Bharat Beedi Works (Private) Limited And Anr v. Commissioner Of Income-Tax

A UHARA T BEEDI WORKS (PRIVATE) LIMITED AND ANR. ETC.ETC. COMMISSIONER OF INCOME-TAX MAY 7, 1993 [B.P . .JEEVAN REDDY AND N. VENKATACHALA,JJ.J Income-Tax Act 1961-S.40 (c)-Parmers in firm also directors in a company-\Vhether royalty payme111s by company to jinn falls within s. 40 (c)-Held, pay111e111s are consideration for a valuable right parted by firm! par111ersldirectors of the assessee-Company in favour of assessee-\l'here agreemem wherewuler pay111e111s made not mere device or screen, it cannu1 be trea1ed as payments made 10 directors qua direc/ors-S. -10 (A) (2). A partnership firm consisting of three partners was engaged inter alia in the business of manufacturing and sale of becdics under the brand name "Mangalorc Prakash Bccdics". On May 20, 1972 a private limited compan~· called' prakash Bccdics Ltd. '-the asscssce-appellant was incorporated. One of its objects was to take over the business of' the aforesaid firms which it did under an agreement dated 15.July1972 whereby the firms sold its rights and assets to the company. For the use of' the trade name,a royalty at l Op. for every 1000 becdies was to be paid by the company to the firm. This payment ~·as made every year by the as.,.cssce on account of' royalty. The three partners of the firms were also directors of the company. The relevant assessment years were 1974-75 and 1975-76. The facts in the other appeals arc similar. The assesscc claimed deduction of the amount paid by it as royalty. The ITO allowed the deductions as claimed. The CIT in mo motu proceedings disallow the aforesaid deductions. On appeal, the Tribunal rest9rcd the order of the ITO. On reference, the High Court answered in favour of the revenue as the three directors of'thc assessce-company were also partners in the firm. It held that in law, a firm is mcrcl)' a collection or association of' individuals for carrying on a business. Merely beL-ausc the firm is an assessable entity under the Income Tax Act, it docs not follow that it is a juristic or legal entity. It must H therefore he held that t-he payments to the firm were in reality made to the BI-IARA T BEED! WORKS v. COMMISSIONER OF INCOME-TAX [REDDY,J.] 607 directors, thus attracting S. 40 (c). Before this Court, it was contended for the assessee.Jbat payment to a firm is not ipso fact pa~·ment to the partners, directly or indirectly. In any event, the payments were made ~ the three persons not in .their capacity of directors (qua directors). but in consideration of a valuable right parted by them in fal·our of the assessee-company. S. 40(c) was neveri~tended to take in such payments. They relied on the budget speech of the Finance Minister . and argued that the principle of interpretation noscitor a sociis must be applied to the words "remuneration, benefit or amenity". The genuineness or validity of the agreement, the factum of pa~·ments as royalty, and that the brand name carries significant business value was not disputed. The question before this Court was whether the royalty payments fail within S. 40(c). Allowing the appeal, this Court, HELD : J. Even assuming that the payments to firm were payments to partnerst the t;aid payments did. not fall within S. 40(c). The payments were made in con..,ideration of a valuable right parted by the firm/partners/ directors of the assessee-company in favour of the assessee .. So long as the agreement whereunder the said payments were made is not held to be a mere . device or a mere screen, the said payments cannot be treated.a!