2001 PLP 2139 (PTD)

N. V. BALASUBRAMANIAN, J.‑‑‑The following three questions have been referred by the Income‑tax Appellate Tribunal, at the instance of the assessee, for our consideration: "(1) Whether, on the facts and in the circumstances of the case, the Income‑tax Tribunal was right in holding that the reimbursement by the applicant of the medical expenses incurred by its managing director and also treating cash payment like house rent allowance paid to the managing director as part of salary/perquisite for the purpose of disallowance under section 40(c)(ii)? (2) Whether, on the facts and in the circumstances of the case, the Income‑tax Appellate Tribunal was right in treating cash payments like house rent allowance paid to an executive as salary for the purpose of computing admissible perquisites for applying stipulated ceiling as per the provisions of section 40A(5)? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the surtax payable is not an allowable deduction in computing the total income under the Income‑tax Act?" In so far as the first question of law referred to us is concerned, the Appellate Tribunal held that the reimbursement of medical expenses and house rent allowance paid to the managing director of the assessee‑company should be taken into account for the purpose of determining the amount of disallowance under section 40(c)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). A similar question whether those amounts are liable to be included for the purpose of determining the ceiling under section 40(c) of the Act came up for consideration before this Court in Rane (Madras) Ltd. v. CIT (1995) 212 ITR

583. This Court held that the house rent allowance, sitting fees and reimbursement of medical expenses should be taken into account for the purpose of section 40(c) of the Act. Recently; following the said judgment, we have in T.C. Nos.388 to 392 of 1984‑‑‑Sundaram Industries Ltd. v. CIT (1999) 239 ITR 405‑‑‑by judgment dated November 26, 1997, held that the reimbursement of medical expenses should be taken into account for the purpose of section 40(c) of the Act. Following the earlier judgments of this Court, we answer the first question of law referred to us in the affirmative and against the assessee. The second question raised a point that the cash payments like house rent allowance paid to the executive should be taken as salary for the purpose of determining the ceiling under section 40A(5) of the Act. The decision of the Supreme Court to the case of CIT v. Mafatlal Gangabhai & Co. (P.) Ltd. (1996) 219 ITR 644, makes it clear that the cash payment will have to be treated as salary paid to the employees and will be subject to the ceiling limit provided under section 40A of the Act. Following the decision of the Supreme Court cited supra, we hold that the Tribunal was correct in holding that the cash payment like house rent allowance paid to the employees should be treated as salary for the purpose of determining the ceiling under section 40A of the Act. Accordingly we answer the second question of law referred to us in the affirmative and against the assessee. The third question relates to deduction of surtax payable in the computation of the business income of the assessee. The decision of the Supreme Court in the case of Smith Kline and French (India) Ltd. v. CIT (1996) 219 ITR 581, is a clear authority for the proposition that the surtax paid cannot be allowed as a deduction while computing the business income of the assessee under the provisions of the Act. Following the said decision, we answer the third question of law also referred to us in the affirmative and against the assessee. No costs. M.B.A./233/FC ????????????????????????????????????????????????????????????????????????????????? Reference answered.