concern

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of Rs. 1,93,430, Rs. 7,23,095 or any portion thereof, representing the additional amount paid in respect of the instalments payable towards the cost of machineries purchased from abroad, on account of fluctuations in the exchange rates for the assessment years 1972-73 and 1973-74

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the reimbursement of medical expenses incurred by the assessee would not form part of 'perquisites' for the purpose of disallowance under section 40(c) of the Income-tax Act is sustainable in law

4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the value of machinery not put to use during the relevant accounting years should not be excluded from the 'capital base' for the purposes of computing relief under section 80J of the Income-tax Act, 1961

5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the provision for gratuity amounting to Rs. 1,77,908 should be allowed as admissible deduction for the assessment year 1972-73 is sustainable in law ?'

2. Of the five questions mentioned above, questions Nos. 2, 4 and 5 are found to be covered by the decisions of this court. It is not in dispute that question No. 2 is covered by the decision of this court in CIT v. South India Viscose Ltd. : [1979]120ITR451(Mad) , wherein this court has answered a similar question in favour of the Revenue. Therefore, following the said decision, question No. 2 answered in the negative and in favour of the Revenue.

3. Similarly, question No. 4 is covered by the decision of this court in favour of the assessee in CIT v. Madras Wire Products : [1980]123ITR722(Mad) . Following the said decision, question No. 4 is answered in the affirmative and in favour of the assessee.

4. Likewise question No. 5 is covered by the decision of this court in CIT v. Andhra Prabha P. Ltd. : [1980]123ITR760(Mad) and also the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT : [1981]132ITR559(SC) . Following the said decisions, question No. 5 is answered in the affirmative and in favour of the assessee.

5. Coming to question No. 1, it is seen that it is also covered by the decision of this court in South India Viscose Ltd. v. CIT [1982] 135 ITR 206, which was rendered in the assessee's own case for the previous assessment year 1971-72. In this case, the Tribunal has followed its earlier decision in the assessee's own case for the assessment year 1971-72 and held that the assessee will be entitled to extra shift allowance in respect of all the machineries if the concern has worked the extra shifts during the previous year relevant to the assessment year. The decision of the Tribunal in the assessee's own case for the earlier year came up for consideration in South India Viscose Ltd. v. CIT [1982] 135 ITR 206, wherein this court has laid down that the extra shift allowance is not available to all the machineries and that it should be restricted to individual machineries which had been used in the working of the extra shifts. Even before this court rendered its decision in South India Viscose Ltd. v. CIT [1982] 135 ITR 206, the Calcutta High Court in Ganesh Sugar Mills Ltd. v. CIT : [1969]73ITR395(Cal) and the Allahabad High Court in Raza Sugar Co. v. CIT : [1970]76ITR541(All) and in Kundan Sugar Mills v. CIT : [1977]106ITR704(All) , took the same view as was taken by this court in South India Viscose Ltd. v. CIT [1982] 135 ITR 206. The view taken by the Calcutta High Court in Ganesh Sugar Mills Ltd. v. CIT : [1969]73ITR395(Cal) has again been reiterated by that High Court in Anantapur Textiles Ltd. v. CIT : [1979]116ITR851(Cal) . The Allahabad High Court, however, went back on its earlier decisions and held in J. K. Synthetics Ltd v. CIT : [1979]118ITR629(All) and L. H. Sugar Factories and Oil Mills (P) Ltd. v. CIT : [1979]118ITR985(All) that extra shift allowance will be available to all the machineries in the concern, if the concern has worked extra shifts. But the decision of the Allahabad High Court in L. H. Sugar Factories and Oil Mills (P) Ltd v. CIT : [1979]118ITR985(All) has been reversed by a Full Bench of the same High Court in Dhampur Sugar Mills Ltd. v. CIT : [1980]126ITR648(All) and the decision in J. K. Synthetics Ltd. v. CIT : [1979]118ITR629(All) has also been explained by the Full Bench. The view taken by the Full Bench in Dhampur Sugar Mills Ltd. v. CIT : [1980]126ITR648(All) [FB] is in accord with the view taken by the Calcutta High Court in Anantapur Textiles Ltd. v. CIT : [1979]116ITR851(Cal) and by this court in South India Viscose Ltd. v. CIT [1982] 135 ITR 206. Thus, all the decisions, as on this date, on the question of grant of extra shift allowance are uniform and they are to the effect that extra shift allowance can be claimed only in respect of individual machineries which have been used during the extra shifts and not in respect of the entire machineries owned by the concern. Therefore, following the decision in South India Viscose Ltd. v. CIT [1982] 135 ITR 206, question No. 1 is answered in the negative and in favour of the Revenue.