> payments made ffJ the directors (qua directors). (613-H, 614-A) ·fhe payments were made by way of consideration for allowing the assE:Ssce to use a valuable right belonging to them viz. the brand name. Such a payment may be liable to be scrutinised under sub-section.{2) o.f section 40 (A), but it certainly did not fall within the four corners of section 40(c). (614-M .. T.T. (Pvt.) Ltd. v. / T 0 Bangalore 121 ITR 551, approved. [1993]1 sae fro qo863 TATAarea AST aaa (S10) fafats ate gH aeT 743, 1993.ATATT earagta ato to saat Vet| ake Ute aHeTAT ara-ee afafrra, 1961 (1961 Ht 43)—are 40(a) ate 40%(2)—cua site dary ot afaae amit FT etet ater agi—faatfeal saat art qe awae ais ara wt catT fer wit F fare feo ae carfaca a dara saa are a fag my arate FH ary aT elt H HTC Tar HAT sree Hele atey fo 1 afara Ge, frat att aeflare 8, gerara & aTHAT ATT wie ATAseta Afsat & fafratr att frase areare Hath gs aHT aTHR argfafaafadeat site nat oe aot ay aaaoafseral atx arfeaat ar fae axfafa ax at TE HH IT aT OH Fey ee Hae F arta Ga A Hae Ffear) faatfedt arat oft ag ot at carfaea at dare Ht tal Tt HAR dietaniart Hrait & feta ay afraifedt sady A ay gre Ge Ht wachfadaat 4 carter F Ages dae cHA sh Hetat ar arar fee, fa aaa afiaregata HT feararene angaa t aelfaal B daa Ht eae a aratfeat sre att sat Ha BY arer 40(a) F fafer afasamr dar a afizadary agate vet feari fratfedt satA araae agaFB areal B faegafarmen H ate crea st latte aae ae a TE a oat afeersmee at dart wt feat qari sea eqraraa H fade fo at we eararaqaused fawrt % cet F atx faalfedt watte free aver feareqfia aacfaaifedt arat + seaaa eqraraa Fae ada grea at1 faalfedt aod A geqFaTATAT SIT ATA TE sheen Ht ger BY Aatedl Bt eu ae adie a fsdara fratedt aadt & faterat at ad fee me a, afag sa ot at fae a7fara gaa aferca ati we at Pear qar dara cage gt aviterd zt seer:at ara: FRAT Tat Aaa Ae F| VeaTA eaTaTaT sre atlas ATT HT ev, afafratica—at at fee ae dara atta at fara aaa F 1 fez af,rararaa Bt Ua A Var aay ata-we afafaay at are 40 % qus (m) %vata vat art FF care fratfedt wat ar wa /aeiarad /Peaat sre fraFeat & qet & fare fae ae qeaara afernre F ofanatered Pee ae fae aHST HUT Ft fara aeatt yar dare far me a, ara gfet ar ara ara vet ara 864 (geet rararera Frei afiret [1994] 1 Ato Fito ao arat aa aH saa dara feat at fraaat Fer H (fazaant st afeaa H) farwat dara val Alar aT AHAT 1 A sara, Fratfedt at gat dag gerata afa-It HA ais aT BT STAT HUA HT HA ais aT BT STAT HUA HT ais aT BT STAT HUA HT aT BT STAT HUA HT BT STAT HUA HT STAT HUA HT HUA HT HTara Agere fee oTAS ofa Agere fee oTAS ofa fee oTAS ofa oTAS ofa ofa HTTfrre me &1 Rar ate ot tare are 40% st soar (2) F sete eater faeaa % afta gt evar 2, fag ag fafeaa Ss & are 40(7) at ofefer & aaiteaa arat| (Fer 13)|| It HA ais aT BT STAT HUA HT HA ais aT BT STAT HUA HT ais aT BT STAT HUA HT aT BT STAT HUA HT BT STAT HUA HT STAT HUA HT HUA HT HTara Agere fee oTAS ofa Agere fee oTAS ofa fee oTAS ofa oTAS ofa ofa HTT ara 40 % avg (1) B aeltt mane afeard a ae aaarhea FTA afer & fe aioeit at areare aaeth areafas aramrsarat BT ar faethe areegeaey AT SAAT MAYA aly Arar Brae Bl ea A cad EY BY eaT AT TATaeafsn at agfeaqaat 2 saat adt| ade (1) A afnt frees ay sea eafecat& araare ay far ae feet gare st arte srazae ST A sear Fale atary wet ay art arfee ae afe ag oat arate fe a agfaa, agfeagae araeafan &, at saat (aetat & wa F) argare Aat far area| (azr 16) 1984 % araat garden aaa Fo 198 FH walew seq earotay Farea 10-7-1986 % fava atx aria % fare aaa eararera ar Prue earrafe ato tho silat test & fear| Mo WH—A aha Haier sea araTaa F ga fava H faeg aren aoa S, frat uses fart at ate & va earareaa at fafese seq Hr sat vaamaraa ara uses fear h gat A ate faatfedt & fae feat qar art