GWALIOR SUGAR CO. LTD. VS COMMISSIONER OF INCOME-TAX, 1998 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 1677 (1995)

(a) Income-tax--

----Depreciation---Rate of depreciation---Higher rate---Machinery coming into contact with corrosive chemicals---Sugar industry---Iron, lead and copper are not corrosive chemicals---Machinery coming into contact with iron, lead and copper---Not entitled to depreciation at 15 per cent.---Indian Income Tax Act, 1961, S.32.

(h) Income-tax---

----Business expenditure---Disallowance---Perquisites to employee---Monthly medical expenses paid to Managing Director amounts to perquisites--Liable to be disallowed--- Indian Income Tax Act, 1961, S.40-A(5).

Held, (i) that even if it were accepted for the sake of argument that iron, lead and copper persist in the composition of molasses, it cannot be said that the machinery comes into contact with corrosive chemicals for the simple reason that it is not possible to take the view that iron, lead and copper constitute corrosive chemicals. On the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessee's claim of depreciation at the rate of 15 per cent. on the machinery, in question;

Gwalior Sugar Co. (P.) Ltd. v. CIT (1989) 178 ITR 415 (MP) and CIT v. Saraswati Industrial Syndicate Ltd. (1982) 136, ITR 758 (P&H) fol.

(ii) that sums paid as medical expenses to the Managing Director would fall within the definition of "perquisites" in view of section 17(2) of the Income Tax Act, 1961, as it was not an amount which was incurred by the. employer on the treatment of the Managing Director or 'any member of his family in any hospital maintained by the Government or by the employer. It would be covered by section 40-A(5) of the Income Tax Act, 1961, and had to be taken into account for purposes of disallowance in the assessment years 1974-75 and 1977-78.

R.D. Jain for the Commissioner.

Arun Mishra for the Assessee.

JUDGMENT

S.K. DUBEY, J.---At the instance of the assessee, the Income-tax Appellate Tribunal, Delhi, Bench-E(5), has referred under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"), for the opinion of this Court the following questions:

"(i)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in treating the medical expenses of Rs.1,506 as perquisite and disallowing the same?

(ii)Whether, on the facts and in the circumstances of the case, the Tribunal was right in law, in rejecting the assessee's claim of depreciation at 15 per cent. on the machinery which came into contact with corrosive chemicals?"

We take up question No.(ii) first. The assessee, Gwalior Sugar Co. Ltd., Dabra, claimed depreciation at the rate of 15 per cent. on the machinery in the ground that in the process it came into contact with corrosive chemicals and, therefore, the higher rate of depreciation of 15 per cent. should be allowed to.1t. This claim has been repelled by the Tribunal. On an application being made by the assessee. Therefore, at the instance of the assessee, the question has been referred which has already been decided by this Court, of which the opinion was rendered in M.C.C. No.249 of 1985---Gwalior Sugar Co. (P.) Ltd. v. CIT (1989) 178 ITR 415, decided on October 1, 1987, wherein this Court has observed that the Tribunal placing reliance on a decision of the Punjab and Haryana High Courts in CIT v. Saraswati Industrial Syndicate Ltd. (1982) 136 ITR 758 has repelled the claim. In the case of Saraswati Industrial Syndicate Ltd. (1982) 136 ITR 758 (P & H), it has been held that the machinery did not come into contact with corrosive chemicals as contemplated by the relevant entry in the Act in allowing depreciation at the rate of 15 per cent. The contention that the Tribunal has not taken into consideration the circumstance that iron, lead and copper persist in the composition of molasses, relying on a book titled "Cane Sugar Handbook" authored by Meade Chem, this court opined that even if it is accepted for the sake of argument that iron, lead and copper persist in the composition of molasses, it cannot be said that the machinery comes into contact with corrosive chemicals for the simple reason that it is not possible to take the view that iron, lead and copper constitute corrosive chemicals. In this view of the matter, this Court agreed with the view taken in Saraswati Industrial Syndicate Ltd. (1982) 136 ITR 758 and answered the question holding that on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessee's claim for depreciation at the rate of 15 per cent. on the machinery in question.

Coming to the question No.(i), the claim relates to medical expenses of Rs.1,506 for the assessment year 1974-75 and Rs.4,768 for the assessment year 1977-78, which has been included in perquisites of the managing director's remuneration, and has not been allowed as expenses incurred by the assessee-company.

Section 17(2) of the Act speaks of perquisite, which includes a number of items, of which clause (v) for the purposes of the present reference is relevant, which reads as under:

"(v)any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund (or a Deposit-linked Insurance Fund established under section 3-G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6-C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract of an annuity:

Provided that nothing in this clause shall apply to,---

(i)the value of any medical treatment provided to an employee or anymember of this family in any hospital maintained by the employer;

(ii)any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; "

Section 40-A(5)(a)(ii), as it stands prior to amendment which has been omitted deals with expenses or payments not deductible in certain circumstances, reads thus:

"(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 of 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 one hundred and two thousand rupees, shall in no case be allowed as a deduction:

Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to. in sub-clause (ii) of this clause or the aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely:---

(i)the value of any travel concession or assistance referred to in clause(5) of section 10;

(ii)passage moneys or the value of any free or concessional passagereferred to in sub-clause (i) of clause (6) of section 10;

(iii)any payment referred to in clause (iv) or clause (v) of subsection (1)of section 36;

(iv)any expenditure referred to in clause(ix) of subsection (1) of section 36."

On the basis of the above two provisions, Shri Arun Mishra, learned counsel for the assessee, contended that the medical expenses paid as medical allowance cannot be included in the term "perquisite" and are liable to be given as deduction towards expenses incurred by the employer.

Shri R.D. Jain, appearing for the Revenue, contended that in view of clause (ii) of the proviso to clause (v) of section 17(2), the amount incurred or any sum paid by the employer in respect of any expenditure actually incurred by the employee in his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees can only be deducted as expenditure incurred and if any amount is paid as monthly medical allowance shall fall within the definition of "perquisite". Therefore, the assessing authority as well as the Tribunal were right in holding that the monthly medical expenses will fall within the term "perquisites" and cannot be deducted as expenses incurred by the assessee-employer. It was also submitted by Shri Jain that the finding of the assessing authority was not challenged before the Commissioner of Income-tax (Appeals), which, is evident from the order, Annexure "B", therefore, the assessee now cannot agitate this question.

After hearing counsel on both sides, we are of the opinion that the sum paid as medical expenses will fall within the definition of "perquisites" in view of section 17(2) as it is not an amount which was incurred by the employer on the treatment of the managing director or any member of his family in any hospital maintained by the Government or by the employer.

Therefore, we answer the two questions, referred for our opinion, against the assessee. A copy of the order be sent to the Registrar of the Appellate Tribunal for passing such orders as are necessary to dispose of the case in conformity with the order passed by us.

M.B.A./1425/FCReference answered.