Full Judgment Text
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PETITIONER:
C.I.T., MADRAS
Vs.
RESPONDENT:
BRAKES INDIA LTD.
DATE OF JUDGMENT06/04/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALA N. (J)
CITATION:
1993 SCR (2) 993 1993 SCC Supl. (3) 51
JT 1993 (2) 662 1993 SCALE (2)423
ACT:
Income tax Act 1961:
Sections 10(6)(vii) and 40(c)(iii)Salary paid to Foreign
Technical Director--Exempt under the head
’Salaries--"Whether could be included in the total income.
HEADNOTE:
During the accounting order relevant to assessment year
1965-66, the Respondent-assessee paid to its foreign
technical director a total remuneration of Rs. 66,000
including a sum of Rs. 28,576 paid by way of perquisites.
The Income-tax Officer allowed only a sum of Rs. 13,200 by
way of perquisites and disallowed the balance of Rs. 15,376
in view of Section 40(c)(iii) of the Income-tax Act, 1961.
On an appeal by the assessee, the Appellate Assistant
Commissioner held that since the salary of the foreign
technical director was exempt under S.10(6)(vii), the
provision contained in Sec.40(c)(iii) was not applicable.
Revenue preferred an appeal and the Tribunal held that
S.40(c)(iii) was applicable. At the instance of the
Assessee, Tribunal referred the question to the High Court.
Since the High Court answered the question in favour of the
assessee, Revenue preferred the present appeal.
Dismissing the appeal, this Court,
HELD: Under section 10(6)(vii) of the Income-tax Act, 1961
the remuneration due to any technician, who was not a
resident in any of the four financial years immediately
preceding the financial year in which he arrived in India,
chargeable under the head ’salaries’, for services rendered
as a technician, was exempt. Thus in the instant case, the
salary paid to the foreign technical director was admittedly
exempt under Section 10(6)(vii) of the Income-tax Act, 1961.
In other words, it was nil for the purposes of the Act. If
so, the second proviso to sub-clause (iii) of S.40(c)
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is attracted, inasmuch as ’nil’ income, under the head
’salaries" is less than Rupees seven thousand five hundred.
By virtue of the said proviso, the main provision in sub-
clause (iii) goes out of picture. The High Court reasoned
that if income of one rupee is less than Rs. 7,500, there is
no reason for saying that ’nil’ income is not an income less
than Rs. 7,500. The High Court was right in taking the view
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that since the income exempted under Section 10 is not
liable to be included in the total income, such exempted
salary income should be treated as ’nil’ income for the
purposes of Section 40(c)(iii) of the Act. [996 B-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1287(NT) of
1982.
From the Judgment and Order dated 22.2..1978 of the Madras
in Tax Case No. 24 of 1975.
M. Gaurishankar Murthy, C. Ramesh, P. Parmeswaran and Ms.
A. Subhashini for the Appellant.
Ms. Janki Ramachandran for the Respondent.
The following Order of the Court was delivered
In this appeal preferred against the Judgment of the Madras
High Court, the words "whose income chargeable under the
head ’salaries’ occurring in the second proviso to sub-
clause (iii) of clause (c) of section 40 fall for
interpretation. The assessment year concerned is 1965-66.
During the accounting year relevant to the said assessment
year, the assessee paid to its foreign technical director a
total remuneration of Rs. 66,000 including a sum of Rs.
28,576 paid by way of perquisites. The Income-tax Officer
held that by virtue of section 40(c)(iii) perquisites
exceeding one-fifth amount of the salary cannot be allowed
as a deduction. He held further, the second Proviso to the
said sub-clause is not applicable inasmuch as the income
chargeable under the head salaries was not Rs. 7,500 or
less. Accordingly he allowed only a, sum of Rs. 13,200 by
way of perquisites. He disallowed the balance of Rs.
15,376.
The Appellate Assistant Commissioner, however, allowed the
assessee’s appeal holding that inasmuch as the salary of the
foreign technical director was exempt from tax under section
10(6)(vii), the provision contained in section 40(c)(iii)
was not applicable. The appeal filed by the
995
Revenue was allowed by the Tribunal. The Tribunal opined
that merely because the salary is exempt under section
10(6)(vii), the provision in section 40(c)(iii) does not
cease to apply. Under the proviso to the said sub-clause,
only an employee whose income chargeable under the head
salaries was Rs. 7,500 or less is exempted. Inasmuch as the
income chargeable under the head salaries in this case is
more than Rs. 7,500, the exemption does not operate. Since
the said foreign technical director was an employee of the
assessee, he was certainly governed by the provision section
40(c)(iii), said the Tribunal. At the request of the
assessee, it stated the following question for the opinion
of the High Court:
"Whether on the facts and circumstances of the
case, the Tribunal was justified in holding
that the provisions of Section 40(c)(iii) were
rightly invoked for the assessment year 1965-
66 in relation to the remuneration of the
Technical Director of the assessee company."
Section 40(c)(iii) as applicable to the assessment year
1965-66, read as follows:
"40. Notwithstanding anything to the contrary
in Sections 30 to 39, the following amounts
shall not be deducted in computing the income
chargeable under the head "profits and gains
of business or profession".
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(c) in the case of any company
(iii)any expenditure incurred after the 29th
day of February, 1964, which results directly
or indirectly in the provision of any benefit
or amenity or perquisite, whether convertible
into money or not, to an employee (including
any sum paid by the company in respect of any
obligation which but for such payment would
have been payable by such employee), to the
extent such expenditure exceeds one-fifth of
the amount of salary payable to the employe
e
for any period of his employment after the
aforesaid date:
Provided further that nothing in this sub-
clause shall
996
apply to any expenditure which results
directly or indirectly in the provision of any
benefit or amenity or perquisite to an
employee whose income chargeable under the
head "Salaries’ is seven thousand five hundred
rupees or less’
Under section 10(6)(vii) of the Act, the remuneration due to
any technician, who was not a resident in any of the four
financial years immediately preceding the financial year in
which he arrived in India, chargeable under the head
’salaries’, for Services rendered as a technician, was
exempt. In this case, the salary paid to the foreign
technical director was admittedly exempt under section
10(6)(vii). The contention of the assessee which has been
accepted by the High Court, runs thus: the salary payable to
the said director was exempt by virtue of Section
10(6)(vii). In other words, it is nil for the purposes of
the Act. If so, the second proviso to the sub-clause is
attracted, inasmuch as ’nil’ income, under the head
’salaries" is less than Rupees seven thousand five hundred.
By virtue of the said second proviso, the main provision in
sub-clause (iii) goes out of picture. The High Court
reasoned that if income of one rupee is less than Rs. 7500,
there is no reason for saying that ’nil’ income is not an
income less than Rs. 7,500. Since the income exempted under
Section 10 is not liable to be included in the total income,
such exempted salary income should be treated as ’nil’
income for the purposes of Section 40(c)(iii), opined the
High Court.
After hearing the counsel for the parties, we are of the
opinion that the view taken by the High Court is a
reasonable one and does not call for any interference.
The appeal accordingly fails and is dismissed. No costs.
G.N. Appeal dismissed.
997