ar-at afafraa, 1961 at are 256 % ata faface ser ga waz a— Cour arma & Tent F arare ot ate Saat ofeferhaal F afaareerare ag afafaatfer wear aratfad at fe ara-we afafiay, 1961 atarer 40(i) & ate 1,79,742/- eae at fa aagart agt at araadt i” (eriaa set frafer ag 1974-75 % wae F ar ate agfraten ay 1975-76 & aaa fafece seq aaer ar faa cam F)|af at aitat ¥ & dea ara g, aa: 1990 at fafa atta Ho 6092ate 60925 FF aval al sae Hear gt oar star [vara dey(srgae) fafats aare ort aged, wafew ATA]| 7 ਮਈ,1993 CIT Patiale·v. Avon Cycles (p) Ltd. 126 ITR 448 and Indialttte C~. ltd. v. CIT 178 ITR 649, referred to. 2. The power vested in the ITO is to determine whether any expenditure of allowance is excessive or unreasonable having regard to the. legitimate business needs of the company and the benefit der.ived by the assessee or accruing therefrom. Any pa~·ment to.a relative ofa director or other persons mentioned in clause (c) will necessarily be examined applying the above test and if it is found that the~· are unwarranted, unreasonable or excessive, they will be disallowed. Such a situation does not arise herein. (61S-C) CIT. Bombay v. Mis. Indian Engineering and Commercial Corporation (p) Lld. B (1993] 2 distinguished. JT 683. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1452 of 1987. From the Judgment and Order dated 10.7. 1986 of the Karnataka High Court in l.T.R.C. No. 198of1987. WITH C.A. Nos. 4462/89, 1822, 1902, 1465/87, 675, 658,4461189. 6093/90, 6204/ 90, 6092. and 6092 A of 1990. H. Salve, P.H. Parekh, Ms. Meenakshi Grover. R. Nariman, Ms. R. Gill and Ms. Simi Kr. for'the Appellants. B.B. Ahuja, Ranbir Chandra and Ms. A. Subhasini for the Respondent. The Judgment of the Court was delivered by B.P. JEEV AN REDDY J. These appeals are preferred against the judg-ment of the Karnataka High Court answering the question referred to it, at the instance of the revenue, in favour of the revenue and against the assessee. The question referred under section 256 of the Income Tax Act, 1961, read as follows: F "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. l, 79, 742 could not be disallowed under section 40 ( c) of the Income Tax Act, 1961." (The above qµestion related to Assessment Year 1974-75. The question referred for A. Y. 1975-76 was identical except in 1hematter of amount). Since the facts in all the appeals are identical it would be sufficient to notice the facts in C.A. Nos. 6092 and 6092A/90 (Prakash Beedies (P) Lld. v. G Commr. of Income Tax. Karnataka, Bangalore). Prior to 15.7.1992, a partnership firm called K.M. Anand Prabhu & Sons, Mang al ore, consisting of three partners - K.M. Vishnudas Prabhu, K.M. Ramdas Prabhu and K.M. Shankar Prabhu was engaged inter alia in the business of manufacturing and sale of beedies under the brand name 'Mangalore Prakash Beedies'. On May 20, 1972 a Private limited company called 'Prakash.Beedies Limited' (the assessee-appellant herein), was incorporated with its registered office at Man galore. One of its objects was to take over business of the aforesaid firm. Under an agreement dated July 15, 1972 between the firm and the company, the fitms sold its rights and assets to the company on the terms and conditions set out therein. Clause 4(a) of the agreement, which alone is material for the purposes of these appeals reads : "(a) For the use.of the trade name the Company shall pay royalty to the Vendor al the rate of !Ops. for every thousand beedies sold by the Company by using the trade name of the Vendor. The royalty shall be worked out at the end of each quarter ending on March, June, September aod December, on the sales made during eacb