6. Coming to question No. 3, it is seen that the Tribunal has held that the reimbursement of medical expenses incurred by the assessee would not form part of 'perquisites' for the purpose of disallowance under section 40(c) of the Income-tax Act, 1961, following its earlier order. It has been pointed out by Mr. Jayaraman, learned counsel for the Revenue, that the provision in section 40(c)(i) is applicable only for the assessment year 1972-73 and not for the assessment year 1973-74 and, therefore, the Tribunal is in error in applying section 40(c)(i) for both the assessment years. Learned counsel for the Revenue also contends that even in relation to the assessment year 1972-73 for which section 40(c)(i) is applicable, since section 40(c)(i) used a phraseology different from that contained in section 40(c)(iii) which was considered by this court in CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150, the question will arise whether the said decision of this court is applicable for the interpretation of section 40(c)(i). Learned counsel for the Revenue has further pointed out that section 40A(5) specifically refers to certain cash payments as coming under the definition of 'perquisite' for the purpose of disallowance under that section and, therefore, the Tribunal has to construe section 40(c)(i) and section 40A(5) independently and without reference to the decision in CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 which dealt with the provision in section 40(c)(iii). There is considerable force in the said submissions made by learned counsel for the Revenue. A perusal of the decision in CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 clearly indicates that it was based on the language used in section 40(c)(iii) which used the expression 'whether convertible into money or not'. It is from that expression, the court concluded that it is only the non-cash benefits that could be taken as perquisites and that cash payments could not be treated as perquisites for the purpose of disallowance under section 40(c)(iii) or section 40(a)(v). It is significant to note that section 40(c)(iii) itself has been omitted by the Finance Act of 1968 and section 40(a)(v) took its place which was in its turn replaced by section 40A(5), w.e.f. April 1, 1972. In this case, the Tribunal has, in the first instance, proceeded on the erroneous basis that the provision in section 40(c)(i) is applicable for both the assessment years. As a matter of fact, the provision in section 40(c)(i) applied only for the assessment year 1972-73 while section 40A(5) applied for the assessment year 1973-74. The Tribunal has not considered these questions in detail and it merely followed its own earlier decision and held that the reimbursement of medical expenses incurred by the assessee would not form part of 'perquisite' for the purpose of disallowance under section 40(c)(i). As we are of the view that the Tribunal has not considered the issue in all its aspects, particularly in the light of section 40(c)(i) and under section 40A(5) in a proper perspective and in the light of the statutory provisions as are applicable to the assessment years in question. We, therefore, return the reference unanswered in relation to question No. 3 and direct the Tribunal to consider as to whether the decision in CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 will be applicable to the interpretation of the provision in section 40(c)(i) and also to the provision in section 40A(5) and dispose of that issue in accordance with law.

7. The tax cases are disposed of accordingly. There will be no order as to costs.

8. Learned counsel for the assessee makes an oral application for grant of leave to appeal to the Supreme Court against our decision on question No. 1. Learned counsel points out that though this court refused to grant leave to appeal to the Supreme Court as against the decision in South India Viscose Ltd. v. CIT [1982] 135 ITR 206, the Supreme Court has granted special leave and in view of the same, leave may be granted by this court to the assessee to prefer an appeal to the Supreme Court as against our order on question No. 1. Having regard to the fact that the Supreme Court itself has granted special leave and as the said question No. 1 is at large now, we grant the oral leave asked for by the assessee to prefer an appeal to the Supreme Court against our decision on question No. 1.

9. Learned counsel for the Revenue makes a similar oral application for leave to appeal to the Supreme Court against our decision in question No. 4. We have answered question No. 4 following the decision in CIT v. Madras Wire Pro ducts : [1980]123ITR722(Mad) . Against the said decision, this court itself has granted leave to appeal to the Supreme Court in SCP No. 50 of 1981. Having regard to the fact that leave has been granted to prefer an appeal to the Supreme Court against the decision in CIT v. Madras Wire Products : [1980]123ITR722(Mad) , leave has to be granted in these cases also, as we have merely followed the said decision. Hence, the oral leave sought for by the Revenue to prefer an appeal to the Supreme Court against our decision on question No. 4 is granted.