(a) Income-tax---

----Business expenditure---Royalty---For use of Trade Mark---Allowable as revenue expenditure---Indian Income Tax Act, 1961, S.37.

Royalty paid by the assessee-company for use of the trade mark "Tebilized" was revenue expenditure and allowable as deduction.

CIT v. Ashoka Mills Ltd.(1996) 218 ITR 526 (Guj.) fol.

(b) Income-tax---

----Business expenditure---Amounts not deductible---Company Reimbursement of medical expenses of Managing Director---To be taken into consideration for purpose ofis allowance---Indian Income Tax Act, 1961, S. 40(c).

Sum paid to the Managing Director for reimbursement of medical expenses was to be included while computing the disallowance under section 40(c) of the income Tax Act,961 Gujarat Steel Tubes Ltd. v. CIT (1994) 210 ITR 358 (Guj.) fol.

B. J. Shelat instructed by Messrs M. R. Bhatt, & Co. for the Commissioner.

J. P. Shah for the Assessee.

JUDGMENT

M. S. SHAH, J.---At the instance of the Revenue, the following questions of law have been referred to this Court, by the Income-tax Appellate Tribunal, Ahmedabad Bench-B, arising from its order I.T.R. No.1494/Ahd: of 1981 in respect of the assessment year 1978-79.

(1)Whether, on the facts and in the circumstances of the case, the Tribunal was right in taw incoming to the conclusion that claim of the assessee for the payment of royalty of Rs.19;449 for the use of trade mark was allowable, as revenue expenditure?

(2)Whether, on the facts and, in the circumstances of the case, the Tribunal was right in law in corning to the conclusion that .the sum of Rs.9,918 paid to the Managing Director for reimbursement, of medical expenditure was liable to be excluded while computing disallowance under section 40(c) of the Income Tax Act, 1961?"

As far as question No. 1 is concerned, the same arises from the assessee's claim foreducation of a sum of Rs.19,449 as royalty payment for the use of the trade markTebilized". The Income-tax Officer disallowed the claim. In appeal the Commissioner of. Income-tax upheld the contention .of the assessee and. allowed the deduction holding it to be revenue expenditure. The Tribunal upheld the decision of the Commissioner ofincome-tax (Appeals).

At the hearing of the present reference, both the learned Advocates agreed' that the facts giving rise to question No. 1 are similar to the facts which had given rise to an identical question in Income-tax Reference No.200 of 1983 in which we have answered the question as per our decision, dated October 9, 1995 (CIT v. Ashoka Mills Ltd. (1996) 218 ITR 526). There is no dispute about the fact that the agreements between Mettur Beardsell Limited and the assessee-company in the present case were the same as the agreement between Mettur Beardsell Limited and Ashoka Mills Limited (assessee-company in I.T.R. No. 200 of 1983--CIT v. Ashoka Mills Ltd. (1996) 218 ITR 526). After a detailed discussion, we have already in the said decision, dated October 9, 1995, that the amount of royalty paid for user of the trade mark "Tebilized" was a revenue expenditure. Following the said decision, we hold that the expenditure incurred by the assessee-company for payment of royalty for the trade mark was a revenue expenditure. Accordingly, our answer to question No. l is in the affirmative,, i.e., in favour of the assessee and against the Revenue.

As far as question. No. 2 is concerned, the facts are that the Income tax Officer while determining the value of remuneration for the purpose of disallowance under section 40(c) of the Income-tax Act ("Act" for short) included the reimbursement of medical expenses for the Managing Director. In appeal, Commissioner of Income-tax (Appeals) directed the Income-tax Officer to exclude a sum of Rs.9,918 being reimbursement of medical expenses in computing the remuneration paid to the Managing Director under section 40(c) of the Income-tax Act. In appeal preferred by the Revenue, the Tribunal upheld the decision of the Commissioner. At the instance of the, Revenue, therefore, the above question No.2 has been referred to this Court under section 256(1) of the Act.

At the hearing of the present reference, the learned Advocate appearing for both the sides agreed that answer to the above question is covered by the opinion of this Court in the case of Gujarat Steel Tubes Limited v. CIT (1994) 210 ITR 358, wherein this Court has held that reimbursement of medical expenses incurred by the director is a benefit to the director within the meaning of section 40(c)(i) of the Act. Section 40(c)(i) provides that in the case of any company any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person shall not be allowable deduction if that deduction in respect of the aggregate of such expenditure and allowances in respect of and one person exceeds Rs. 72,000 per year. This section, therefore, prescribes the ceiling of Rs.72.000 for tier permissible deduction of the expenditure incurred by the company which results directly or indirectly in the provision of "any remuneration, benefit car amenity" to a director. In the cage of Gujarat Steel Tubes Limited (1994) 210 ITR 358, this Court held that the phrase "any remuneration, benefit or amenity" is of wide amplitude and it covers benefit or amenity in cash or in kind. In view of the clear language of the aforesaid sub-clause (i) the medical' reimbursement would be covered by section 40(c). In our view, therefore, the Tribunal was not right in excluding the sum of Rs.9,918 paid to the Managing Director for reimbursement of the medical expenses, while computing the disallowance under section 40(c) of the Act. Accordingly, our answer to question No.2 is in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.

M.B.A./3190/FCReference answered.