C quarter. The royalty fixed hereby shall not be varied for a period of one year and may be reviewed and/or revised thereafter wards from time to time". The assessee was making payments to the firm every year on account of royalty in terms of said clause. The three partners aforesaid of the firm were also the directors of the assessee-company. |2. aTe@ 15-7-1972 % Gd, Fo amo ara THY US Ga, Aaa F arg& ara warfare wt FH te anitare A—Fo Ao fama TH, Ho UH WATTwy AT Fo TH THT TY age ay ary F aT ae “Ara gareatteate Fare & aia aifeat & fataator ate far B areare F ait geALarea 20 88, 1972 at “sere fete fafree” (zat S fratfedt aitareif)arearea grade fafaes sodt arate feat sah caediga srataa ® arafanfaar az at 7E at 1 gaat Ue seea cater oe OR arearc ar TAY YETHAT AToH ae HIT BH le eu ae 15 yas,1972 % Heeahaay t ga nue H fafsa faded atx wafoe sedt at aad afizerd atcarfeaat at faa at fear| wut ar ae 4(m) TT fa sa adratgator &fag athe @ eT TTTI (a) earare araseatfare, aad feta a oft garedifedt & fan ot watt are fatarBeqrare ary er sah ach Fstara, 10 48 at at ot cartes (traael) ar aara Bear1catheter aafr seta ferardt & etera fae ae fash ot ard, yA, frarac akfearac BT aarer att arett faardl Bsr FH Fraret aresUaRSretfama caries at eT cH ay at safe & fre ate afeada ae Srae Sas TAT BAe aT TTT Te gaat ate/ar grderafear at aa”| '3. faatfedt saa ae & fiaedt F carfrea % az aft ad oet a gargHT TST AT|| 4. ont & qafan sai arftare Fratfedt aah & fda ote 5, faatcr as 1974-75 ait 1975-76 & faefaatfedt 4 aga greme Bt wut H Gs 4(H) F fadaat A carfea F ae ata cH al Hetel aTarat feat\ sad frater act at gana war ast ae ate aa MHA FAT:3,16,526/- ame ait 3,95,742/- eae att aaa afaard A rare watat pete frat arat agata BT fear.| 6. ATT HAF FT ae 263 are Tea alsaat Bl gay HII BT TATfaateoit et set ae cater welfaat ar dat @, (kare a) gadter HTTfau ararfeat ora atfratedt at gad & rag gar atta 16 fata,“1976 #1 aan oifea fae faa aeta saa HA BYaTer 40(7) F fafga ata-|man dia & ates dare saga at featfaatfedt + araat afaard se>aria & frog afracr Haha Grea at ait ax at thas oe aTafar & meat a gearafaat ax feat war) sea eararaa a, fata far aAqt za wat aT Vat farafafer arena wate cere faa}cet F aittaatteht & frag carrera woe fear fe fratfedh aicatl B Atal Freae ge we> arfterc aft & frre fe carfaea at cae ar dara fear qar ati fafac: oAar are gam fafrs afeaca vet 2, ae wre fafew eater vet gar Tae als>fara fates afeaca vet21 ae areare aaa F fry eafeeat ar ay aT ATAara 21 ara za re fe HA FT AA-HT afufaaa & afta faatcoha afeaca2 ag frend adl frarar ot amar 2 fe sear ate fafas afer 31 aa: ag.afafratfea frat arat arfeu fae wa at fear war aera areaa FH freaat atPaar mat dara &1 Ua aarat wt eaed: arer 40(m) ary gitg aa Va ATTat fetes dadt sraalBaad araJ argad ar Var wear ofaa at ar itzafraur gre afaenaa fartia ua fafa at afte 4 stam <a aa ane at ZA7. sa ata 8, adalt ga to aed att Ufeaza arttaa a yeacecqTaTaa Ia TATE aU oMftratT HY AAT BT Bale att Geeta vam: agzeta at fa dara fratfedt (wae) & fremat at wat fac ae a afes va Gaat fro me & frat gam afeaea att wa aT featwat dare eats A anearat al yeaata: aT aseaera: Fear var dara val oi wa a,Praifedt aaetfraaal & afafeaa ara arias at at aaa 2ae al dl amar & fe Ga aresana enfant & are, frat fe gar sea ara & oft gore faear ver a, wapara faaum & fau até ara A a atl Vea eaaaa A ag afafratfer axa;qa ato fe aa at fara dara arftarde et fear var dara {1 ag ATAgu fax anitardt wat at aged aritaret & qfarar arg gan fat afeaer adt 2at ai gaa drat eafeaat ar dara feat at (freaent at gfaaa A) Fadl fatvar at afer fraifedt aodt hgat A sae ara fer ae yeaa ava Fsfana caer feat wat at| RA aera arer 40(a) at fefee & aaa at araBsc a dar ata gi are 40(m) 4 la aaral a afeafaa Fer wet ;.maa For the assessment years 1974-75 and 1975-76, the assessee claimed deduction of the amount paid by it to the firm on account of royalty in terms of E clause 4(a) of the agreement. The amounts paid during the accounting years relevant to the said assessment years were Rs. 3, 16, 526 and Rs. 3, 95, 742 respectively. The l.T.O. allowed the deductions as claimed. In exercise of the powers conferred on him by Section 263, the Commis-F sioner of Income Tax initiated (suo 111010) proceedings for revising the said assessments in so far as the aforesaid deductions were concerned. After hearing the assessee, he passed orders on September 16, 1976 whereunder he disallowed payments to the firm over and above the ceiling prescribed in Section 40(c). The assessee preferred appeals to the Tribunal against the orders of the l.T.O, The appeals were allowed and the orders of the I. T. 0. restored. On reference, the High G Court answered to question in the negative i.e., in favour of the revenue and against the assessee, on the following reasoning : the three directors of the assessee-company were also the partners in the firm to which royalty payments were made. In law, a firm has no separate legal existence; it is not a juristic person or a distinct legal entity. It is merely a collection or association of the individuals for carrying H SUPREME COURT REPORTS A ·on a business. Merely because the firm is an assessable entity under the Income Tax Act it does not follow that it is a juristic or legal entity. It must, therefore, be held that the payments made to the firm are in reality payments made to the directors. Such payments clearly attract and fall within the mischief of Section 40(c). The Commissioner was right in saying so and the opinion of the Tribunal to the contrary is unsustainable in law. ;.maa arafaa vat ari eat aga fates & qe at age ateafers (fafa aera) Bearegat yataat & fa cz ot a aadt & ale oraz at feafa at cara A waaeu agfaa fee ar data He THT & ar ag fauue Ft arsry at HT HVAT BAuafa ar a¥ tata BT TH F | arta at wea ag 2 fe sar aoat arer Oa feataaa f aga fewa at dae feat are 40(a) & sata aay ge ATTAarer fear war wer qeeta ae Ss fe set ae frame faatfed? aati at, vatAaa 9, Tt ahaa aTHTe BAT g, Heal AA at argia Bat g al FAT Vaamtfaa # dat ag arr dara saa at sate arer 40(a) Tega & Hea sata eu dag ara F fer | aaa Te aeiteT sas H seaaa Tat A, sel ATTat waa far § ag acti ot a ae & fe ater 40(7) Fatt ara “arfeatae,rag ar qa-afaan” weal ar, aTeaae aad (MEAT weal BT afaaTs) ® fasta.at ary Hea gu sa aad a, fas dad HA are % ears F eae gE afeaitasfratsara stat gaa afer meal at tafe ofefs oa & meat stata ar ar ge zt sare Tet after TAHT | far sat| g St WATT 9. aaea fare at ale & fagty ardaea at agaTae (7) % WITequa ‘arat (radi) YT cart H waa gy Vea eararaT aH ae seein aIaraifad Seutay St| 9. Praifedt saat ate met & ata ga weeat aaclaa att fafearaar> art Fave frate agE 2| waa HUT H as 4(H) H fraaargarx carfaea Fiae fae ay darat at aemar Harz Hath are faara vat @1 Fa ataa Ht ATEfrara wet 2 fe AA care H, are ATH BT HTRATR Aaa WATT Yeas|Fran vet Ft adie wes aas se aeaH aes Hl als A aA TAM BIgina Frater ast & etert aver 40(7) farargare g— “40. art 30 & 39 am H PRat ofa are F att ge“areare at afar & ara ae afer” aeare eae area aTA TOTATawa B, farafafaa cat at vetett aval at area—. .(@) XXXXXX (@) xxxxX™Xa | (a) Prat aoett at eat A (i) are ar eam frat sere at asm aforefade & fare at ta eater & far at Hot A cater feavaar #, at carfeafa fatern % a7 Ba cafes Hardee H faqfrat qifesfian at Gaz al Fa-gfaar |r waa HAT Slat g,- (ii) aeett at faedt Tet arfeaat at ara, faeret Tatesade (i) ¥ fafase fret eafaa aren ar at qa: at ara: cat ard waa.aT Has fare fear srt @, BIS eqg ar aft ora afeare tua Har sé eax ar war, dar fe aeag (i) ate (ii) F afna 2, aah at areare aaeht areafas areataatt Ga aT Gat ayers fee TT aT vast Mega gy ava weal agera # wae ec, aeafrs ar afergaa 2, Peg ga ware fe aods (i) aiifave fret eater at aaa ta era sk ath aeade F waa, Peat sit wer #, freafafas & aftey at arit—~ 4| (%) set Rar eae ar wer va gd ag Fo amfaee (%) set Rar eae ar wer va gd ag Fo amfaee set Rar eae ar wer va gd ag Fo amfaee Rar eae ar wer va gd ag Fo amfaee ar wer va gd ag Fo amfaee wer va gd ag Fo amfaee va gd ag Fo amfaee gd ag Fo amfaee ag Fo amfaee Fo amfaee amfaee ware are afen arava & dafsa 2 sat agat gare BIT aT ta, | (%) set Rar eae ar wer va gd ag Fo amfaee (%) set Rar eae ar wer va gd ag Fo amfaee set Rar eae ar wer va gd ag Fo amfaee Rar eae ar wer va gd ag Fo amfaee ar wer va gd ag Fo amfaee wer va gd ag Fo amfaee va gd ag Fo amfaee gd ag Fo amfaee ag Fo amfaee Fo amfaee amfaee ware are a(a) wet Rar ea ar wat se od ay A qarhae ATE ATT vata aravafic & dafaa 2, aat, ga ararafy ¥ aartiee gataWT aT Sas ATT H far we sare waT at azz ofenfaa wae : afaTW Ba ca F get tar eafer va gd ag F aaa fe ara(%)& fag aot ar mebaret oft 2, gat are 40% a sour (5) # azeam, & feta vign % dz (i), (ii), (iii) atk (iv) } fafece sraft aTfrayaatfeaft, ores (%) ar sade (@) & saleat % fre feara ¥ met area|. (iii) xX xX*xXxXxXxX Ratwrt —aa ae horde ge aah AS ee ot ary AT Pats cay ot ga aeafter agara vat at anit 8, eras (i) ¥ fafaveFaet eufea at ger ara ¥ afeafina 8 1”10. faa Fat erage arom, aati aa sat ara 40% ae (1) ¥ gz:carat& daa Tare gare age, saa “ae ae ag faart 8 fe cafadia somer ar satT SA saat ateTATAcifeatrat & dart atfrvearfsa eetfee Pear strat ater ot fe SrTPatTATT (Tae) H aradt H aged at F 1 TVTANT F Hqay a ofesfies gz, at fe uae arat a aaoar a qaqKeta aa attr, afsaaa diet afirdfaa wet ar geara BATFt sfxTH dar 5000/- eae sfrara fare at or et 21ofeafeaadt & aay¥ 1000/- eq sfrara at feat afrear dtr at steae, oferireatt oftafeaat at aera & sabe % fae agate aaa afar day6000/- are sf ata arity”7 In these appeals, S/Shri Harish N.Salve.and Rohinton Nariman assailed the correctness of the view taken by the High Court. They submitted firstly that the payments were made not to the directors of the assessee but to a firm which was a separate entity. A payment to a firm is not ipso facto a payment to the partners, directly or indirectly. In a firm there may be other partners besides the directors of c the assessee-company. It may also happen thatthe firmhas no income to distribute because of the losses incurred by it which are set-off against the income so received. The High Court was in error in holding that payment to a firm is a payment to the partners. Assuming that a partnership firm is not a separate juristic entity distinct from its partners, even so the payments were made to the said three D persons not in their capacity as directors (qua directors) but in consideration of a valuable right parted by them in favour of the assessee-company. Such payments do not and cannot fall within the mischiefofSection40(c). Section 40( c) wamiever intended to take in such payments. A company may take on lease the house of its directors for its legitimate business purposes and pay rent which is reasonable having regard to the market conditions, or it may pay even less than the market rate E of rent. Whether the rent paid by the company to its director in such a case falls within Section 40( c ), ask the counsel. Another illu.stration given by the counsel is where a director supplies raw material to the assessee-company for a price which is the appropriate market price. Would such payment also fall under section 40(c), they ask. The Budget speech of the Finance Minister in the Parliament, while introducing the said provision, is relied upon in support of their contention. It is F also argued that the words '·remuneration, benefit or amenity" occurring in Section 40(c) must be read having regard to the context in which they occur applying the principle NOSCITORA SPCOOS (recognition ofassociated words). If so read, the payments in question can never fall within the ambit of the said words. Shri Ahuja, the learned counsel for the Revenue justified the reasoning and approach of the High Court having regard to the clear language employed in clause (c). The genuineness or validity of the agreement between the assessee-com-pany and the firm is not disputed. The factum of payments made on account of H royalty in terms of clause 4( a) of the said agreement is also not disputed. It is also not disputed that in the beedi trade, brand name carries significant business value. It is necessary to keep this factual context in mind while examining the question at issue. Section 40(c) read as follows during the relevant assessment years: "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", (c) in the case of any company- (i) any expenditure which results directly or indirectly in tne provision of any remuneration of benefit or amenity to director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, (ii) any expend~~ure or allo\l[1]ance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes of benefit, *11. freaeg ga srda % Ae veer ag ar fe “SS aal ate arheahiee ears a Ht area aaa F Arrest F Ter ast g” freeanfza ale az. qara Prat are| areta % ag ord fremat oa eit mat at) gat freaant—&® ardardl, & aafeaat at A ga saat H gates fea wad S ate TAH aTAaTeat afeafaa at frat) ga ds aren arene afrard Fag gaerfer ae aTafea fafza at ve 2 fie aan tar ag eae aT ae, sar fe saa as F ate g,sqat a areart dash fafracaa araeenarell alt Tas ST Tas ATT aTgat Mage att are oradi aT crear Had ge, aeafee ar agfeagae g|sah afafad ag afrsan dar ait fafer at ae A free sae ag aa aT ATT, fedt ft eat 8, afea aal al Tea|a 12. go WHT IZ, ae 40% HT SIATeT (2) F satase’ soda Hl eaarrBAT BIgaT ga | Braet (2) & de (a) Hag veda a fe oat faaifetaté der saa sore Heat Sefeast stat FF STATA & @s (a) F fafase faesafer a} dara fear war & ar fear arar 2 ate arate afaare aT ag Ta ¢fis Dar cay Ga ATA, Ga ata aT gfaurait &, fraa fra dara fear Tat g,ofan arare qea at at fratfedt # areas aT afa at areafas arazrparait atOT SAY FS syeTeAT AT TAT MEAT aly are Bras Ft ears H cad ge aeafarar agfragaa &, agi saat ema, faaat ag sa ware aeafrs aT agieagaaqua, wera F wr F agara vel far se | aE (@) Hoa oaferal F saatat ata frat war & faaat ds (wm) F wr order ary slat Fl Raa aTeaT HATAara aqit & fatal afte sah araardl at afeafad fear wat gt as (a) #feat seat, we, afeaat & aaA ar fez afaaaa Fea, faaa aarfeata, frees,anfare ar ween ar fraifedt & sreare ar aft H cater fers, st faq aqdara at at afeafaa fear war oi eats A, ee ae al afefa at ag gfafraaaia & fac af cares aarar var 2 aif faaffedt & art ar farm waaate cafraat at, aaifeafa, aaa ore faq ag aT Igay AT ATA FT TE AaTattar a vg afaarat at dare we Sarr| ge oeafrsar aglaagat ary|fare aT aa| 13, ga araa are faare at @ fa fratfedt “aeat ara Hy Bl HUT FHaz (4) (x) & fadaargare catfres F age fee we wary ae (t) & wrde(i) Fe “cag” qe B gata ars {| wre aR, Tae aa Hae eerccitfaaten ts afer recite (state) fefaes? 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